CONSTRUCTIVE FULFILLMENT TAYAG vs. CA Facts: Siblings Juan Galicia Sr.

and Celerina Labuguin entered into a contract to sell a parcel of land in Nueva Ecija to a certain Albrigido Leyva: o 3K upon agreement o 10K ten days after the agreement o 10K representing vendors indebtedness to Phil Veterans Bank o 27K payable within one year from execution of contract. Leyva only paid parts of the obligation. But even after the grace period for payment made in the contract and while litigation of such case, the petitioners still allowed Leyva to make payments. With regards to the obligation payable to the Phil Veterans bank by the vendee, as they deemed that it was not paid in full, such obligation they completed by adding extra amount to fulfill such obligation. This was fatal in their case as this is Leyvas argument that they constructively fulfilled the obligation which is rightfully due to him. (Trivia: It was Celerina, Juans sister, that paid the bank to complete such obligation). Petitioners claim that they are only OBLIGEES with regards to the contract, so the principle of constructive fulfillment cannot be invoked against them. Petitioners, being both creditor and debtor to private respondent, in accepting piecemeal payment even after the grace period, are barred to take action through estoppel. Issue: 1. WON there was constructive fulfillment in the part of the petitioners that shall make rise the obligation to deliver to Leyva the deed of sale? YES 2. WON they are still entitled to rescind the contract? NO, barred by estoppel. Held: 1. In a contract of purchase, both parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter. 2. Petitioners accepted Leyvas delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance. Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. By and large, petitioners actuation is susceptible of but one construction that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent.

ONG vs. BOGNALBAL On January 2, 1995, Architect Ernesto Bognalbal (E.B. Bognalbal Construction) was hired by petitioner, Victoria Ong, for the construction of her boutique on a contract price of P200,000 but subject to change in respect to economic factors and change of order. The agreement was to complete the work within 45 days and payment shall be made every two weeks based on the accomplishment of work value. The project started on Jan. 19, 1995. Work Accomplished Jan 19-28, 1995 17.975% Billing petitioner paid P 35,950

Jan 19 to Feb 15, 1995 34.65% Feb 16 to March 3, 1995 March 4-18 Work Total 20.63% 15.47% 88.85%

petitioner paid P

69,300 41,500

petitioner paid P No payment P 30,950 P

181,700

Petitioner wanted a change of order within 3 days from vinyl tiles to kenzo flooring on April 22, 1995. Kenzo flooring took time to construct because of the curing process and additional costs shall be incurred. The rushed work of kenzo flooring was not acceptable to petitioner Victoria Ong. She refused to th pay the 4 billing. Demand of respondent Bognalbal for petitioner Ong to pay for the kenzo flooring was made on or before April 24, 1995. Petitioner Victoria Ong didnt pay, respondent Bognalbal abandoned the kenzo flooring job on April 25, 1995. (Petitioner Ong hired another contractor, she incurred P 78,000 and additional damages, and the completion of the kenzo flooring was delayed for 82 days.) Issue: Is Bognalbal liable to pay? Ruling: MeTC ruled in favor of respondent Bognalbal. Petitioner Victoria Ong was made to pay. RTC ruled in favor petitioner Victoria Ong. MeTCs decision was reversed and set aside. CA (Petition for Review) ruled in favor of respondent Bognalbal. MeTCs decision was reinstated. SC (Petition for Certiorari is dismissed) ruled in favor of respondent Bognalbal. MeTCs decision was affirmed. (Respondent Victoria Ong is liable pay.) Novation is never presumed. Unless it is clearly shown either by express agreement of the parties or by acts of equivalent import, defense will never be allowed. assuming that there was indeed a novation of the obligation of Petitioner Ong to pay the fourth billing so as to include as additional condition the completion of the Kenzo flooring, such new condition would, nevertheless, be deemed fulfilled. This is pursuant to Article 1186 of the Civil Code which provides: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (This could mean that the prevention of petitioner Ong of the fulfillment of the vinyl tiles, made the condition of the contract fulfilled, without due course to any of her change order.) (petitioner) Ong has not sufficiently proven the alleged contract novation Breach of contract was her [petitioner Ong] failure to pay what she was legally bound to pay under her contract with respondent Bognalbal. Payment, being the very consideration of the contract, is certainly not a mere casual or slight breach but a very substantial and fundamental breach as to defeat the object of the parties making the agreement, due to which rescission of the contract may be had (Ang vs. CA, 170 SCRA 286, 296). FULFILLMENT OF CONDITIONS ENRIQUEZ vs. RAMOS RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellants, vs. SOCORRO A. RAMOS, defendant-appellee.

Gelacio L. Dimaano for plaintiffs-appellants. Vicente K. Aranda for defendant-appellee. , J.: This is an action for foreclosure of a real estate mortgage. It is alleged that on November 24, 1958 defendant purchased from plaintiffs 20 parcels of land located in Quezon City and covered by transfer certificates of title for the amount of P235,056.00 of which only the amount of P35,056.00 was paid on the date of sale, the balance of P200,000.00 being payable within two years from the date of sale, with 6% interest per annum during the first year, and the remainder to draw 12% interest per annum if paid thereafter, provided that at least P100,000.00 should be paid during the first year, otherwise the whole unpaid balance would become immediately demandable; that to secure the payment of the balance of P200,000.00 defendant executed a mortgage in favor of plaintiffs upon the 20 parcels of land sold and on a half interest over a parcel of land in Bulacan which was embodied in the same deed of sale; that said deed of sale with mortgage was registered in the Offices of the Registers of Deeds of Quezon City and Pampanga; and that as defendant broke certain stipulations contained in said deed of sale with mortgage, plaintiffs instituted the present foreclosure proceedings. Defendant set up as affirmative defense that the contract mentioned in the complaint does not express the true agreement of the parties because certain important conditions agreed upon were not included therein by the counsel who prepared the contract; that the stipulation that was omitted from the contract was the promise assumed by plaintiffs that they would construct roads in the lands which were to be subdivided for sale on or before January, 1959; that said condition was not placed in the contract because, according to plaintiffs counsel, it was a superfluity, inasmuch as there is an ordinance in Quezon City which requires the construction of roads in a subdivision before lots therein could be sold; and that, upon the suggestion of plaintiffs counsel, their promise to construct the roads was not included in the contract because the ordinance was deemed part of the contract. Defendant further claims that the true purchase price of the sale was not P235,056.00 but only P185,000.00, the difference of P50,000.00 being the voluntary contribution of defendant to the cost of the construction of the roads which plaintiffs assumed to do as abovementioned. After the reception of the evidence, the trial court sustained the contention of defendant and dismissed the complaint on the ground that the action of plaintiffs was premature. It found that plaintiffs really assumed the construction of the roads as a condition precedent to the fulfillment of the obligation stipulated in the contract on the part of defendant, and since the same has not been undertaken, plaintiffs have no cause of action. In due time, plaintiffs have appealed. The evidence of record discloses the following facts: On November 6, 1966, plaintiffs entered into a contract of conditional sale with one Pedro del Rosario covering a parcel of land in Quezon City described in Transfer Certificate of Title No. 1148 which has a total area of 77,772 square meters in consideration of a purchase price of P10.00 per square meter. To guarantee the performance of the conditions stipulated therein a performance bond in the amount of P100,000.00 was executed by Pedro del Rosario. Del Rosario was given possession of the land for development as a subdivision at his expense. He undertook to pay for the subdivision survey, the construction of roads, the installation of light and water, and the

income tax plaintiffs may be required to pay arising from the transaction, in consideration of which Del Rosario was allowed to buy the property for P600,000.00 within a period of two years from November 6, 1956 with the condition that, upon his failure to pay said price when due, all the improvements introduced by him would automatically become part of the property without any right on his part to reimbursement and the conditional sale would be rescinded. Unable to pay the consideration of P600,000.00 as agreed upon, and in order to avoid court litigation, plaintiffs and Del Rosario, together with defendant Socorro A. Ramos, who turned out to be a partner of the latter, entered into a contract of rescission on November 24, 1958. To release the performance bond and to enable defendant to pay some of the lots for her own purposes, plaintiffs allowed defendant to buy 20 of the lots herein involved at the rate of P16.00 per square meter on condition that she will assume the payment of P50,000.00 as her share in the construction of roads and other improvements required in the subdivision. This situation led to the execution of the contract of sale Exhibit A subject of the present foreclosure proceedings. The main issues closed in this appeal are: (1) Is the purchase price of the 20 lots bought by defendant from plaintiffs the sum of P185,000.00, as claimed by defendant, or P235.056.00, as claimed by plaintiffs?; and (2) Was an oral agreement, coetaneous to the execution of the contract of sale, entered into between the parties to the effect that plaintiffs would undertake the construction of the roads on the lots sold before defendant could be required to comply with her financial obligation? Defendant contends that the contract of sale Exhibit A does not express the true agreement of the parties because certain important conditions agreed upon were not included therein by plaintiffs couns el among which is the promise assumed by plaintiffs that they would undertake to construct the roads that may be required in the subdivision subject sale of the sale on or before January, 1959; that said condition was not placed in the contract because plaintiffs counsel said that it was a superfluity inasmuch as there was then in Quezon City an ordinance which requires the construction of road in a subdivision before the lots therein could be sold; and that, upon the suggestion of plaintiffs counsel, suc h commitment was not included in the contract because the ordinance aforesaid was already deemed to be part of the contract. Plaintiffs, on the other hand, dispute the above contention arguing that there was no such oral agreement or understanding because all that was agreed upon between the parties was already expressed and included in the contract of sale Exhibit A executed between the parties, and since defendant failed to pay the balance of her obligation within the period stipulated the whole obligation became due and demandable thus giving plaintiffs the right to foreclose the mortgage in accordance with law. After considering and evaluating the evidence submitted by both parties, the court a quo found defendants contention well-taken, thereby concluding that the action of plaintiffs was premature. In reaching this conclusion; the court a quo made the following comment: . . . The Court is of the opinion that the construction of the roads was a condition precedent to the enforcement of the terms of Exhibit A, particularly the foreclosure of mortgage, for the reason that the subdivision regulations of Quezon City requires, as a matter of law, that the sellers of lands therein to be converted into subdivision lots must construct the roads in said subdivision before the lots could be sold.

This requirement must have been uppermost in the mind of the parties in this case which led to the execution of the so-called Explanation (Exhibit 3) wherein it is stated that the sum of P50,000.00 was a contribution of the herein defendant for the construction of the roads which the plaintiffs would undertake in accordance with the provisions of the City Ordinance of Quezon City (Exhibit 3). It is to be noted that Exhibit 3 was executed on November 24, 1958, the very day when Exhibit A was also executed. Exhibit 3 also proves that the purchase price is not, as appearing in the deed of sale with mortgage Exhibit A, actually P235,000.00 but only P185,000.00 which would approximately be the price of the entire area of the land sold at the rate of P16.00 per square meter. We find no error in the conclusion reached by the court a quo for indeed that is the condition to be expected by a person who desires to purchase a big parcel of land for purposes of subdivision. In a subdivision the main improvement to be undertaken before it could be sold to the public is feeder roads as otherwise it would be inaccessible and valueless and would offer no attraction to the buying public. And so it is correct to presume was the court a quo did, that when the sale in question was being negotiated the construction of roads in the prospective subdivision must have been uppermost in the mind of defendant for her purpose in purchasing the property was to develop it into a subdivision. That such requirement was uppermost in the mind of defendant is proven by the execution by the plaintiffs of the so-called Explanation (Exhibit 3) on the very day the deed of sale was executed wherein it was stated that the sum of P50,000.00 was advanced by defendant as her contribution to the construction of the roads which plaintiffs assumed to undertake in accordance with the provisions of the City Ordinance of Quezon City. It is to be noted that said document specifically states that the amount of P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed of sale, and this is a clear indication that the real purchase price is only P185,000.00 as claimed by defendant, which would approximately be the price of the entire area of the land at the rate of P16.00 per square meter. A circumstance which lends cogency to defendants claim that the commitment of plaintiffs to construct roads was not inserted in the contract because of the insurance made by their counsel that it would be a superfluity is the fact that in Quezon City there was really an ordinance which requires the construction of roads it subdivision before lots therein could be sold, and considering that this assurance came from the very counsel who prepared the document who even intimated that ordinance was deemed part of the contract, defendant must have agreed to the omission relying on the good faith plaintiffs and their counsel. At any rate, the execute of the document Exhibit 3 clarifies whatever doubt may have existed with regard to the true terms of the agreement on the matter. It is argued that the court a quo erred in allowing presentation of parole evidence to prove that a conteporaneous oral agreement was also reached between parties relative to the construction of the roads for same is in violation of our rule which provides that when the terms of an agreement had been reduced to writing it is to be considered as containing all that has been agreed upon and that no evidence other than the terms there can be admitted between the parties (Section 22, Rule 123). This rule, however, only holds true if there is allegation that the agreement does not express the intent of the parties. If there is and this claim is in issue in the pleadings, the same may be the subject parole evidence (Idem.). The fact that such failure has been put in issue in this case is patent in the answer wherein

defendant has specifically pleaded that the contract of sale in question does not express the true intent of the parties with regard to the construction of the roads. It appearing that plaintiffs have failed to comply with the condition precedent relative to the construction of the roads in the subdivision in question, it follows that their action is premature as found by the court a quo. The failure of defendant to pay the realty and income taxes as agreed upon, as well as to register the mortgage with respect to the Bulacan property, aside from being minor matters, appear sufficiently explained in the brief of defendant-appellee. WHEREFORE, the decision appealed from is affirmed, with costs against appellants RESCISSION IN RECIPROCAL OBLIGATIONS TAN VS. CA In September 1973, Tan Lee Siong applied for a life insurance under Philippine American Life Insurance Company. He stated in the application form that he has no health issues whatsoever and so in November 1973 he was issued a life insurance policy in the amount of P80,000.00. He listed his sons as beneficiaries. In April 1975, Tan Lee Siong died due to hepatoma. His sons filed an insurance claim but PHILAMLIFE denied the same as it alleged that Tan Lee Siong concealed the fact that he was hypertensive, diabetic, and was suffering from hepatoma at the time of his application for the insurance. The beneficiaries averred that PHILAMLIFE can no longer rescind the insurance contract because the insured is already dead. They invoke Section 48 of the Insurance Code which they interpreted to mean that an insurer can only rescind an insurance contract during the lifetime of the insured; and that such rescission should be done within two years prior to the filing of a suit involving the insurance. ISSUE: Whether or not the interpretation of the Tan brothers is correct. HELD: No. The pertinent section in the Insurance Code provides: Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. The so-called incontestability clause precludes the insurer from raising the defenses o f false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insureds lifetime. The phrase during the lifetime found in Section 48 sim ply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is for a period of two years. Note that the policy was in force for only one year and 5 months when Tan Lee Siong died. This means that PHILAMLIFE can still contest and rescind the policy issued by reason of the misrepresentation made by Tan Lee Siong.

Further, because of Tan Lee Siongs statement that he does not have any health issues, the insurance company was misled into believing that he was healthy and so it did not deem a medical checkup to be necessary and that ultimately led to the issuance of the life insurance policy.

VELARDE VS. CA SUMMARY OF DOCTRINE: ed by the contract constitutes a substantial breach of contract

FACTS: improvements erected upon it. Deed of Real Estate Mortgage (DREM). of the property to spouses Avelina and Mariano Velarde. agreed, inter alia, to: 1. Pay Raymundo P800,000.00 2. Assume the obligation to repay the mortgage worth P1.8M 3. Strictly and faithfully comply with all terms and conditions of the mortgage agreement with BPI 4. Pay interests and other charges for late payment levied by the Bank (all in all, to treat the mortgage as if it were originally signed and executed by them) application for assumption of mortgage obligations on the property was still being processed, she will still pay the mortgage obligations in the name of the owner Raymundo 2. should she violate any of the terms and conditions of the DREM, she agrees to (1) forfeit in favor of David Raymundo the P800T plus all payments made to BPI as liquidated damages without necessity of judicial declaration; (2) Raymundos resumption of total ownership of the property; and (3) automatic cancellation of the DSAM , the Velardes stopped payment of the mortgage loan constituted nonperformance of their obligation. o pay the balance provided that Raymundo: 1. deliver actual possession of the property for Velardes immediate occupancy; 2. cause the release of the title and mortgage from BPI and make the title available free from any liens and encumbrances; and 3. execute an absolute deed of sale in Avelina Velardes favor the grounds of failure to comply with the terms and conditions of the DSAM and Undertaking The Velardes filed a Complaint for: 1. Specific performance (enforcement of the DSAM); 2. Nullity of Cancellation; 3. Issuance of a writ of possession; and 4. Damages -Santiago of the RTC of Makati dismissed the complaint, but a new judge granted the Motion for Reconsideration after Justice Ynares-Santiago was promoted to the CA Raymundo to execute a deed of absolute sale and to surrender possession of the property the mortgage resulted in a breach of contract 2. that the rescission of the contract was, therefore, justified 3. that the letter giving new conditions was an attempt to novate, which requires a new agreement between the parties. ISSUES:

I. W/N there was a Breach of Contract. HELD: YES. Velardes failure to perform their correlative obligation (payment of the balance of P1.8M) resulted in a breach. extinguished their obligation to pay the monthly amortizations, which then devolved upon Raymundo again. en a problem if they paid the balance of the purchase price amounting to P1.8M, as agreed upon in the event the application is disapproved. the balance of P1.8M e breach was not the nonpayment of the mortgage, but the nonperformance of their reciprocal obligation to pay the price under the contract of sale buyers obligation under a contract of sale thing, and the buyer obligates itself to pay a price certain in money or its equivalent his obligation has already been performed through constructive delivery, where prior physical delivery is not legally required. Deed of Sale is deemed equivalent to delivery so tried to compel Raymundo to perform obligations beyond those stipulated in the contract before fulfilling their own. II. W/N the breach was substantial enough to justify the rescission of the contract. HELD: YES. The Velardes, in failing to pay the purchase price under the contract of sale, violated the very essence of reciprocity in the contract of sale. LEGAL BASIS: Article 1191 of the Civil Code: The power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what in incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become possible of rescission under Article 1191 was validly exercised y expressed their willingness to pay the price one month after it became due, this does not constitute faithful compliance of their reciprocal obligation, especially considering the offer was made conditional. Song Fo , Zepeda v. CA and Tan v. CA those involved only delays of a few days and the buyers offers to pay were unconditional and accepted by the seller III.W/N the payments were forfeited HELD: NO. Rescission requires mutual restitution. the mortgage contract, what applies are the Civil Code provisions and not the automatic rescission and forfeiture clause of the Undertaking. original situations prior to the inception of the contract payments of P800T and monthly amortizations must be returned, lest one party enrich itself in the expense of the other (Principle of Unjust Enrichment) and not merely to terminate it and release the parties from further obligations to each other

SIY VS. CA

UP VS. DELOS ANGELES Facts: On November 2, 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber there from but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP, which expressly states that, upon default by the debtor ALUMCO, the creditor (UP) has the right and the power to consider the Logging Agreement as rescinded without the necessity of any judicial suit.

ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19, 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. UP filed a complaint against ALUMCO for the collection or payment of the herein before stated sums of money and it prayed for and obtained an order for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. Respondent ALUMCO contended that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.

Issue: Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may disregard the same before any judicial pronouncement to that effect. Held: UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement as rescinded without the necessity of any judicial suit." In connection with Article 1191 of the Civil Code, the Court stated in Froilan vs. Pan Oriental Shipping Co that there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract. It must be understood that the act of 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, being ever 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 the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

PALAY VS. CLAVE Palay Inc. v. Clave G.R. No. L-56076 September 21, 1983 Facts:

1.

On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned by the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The sale price was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and monthly instalments of P246.42 until fully paid.Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly instalment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all instalments paid. 2. Respondent Dumpit paid the down payment and several instalments amounting to P13,722.50 with the last payment was made on December 5, 1967 for instalments up to September 1967. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts and sought consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. 3. Respondent filed a letter complaint with the National Housing Authority (NHA) questioning the validity of the rescission. The NHA held that the rescission is void in the absence of either judicial or notarial demand. Palay, Inc. and Onstott in his capacity as President of the corporation, jointly and severally, was ordered to refund Dumpit the amount paid plus 12% interest from the filing of the complaint. Petitioners' MR was denied by the NHA. Respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the present petition. Issue: W/N demand is necessary to rescind a contract

Ruling: As held in previous jurisprudence, the 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. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. A written notice is indispensable to inform the defaulter of the rescission. Hence, the resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution (as held in the U.P. vs. Angeles case). The act of a party in treating a contract as cancelled should be made known to the other. Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Instalment Payments, emphasized the indispensability of notice of cancellation to the buyer when it specifically provided: Sec. 3(b) ... the actual cancellation of the contract shall take place 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 and upon full payment of the cash surrender value to the buyer. (Emphasis supplied). Moreover, there was no waiver on the part of the private respondent of his right to be notified under paragraph 6 of the contract since it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. Finally, it is a matter of public policy to protect buyers of real estate on instalment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on instalment payments. As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot but since the property had already been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the refund of instalments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. It would be most inequitable if petitioners were to be allowed

to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another. Onstott not personally liable Onstott was made liable because he was then the President of the corporation and the controlling stockholder but there was no sufficient proof that he used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. Finally, there are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold it to a third person. Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.

CAMUS vs. PRICE

BARRERA, J.: Antecedent: On March 30, 1951, Manuel S. Camus and Price, Inc. entered into a contract of lease, the pertinent terms which read: 1. That the said party of the first part/Lessor (Manuel S. Camus) hereby grants, demise and let unto the said part of the second part/Lessee (Price, Inc.), for lawful business purposes, all that certain strong material building with the lot an parcel of land, with an area of 1,700 square meters, situated, lying, and being at No. 60 C. Arellano Street, Malabon, Rizal, covered as Lots Nos. 15 and 16, Block No. 1, Tambobong Estate Psd-11759 of the Rural Progress Administration, to have and to hold the same for the full term of ten (10) years fro April 1, 1951 to March 31, 1960, inclusive, at the monthly rental of P300.00, Philippine Currency, for the above-mentioned building, to be paid without the necessity of express demand therefor on the 1st five (5) days of each ensuing month the residence of the first part/Lessor at Malabon, Rizal; and also at the monthly rental of One Hundred Pesos (P100.00) Philippine Currency, for the use of the leased premises, payable beginning when the construction of the factory is already finished, and likewise payable at the time and place aforementioned; 2. That the party of the second part/Lessee, shall have or cause to erect, build or construct a Factory building and Warehouse of strong materials appropriate to or in furtherance of the business of the party of the second part/Lesee, on the said lot, the plan as to the form and size and other specifications thereof being subject to the joint approval of both parties concerned, at the expense of the party of the second part/Lessee; and that the buildings thereon constructed shall be insured with a competent insurance Company by the party of the second part/Lessee, in an amount equal to the insurable interest of the party of the first part/Lessor , in the sum of at least Fifty Thousand Pesos (P50,000.00) Philippine Currency, for himself, his heirs and/or administrators as his beneficiary; and that the insured buildings (Factory building and Warehouse) hereinbefore mentioned shall not automatically become, without cost, the property of the first part/Lessor, immediately upon the termination of this contract;

xxx

xxx

xxx

5. That the party of the first part/Lessor likewise covenants and agrees to cause or make the necessary filling, at his sole expense, within a year from the signing of this contract, the vacant portion of the lot along the river with an area of about 500 square meters to increase its elevation and enable, the party of the second part/Lessee, to facilitate or make use of the whole lot; as well as to construct building or cause to erect the necessary concrete stone walls provided with barbed wires on top thereof and all expenses incurred or to be incurred incident to the filling as well as to the construction, building and erection of the stone walls, one (1) meter high, with barbed wire to be borne solely by the party of the first part/Lessor, xxx xxx xxx

14. Provided, always, that in case of a breach of any of the covenants on the part of the party of the second part/Lessee, herein contained, the party of the first part/Lessor, may while the default shall continue, and notwithstanding any waiver of any prior breach of conditions, without notice or demand, enter upon the premises, and thereby terminate this lease and may thereupon expel and remove the party of the second part/Lessee; 15. That it is still furthermore agreed that, in case of court litigation by virtue of non-payment of the agreed rents or any other breach of this contract on the part of the party of the second part/Lessee, the party of the first part/Lessor, shall be entitled to collect P1,000.00 as liquidated damages and P500.00 as attorney's fees, exclusive of costs legally taxable. (Emphasis supplied). On January 19, 1954, the Lessee instituted Civil Case No. 2582 of the Court of First Instance of Rizal against the Lessor, for specific performance, damages and extension of the period of the lease, allegedly due to the latter's failure to comply with the aforequoted provisions of paragraph 6 of the contract. Three days later, or on January 22, 1954, the Lessor, in turn, filed in the Justice of the Peace Court of Malabon an action for unlawful detainer (ejectment) against the Lessee (Civil Case No. 1159), allegedly by reason of said defendant's non-payment of rentals since February 16, 1953. On February 10, 1954, the Justice of the Peace Court rendered a decision in the ejectment case, in favor of the Lessor, ordering the Lessee to vacate the premises and pay the plaintiff Lessor rentals in arrears amounting to 4,600.00 and the sum of P400.00 a month until it finally delivers possession of the property to the Lessor; liquidated damages in the sum of P1,000.00; attorney's fees for P500.00, and costs. The Lessee appealed to the Court of First Instance of Rizal, filing therein a cash bond to cover the amounts adjudged by the Justice of the Peace Court, as well as current rentals. The Lessor then filed a motion for execution of the decision appealed from, which was opposed by the Lessee. As the Court of First Instance grants said motion for execution, the Lessee instituted certiorari proceedings in this Court (G.R. No. L-8253). In issuing the writ of certiorari prayed for therein, the ground that the CFI Judge committed a grave abuse of discretion in issuing an order for the execution of the decision of the Justice of the Peace Court despite the "strong equities in favor of Price (Lessee) and the dubious legality or propriety of the decision of the justice of the peace court", this Court said: In their answer, respondents (Camus, et al.) admit some of the allegations of the petition and deny other allegations thereof. Among other things, they, moreover, allege that the obligations of Camus, under the contract of lease, are independent of those of Price; that the filling and construction provided in said contract, have "already been totally" completed; and that the order of July 24, 1954, and the writ of execution were duly issued, for Price had failed, either to pay, or to deposit, the amount of the rentals for April, May and June, 1954.
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At the outset, it should be noted that the very pictures submitted by respondents, as Annexes 9 and 10 to their answer, dated October 11, 1954, show that the stone wall constructed by Camus is of "adobe," and has no barbed wire fence, whereas the contract of lease provides for concrete stone walls . . . with barbed wire." Furthermore, although the portion of the leased property reproduced in Annex 9 appears to have been filled, there is evidence (which has not been contradicted) to the effect that the elevation of said portion is lower by 40 centimeters than the average elevation of said property (see Annex L). Moreover, the pictures Annexes M, N, and O, taken on February 16, 1954, reveal that said portion was then unfilled and even under water. Anyhow, it is not even claimed that said filling and construction had been completed within the year, which expired on March 20, 1952, stipulated in the contract of lease. In fact, the answer filed by respondents before this Court impliedly admits the failure of Camus to make the filing and construction within said period. . . . . At any rate, there is prima facie, if not strong evidence that Camus had not complied with some of his obligations under the contract of lease, and that this breach of contract dates back to March 20, 1952, or about eleven (11) months prior to the alleged default of Price in the payment of rentals (or from February 16, 1953). . . . . It was then held that the obligations of the parties in the contract being reciprocal, the Lessee did not incur in delay until the Lessor complies with what was incumbent upon him, applying Article 1169 of the Civil Code. After the case was remanded to the lower court for further proceedings, the 2 cases Civil Cases Nos. 2582 (for specific performance filed by Price, Inc.) and 2650 (for unlawful detainer, by Camus) were tried jointly, during which the parties adduced evidence in support of their respective allegations. Later, the trial court rendered judgement ordering (1) the cancellation and return of the bond to the Lessee (Price, Inc.); (2) said Lessee to insure the factory building and warehouse for P50,000.00 within 1 month; and (3) the Lessor Camus to fill up the low portion of the leased premises and enclose the part along the river with concrete stone walls topped by barbed wire, within 6 months, and pay the costs. The term of the lease was also fixed for 9 years, from compliance by the Lessor of his aforementioned obligation. Only the Lessor, Manuel Camus, appealed to the Court of Appeals. The Case: In its decision of September 14, 1960, the Court of Appeals, passing upon the respective obligations of the parties under the contract, stated: . . ., it was proved that the lot along the Malabon River, obviously an accretion of lots Nos. 15 and 16, was declared for tax purposes by Ricardo, now represented by his widow, Rosario Sevilla Vda. de Camus, on March 12, 1951 (Tax Declaration No. 10202), and he had been paying taxes therefor as follows: for 1948, 1949, 1950 and 1951 paid on March 15, 1951, for 1952 on March 26, 1952, for 1953 on March 30, 1953, for 1954 on March 17, 1954, and for 1955 on March 30, 1955) (Exh. 14-B). This shows that prior to March 20, 1951, when the contract of lease was executed, and prior to the filing of Civil Case No. 2582 by appellee (Price, Inc.) against appellant (Camus), Ricardo had already been claiming the possession, if not the ownership, of the lot bordering the river, which had accumulated by gradual accretion a total area of 1,425 square meters, the same having been determined even prior to the execution of the contract of lease as shown in the tax declaration issued March 12, 1952. . . . . . . . . Nevertheless, we cannot sustain appellant's contention that the 500 square meters which he obligated himself to fill up and construct a fence should be inside the boundaries of lots Nos. 15 and 16, irrespective of the vacant space therein because paragraph 5 of the contract of lease is clear that said portion of 500 square meters is along the Malabon River. This portion is separate

and distinct from the 1,700 (should be 1,761) square meters of land leased under paragraph 1 of said contract. Still, it is unreasonable to conclude that appellant intended to include the entire area of 1,425 square meters along the river, nor that he only miscalculated the exact area thereof, as the land he leased to appellee. Under the stated facts, we, therefore, hold that appellant, with the apparent conformity of Sy Suan, referred in paragraph 5 of the contract of lease to only a portion of 500 square meters of the entire area containing 1,425 square meters, and that he bound himself to fill up said portion at his expense and to enclose with a one-meter high stone wall and barbed wire on top within a period of one year from March 20, 1951. To require appellant, as the lower court held, to finish filling up the entire area bordering the Malabon River and to surround it with a concrete wall throughout the river bank, would seem unfair to said appellant and contrary to the true intention of the parties in the contract of lease, the principal reason being that the entire area of the lot along the river is undisputedly 1,425 square meters, and not only 500 square meters as stipulated in paragraph 5 of the contract. Besides, it is illogical to allow appellee to utilize more than 500 square meters. Neither would it be just to compel appellant to incur expenses in filling up and building a fence for more than 500 square meters, even if appellee allegedly planned to build a "hot-room" and "cool-room." However, in failing to fill up 500 square meters of the vacant lot along the Malabon River, appellant just the same violated the contract. . . . . Although we subscribe to the view that reciprocal obligations are embodied in the contract of lease, yet, we cannot see our way clear that it was appellant who first committed the breach thereof. Undoubtedly, appellee did not insure the factory building and warehouse. Sy Suan's testimony on this point that he tried to insure but the premiums charged were too high on account of the absence of a stone wall along the river bank, is unmeritorious. When asked, he could not even mention the name of the insurance company he approached, much less the amount of premiums allegedly charged. Moreover, upon failure of appellee to pay rentals, appellant wrote it a letter on January 4, 1954. The question of filling up the vacant lot along the river in accordance with paragraph 5 of the contract of lease was brought up by appellee only in its letter of reply dated January 11, 1954. As things stand, in so far as the third issue is concerned, we cannot really determine who between the parties was actually the first who violated the contract. What we see is, that the parties are in pari delicto. . . . . Based on the foregoing findings, the Court of Appeals declared the contract extinguished, but the parties were made to bear their own losses. (Art. 1192, Civil Code). However, as the Lessee was found to be in continued possession of the properties and in operation of its business during the pendency of the case, it was ordered to compensate the Lessor in the sum of P200.00 a month from February 16, 1953 until it vacated the premises. Furthermore, the lifetime of the contract, having expired on March 31, 1960, the factory building and the warehouse were declared to have automatically become the properties of the Lessor. From said decision, both parties appealed to this Court. The Lessor, as appellant (in Nos. L-17858-59), contends that the Court of Appeals erred in not finding the Lessee Price, Inc. as the first violator of the contract, and in requiring the latter to pay him only the amount of P200.00 a month for the use and occupation of the properties from February 16, 1953 until the same are finally vacated. In its appeal (Nos. L-17865-66), the Lessee, on the other hand, maintains that the Court of Appeals erred in not declaring the Lessor as the first to have committed the breach of the agreement; in requiring said lessee to compensate Camus in the amount of P200.00 a month notwithstanding its finding that the

parties are in pari delicto, and must suffer their own damages; and holding the lease to have terminated as of March 31, 1960. From the factual findings of the Court of Appeals heretofore quoted, which we are not here to review, it appears that the strip of land, with an area of 1,425 square meters, was not originally part of lots 15 and 16 subject of the contract; that the Lessor actually started the fining in and fencing of a portion of 500 square meters thereof, as undertaken by him, but did not completely comply therewith, the fence being only of adobe stone without barbed wires, and the filling being 40 centimeters lower than the elevation of the lot under lease; that, on the other hand, notwithstanding the completion of the factory building and warehouse, the Lessee, in his turn, failed to secure insurance therefor as stipulated; that the Lessee, likewise, defaulted in the payment of the rentals as of February 16, 1953; and that the Lessor's failure to comply with its obligation could not be the cause of the Lessee's non-fulfillment of its commitments under the contract. With these established facts, the conclusion reached by the Court of Appeals, that the parties are in pari delicto is not without foundation or justification. Although in the incidental case G.R. No. L-8253, this Court in effect declared the Lessor Camus prima facie to be the first to be the first to commit a breach of the agreement, it may be pointed out that in making such pronouncement, only the matter of the Lessee's default in the payment of rentals was considered. Upon the continuation of the proceedings, however, it was established, as so found by the Court of Appeals, that the Lessee also failed to cover the buildings in September, 1951, with insurance in violation of the specific terms of the contract. As a matter of fact, until the instant case were filed, no such insurance was drawn on the aforesaid factory building and warehouse. Upon the other hand, while it may be true that the duty imposed on the Lessor under the contract, to increase the elevation of the low portion of the lot and erect thereon a concrete stone wall topped with barbed wire was provided only to "facilitate or make use (by the Lessee) of the whole lot" allegedly a subordinate and collateral condition of the contract it is not herein denied that such condition was not complied with by the Lessor. And this obligation matured in March, 1952. Even assuming, therefore, that the Lessee's obligation to insure the building arose after the completion of the construction of the buildings in September, 1951, as the Lessor also defaulted in the performance of his corresponding duty, it can not really be determined with definiteness who of the parties committed the first infraction of the terms of the contract. Under the circumstances, the conclusion reached by the Court of Appeals, that the parties are actually in pari delicto, must be sustained, and the contract deemed extinguished, with the parties suffering their respective losses. Considering, however, that the Lessor was (and must still be) in continuous occupancy of the premises during the pendency of the case, conducting, and operating, its business therein as usual and profiting thereby, whereas the Lessor was not only deprived of the possession of his property but also of the rentals therefore since February 16, 1953, said Lessee must be required to compensate the Lessor for such occupancy. The Lessor, on the other hand, as a result of the termination of the lease, will acquire the buildings of the Lessee which were constructed on the leased premises. Under the circumstances of the case, we find the decision of the Court of Appeals directing the payment by Price, Inc. of the sum of P200.00 per month from February 16, 1953, until it vacates the premises, to be in accord with justice. WHEREFORE, the decision of the Court of Appeals appealed from is hereby affirmed in all respects, without costs. So ordered.