I. General Provisions on Obligations (Arts. 1156- be subject to damages.

In other words, the party who deems the

1162) contract violated may consider it rescinded and proceed accordingly,
without previous court action, but it proceeds at its own risk. The right
to rescind the contract for non-performace of its stipulations is not
I.1. Distinguished from Contracts
absolute. Rescission of a contract will only be permitted for substantial
I.2. Concept and fundamental breach as would defeat the very object of the parties
I.3. Essential Elements in making the agreement.
I.4. Sources
The breach of contract (failing to pay the August installment despite
NUGUID V. NICDAO demand, for more than four months) is so slight and casual when we
consider that the plaintiff-appellees had already paid the monthly
Facts: installments for almost 9 years, including the initial downpayment,
amounting to Php 4,553.38. When the defendants-appellants, instead
II. Prestations (Arts. 1163-1168) of availing their alleged right to rescind, accepted and received delayed
installment payments, though the plaintiff-appellees have been in
arrears beyond the grace period, the defendant-appellants waived and
II.1. To Give are estopped from exercising their alleged right to rescission. To
II.1.1. Determinate and Generic sanction the rescission made by the defendants-appellants will work
Terms injustice against the plaintiff-appellees. Art. 1234 provides that if the
II.1.2. Accessory Obligations in obligation has been substantially performed in good faith, the obligor
Obligations to Give may recover as though there had been a strict and complete fulfillment,
Determinate Things less damages suffered by the obligee. It also militates against the
a. Exercise of diligence of a unilateral act of the defendants-appellants in cancelling the contract.
good father of a family
The contract to sell has characteristics of a contract of adhesion. The
b. Fruits (Art. 1187) defendants-appellants drafted the contract and the plaintiffs-appellees
c. Accessions and had no opportunity to change the terms. It was offered on a take it or
Accessories leave it basis. Contracts of adhesion are contracts where almost all the
provisions have been drafted by one party. The participation of the
II.2. To Do or Not To Do other is the signing of his signature or his adhesion thereto. Contracts
of sale of lots on the installment plan fall under this category. This
contract must be construed against the party causing it. The decision
II.3. Consequences of Failure to Comply appealed from is affirmed with the modification that plaintiff-appellees
with Required Prestation Cf. Art. 1191) should pay the balance without any interests.

RELIANCE COMMODITIES, INC. v. INTERMEDIATE

ANGELES V. CALASANZ
Facts:
On Dec.19, 1957, defendants-appellants, Ursula Torres Calasanz and
Tomas Calasanz, and plaintiff-appellees, Buenaventura Angeles and
Teofila 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 a
downpayment of Php 392 upon execution of the contract, and
promised to pay the balance in monthly installments. They continued
paying until July 1966 when the aggregate payment amounted to Php
4,533.38. On numerous occasions, they gave delayed installment
payments.
On Dec. 6, 1966, Calasanz, etc. requested payment of past remittances.
On Jan. 28, 1967, they cancelled said contract because Angeles failed to
meet the payments. Angeles filed a civil case to compel Calasanz to
execute a deed of sale. Calasanz alleged that they refused to pay the
installments corresponding to the month of August 1966 for more than
five 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 the
failure of the other to perform the obligation assumed thereunder, in
reciprocal obligations. A judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions. It must be
understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must
be made known to the other and is always provisional, subject to
scrutiny and review by the proper court. If the other party denies that
rescission 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 due
hearing, decide that it was not warranted, the responsible party shall
APPELLATE COURT
Facts:
Martin Paez entered into a contract with Samuel Chuason, president
and general manager of Reliance Commodities, Inc. on Apr. 19, 1972
where the latter agreed to provide the former with funds and
equipment for the operation of manganese mining claims of Daniel
Garde in Nueva Ecija. On Jun. 1, 1972, they entered into another
agreement called “Addendum to Operating Agreement” which provides
that Paez must segregate the Manganese Ores into 2 classes with
Reliance Commodities, Inc. giving Paez a cash advance of P8,300 to
hire laborers, tools, supplies and food. The bulldozer, dump truck and
cobra drill were provided by petitioner. On Jul. 28, 1972, Paez executed
a deed of first real estate mortgage on their property as security for
more cash advances to sustain the operation, amounting to P25,030.
A difference arose between petitioner and Paez regarding the cash
advances. Petitioner demanded the tools back, which Paez’ laborers
refused to return because they had not been paid their wages.
Petitioner gave Paez P800 to pay their salaries and foreclosed
extrajudicially the mortgage executed by plaintiffs in its favor. Paez
filed an action for preliminary injunction to stop the sheriff from
proceeding with the auction sale, annulling the Deed of First Real
Estate Mortgage and the Addendum and directing petitioner to make
further cash advances in the amount of P75,000 plus damages.
Judgment was rendered in favor of the petitioners dismissing the
complaint and ordering Paez to pay the sum of P41,130 representing
the cash advances with interest at the rate of 12% per annum from the
date of receipt, attorney’s fees and ordering the restraining order for
the 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 the
petitioner 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.

1

Held:
In favor of petitioners.
Under the agreement, Reliance Commodities was to pay Paez P70 for
every 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 the
agreed consideration.
Paez failed to make a single delivery of manganese ores. In fact, there
was no mining operation at all. Petitioner rescinded the contracts. In
reciprocal obligations, the power to rescind or resolve is given to the
injured party. It requires the parties to restore to each other what they
have received by reason of the contracts. The rescission has the effect
of abrogating the contracts in all parts.
Decision of the IAC is reversed and the decision of the trial court is
revived and affirmed.
BARREDO v. LEANO
Facts:
In 1979, Manuel and Jocelyn Barredo bought a house and lot in Las
Pinas with an SSS loan of P50,000 payable in 25 yrs. and an Apex
Mortgage and Loans Corporation of P88,400 payable in 20 years. To
secure the loans, they executed a first mortgage in favor of SSS and a
second one for Apex. On Jul. 10, 1987, the sold their house and lot to
Eustaquio and Emilda Leano by way of a Conditional Deed of Sale with
Assumption of Mortgage. The Leano Spouses would pay the Barredo
Spouses P200,000, half of which would be payable on Jul. 15, 1987,
with the balance paid in 10 equal monthly payments after the signing
of the contract. They would also assume the mortgages and pay the
monthly amortizations beginning Jul. 1987 until both obligations were
fully paid.
Two years later, Sept. 4, 1989, the Barredo Spouses initiated a
complaint before the RTC of Las Pinas seeking the rescission of the
contract on the ground that the Leanos failed to pay the mortgage
amortizations despite repeated demands. The Leanos contended that
they were up-to-date with Apex payments but were not able to pay SSS
because their payments were refused upon instructions by the
Barredos. The Barredos took it upon themselves to settle the mortgage
loans 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 also
settled the Apex loan with P5,379.23 on Oct. 3, 1989 and P64,000 on
Jan. 9, 1990. Apex issued a Certification of Full Payment of Loan. The
Barredos also paid the real estate property taxes for 1987-1990. The
RTC ruled in favor of the Barredos, declaring the contract as rescinded
and 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 the
payments of amortization were mere collateral matters which did not
detract from the condition of paying the principal consideration, and
ordered the Barredos to execute the Deed of Absolute Sale upon full
payment of P140,492.74 and turn over the property to the Leanos.
2
Issue:
W/N the CA erred in holding that the payments of amortization are
mere collateral matters.
Held:
The principal object of the contract was the sale of the Barredo house
and lot, for which the Leanos gave P200,000. The assumption of the
mortgages by the Leanos and their payment of amortizations are just
mere collateral matters which are natural consequences of the sale of
the mortgaged property. ¶3 of the agreement provides that the Leanos
merely bound themselves to assume, which they actually did upon
signing of the agreement, the obligations of the Barredos with SSS and
Apex. Nowhere in the contract is it stipulated that the sale was
conditioned upon their full payment of the loans. To include the full
payment of the obligations with SSS and Apex as a condition would be
to unnecessarily stretch and put a new meaning to the provisions of the
agreement.
Even if the payment of the amortizations to SSS and Apex are
considered 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 main
consideration of the sale is the payment of P200,000 within the period
agreed upon. The assumption of mortgage is a natural consequence of
buying a mortgaged property. The Barredos do not stand to benefit
from the payment of the amortizations by the Leanos simply because
the Barredos have already parted with their property, which they were
already fully compensated for. In ordering rescission, the trial court
should 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 the
object of the contract, together with the fruits, and the price with its
interest.” The vendor is obliged to return the purchase price paid to
him by the buyer if the latter rescinds the sale. Thus, where a contract
is rescinded, it is the duty of the court to require both parties to
surrender that which they have respectively received and place each
other 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 transloading
stations 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 in
Bacolod City, mortgaged with the Philippine National Bank as
collateral for loan, and that the former was to purchase portions of the
lot 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.
 b.) That the Villanuevas would pay the amount P100,000 upon
signing the agreement, P191,600 on Jan. 10, 1990, and
P194,400 upon approval of the PNB of the release of the lots.
c.) That the P100,000 downpayment shall be considered
forfeited if the Villanuevas withdraw from their agreement.
d.) Upon 60% payment, the Villanuevas may start to introduce
improvements.
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 the
purchase price and requested permission to use the lots for the next
milling season. It was refused on the ground that they had not yet paid
the full purchase price. The Villanuevas informed them that the
immediate use was absolutely necessary and delay would cause them
substantial 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, giving
them 10 days to do so. The Estate informed the Villanuevas of the
PNB’s approval (which contained 3 conditions: that the sale be
approved by the Court, that payment of 2 annual amortizations in
addition to P50,000 be derived from sale of lot ought to be released,
and terms and conditions that their Legal Dept. might impose in the
interest of PNB), of which they demanded the clean titles to the lots.
On May 28, 1991, Gonzaga executed a Deed of Rescission rescinding
the MOA on 2 grounds: that they failed to pay the balance despite
notice of the lots’ release from mortgage, and for using the lots for
transloading without permission. The Villanuevas demanded the lot
titles before the full payment, which was ignored. They filed a
complaint for breach of contract, specific performance and damages
before the RTC. The trial court ruled in favor of the Estate declaring the
MOA rescinded, ownership and possession restored to them and
ordering them to refund the sum of P100,000 and another payment of
P191,600 with legal interest at 6% per annum. The Villanuevas filed a
petition for review in the CA where they affirmed the trial court’s
decision excepting the award for moral damages on the ground that
they were not guilty of bad faith for refusing to pay the balance of the
purchase price.
Issue:
W/N respondents failed to comply with their reciprocal obligation of
securing the release of the lots from mortgage indebtedness with the
PNB.
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, there
is 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 violates
3
the reciprocity between them. The remedy does not apply to contracts
to sell. In a contract to sell, title remains with the vendor and does not
pass on to the vendee until the purchase price is paid in full. Thus, the
payment of the purchase price is a positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or
serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. In a contract to sell, the
vendor remains the owner for as long as the vendee has not complied
fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he
is 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 full
payment of the purchase price. The petitioners’ obligation to pay, in
turn, is conditioned upon the release of the lots from mortgage with the
PNB to be secured by the respondents. Since ownership had not been
transferred, no legal action need have been taken by the respondents.
The records show that the lots were finally released from mortgage in
Jul. 1991 and petitioners should be allowed to pay. However,
petitioners may not demand production of the titles as condition for
the payment as it was not required under the MOA. Petition is granted
and the decision is reversed.
III. Breach
III.1. Causes
III.1.1. Dolo
III.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 contained
defamatory words causing him undue embarrassment and affected
adversely 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 is
sued directly. If they escape liability by the simple expedient of
showing that it employees acted beyond the scope of their assigned
tasks, it would open the door to frauds and allow the corporation to act
with impunity. The appellate court confirmed their decision, stating
that the proximate cause resulting in injury was the failure of the
corporation to take the necessary or precautionary steps to avoid the
occurrence of the humiliating incident. The company had not imposed
any safeguard against such eventualities and this void did not speak
well of their concern for their client’s interests. There is libel because a
carbon copy of the telegram was filed among other telegrams and left
to 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 its
employees.
W/N the CA erred in holding that the liability of the company is
predicated on Arts. 19 and 20.
Held:
The cause of action of Dionela was based on Arts. 19 and 20, as well as
the respondents’ breach of conduct through the negligence of its
employees. Petitioner is a domestic corporation engaged in the
business of receiving and transmitting messages. Every time a person
transmits a message through the corporation’s facilities, a contract is
entered into. Upon receipt of the rate or fee fixed, the petitioner
undertakes to transmit the message accurately. Libelous matters were
included in the message transmitted, without the consent or knowledge
of the sender. There is a clear case of breach of contract by the
petitioner in adding extraneous and libelous matters in the message
sent to Dionela. As a corporation, the petitioner can act only through
its employees. Hence, the acts of its employees in receiving and
transmitting messages are the acts of the petitioner. To hold that the
petitioner is not liable directly for its employees’ acts in the pursuit of
the corporation’s business is to deprive the general public availing of
their services of an effective and adequate remedy.
FEBTC v. CA
Facts:
Luis A. Luna applied for a FarEastCard, along with a supplemental
card to Clarita S. Luna. In Aug. 1988, Clarita lost her credit card and
FEBTC was informed. She submitted an affidavit of loss to replace the
lost card. On Oct. 6, 1988, Luis hosted a despedida lunch for a friend in
the Intercon Hotel. He presented his card which was not honored. On
Oct. 11, 1988, he demanded the payment of damages. Adrian V.
Festejo, VP, expressed the bank’s apologies in a latter stating that the
bank failed to inform him about its security policy and that an
overzealous employee did not consider the possibility that his card had
been hotlisted. Still feeling aggrieved, Luna filed a complaint for
damages with the RTC. The trial court ruled in favor of Luna and
ordered FEBTC to pay damages. The CA affirmed the trial court’s
decision.
Issue:
W/N FEBTC should pay damages.
Held:
In culpa contractual, moral damages may be recovered where the
defendant is shown to have acted in bad faith or with malice in the
breach of the contract. Art. 2220: Willful injury to property may be a
legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. Bad faith includes gross, but not simple,
negligence. The bank was remiss in neglecting to personally inform
Luna of his own card’s cancellation. However, there was no deliberate
intent to cause harm and negligence in failing to give personal notice
be considered as amounting to malice or bad faith. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from the negative
idea of negligence in that malice or bad faith contemplates a state of
mind affirmatively operating with furtive design or ill will. The Court
finds that the award of moral damages to be inordinate and
substantially devoid of legal basis. In quasi-delicts, exemplary or
corrective damages are granted if the defendant is shown to have been
so guilt of gross negligence as to approximate malice. In contracts and
quasi-contracts, the court may award exemplary damages if the
defendant is found to have acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
Nevertheless, the bank’s failure to honor its credit card should entitle
him to recover a measure of damages sanctioned under Art. 2221:
Nominal damages are adjudicated in order that a right of plaintiff,
which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him. The appealed decision is
modified by deleting the award for moral and exemplary damages.
III.1.3. Mora/Default
a. By the Obligor/Debtor
BRICKTOWN DEVT. CORP. V. AMOR TIERRA DEVT. CORP.
Facts:
On Mar. 31, 1981, Bricktown Devt. Corp. executed 2 Contracts to Sell in
favor of Amor Tierra Devt. Corp. covering a total of 96 residential lots
in Multinational Village Subdivision in Paranaque with a total price of
P21,639,875 to be paid as follows: P2,200,000 on Mar. 31, 1981,
P3,209,968.75 on Jun. 30, 1981, P4,729,906.25 on Dec. 31, 1981 and
the balance of P11,500,000 to be paid by means of an assumption of
4
Amor Tierra of Bricktown’s mortgage liability to Philippine Savings
Bank or, alternatively, to be made payable in cash. They executed a
Supplemental Agreement, providing that Amor Tierra would
additionally pay to Bricktown the amounts of P55,364.68 or 21%
interest on the balance of downpayment for the period from Mar. 31 to
Jun. 30, 1981, and P390,369.37 representing interest paid by
Bricktown to the Philippine Savings Bank in updating the bank loan for
Feb. 1 to Mar 31, 1981.
Amor Tierra was only able to pay P1,334,443.21 but the parties
continued to negotiate a possible modification for the agreement,
though nothing conclusive arrived. On Oct. 12, 1981, Bricktown sent
Amor Tierra a Notice of Cancellation of Contract on account of the
failure to pay the installment due on Jun. 30, 1981 and the interest on
the unpaid balance of the stipulated initial payment. Bricktown advised
Amor Tierra that it still had the right to pay its arrearages within 30
days from receipt of notice before actual cancellation. On Sept. 26,
1983, Amor Tierra demanded the refund of various payments
amounting to P2,455,497.91 with interest within 15 days from receipt
of letter or to assign them an equivalent number of unencumbered lots
at the same price. The demand was ignored and Amor Tierra filedan
action. The trial court decided in favor of Amor Tierra, ordering the
Contracts to Sell and Supplemental Agreement rescinded and the
refund of P1,334,443.21 with interest at 12% per annum. The CA
affirmed the trial court’s decision.
Issues:
W/N the contracts to sell were validly rescinded or cancelled by
petitioner corporation.
W/N the amounts already remitted by Amor Tierra under said
contracts were rightly forfeited by Bricktown.
Held:
The terms of payment were not met by Amor Tierra, including the
initial payment, and no additional payments were made. A notice of
cancellation was made months after the lapse of the contracted grace
period. A grace period is a right of the debtor. When unconditionally
referred, the grace period is effective without further need of demand
either calling for the payment of the obligation or for honoring the
right.
The cancellation of the contracts to sell by Bricktown accords with the
contractual covenants of the parties. In a contract to sell, the non-
payment of the purchase price (which is normally the condition for the
final sale) can prevent the obligation to convey title from acquiring any
obligatory force.
Though Bricktown still acted within its legal right to declare the
contracts to sell rescinded or cancelled, it would be unconscionable to
sanction the forfeiture of payments by Amor Tierra. Because of the
negotiations between the parties and that Amor Tierra never took
actual possession of the properties, they were led to believe that the
parties might enter into another agreement in place of the contracts to
sell. There was no malice or bad faith on their part in suspending
payment. Bricktown had not only contributed but consented to the
delay or suspension of payments. They did not give Amor Tierra a
categorical answer that their counter-proposals would not materialize.
It is not equitable to adjudge any interest payment by Bricktown on the
amount to be refunded for they should not be totally free of its own
breach. The appealed decision is affirmed as it declares the cancellation
of the contracts but modified by ordering the refund of P1,334,443.21
with 12% interest per annum to commence only from the date of
finality of the decision.
TAGUBA v. DE LEON
Facts:
Berlin Taguba married to Sebastiana Domingo is the owner of a
residential lot in Isabela. Pedro Asuncion and Marita Lungab (also
petitioners), and respondent, Maria Peralta Vda de De Leon were
separately occupying portions of the lot as lessees. On Aug. 27, 1972,
Taguba sold a portion of the lot to De Leon, comprising the area
occupied by the Asuncions and De Leon, in a Deed of Conditional Sale
which stated that it would be sold for P18,000 as follows: P3,500 upon
signing the contract, the pay P1,000 monthly starting Sept. 1972, and
that failure to pay the whole payment by Dec. 31, 1972, the vendee will
be given a 6 month extension with interest after which the vendor may
increase the price to P50 per sq. meter which the vendee agrees to pay.
De Leon alleged that she had paid P12,500 and tendered payment of
the balance of P5,500 but the latter refused to receive payment, and
since negotiations for settlement failed, De Leon instituted a complaint
for Specific Performance. Taguba claimed that De Leon failed to
comply with her obligation despite several extensions granted her, by
which Taguba was compelled with the consent of De Leon to negotiate
the sale of a portion of the property to the Asuncions. Taguba alleged
that they had agreed that De Leon and the Asuncions would buy only
the portions they held as lessees. The trial court ordered Taguba to
execute a Deed of Absolute Sale for the area she occupied and
reimbursement of the ayment for the excess area. The CA reversed the
decision ordering Taguba to execute a deed of absolute sale to De Leon,
and declaring the deed of sale with the Asuncions as null and void in
view of the proper sale of the property, allowing with reimbursement to
them.
Held:
The contract of sale between Taguba and De Leon was absolute in
nature. Despite the Deed of Conditional Sale, nowhere in the contract
can a stipulation or proviso be found that title of the property sold is
reserved in the vendor until full payment of the purchase price. There
is also no stipulation giving Taguba the right to unilaterally rescind the
contract the moment De Leon fails to pay within the fixed period. The
only right of Taguba as vendor was to collect interest at the legal rate if
De Leon fails to pay the full purchase price and to increase the price
after Dec. 31, 1972 for 6 mos. The applicable provision is Art. 1592: In
the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon
the rescission of contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or
by notarial act. After the demand the court may not grant him a new
term. Taguba never notified De Leon by notarial act that he was
rescinding the contract, and neither had he filed a suit in court to
rescind the sale. “Where time is not of the essence of the agreement, a
slight delay on the part of one party in the performance of his
obligation is not a sufficient ground for the rescission of the
agreement.” Considering that De Leon had already paid, equity and
justice mandate that she be given additional period within which to
complete payment. The deed of sale to the Asuncions cannot prevail
over the previous sale. They cannot be considered buyers in good faith
because they are aware of the earlier sale to De Leon.
b. By the Obligor/Creditor
MCLAUGHLIN V. CA
Facts:
On Feb. 28, 1977, petitioner Luisa F. McLaughlin and respondent
Ramon Flores entered into a contract of conditional sale of real
property with the total purchase price of Php 140,000, payable by Php
26,550 upon execution of the deed and the balane of Php 113,450 to be
paid not later than May 31, 1977, with an interest rate of 1% per month
to commence from Dec. 1, 1976 until the full purchase price is paid.
Petitioner filed a complaint in the CFI of Rizal for the rescission of the
deed of conditional sale due to the failure of private respondent to pay
the balance due on May 31, 1977. The parties submitted a
Compromise Agreement on the basis of which the court rendered a
decision, in which the private respondent acknowledged his
indebtedness to the petitioner which would be payable as follows: Php
50,000 upon signing of the agreement, and the balance in two equal
installments. It further stated that in event that the respondent fails to
comply with his obligation, petitioner is entitled to the issuance of a
writ of execution rescinding the Deed of Conditional Sale of Real
Property. Respondent would have to waive his right to appeal and all
payments would be forfeited in favor of the petitioner as liquidated
damages.
5
Petitioner wrote to respondent demanding the installment payments,
which respondent responded to signifying his willingness and intention
to pay and demanding to see the certificate of title of the property and
the tax payment receipts. Petitioner filed a Motion for Writ of
Execution alleging that the private respondent failed to pay the
installment due and monthly rentals. The trial courted granted the
motion. Private respondent filed a motion for reconsideration, along
with a check. This was denied. The trial court granted the petitioners
ex-parte motion for clarification of the order of execution rescinding
the deed of conditional sale of real property.
Respondent filed with the CA a petition for certiorari and prohibition.
The CA nullified and set aside the disputed orders of the trial court.
Issue:
Whether the CA erred in not observing the provisions of Art.1306 and
in having arbitrarily abused its judicial discretion by disregarding the
penal clause stipulated by the parties in the compromise agreement,
which was the basis of the decision of the trial court.
Held:
It would be inequitable to cancel the contract of conditional sale and to
have the amount already paid by him forfeited in favor of the
petitioner, particularly after respondent had tendered a check in full
payment of his obligations.
R.A. 6552 (The Maceda Law)
Sec. 4: in case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than 60 days from
the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a
notarial act.
Sec. 7: Any stipulation in any contract hereafter entered into contrary
to the provisions of Secs. 3, 4, 5 and 6, shall be null and void.
Respondents tender of payment, together with his motion for
reconsideration was well within the thirty-day period granted by law.
Sec. 49, Rule 130 of the Revised Rules of Court: an offer in
writing to pay a particular sum of money or to deliver a written
instrument or specific property is, if rejected, equivalent to the actual
production and tender of the money, instrument, or property.
However, although respondent made a valid tender of payment which
preserved his rights as a vendee in the contract of conditional sale of
real property, he did not follow it with a consignation or deposit of the
sum due with the court. The check was subsequently withdrawn and
replaced by cash, but the cash was not deposited with the court. He
remains liable for the payment of his obligation because of his failure
to deposit the amount due with the court.
The decision of the CA is affirmed with modifications. Petitioner is
ordered to accept the check, respondent is ordered to pay petitioner
within 60 days from the finality of the decision the rentals and
petitioner is ordered to execute a deed of absolute sale in favor of
private respondent upon full payment of the amounts.
Art. 1256: if the creditor to whom the tender of paymenthas been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum
due, and that consignation alone shall produce the same effect in the
five cases enumerated therein.
Art. 1257: in order that the consignation of the thing (or sum) due
may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
Art. 1258: consignation shall be made by depositing the thing (or
sum) due at the disposal of the judicial authority and that the
interested parties shall also be notified thereof.
Soco v. Militante: tender of payment must be distinguished from
consignation. tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which
are derived the immediate consequences which the debtor desires or
seeks to obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the
attempt to make a private settlement before proceeding to the
solemnities of consignation.
c. Compensatio Morae
CORTES V. CA
Facts:
The Corporation, as buyer, and Cortes, as seller, entered into a contract
of sales over the lots covered by 3 Transfer Certificates of Title (TCT),
located in Baclaran, Paranaque, for Php 3,700,000.
On Jan. 14, 1985, the Corporation filed a case for specific performance
seeking to compel Cortes to deliver the TCTs and the original copy of
the Deed of Absolute Sale. Cortes claimed that the owners duplicate
copy of the TCTs were delivered to the Corporation and the latter
refused to pay in full the agreed upon payment. The trial court
rendered a decision rescinding the sale and directed Cort4es to return
to the Corporation the amount of Php 1,213,000, plus interest. In its
motion for reconsideration, the Corporation contended that the trial
court failed to consider their agreement that it would pay the balance
of the down payment when Cortes delivered the TCTs. The motion was
denied and it was held that the rescission should stand because the
Corporation did not act upon the offer to deliver the TCTs upon
payment of the balance of the down payment.
On appeal, the CA reversed the decision and directed Cortes to execute
a Deed of Absolute Sale and the TCTs, simultaneous with the
Corporations payment of the balance. It found that the records showed
no delivery was made, hence, the Corporation was not remiss in the
performance of its obligation and justified in not paying the balance.
Issue:
Whether there is delay in the performance of the parties obligation that
would justify the rescission of the contract of sale.
Held:
Both parties were in delay. Considering that their obligation was
reciprocal, performance must be simultaneous. The mutual inaction of
both parties gave rise to a compensation morae or default on the part
of both parties because neither completed their part in the reciprocal
obligation. This mutual delay cancels out the effects of default, such
that no one is guilty of delay. The CA correctly ordered the parties to
perform their respective obligation in the contract of sale. The petition
for the rescission of the sale is denied and the decision of the CA is
affirmed.
The stipulation in the Deed of Absolute Sale was that the Corporation
shall pay in full the down payment upon execution of the contract. The
transcript of stenographic notes reveal Cortes admission that he agreed
that the Corporations full payment of the sum would depend upon his
delivery of the TCTs of the three lots. By agreeing to transfer title upon
full payment, Cortes impliedly agreed to deliver the TCTs to the
Corporation to effect the transfer. The meaning of execution is not
limited to the signing of a contract but includes the performance or
implementation or accomplishment of the parties agreement. With the
transfer of titles as the corresponding reciprocal obligation of payment,
Cortes obligation is to set into motion the process that would facilitate
the transfer of title of the lots.
What strengthened the findings of the CA that Cortes did not surrender
the subject documents was the offer of his counsel at the pre-trial to
deliver the TCTs and Deed of Absolute Sale if the Corporation will pay
the balance of the down payment.
The decisive factor in evaluating an agreement is the intention of
the parties, as shown by terminology, conduct, words, actions and
deeds prior to, during and immediately after executing the agreement.
Reciprocal obligations are those which arise from the same cause
and which each party is a debtor and a creditor of the other,such that
the obligation of one is dependent upon the obligation of the other.
6
They are to be performed simultaneously, so that the performance of
one is conditioned upon the simultaneous fulfillment of the other.
Art. 1191: The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
When failure or delay in performance arises,
Art. 1169: In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
YAO V. MATELA
Facts:
On Mar. 30, 1997, the spouses Yao contracted the architectural services
of Matela to manage and supervise the construction of a 2 unit
townhouse at a total cost of P5,090,560. It was completed in April
1998, with additional works costing P300,000. Matela alleged that the
Yaos paid him P4,649,078, leaving a balance of P741,482, the demand
of which they ignored and he filed a complaint with the RTC of Las
Pinas. The Yaos claimed that they paid Matela that sum which should
be considered as sufficient payment considering Matela had used
substandard materials causing damage to the project which needed a
substantial amount of money to repair. The trial court ruled in favor of
Matela ordering the Yaos to pay him the balance, stating that the
Building Officials of Makati City, had issued documents stating that the
construction was completed in accordance with the plans and
specifications. The CA affirmed but modifying the amount of actual
damages to P391,582, stating that any delay in the delivery is cured by
the acceptance of the thing after delay incurred, in answer to the
argument of the Yaos that Matela failed to finish the project within the
agreed period.
Issue:
W/N Matela is entitled to the additional construction cost.
Held:
The factual findings of the trial court and CA are contradicted by the
evidence on record. An evaluation of the records reveal that Matela
failed to comply with his obligation to construct the townhouses based
on the agreed specifications. He cannot be discharged from his
obligations by mere delivery of the same to the Yaos. The agreed
construction cost of the project was P5,090k560 but the amounts
reflected in the Building Permit, the Certificate of Completion and the
Certificate of Occupancy are far less. The Yaos likewise failed to comply
with their undertakings. They refused to pay the balance of the agreed
construction cost despite demands, justifying their non-payment by
arguing that the Matelas abandoned the project and that there were
defects in the construction. Both parties breached their respective
obligations. The law does not relieve a party from the effects of an
unwise, foolish or disastrous contract, entered into with full awareness
of what he was doing and entered into and carried out in good faith.
Such a contract will not be discarded even if there was a mistake of law
or fact. Where it cannot be conclusively determined which of the
parties first violated the contract, the solution is in Art. 1192: In case
both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall bear his own
damages. The losses to be incurred shall be as follows: for Matela, in
the form of the alleged unpaid balance, and for Yao, the losses they will
bear repairing the defects.
Reciprocal obligations are those which are created or established at the
same time, out of the same cause, and which result in mutual
relationships of creditor and debtor between the parties. These
obligations are conditional in the sense that the fulfillment of an
obligation by one party depends upon the fulfillment of the obligation
by the other. The general rule is that fulfillment by both parties should
be simultaneous or at the same time. One party incurs in delay from
the moment the other party fulfills his obligation, while he himself does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. If neither party complies or is ready to comply
with what is incumbent upon him, the default of one compensates for
the default of the other. In such case, there can be no legal delay.
III.1.4. Effect on Persons Subsidiarily
Liable
III.2. Fortuitous Events
JUNTILLA V. FONTANAR
Facts:
Roberto Juntilla was a passenger of a jeepney driven by Berfol Camoro,
which was registered under the franchise of Clemente Fontanar and
owned by Fernando Banzon. The right rear tire exploded causing the
vehicle to turn turtle. Juntilla was seatedin the front and he was
thrown out of the vehicle and lost consciousness. When he came to his
senses, he found that he had a lacerated wound on his right palm,
injuries on his left arm, right thigh and back, and his Omega
wristwatch was lost. He filed a case with the City Court of Cebu where
judgment was rendered in favor of Juntilla, ordering defendants to pay
him damages and reimbursement. The CFI reversed the decision,
finding the accident a fortuitous incident and pronouncing them
without liability.
Issue:
W/N the Court committed GAD in failing to take cognizance of the fact
that defendants failed to exercise utmost and/or extraordinary
diligence required of common carriers contemplated under Art. 1755.
Held:
There are specific acts of negligence on the part of the respondents.
The passenger jeepney turned turtle and jumped into a ditch
immediately after its rear tire exploded which shows that the jeepney
was running at a very fast speed. It was also overloaded at the time of
the accident. The sudden blow-up of the tire could have been caused by
too much air pressure injected into the tire coupled by the fact that it
was overloaded and speeding at the time of the accident. The accident
was caused either through the negligence of the driver or because of the
mechanical defects of the tire.
The rationale of the carrier’s liability is the fact that the passenger has
neither choice nor control over the carrier in the selection and use of
the equipment and appliances in use by the carrier. Having no privity
whatever with the manufacturer or vendor of the defective equipment,
the passenger has no remedy against him, while the carrier usually has.
It is but logical, therefore, that the carrier, while not an insurer of the
safety of his passengers, should nevertheless be held to answer for the
flaws of his equipment if such flaws were at all discoverable.
The source of a common carrier’s legal liability is the contract of
carriage, and by entering into said contract, it binds itself to carry the
passengers safely as far as human care and foresight can provide, using
the utmost diligence of a very cautious person, with a due regard for all
circumstances.
A caso fortuito:
(1) The cause of the unforeseen and unexpected occurrence, or
of the failure of the debtor to comply with his obligation,
must be independent of the human will.
(2) It must be impossible to foresee the event constituting the
caso fortuito, or if it can be foreseen, it must be impossible to
avoid.
(3) The occurrence must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner.
(4) The obligor (debtor) must be free from any participation in
the aggravation of the injury resulting to the creditor.
ACE-AGRO DEVT. CORP. V. CA
Facts:
7
Ace-Agro had been cleaning soft drink bottles and repairing wooden
shells for Cosmos within its company premises in San Fernando,
Pampanga. On Apr. 25, 1990, fire broke out in the Cosmos plant. As a
result, Ace-Agro’s work was stopped. On May 15, 1990, Ace-Agro
requested Cosmos to resume its services but they were advised that on
account of the fire destroying nearly all the bottles and shells, Cosmos
was terminating their contract. Ace-Agro requested Cosmos to
reconsider its decision but upon receiving no reply, they informed its
employees of the termination of their employment, which led the
employees to file a complaint for illegal dismissal before the Labor
Arbiter against both Ace-Agro and Cosmos. Ace-Agro sent another
letter for reconsideration to Cosmos, to which they replied that they
could resume work but outside company premises. Ace-Agro refused
the offer, claiming that to work outside would make them incur
additional costs for transportation. Cosmos then advised Ace-Agro that
they could resume work inside the company premises which Ace-Agro
rejected citing the pending labor case. Ace-Agro brought a case against
Cosmos for breach of contract and damages in the RTC, complaining
that termination was illegal and arbitrary and stood to lose profits and
be held liable to its employees for backwages, damages and separation
pay. The labor court found Ace-Agro liable for the claims of its
employees and they were ordered to reinstate the employees and pay
them backwages. The RTC, however, found Cosmos guilty of breach of
contract and ordered it to pay damages though Ace-Agro’s claim for
reimbursement of what it had paid in the labor case was denied.
Cosmos appealed to the CA which reversed the trial court’s decision,
finding that the petitioner had been the one to refuse to resume work
after failing to secure an extension of its contract.
Issue:
W/N there was valid cause for the termination for Cosmos unilaterally
terminating the contract on account of a force majeure.
Held:
The reason given by Cosmos for unilaterally terminating its contract
was tat the prestation or the object of their agreement had been lost
and destroyed in the fire. What they wanted was for this situation to
fall within obligations extinguished by the happening of unforeseen
events, under whose influence the obligations would never have been
contracted, because in such cases, the very basis upon which the
existence of the obligation is founded would be wanting. However,
there were still other bottles and shells; therefore, the suspension of
the work is at best temporary. Cosmos reconsidered its decision to
terminate the decision by trying to accommodate the petitioner albeit
outside the company premises. However, Ace-Agro unjustifiably
refused because it wanted an extension of the contract to make up for
the period of inactivity. They were without legal ground to refuse
resumption of work on the basis of it being outside the company
premises and could not legally insist to work inside property it did not
own or lease. The second time they refused resumption of work, in
spite of it being inside company premises, was not because of the
pending labor case but because Ace-Agro really wanted an extension of
the period or duration of the contract to cover the period of inactivity.
But the suspension of work due to the fire does not merit an automatic
extension. The stipulation that in the event of a fortuitous event or
force majeure the contract shall be deemed suspended during the said
period does not mean that it stops the running of the period the
contract has been agreed upon to run. It only relieves the parties from
the fulfillment of their respective obligations during that time. Cosmos
withdrew its unilateral termination of its agreement but Ace-Agro’s
refusal to work was a unilateral termination – an act without legal
basis, which must be construed as a breach of contract. While Cosmos
made efforts towards accommodation, Ace-Agro was unwilling to make
adjustments. While the “job-out” offer had the effect of varying the
terms of the contract, what petitioner does not seem to realize is that
the change was brought about by circumstances not of Cosmos’
making. When Cosmos advised Ace-Agro that they could work inside
the premises, the latter only thought of its interest by insisting that the
contract be extended. Cosmos was justified in insisting that after the
expiration of the contract, the parties must negotiate a new one as they
had done every year.
IV. Usurious Transactions/Obligations Payable in
Installments (Arts. 1175-1176)

LIAM LAW V. OLYMPIC SAWMILL CO.
Facts:
On Sept.7, 1957, plaintiff loaned P10,000 without interest to
partnership and Elino Lee Chi, as the managing partner. It became
ultimately due on Jan. 31, 1960, but was not paid, with debtors asking
for an extension of 3 mos (apr. 30,1960). On Mar. 17, 1960, the parties
executed another loan document, extending the deadline to Apr. 30 but
the obligation increased by P6,000. Defendants failed to pay, and on
Sept. 23, plaintiff instituted this collection case. Defendants claimed
that the additional P6,000 constituted usurious interest. The trial court
rendered in favor of the plaintiffs, ordering defendants to pay the
amount of P10,000 plus the P6,000 for liquidated damages... with
legal rate of interest for on both amounts from Apr. 30.
Issue:
W/N the P6,000 is usurious interest.
Held:
Under Art. 1354, in regards to the agreement of the parties relative to
the P6,000 obligation, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. No evidentiary hearing having been
held, the defendants have not proven that the P6,000 obligation was
illegal. The P6,000 obligation is viewed as liquidated damages suffered
by plaintiff, as of Mar. 17, representing loss of interest income,
attorneys fees and incidentals.
Sec.9 of the Usury Law (Act 2655): The person or corporation sued
shall file its answer in writing under oath to any complaint brought or
filed against said person or corporation before a competent court to
recover the money or other personal or real property, seeds or
agricultural products charged or received in violation of the provisions
of this Act. The lack of taking an oath to answer to a complaint will
mean the admission of the facts contained in the latter.
The provision does not apply to the case, where it is the defendant, and
not the plaintiff, who is alleging usury, regardless of the plaintiff not
admitting the claim of usury and not denying it specifically and under
oath. Moreover, for sometime now, usury has been legally nonexistent.
Interest can now be charged as lender and borrowers may agree upon.
The Rules of Court in regards to allegations of usury, procedural in
nature, should be considered repealed with retroactive effect. The
appealed judgment is affirmed.
V. Rights of Creditors (Arts. 1177-1178)
VI. Different Kinds of Obligations
VI.1. Pure (Art. 1179)
VI.2. Conditional (Arts. 1179-1180)
VI.2.1. Suspensive Condition
VI.2.2. Resolutory Condition
VI.2.3. Potestative, Casual or Mixed
SBTC (SECURITY BANK AND TRUST COMPANY) V. CA
Facts:
Respondent Ysmael C. Ferrer was contracted by SBTC to construct
their building in Davao City for P1,760,000. The contract dated Feb. 4,
1980 provided that Ferre finish construction in 200 working days. He
was able to complete the construction on Aug. 15 (within contracted
period) but he was compelled by a drastic increase in the cost of
construction materials to incur expenses of about P300,000 on top of
the original cost. Ferrer made timely demands for payment of the
increased cost, supported by receipts, etc. proving the additional
expense.
In Mar. 1981, SBTC verified Ferrers claims for additional cost and a
recommendation was made to settle his claim but only for P200,000.
Instead of paying the recommended additional amount, SBTC denied
8
ever authorizing payment beyond the original contract price. SBTC also
denied liability for the additional cost based on Art. XI of the building
contract: If at any time prior to the completion of the work to be
performed, increase in prices of construction materials and/or labor
shall supervene through no fault on the part of the contractor which
directly or indirectly affects the increase of the cost of the project,
OWNER shall equitably make the appropriate adjustment on mutual
agreement of both parties.
Ferrer filed a complaint for breach of contract with damages. The trial
court ruled in his favor and ordered SBTC to pay, along with damages.
The CA affirmed the trial courts decision.
Issue:
W/N petitioners are liable for damages in the absence of a mutual
agreement by both parties.
Held:
Petitioners arguments to support absence of liability are not
persuasive.
Art. 22 embodies the maxim Nemo ex alterius incommodo debet
lecupletari (No man ought to be made rich out of anothers injury):
Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same
to him.
Under Art. IX of the construction contract, petitioners would make the
appropriate adjustment to the contract price in case the cost of the
project increases through no fault of the contractor. Ferrer informed
SBTC of the drastic increase in construction materials as early as Mar.
SBTC in turn had the increased cost evaluated and audited then a
recommendation was made to payP200,000. SBTC failed to pay and
denied authorizing the settlement of Ferrers claim, due to the absence
of a mutual agreement, making his demand premature and baseless.
SBTC admitted liability when a recommendation was made to settle the
additional claim. Under Art. 1182, a conditional obligation shall be void
if its fulfillment depends upon the sole will of the debtor. The absence
of a mutual agreement which SBTC relies upon is in effect a condition
dependent on the banks sole will, since Ferrer would naturally and
logically give consent to such an agreement which would allow him
recovery of increased cost. It cannot be denied that SBTC derived
benefits when Ferrer completed the construction even at an increased
cost. To allow SBTC to acquire the building at a price below its
construction cost would constitute unjust enrichment to the prejudice
of Ferrer. The decision of the CA is affirmed.
RUSTAN PULP & PAPER MILLS, INC. V. INTERMEDIATE
APPELLATE COURT
Facts:
Petitioner established a pulp and paper mill in Baloi,Lanao del Norte.
Respondent Romeo Lluch entered into a contract of sale with
petitioner where Lluch agreed to sell at P30 per cubic meter of pulp
raw materials to petitioner. The contract was non-exclusive and
petitioner had the option to buy from other suppliers, though
respondent has priority. It was further stipulated that the petitioner is
barred from buying from other sellers pulp wood emanating from the
respondent´s lumber and firewood concession. The petitioner also had
the right to stop delivery when supply became sufficient provided that
there is sufficient notice. During the test run, the machinery had major
defects and it was recommended that deliveries of the raw material,
which had accumulated, be stopped. A letter was issued on Sept. 30,
1968 to respondent requesting that deliveries be stopped within 30
days. Respondent sent a query if the deliveries were temporarily
stopped or terminated completely,which was not answered.
Respondent and other suppliers continued deliveries.
When petitioners informed respondents (Iligan Diversified Projects,
Inc., Romeo A. Lluch and Roberto G. Borromeo) to stop the delivery of
pulp wood supplied by them according to a contract of sale between
them, respondents sued for breach of conduct. The court dismissed the
complaint but enjoined petitioners to respect the contract of sale if
circumstances warrant the full operation in a commercial scale of
petitioner´s Baloi plant and to continue accepting and paying for
deliveries of pulp wood products from Romeo Lluch. On appeal in the
IAC, the court modified the judgment by directing petitioners to pay
respondents moral damages.
Issue:
W/N the IAC erred in holding that petitioner´s decision to suspend
taking delivery of pulp wood from respondent was not in the lawful
exercise of its right under the contract of sale.
Held:
The Court found it ironic that petitioner´s had to exercise the
prerogative regarding the stoppages of deliveries because they never
really stopped accepting deliveries from respondent until Dec. 23,
1968. It was preposterous that the petitioners continued to buy and
accept pulp wood materials from other sources, belying that they have
more than sufficient supply of pulp wood, that their machineries were
defective or that the materials coming from the respondents were
defective. The petitioner continued accommodating all suppliers even
after the commercial operation was delayed. This is a breach of
contract. It would also be unjust for the court to rule that the contract
of sale be temporarily suspended until petitioners were ready to accept
deliveries from the respondent. This would make the resumption of the
contract purely dependent on the will of one party, the petitioners, who
could claim that they have sufficient supply of materials while
accepting from other suppliers. The court would have been imposing a
raw condition that had not been agreed upon by the parties. There is
basis for the respondent´s apprehension inasmuch as it suggests a
condition solely dependent upon the will of petitioners. A purely
potestative imposition of this character must be obliterated from the
face of the contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already
existing obligation and not to its imposition. A condition which is both
potestative (or facultative) and resolutory may be valid but is
inapplicable to the case at hand because the proviso in the Taylor case
which allowed a condition for unilateral cancellation of the contract
when the machinery did arrive on time relates to the birth of the
undertaking and not the fulfillment of an existing obligation. The
contract speaks loudly of the prerogative of the petitioner to the right
to suspension of delivery (which petitioner took to mean the right to
terminate the contract) but what diminishes its legal efficacy is the
condition attached to it which is dependent exclusively on their will.
The stipulation is inoperative and the decision appealed from is
modified in the sense that only petitioner shall pay moral damages.
VI.2.4. Effect of Immoral, Illicit and
Impossible Conditions
VI.2.5. Coupled with a Term
a) If a period intended for
fulfillment cf. Art. 1197
MILLARE V. HERNANDO
Facts:
On Jun. 17, 1975, a 5 yr. Contract of Lease was executed between
Pacifica Millare and Elsa Co. Co would rent the “People’s Restaurant”
at P350/mo. In May-July 1980, a dispute arose when Millare informed
Co that they would continue leasing the restaurant as long as they were
amenable to paying P1,200/mo. A counter-offer of P700 was made by
Co, to which Millare allegedly stated that the amount of monthly
rentals could be resolved at a later time which Co took to mean that the
Contract of Lease had been renewed. In contrast, Millare flatly denies
ever having considered or offered a renewal of the Contract of Lease.
On Jul. 22, Millare requested them to vacate the premises, and Co
reiterated her unwillingness to pay P1,200 for being excessive and their
intention to deposit the rentals in court, as Millare refused to accept
their counter-offer. Co filed a complaint with the CFI of Abra and
Millare filed an ejectment case against them. The judge ordered the
renewal of the Contract of Lease and allowed Co to deposit the rentals
in court.
Issue:
(1) W/N the trial court acquired jurisdiction over the case.
9
(2) W/N Co had a valid cause of action against petitioner.
Held:
(1) The conciliation procedure is not a jurisdictional requirement in
the sense that failure to have prior recourse would not deprive a
court of its jurisdiction. Secondly, the records show that 2
complaints were submitted to the barangay authorities for
conciliation, which proved fruitless, and Certifications to File
Action authorizing the parties to continue in court were issued.
(2) ¶13 of the Contract of Lease reads that it can be renewed after a
period of 5 yrs. under the terms and conditions as will be agreed
upon by the parties at the time of its renewal. Failure to reach an
agreement would prevent the contract from being renewed.
Parties cannot 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 provisions of the statute, a contract may be annulled if
tainted by violence, intimidation or undue influence.
Art. 1670: if at the end of the contract the lessee should continue
enjoying the thing left for 15 days with the acquiescence of he
lessor and unless a notice to the contrary by either party has
previously been given. It is understood that there is an implied
new lease, not for the period of the original contract, but for the
time established in Arts. 1682 and 1687. The other terms of the
original contract shall be revived.
VI.3. Reciprocal Obligations
VI.3.1. Nature; Effect
Condition for Performance
VI.3.2. Necessity for court approval
IRINGAN V. CA
Facts:
Antonio Palao sold an undivided portion of land in Tuguegarao to
Alfonso Iringan. A Deed of Sale was executed with the purchase price
of P295,000 payable as follows: P10,000 upon execution of the
contract, P140,000 on or before Apr. 30, 1985, and P145,000 on or
before Dec. 31, 1985. On the 2nd payment, Iringan only paid P40,000,
and Palao sent a latter on Jul. 18, 1985 stating that he considered the
contract as rescinded. Iringan replied that they were not opposing the
revocation of the contract but asked for reimbursement of the ff.
amounts: P50,000 as cash received by Palao, P3,200 as geodetic
engineer’s fee, attorney’s fee and the current interest of P53,700. Palao
replied that he was not amenable to this. Iringan proposed that the
P50,000 be reimbursed or a portion of the land be sold to him. Palao
replied that Iringan’s standing obligation had reached P61,600 for
rental arrears. Palao filed a complaint for Judicial Confirmation of
Rescission of Contract and Damages. The RTC ruled in favor of Palao
and affirmed the rescission of the contract, which the CA affirmed.
Issue:
(1) W/N the contract was validly rescinded.
(2) W/N the award of moral and exemplary damages is proper.
Held:
(1) Art. 1592: In the sale of immovable property, even though it may
have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by notarial act. After the
demand, the court may not grant him a new term.
When Palao filed an action for Judicial Confirmation of
Rescission and Damages, he complied with the requirement of the
law for judicial decree of rescission. The complaint categorically
stated that the purpose was (a) to compel appellants to formalize
in a public document, their mutual agreement of revocation and
rescission; and/or (b) to have a judicial confirmation of the said
 revocation/rescission under terms and conditions fair, proper and
just for both parties.
VI.3.3. Resolution under Art. 1191 v.
Rescissions under Arts. 1381-
1384
SURIA V. IAC
Facts:
Plaintiffs entered into a Deed of Sale with Mortgage with defendants
over a parcel of land in Laguna. Defendants violated the terms and
conditions of the contract by failing to pay the stipulated installments
and only one installment was made, despite repeated demands. They
formally offered to pay the outstanding balance under the Deed of Sale
of Mortgage which was rejected.
Issue:
(1) Is the subsidiary and equitable remedy of rescission available
in the presence of the remedy of foreclosure in the light of
Art. 1383.
Held:
(1) The parties entered into a contract of sale where the vendor
obligates himself to transfer the ownership of and to deliver a
determinate thing to the buyer, who is obligated to pay a price
certain in money or its equivalent. The respondents have
complied with their part and parted with the title. The buyer
fulfilled his end of the bargain when he executed the deed of
mortgage. The relationship between the parties is no longer as
buyer and seller, because the contract of sale has been perfected
and consummated and it is already of a mortgager and mortgagee.
The petitioner’s breach of obligation is not with respect to the
perfected contract of sale but in the obligations created by the
mortgage contract. The remedy of rescission is not a principal
action retaliatory in character but becomes a subsidiary one which
by law is available only in the absence of any other legal remedy.
Foreclosure here is not a remedy accorded by law but is a specific
provision found in the contract.
ONG V. CA
Facts:
Jaime Ong and Miguel and Alexandra Robles executed an Agreement
of Purchase and Sale regarding two parcels of land in Quezon, for the
total purchase price of P2,000,000. The initial payment of P600,000
would be paid as follows: P103,499.91 already paid before the
Agreement, P496,500.09 directly to Bank of the Philippine Islands for
the loan of Robles, and the P1,400,000 balance in 4 quarterly
installments of P350,000. Ong paid but the installments in postdated
checks were not honored for having insufficient funds. Out of the loan
to be paid to BPI, only P393,679.60 was paid. When the bank
threatened to foreclose on the mortgage, Robles sold three
transformers of the rice mill worth P51,411 to pay off their obligation,
with the knowledge of Ong. Ong voluntarily gave Robles authority to
operate the rice mill, though he continued with possession of the two
parcels of land, while Robles was forced to use the rice mill for
residential purposes. Robles sent a demand letter asking for the return
of their properties, which was unheeded, and they filed with the RTC of
Lucena City a complaint for rescission of contract and recovery of
properties with damages. Ong continued with improvements on the
properties while the case was pending, leading Robles to ask for a writ
of preliminary injunction, which the trial court granted. The trial court
rendered a judgment in favor of Robles, declaring the contract set
aside, ordering Ong to deliver the 2 parcels of land to them and Robles
to return P497,191.51 to Ong, and damages to be paid to Robles. The
CA affirmed the RTC’s decision, but deleted the award for exemplary
damages, noting that Ong’s failure to completely pay the purchase
price was a substantial breach of his obligation entitling Robles to
rescind their contract under Art. 1191.
Issue:
(1) Whether the contract may be validly rescinded under Art. 1191.
10
(2) Whether the parties had novated their original contract as to time
and manner of payment.
Held:
(1) Art. 1191 refers to rescission applicable to reciprocal obligations.
Reciprocal obligations are those which arise from the same cause
and which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous
fulfillment of the other. Rescission of reciprocal obligations under
Art. 1191 should be distinguished from rescission of contracts
under Art. 1383. While Art. 1191 uses the term “rescission,” the
original term was “resolution.” Resolution is a principal action
which is based on breach of a party, while rescission under Art.
1383 is a subsidiary action limited to cases of rescission for lesion
under Art. 1381 .
The Agreement of Purchase and Sale shows that it is in the nature
of a contract to sell, where the payment of the purchase price is a
positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation which prevents the obligation of
the vendor to convey title from acquiring an obligatory force. Ong
failed to complete payment of the purchase price which rendered
the contract to sell ineffective and without force and effect. It
must be stressed that the breach contemplated in Art. 1191 is the
obligor’s failure to comply with an obligation already extant, not a
failure of a condition to render binding that obligation. Failure to
pay, in this instance, is not a breach but merely an event that
prevents Robles’ obligation to convey title from acquiring binding
force. Hence the agreement may be set aside, not because of a
breach for failure to complete payment of the purchase price but
that the failure to pay brought about a situation which prevented
the obligation of respondent spouses to convey title from
acquiring an obligatory force.
(2) Art. 1291: in order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Novation is never presumed, it must be proven as fact either by
express stipulation of the parties, or by implication derived from
an irreconcilable incompatibility between the old and new
obligations. Records show that the parties never intended to
novate their previous agreement. While Ong had paid small sums
of money in contravention of the manner of payment stipulated in
their contract, Robles had objected to which Ong replied that
these installments were the interest of the principal amount he
owed. Ong had also agreed to the sale of the transformers.
Although the parties agreed to credit the sale to Ong’s obligation,
he was supposed to reimburse the same to Robles.
In order for novation to take place, the concurrence of the
following requisites is indispensable:
1. There must be a previous valid obligation
2. There must be an agreement of the parties to a new contract
3. There must be the extinguishment of the old contract
4. There must be the validity of the new contract
VI.4. Obligations with a Period
VI.4.1. Concept
VI.4.2. ‘Day Certain’ Meaning
VI.4.3. Distinguished from
Conditional Obligations
VI.4.4. Kinds
a) Suspensive
b) Resolutionary
VI.4.5. Effects; Non-retroactivity
VI.4.6. Rights of Parties Before
Arrival of Term
 a) Loss, Deterioration of
Improvement
b) Payment; Recovery
VI.4.7. Period; For whose benefit
a) Exceptions
VI.4.8. When courts may fix period
CHUA V. COURT OF APPEALS
Facts:
Petitioners (Jose L. Chua and Co Sio Eng) were lessees of a commercial
unit in Paranaque, The lease was for 5 years, from Jan.1, 1985 to Dec.
31 1989. The contract expressly provided for the renewal of the lease at
the option of the lessees ¨in accordance with the terms of agreement
and conditions set by the lessor (respondent Ramon Ibarra).¨ Prior to
the expiration of the lease, the parties discussed the possibility of
renewing it, exchanged proposals, but failed to reach an agreement.
The dispute was referred to the barangay captain for conciliation but
no settlement was reached by the parties.
Respondent filed a complaint for unlawful detainer against petitioners
in the MTC which ruled in favor of the respondent, giving the
petitioners (Chua) an extension of 2 years starting the date of the filing
of the instant petition, and ordering petitioners to pay P188,806 in
back rentals as of 1991 and a monthly rental of P10,000 until the
expiration of their extension.
Both parties appealed and the RTC ruled that the lease was for 5 years,
after which petitioners´ stay would be illegal. Art. 1687 provides that
the Court may fix the period of the lease only in cases where the parties
fail to do so. The RTC dismissed the petitioners' claim for lack of merit,
ordered them to vacate the premises and pay back rentals of P42,306
for Jan. 1, 1987 to Dec. 31, 1989 and the monthly rentals of P7,203.50
starting Jan. 1, 1990 until Jul. 24, 1990 and P10,000 from Jul. 24, 1990
until the petitioners' have vacated.
Petitioners' appealed to the CA who affirmed the decision, with
modifications that the monthly rental from Jul. 24, 1990 until they
vacate the premises is reduced to P7,230.
Issues:
1. W/N the CA erred in affirming the lower court´s findings
that they owe respondent P42,306 in unpaid rentals from
Jan. 1, 1987 to Dec. 31, 1989.
2. W/N petitioners are entitled to an extension of time and
W/N they are entitled to a reasonable extension of time.
3. W/N petitioners acted in good faith under the belief that
they were entitled to an extension of the lease for having
made repairs and improvements on the premises.
4. W/N petitioners are entitled to damages for their failure to
enjoy peaceful possession of the premises because the
respondent allowed vendors to sell in front of their leas
premises.
Held: The CA decision is affirmed.
1. According to petitioners, neither the letter of demand nor the
complaint for unlawful detainer alleged a claim for unpaid
rentals. However, the issue of arrearages was raised at the
pre-trial by the respondent and evidence was presented
without objection by petitioners. At the hearing, respondent
testified that though the lease contract stipulated an annual
10% additional rental starting in 1986, petitioners only paid
the original monthly rental of P5,000 stipulated in their
contract. Considering that the contract which is the law
between the parties was not followed by the petitioner, good
faith demands that they pay the back rentals. To absolve the
petitioners from paying arrears would allow them to enrich
themselves at the expense of the respondents. Any objection
to admissibility of evidence should be made when evidence is
offered or as the objection to its admissibility is required,
otherwise the objection is considered waived.
2. Without merit. After the lease terminated on Jan. 1, 1990
and without the parties reaching a renewal agreement,
petitioners became subject to ejectment. The MTC had made
11
a contract for the parties which it did not have the party to
do so, when it gave petitioners an extension of 2 years. Art.
1687 applies only when there is no period of time fixed by the
parties, which had been provided for from Jan. 1,1985 to
Dec. 31, 1989. The court has no power to alter a contract or
make a new one for the parties, and its duty is confined to
interpretation of the contract the parties made for
themselves, as the court cannot supply material stipulations
or read into contract words which it does not contain. Art.
1675 excludes cases falling under Art. 1673 (which allows
lessors to judicially eject lessees after the period of
occupancy has expired), from cases where Art. 1687 is
applicable.
3. Without merit. There is no provision of law which grants the
lessee a right of retention over the leased premises on that
ground. Art. 440, in relation to Art. 546,which provides for
full reimbursement of useful improvements and retention of
premises until reimbursement is made applies only to a
possessor in good faith or one who builds on a land in the
belief that he is the owner. This right does not apply to a
mere lessee, otherwise it would always be in his power to
¨improve¨ his landlord out of his own property. Art. 1678
merely grants to such a lessee making in good faith useful
improvements the right to be reimbursed ½ of the value of
the improvements upon the termination of the lease, or
remove the improvements if the lessor refuses to make
reimbursement.
4. There is no evidence to support the claim. Petitioners had
previously never complained about the sidewalk vendors
occupying a portion of the leased property. It was only after
negotiations for renewal of the lease had failed and the
complaint for unlawful detainer was filed that they
complained about the vendors.
VI.5. Multiple Obligations
VI.5.1. Conjunctive
VI.5.2. Alternative
a) Right of choice
1) Debtor’s choice
2) Creditor’s choice
VI.5.3. Facultative
VI.6. Joint Obligations
VI.6.1. Concept
VI.6.2. Distinguished from Solidary
Obligations
VI.6.3. Liability of joint debtor
VI.6.4. Court decisions
VI.7. Solidary Obligations
VI.7.1. Concept