RESOLUTORY CONDITION
QUIJADA VS. CA- RESOLUTORY CONDITION IN DONATIONS
When a person donates land to another on a condition. The condition imposed is not a condition precedent or a
suspensive condition but a resolutory one.
FACTS:
Petitioners are the children of the late Trinidad Quijada. Trinidad and her siblings executed a deed of donation of a
two-hectare lot in favor of the Municipality of Talacogon (Agusan del Sur), exclusively for the purpose of constructing
the proposed provincial high school. However, possession remained with Trinidad. She subsequently sold the two
hectares on two separate occasions to Regalado Mondejar, who sold it to different persons. Eventually, the
Municipality, failing to construct the high school, reverted ownership to the donors. Petitioners filed an action for
quieting of title and recovery of possession and ownership. RTC ruled in favor of petitioners, but CA reversed.
ISSUE:
Whether the deed of donation had a suspensive condition or a resolutory condition
Whether the sale was valid
RULING:
When the donation was accepted, the ownership was transferred to the school, only subject to a condition that a
school must be constructed over the lot. Since ownership was transferred, and failure to fulfill the condition reverts
the ownership back to the donor, it is a resolutory condition.
(Not really a discussion in Property) When Trinidad sold the parcels of land to Mondejar, she was not the owner of
the land. Petitioners also did not sleep on their rights to recover the possession and ownership over the property
since they immediately filed the action when the municipality passed the resolution, reverting the ownership of land to
the donors. However, a sale being a consensual contract, it can be perfected upon meeting of the minds, and
completing the three essential elements of a valid contract of sale. Even when Trinidad was not the owner when the
sale was perfected, tradition through delivery is only important upon the consummation stage. Such transfer of
ownership through actual or constructive delivery only happened when the lands reverted back to petitioners. Art
1434 is applicable, stating that seller's "title passes by operation if law to the buyer," and therefore making the sale
valid. The donated lots cannot be considered outside the commerce of man, since nowhere in the law states that
properties owned by municipality would be as such.
MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION INC V. ARA SECURITY
doctrine
The mere grant to one party of the right to terminate the agreement because of the nonpayment of an
obligation established therein does not ipso facto give the other party the same right to end the
contract on the ground of allegedly unsatisfactory service. Concededly, parties may validly stipulate
the unilateral rescission of a contract.
contested provision
5. MODE OF PAYMENT: After 3 months of satisfactory performance, the parties may negotiate for the
extension of this contract and other matters that might be advantageous to both parties.
"This Contract shall take effect on May 25, 1994 and shall be for a period of 1 Year from said date.
Thereafter, it shall be deemed renewed for the same period unless either party notifies the other in
writing not later than 1 month before the expiry of its intent not to renew.
"14. Either party may terminate this contract for legal cause by written notice given to the other party
not later than 30 days prior to the expiry date."
Facts
Peaches Security was hired by Multinational Village Homeowners Association, Inc. to provide
security services from May 25, 1994 - 1995 on a monthly fee of P107,500 .
Aug 29, 1994, President of Multinational terminated the contract having found the guards
services to be unsatisfactory, for repeated violations of the Security Guards Code of Ethics
and Conduct.
Sep 13 - Peaches commenced the present suit for injunction with PI + TRO which was granted.
Multinational: it has the right to pre-terminate the contract under par 5 thereof stating:
5. MODE OF PAYMENT: After 3 months of satisfactory performance, the parties may
negotiate for the extension of this contract and other matters that might be advantageous
to both parties.
RTC ruled in favor of the CA.
Ruling of the CA
Par 5 did not provide for a pre-termination option, but was "a mere superfluity with no clear
meaning."
Pre-termination was not supported by evidence.
 Issue: Whether the pre-termination of the Contract was valid.
par 5 cannot be deemed to be a resolutory condition
The consequence of unsatisfactory performance is not specified in the Contract of Guard Services.
There is no stipulation permitting petitioners to terminate the Contract upon an unsatisfactory
performance of the security guards.
Par 5 simple means that the parties may extend the Contracts life upon mutual
agreement. The provision was a mere superfluity. The parties need not provide that they may
extend the Contract should they mutually agree, because they may do so with or without
this benign provision. Although par 5 mentions extensions, it is ominously and significantly silent on
the matter of pre-termination.
Parties may validly provide for resolutory conditions and unilateral rescission in their contract.
However, par 5 is not a resolutory condition, as it is not one that constitutes "a future and
uncertain event, upon the happening or fulfillment of which rights which are already acquired by
virtue of the obligation are extinguished or lost."
Petitioners cannot be deemed to have the contractual right to pre-terminate the Contract
unilaterally. Such interpretation is a direct contravention of par 12, which states that the term shall be
1 year.
instrument construed so as to give effect to all provisions
Petitioners contend that the court a quo did not comply with Sec 11 of Rule 130, because it failed to
give effect to par 5. They further invoke Sec 12 of the same Rule, arguing that relative to the provision
of the Contract on the duration of its effectivity, which is one year, par 5 is a particular provision. They
conclude that since the two provisions are inconsistent, par 5 -- being the particular provision -- should
prevail.
Rule 130.11 states that "[i]n the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be adopted as will give
effect to all." Contrary to petitioners contention, par 5 is not inconsistent with par 12. More
important, the former does not in any way deal with the termination of the Contract. Neither does it
provide for a right to rescind.
rescission will not be permitted for a casual breach of a contract
The right to rescind is implied in reciprocal obligations (NCC 1191). Rescission will not be permitted
for a slight or casual breach of a contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in entering into the agreement.
letter-complaints presented in court were mere hearsay
MVHA failed to produce evidence of the alleged breach of obligation by Peaches. The
Letter-Complaints presented in court were neither identified, nor were their contents affirmed, by their
authors.
Evidence is called hearsay when its probative force depends, in whole or in part, on the
competency and credibility of some persons other than the witness by whom it is sought
to produce it. There are three reasons for excluding hearsay evidence: (1) absence of cross
examination; (2) absence of demeanor evidence, and (3) absence of the oath."
RECIPROCAL OBLIGATION
U.P. V. DE LOS ANGELES (1970)
Petitioners: UNIVERSITY OF THE PHILIPPINES
Respondents: WALFREDO DE LOS ANGELES, IN HIS CAPACITY AS JUDGE OF THE COURT OF FIRST
INSTANCE IN QUEZON CITY, AND ASSOCIATED LUMBER MANUFACTURING COMPANY, INC. (ALUMCO)
Ponente: REYES, J.B.L.
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
- UP and ALUMCO entered into a logging agreement under which ALUMCO was granted exclusive
authority from the date of agreement (Nov. 2, 1960) to Dec. 31, 1965 (extendible by 5 years by mutual
agreement), to cut, collect and remove timber from the Land Grant (situated at the Lubayat areas in
Laguna and Quezon), in consideration of payment to UP of royalties and forest fees, etc.
- As of Dec. 8 1964, ALUMCO incurred an unpaid account of P219,362.94 which it had failed to pay despite
repeated demands.
- After UP sent a notice of rescission or termination of the logging agreement, ALUMCO executed an
instrument entitled Acknowledgement of Debt and Proposed Manner of Payments dated Dec. 9,
1964 which was approved by the UP president. The instrument stipulated the following:
o 5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this
document, the DEBTOR agrees without reservation that the CREDITOR shall have the right
and the power to consider the Logging Agreement dated December 2, 1960 as rescinded
without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of
right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;
- After ALUMCO again incurred an additional unpaid account amounting to P61 133.74, UP informed
ALUMCO on Jul 19, 1965 that UP considered the logging agreement as rescinded and of no further legal
effect.
- UP filed a complaint for the collection of money in accordance to the stipulations in the instrument.
- UP also began looking for another concessionaire to take over the logging operation by advertising an
invitation to bid.
- ALUMCO filed a petition to enjoin UP from conducting the bidding which was granted by the CFI.
- When UP had received the order, it had already concluded its contract with Sta. Clara Lumber Company,
Inc. and the latter had started logging operations.
- On motion by ALUMCO, the court declared UP in contempt of court and prohibited Sta. Clara from
continuing logging operations in the concession (pending before CA).
- Before the SC, ALUMCO repeated its defenses in the court below, including: UP's unilateral rescission of
the logging contract, without a court order, was invalid. The CFI agreed with ALUMCO on this point
ISSUES:
WoN UP can treat its contract with ALUMCO rescinded and disregard the same before any judicial
pronouncement to that effect
RULING
o YES. The stipulation between UP and ALUMCOs instrument gave UP the right and power to
render the logging agreement as rescinded without the necessity of a judicial suit.
 o This stipulation is in connection with Art. 1191 of the Civil Code and the SCs ruling in Froilan v.
Pan Oriental Shipping Co.: 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.
o However, if one party treats a contract as cancelled by virtue of infractions of the other, it must
be made known to the latter. It is also provisional and can be subject to scrutiny 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.
o In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law.
o But the law definitely does not require that the contracting party who believes itself injured must
first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages (Art. 2203).
o (a) In the light of the foregoing principles, and considering that the complaint of UP made out a
prima facie case of breach of contract and defaults in payment by ALUMCO, to the extent that
the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations,
and repeatedly denied its motions to lift the injunction; (b) that it is not denied that ALUMCO had
profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment
of Debt and Proposed Manner of Payment"); (c) that the excuses offered in the second
amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten
condition of the logs in ALUMCOs pond, which ALUMCO was in a better position to know when
it executed the acknowledgment of indebtedness, do not constitute on their face sufficient
excuse for non-payment; (d) and considering that whatever prejudice may be suffered by
ALUMCO is susceptibility of compensation in damages, the acts of the court below in
enjoining UPs measures to protect its interest without first receiving evidence on the
issues tendered by the parties, and in subsequently refusing to dissolve the injunction,
were in grave abuse of discretion, correctible by certiorari.
SPS. FELIPE AND LETICIA CANNU VS SPS. GIL AND FERNANDINA GALANG AND NATIONAL
HOME MORTGAGEFINANCE CORPORATIONG.R. NO. 139523MAY 26, 2005
FACTS: In order to buy a house and lot with an area of 150 square meters in Pulanglupa, Las Pinas City, Gil and
Fernandina Galang (herein respondents) loaned from Fortune Savings and Loan Association(FSLA) the amount
of Php 173,800.00. In order to pay it, they mortgaged the property in favour of the Fortune Savings and Loan
Association and the National Home Mortgage Finance Corporation (NHMFC)bought the lot from FSLA. Leticia
Cannu, one of the petitioners in this case, agreed to purchase the mortgaged property for Php 120,000.00 and
to assume the balance of the mortgage obligations with the NHMFC and the developer of the property.
Several payments were made and there was a remaining balance of Php 45,000.00. A deed of sale & assumption
of mortgage was executed between the Galang and Cannu spouses and the petitioners immediately took
possession and occupied the house and lot. Although there have been requests by Adelina Timbang (the
attorney-in-fact) and Fernandina Galang for the payment of the balance, else the Cannu spouses would be
forced to vacate the property, the Cannus refused to do so. On May 21, 1993, Fernandina Galang paid Php 233,
957.64 as the full payment of the remaining balance in the mortgage loan with the NHMFC. The Cannus
opposed the release of Transfer Certificate Title Number T-8505 in favour of the Galangs insisting that the
subject property had already been sold to them. A Complaint for Specific Performance and Damages was filed
praying that the Cannu spouses be declared as owners of the house and lot involved subject to reimbursements
of the amount made by the Galang spouses in pre-terminating the mortgage loan with NHMFC.
ISSUES: Whether or not the petitioners breach of obligation was substantial; whether or not there
was
no substantial compliance with the obligation to pay the monthly amortization with the NHMFC; whether or
not the action for rescission was subsidiary
HELD: The failure of the Cannus to pay the Php 45,000.00 is a substantial breach of obligation. Under Article
1191 of the Civil Code of the Philippines, the resolution of a party to pay an obligation is founded on a breach
of faith by the other party which violates the reciprocal obligation. The petitioners had ample amount of time
to pay the amount, but despite the demands to pay such, they did not comply with their obligation. Rescission
may only occur on breaches which are substantial in order to defeat the object of the parties in making the
agreement. Furthermore, Felipe and Leticia Cannu committed another breach in obligation on the Deed of Sale
with Assumption of Mortgage. The mortgage obligation with the NHMFC was not formally assumed on account of the
Cannus failure to submit the
requirements in order to be considered as successors-in-interest of the involved house and lot in Pulanglupa.
Article 1191, not Article 1381, is the applicable provision in the case at bar since it is are taliatory provision in
a sense that the action is not substantive and because it is the duty of the court to require the parties
involved to surrender whatever they may have received from the other in the resolution of the Deed of Sale
with Assumption of Mortgage. It is unjust that a party is bound to fulfil his part of the obligation when the
other does not do his part.
ONG V. BOGALBAL
G.R. 149140|SEPTEMBER 12, 2006
PONENTE: CHICO-NAZARIO, J.
Facts:
Ernesto Bogalbal, an architect-contractor, entered into an Owner-Contractor Agreement with
Victoria Ong for the construction of a proposed boutique owned by the latter. The Agreement
stipulates a contract price of P200k and that payments shall be made by progress billing to be
collected every 2 weeks based on value of work accomplishment.
Petitioner refused to pay the 4th Billing Period covering March 4-18, 1995 equivalent to 15.47% of
the total job. Respondent contends that her refusal to pay was linked to the petitioners request to
rush the flooring which caused damage to the tile color. The petitioner, on the other hand,
contends that her refusal to pay was in relation to an excess of the value of the work
accomplished.
The petitioner and the respondent made a compromise agreement that the petitioner shall pay
the respondent the 4th Billing payment if the flooring is finished by April 24, 1995. When it
became apparent that he could not complete the flooring on or before said date, he abandoned
the job.
The petitioners continued refusal to pay brought the respondent to file a complaint. The MeTC
ruled in favor of the respondent while the RTC ruled in favor of the petitioner. The CA, on the other
hand, reversed and set aside the RTC decision.
Issues/Ruling:
WON Ongs refusal to pay is grounded on a novation of the agreement i.e. to finish the flooring?-
NO
 o Ong claims a defense that the respondent agreed to finish the flooring before the 4th
billing shall be paid. She contends that this obligation was not fulfilled hence payment is
not due.
o If there is indeed an agreement then there has been a novation. However, novation is
never presumed. The evidence shows that there has been no novation of the contract.
o Even assuming that there is indeed a novation of the contract, according to Art. 1186 of
NCC, the condition of finishing the flooring is deemed fulfilled when Ong hired new
contractors which prevented Bogalbal to fulfill such condition.
WON respondent is justified in abandoning the project?-NO
o According to Art. 1191 par. 1 of NCC, the failure of the petitioner to fulfill her obligation to
pay grants the respondent the power to rescind his obligation to finish the job. However,
such power to rescind, absent a stipulation in the Owner-Contractors Agreement, can
only be empowered by resorting to the courts i.e. a judicial declaration.
WON petitioner is entitled to the award of damages?-NO
o According to Art. 1192 of NCC, when both parties to the contract committed a breach of
the obligation, the second infractor is not liable to damages because it is deemed
compensated by the first infractors liability for damages . However, the first infractor is
still liable for damages but the same should be tempered by the courts.
o Art. 2215(1) does not conflict with Art 1192. The former provision merely states that the
courts can mitigate the damages equitably. Such provision still contemplates that the
one whose liability for damages may be mitigate is the first infractor.
o It is petitioner who first violated the contract. Hence, it is Ong who is liable for damages
which may be redued depending on what is equitable under the circumstances.
o CAUTION: Art. 1192 presupposes that the contracting parties are on equal footing with
respect to their principal obligations. The respondent was able to finish 88.5% of the
original contract and 60% of the flooring while only 73.38% of the contract was paid.
Petitioner must first pay the value of the accomplished work before damages shall be
computed.
PRYCE CORPORATION V PAGCOR (OBLIGATIONS AND CONTRACTS)
Pryce Corporation v PAGCOR
GR No. 157480
May 6, 2005
RESCISSION OR TERMINATION
FACTS: PAGCOR set up a casino in Pryce Plaza Hotel for a period of 3 years. However, there has been
interruptions in the operations which ultimately caused the operations to cease prematurely upon
order of the Office of the President.
ISSUE:
(1) Whether or not Pryce is entitled to future rentals as provided in the contract even if PAGCOR
contends, as the CA ruled, that Article 1659 of the Civil Code governs; hence, PPC is allegedly no
longer entitled to future rentals, because it chose to rescind the Contract.
(2) Whether or not PAGCOR should be exempt from complying with its contractual obligations due to
fortuitous events
(3) Whether or not the future rentals constitute a penalty clause
CA: The CA ruled that the PAGCOR'S pretermination of the Contract of Lease was unjustified. The
appellate court explained that public demonstrations and rallies could not be considered as fortuitous
events that would exempt the gaming corporation from complying with the latter's contractual
obligations. Therefore, the Contract continued to be effective until PPC elected to terminate it on
November 25, 1993.
Regarding the contentions of PPC, the CA held that under Article 1659 of the Civil Code, PPC had the
right to ask for (1) rescission of the Contract and indemnification for damages; or (2) only
indemnification plus the continuation of the Contract. These two remedies were alternative, not
cumulative, ruled the CA.
As PAGCOR had admitted its failure to pay the rentals for September to November 1993, PPC
correctly exercised the option to terminate the lease agreement.
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APPLICABLE LAW/S: Art. 1659. If the lessor or the lessee should not comply with the obligations set
forth in Articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in force. (1556)
Art. 1654. The lessor is obliged: (1) To deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended; (2) To make on the same during the lease
all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless
there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract. (1554a)
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. (1091a)
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code. (1152a)
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
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HELD: (1) Pryce is entitled to future rentals as the provisions are not contrary to law, morals, public
order, or public policy.
The above provisions leave no doubt that the parties have covenanted 1) to give PPC the right to
terminate and cancel the Contract in the event of a default or breach by the lessee; and 2) to make
PAGCOR fully liable for rentals for the remaining term of the lease, despite the exercise of such right
to terminate. Plainly, the parties have voluntarily bound themselves to require strict compliance with
the provisions of the Contract by stipulating that a default or breach, among others, shall give the
lessee the termination option, coupled with the lessor's liability for rentals for the remaining term of
the lease. Article XX (c) provides that, aside from the payment of the rentals corresponding to the
remaining term of the lease, the lessee shall also be liable "for any and all damages, actual or
consequential, resulting from such default and termination of this contract." Having entered into the
Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its
obligations. It cannot evade further liability for liquidated damages.
(2) PAGCOR is not exempt from complying with the provisions as rallies and demonstrations are not
considered fortuitous events.
In this case, PAGCOR's breach was occasioned by events that, although not fortuitous in law, were in
fact real and pressing. From the CA's factual findings, which are not contested by either party, we find
that PAGCOR conducted a series of negotiations and consultations before entering into the Contract.
It did so not only with the PPC, but also with local government officials, who assured it that the
problems were surmountable. Likewise, PAGCOR took pains to contest the ordinances before the
courts, which consequently declared them unconstitutional. On top of these developments, the
gaming corporation was advised by the Office of the President to stop the games in Cagayan de Oro
City, prompting the former to cease operations prior to September 1993.
Also worth mentioning is the CA's finding that PAGCOR's casino operations had to be suspended for
days on end since their start in December 1992; and indefinitely from July 15, 1993, upon the advice
of the Office of President, until the formal cessation of operations in September 1993. Needless to
say, these interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected
revenues, not to mention the fact that it had fully operated under the Contract only for a limited time.
(3) Pryce's right to penalty is affirmed but proved iniquitous.
While petitioner's right to a stipulated penalty is affirmed, we consider the claim for future rentals to
the tune of P7,037,835.40 to be highly iniquitous. The amount should be equitably reduced. Under
the circumstances, the advanced rental deposits in the sum of P687,289.50 should be sufficient
penalty for respondent's breach.
Accordingly, respondent is ordered to pay petitioner the additional amount of P687,289.50 as penalty,
which may be set off or applied against the former's advanced rental deposits.
OTHER NOTES:
In legal contemplation, the termination of a contract is not equivalent to its rescission. When an
agreement is terminated, it is deemed valid at inception. Prior to termination, the contract binds the
parties, who are thus obliged to observe its provisions. However, when it is rescinded, it is deemed
inexistent, and the parties are returned to their status quo ante. Hence, there is mutual restitution of
benefits received. The consequences of termination may be anticipated and provided for by the
contract. As long as the terms of the contract are not contrary to law, morals, good customs, public
order or public policy, they shall be respected by courts. The judiciary is not authorized to make or
modify contracts; neither may it rescue parties from disadvantageous stipulations. Courts, however,
are empowered to reduce iniquitous or unconscionable liquidated damages, indemnities and penalties
agreed upon by the parties.
DIFFERENCE BETWEEN RESCISSION & TERMINATION RESCISSION (OR RESOLUTION)
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.
The injured party may choose between the 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 impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles
1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to remain in force. (1556)
To rescind is to declare a contract void in its inception and to put an end to it as though it never
were. It is not merely to terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore the parties to relative positions which they would have
occupied had no contract ever been made.
Rescission has likewise been defined as the "unmaking of a contract, or its undoing from the
beginning, and not merely its termination." Rescission may be effected by both parties by mutual
agreement; or unilaterally by one of them declaring a rescission of contract without the consent of the
other, if a legally sufficient ground exists or if a decree of rescission is applied for before the courts
TERMINATION (OR CANCELLATION)
The termination or cancellation of a contract would necessarily entail enforcement of its terms prior
to the declaration of its cancellation in the same way that before a lessee is ejected under a lease
contract, he has to fulfill his obligations thereunder that had accrued prior to his ejectment. However,
termination of a contract need not undergo judicial intervention.
"end in time or existence; a close, cessation or conclusion." With respect to a lease or contract, it
means an ending, usually before the end of the anticipated term of such lease or contract, that may
be effected by mutual agreement or by one party exercising one of its remedies as a consequence of
the default of the other
G.G. SPORTSWEAR MFG. CORP. v.WORLD CLASS PROPERTIES, INC.
G.R. No. 182720 March 2, 2010
FACTS:
GG Sportswear offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in
World Class's condominium project for the discounted, pre-selling price. After GG Sportswear paid the
reservation fee, the parties, signed a Reservation Agreement that provides for the schedule of
payments, including the stipulated monthly installments on the down payment and the balance on the
purchase price. From May to December 1996, GG Sportswear timely paid the installments due.In a
letter dated January 30, 1997, GG Sportswear requested the return of the outstanding postdated
checks it previously delivered to World Class because it (GG Sportswear) intended to replace these old
checks with new ones from the corporations new bank. World Class acceded, but suggested the
execution of a new Reservation Agreement to reflect the arrangement involving the replacement
checks, with the retention of the other terms and conditions of the old Agreement.8 GG Sportswear
did not object to the execution of a new Reservation Agreement, but requested that World Class defer
the deposit of the replacement checks for 90 days. World Class denied this request, contending that a
deferment would delay the subsequent monthly installment payments. It likewise demanded that GG
Sportswear immediately pay its overdue January 1997 installment to avoid the penalties provided in
the Agreement. GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a
letter to World Class, requesting that its check dated April 24, 1997 be deposited on May 15, 1997
because it was experiencing financial difficulties. When World Class rejected GG Sportswears request,
GG Sportswear sent another letter informing World Class that the second Reservation Agreement was
incomplete because it did not expressly provide the time of completion of the condominium unit.
World Class countered that the provisional Contract to Sell it previously submitted to GG Sportswear
expressly provided for the completion date (December 15, 1998) and insisted that GG Sportswear pay
its overdue account.
ISSUE:
Whether there was no breach on the part of World Class to justify the rescission and refund.

RULING:
GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or the
refund of payments it made to World Class under the Agreement.Unless the parties stipulated it,
rescission is allowed only when the breach of the contract is substantial and fundamental to the
fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the
attendant circumstances.GG Sportswear anchors its claim for rescission on two grounds: (a) its
dissatisfaction with the completion date; and (b) the lack of a Contract to Sell. As to the first ground,
World Class makes much of the fact that the completion date is not indicated in the Agreement,
maintaining that this lack of detail renders the Agreement void on the ground that the intention of the
parties cannot be ascertained. We disagree with this contention.In the first place, GG Sportswear
cannot claim that it did not know the time-frame for the projects completion when it entered into the
Agreement with World Class. As World Class points out, it is absurd and unbelievable that Mr. Gidwani,
the president of GG Sportswear and an experienced businessman, did not have an idea of the
expected completion date of the condominium project before he bought the condominium units for
P89,624,272.82. Even assuming that GG Sportswear was not aware of the exact completion date, we
note that GG Sportswear signed the Agreement despite the Agreements omission to expressly state a
specific completion date. This directly implies that a specific completion date was not a material
consideration for GG Sportswear when it executed the Agreement. Thus, even if we believe GG
Sportswears contention that it was dissatisfied with the completion date subsequently indicated in the
provisional Contract to Sell, we cannot consider this dissatisfaction a breach so substantial as to
render the Agreement rescissible.
SOLAR HARVEST, INC. V. DAVAO CORRUGATED CARTON CORPORATION G.R. NO. 176868 (JULY 26, 2010)
Facts:
1. The petitioner (Solar Harvest, Inc., Solar for brevity) entered into an agreement with respondent, Davao
Corrugated Carton Corporation (DCCC for brevity), for the purchase of corrugated carton boxes, specifically designed
for petitioners business of exporting fresh bananas.
2. The agreement was not reduced into writing.
3. To start the production, Solar deposited in DCCCs US Dollar Savings Account with Westmont bank, as full
payment for the ordered boxes.
4. Despite such payment, Solar did not receive any boxes from DCCC.
5. Solar wrote a demand letter for reimbursement of the amount paid.
6. DCCC replied that the boxes had been completed as early as April 3, 1998 and that Solar failed to pick them
up from the formers warehouse 30 days from completion, as agreed upon. It was also mentioned that Solar placed an
additional order, out of which, half had been manufactured without any advanced payment from Solar. (Solar alleges
that the agreement was for DCCC to deliver within 30 days from payment the said cartons to Tagum Agricultural
Development Corporation (TADECO) which the latter failed to manufacture and deliver within such time.)
7. DCCC then demanded Solar to remove the boxes from the factory and to pay the balance for the additional
boxes.
Issue/s:
Whether or not the respondent (Davao Corrugated Carton Corporation) is in default.
Ruling:
No. It was unthinkable that, over a period of more than two years, Solar did not even demand for the delivery of the
boxes. Even assuming that the agreement was for DCCC to deliver the boxes, the latter would not be liable for breach
of contract as Solar had not yet demanded from it the delivery of the boxes.
In reciprocal obligations, as in contract of sale, the general rule is that the fulfillment of the parties respective
obligation should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically incurs delay. But when different dates for
performance of the obligation are fixed, the default for each obligation must be determined, that is, the other party
would incur in delay only from the moment the other party demands fulfillment of the formers obligation. Thus, even
in reciprocal obligations, if the period for the fulfillment of the formers obligation is fixed, demand upon the obliged
is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue.
Solar alleges that they made a follow-up upon respondent, which, however, would not qualify as a demand for the
fulfillment obligation. The former also testified that they made a follow-up of the boxes, but not a demand.
Even assuming that a demand had been previously made before filling the present case Solars claim for
reimbursement would still fail, as the circumstances would show that DCCC was not guilty of breach of contract.
Aside from the pictures of the finished boxes and the production report thereof, there is ample showing that the
boxes had already been manufactured by DCCC. There is the testimony of Estanislao who accompanied Que to the
factory, attesting that, during the first visit to the company, they saw the pile of boxes and Que took a samples
thereof. Que, himself confirmed this incident. He testified that Tan pointed the boxes to him and got a sample and
saw that it was blank. Ques absolute assertion that the boxes were not manufactured is, therefore, implausible and
suspicious.
DCCC was willing to shoulder expenses for a representative of the court to visit the plant and see the boxes. It also
prays that Solar be ordered to remove the boxes from its factory site, which would only mean that the boxes are, up to
the present, still in DCCCs premises.
Assuming that DCCC was obliged to deliver the boxes, it could not have complied with such obligation. Que, admitted
that he did not given DCCC the authority to deliver the boxes to TADECO. Surely, without such authority, TADECO
would not have allowed to deposite the boxes within its premises.
BONIFACIO SANZ MACEDA, JR. VS. DBO / DBP
Contracts; rescission. Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific
performance and rescission with damages in either case. However, we have ruled that if specific performance
becomes impractical or impossible, the court may order rescission with damages to the injured party. After the lapse
of more than 30 years, it is now impossible to implement the loan agreement as it was written, considering the
absence of evidence as to the rising costs of construction, as well as the obvious changes in market conditions on
the viability of the operations of the hotel. We deem it equitable and practicable to rescind the obligation of DBP to
deliver the balance of the loan proceeds to Maceda. In exchange, we order DBP to pay Maceda the value of
Macedas cash equity of P6,153,398.05 by way of actual damages, plus the applicable interest rate. The present
ruling comes within the purview of Macedas and DBPs prayers for other reliefs, just or equitable under the
premises. Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No. 174979 & G.R.
No. 175010, August 11, 2010.
HEIRS OF GAITE VS THE PLAZA INC.
G.R. No. 177685 January 26, 2011
FACTS:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its
President, Jose C. Reyes, entered into a contract with Rhogen Builders (Rhogen), represented by Ramon C.
Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price of
P7,600,000. On July 28, 1980, The Plaza paid P1,155,000 down payment to Gaite and soon after Rhogen
commenced construction of the restaurant building.2 Months later, Engineer Angelito Z. Gonzales, the Acting
Building Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with the
construction of the building for violation of The National Building Code.
The Plazas Project Manager Architect Roberto evaluated the Progress Billing and Tayzon stated that actual jobsite assessment
showed that the finished works fall short of Rhogens claimed percentage of accomplishment and Rhogen was entitled to only
P32,684.16 and not P260,649.91 being demanded by Rhogen. On the same day, Gaite notified Reyes that he is
suspending all construction works until Reyes and the Project Manager cooperate to resolve the issue he had
raised to address the problem.
Gaite informed The Plaza that he is terminating their contract based on the Contractors Right to Stop
Work or Terminate Contracts as provided for in the General Conditions of the Contract and demanded the
payment of P63,058.50 representing the work that has already been completed by Rhogen. Reyes also
informed Gaite that The Plaza will continue the completion of the structure utilizing the services ofa
competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the
Contract The Plaza filed a civil case for breach of contract, sum of money and damages against Gaite and FGU
in the Court of First Instance (CFI) of Rizal. The RTC Makati rendered its decision granting in favor of
thePlaza against Gaite. The Court of Appeals affirmed such decision with modification.
ISSUE:
Whether or not the Rhogen had factual or legal basis to terminate the General ConstructionContract.
HELD:
The construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latters obligation to pay the contract price or progress billing is conditioned on theformers
specified performance. Pursuant to its contractual obligation, The Plaza furnished materialsand paid the
agreed down payment.Rhogen, having breached the contractual obligation it had expressly assumed specifically
to comply withall laws was already at fault. Respondent The Plaza, on the other hand, was justified in
withholdingpayment on
Rhogen
s first progress billing.Upon the facts duly established, Rhogen committed a serious breach of its contract with The Plaza,
which justified the latter in terminating the contract.Article 1170 of the Civil Code provides that those who in the
performance of their obligations are guilty offraud, negligence or delay and those who in any manner contravene the tenor thereof are
liable fordamages. Petition DENIED