Chapter 3.

1
1. Pay v. Palanca (1974)
1) Petitioner George Pay is a creditor of the deceased Justo Palanca who died in Manila on July 3, 1963.
2) The claim of George Pay is based on a promissory note dated January 30, 1952, whereby Justo Palanca and Rosa Gonzales Vda.
de Carlos Palanca promised to pay George Pay the amount of P26,900.00 with interest thereon at 12% per annum.
3) Pay is now before the SC, asking that Segundina Chua Palanca, surviving spouse of Justo Palanca, be appointed as administratix in
the name of Justo Palanca.
4) The property sought to be administered is a piece of property which is a residential dwelling located at Taft Ave, Manila.
5) George Pay's idea is that once the property is administered, he can then file his claim against the administratix.
6) However, Segundina refused to be appointed as administratix, so the petition should not prosper.
7) Segundina also claimed that the property no longer belonged to Justo, and that the rights of George Pay as creditor has already
prescribed.
8) The promissory note dated January 30, 1952 is worded thus:
i. "For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay]
at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of
cash payment from the Estate of the late Don Carlos Palanca or upon demand"
9) As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca. Then came this paragraph:
i. "The Court has inquired whether any cash payment has been received by either of the signers of this promissory
note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this provision but
that petitioner is only claiming on his right under the promissory note."
10) After which, came the ruling of the trial court that the wording of the promissory note being "upon demand" the obligation was
immediately due.
11) Since it was dated January 30, 1952, it was clear that more than 10 years has already transpired from that time until to-date.
12) The action, therefore of the creditor has definitely prescribed. The result was the dismissal of the petition.
13) George Pay's lawyer prepared an exhaustive brief which assailed the decision of the trial court as
a. to the effect of the refusal of the Segundina to be appointed as administratix;
b. as to the property sought to be administered no longer belonging to Justo Palanca; and
c. and as to the rights of George Pay having already prescribed.
14) Only the question of prescription is the issue to be raised according to the SC. The SC affirmed the result of the trial court,
considering the tenor of the promissory note.

ISSUE: W/N the rights of George Pay as creditor has already prescribed.
HELD: YEEEEEEEeeesss

1) From the manner in which the promissory was executed, it would appear that George Pay was hopeful that the satisfaction of his
credit could be realized either
a. through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively as
one of the heirs, or
b. as expressed therein, "upon demand". There was no record that would indicate whether or not the first
alternative was fulfilled.
2) What is undeniable is that on August 26, 1967, more than 15 years after the execution of the promissory note on January 30,
1952 (use this), this petition was filed. The defense imposed was prescription.
i. Article 1179 of the Civil Code states that "Every obligation whose performance does not depend upon a future
or uncertain event, or upon a past event unknown to the parties, is demandable at once."
3) The obligation being due and demandable, it would appear that the filing of the suit after 15 years was much too late.
i. Section 43 of Act No. 190, the prescriptive period for a written contract is that of ten years.
4) There is no necessity therefore of passing upon the other two legal questions raised as to whether or not it did suffice for the
petition to fail just because the Segundina refuses to be made administratix, or just because the estate was left with no other
property.

2. Gonzales v. Heirs of Thomas and Paula Cruz (1999)

1) December 1, 1983, Paula Ano Cruz together with private respondents heirs entered into a Contract of Lease/Purchase with the
petitioner, Felix Gonzales, owner of Felgon Farms.
2) The subject of the contract is a half-portion of a parcel of land containing an area of 12 hectares located in Rodriguez Town,
Province of Rizal.
3) The contract contains the following provisions:
 a. Par 1: term of this contract is 1 year (lease); after said period the lessee (Gonzales) shall purchase the property at the
price of P1M payable within two (2) years with 12% per annum interest.
b. Schedule of Payment:
i. 50% upon execution of Deed of sale
ii. 25% every 6 months thereafter payable within 10 days of the beginning of each 6 month period
c. Par 2: Lessee (Gonzales) shall pay by way of annual rental an amount equivalent to P2,500 per hectare upon the signing
of this contract.
d. Par 9: The Lessors (Heirs) hereby commit themselves and shall undertake to obtain a separate and distinct Transfer
Certificate of Title (TCT) over the leased portion to the lessee within a reasonable period of time which shall not
exceed four (4) years. After which a new contract shall be executed by the parties which shall be the same in all
respects with this contract of lease/purchase as the terms and conditions are concerned.
4) Gonzales paid 15,000 annual rental of the property in accordance with the 2nd provision of the contract. And thereafter took
possession of the property without paying further rentals.
5) Ricardo Cruz (one of the heirs) sent a letter informing Gonzales of the lessors decision to rescind the contract due to a breach
committed by Gonzales.
6) Gonzales refused to vacate
a. Brought to Barangay Captain of San Isidro, but Gonzales refused to appear.
b. Barangay issued a certification allowing the case to be brought to Court (Mar 18, 1987)
c. Lessor, Paula Ano Cruz died the following day (Mar 19, 1987)
d. Final demand letter to vacate the premises was received by Gonzales but was not heeded.
7) It was shown that the property subject to the contract is currently the subject of an Extra Judicial Partition, and the title
remains in the name of the heirs’ predecessors-in-interest, Bernadina Calixto and Severo Cruz
Trial Court’s findings:
1) Paragraph 9 of the contract clearly indicates that the lessors-plaintiffs shall obtain a Transfer Certificate of Title in the name of
the lessee within 4 years before a new contract is to be entered into under the same terms and conditions as the original
Contract of Lease/Purchase.
2) Thus, before a deed of Sale can be entered into between the plaintiffs and the defendant, the plaintiffs have to obtain the
Transfer Certificate of Title in favor of the defendant.
3) Article 1181 of the New Civil Code states that: In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.
4) When the obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot be enforced
against him unless the condition is complied with
5) The failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in the contract, does not entitle them to
rescind the contract
6) Article 1191 of the New Civil Code states that: 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.
7) The injured party may choose between the fulfillment of the obligation, with the payment of damages in either case. He may
seek rescission, even after he has chosen fulfillment, if the latter should become impossible x x x.
8) The power to rescind is given to the injured party.
9) In this case, plaintiffs failed to comply with the conditions precedent after 2-1/2 years from the execution of the contract so as
to entitle them to rescind the contract.
10) The failure to secure the Transfer Certificate of Title in favor of the defendant entitles not the plaintiffs but, rather, the
defendant to either rescind or to ask for specific performances.
11) In sum, the plaintiffs cannot terminate the Contract of Lease due to their failure to notify the defendant in due time of their
intention to that effect.
12) Nor can they rescind the Contract of Purchase in view of the fact that there is a condition precedent which the plaintiffs have
not fulfilled.
13) It is the defendant now who has the option to either rescind or demand the performance of the contract.
14) Moreover, according to Article 1654 of the New Civil Code, the lessor is obliged to deliver the thing which is the object of the
contract in such condition as to render it fit for the use intended.
15) Considering that the lessors-plaintiffs have not delivered the property in whole over the protest of the defendant, the latter
suffered damages therefor. (p. 4-6, Decision; pp. 262-264, Records)
Ruling of the Court of Appeals
1) The appellee wanted to have the title to the property transferred in his name first before he exercises his option to purchase
allegedly in accordance with the ninth provision of the contract.
2) But the ninth provision does not give him this right. A reading of the contract in its entirety shows that the 4 year period asked
for by the appellants within which to have title to the property transferred in the appellees name will only start to run when the
appellee exercises his option to purchase.
3) Since the appellee never exercised his option to purchase, then appellee is not entitled to have the title to the property
transferred in his name.
Issues:
W/N Paragraph 9 of the contract is a condition precedent before the defendant is to pay the down payment.
Held: YEEEEeeeeesssss
1) The provisions require the respondents to obtain a separate and distinct TCT over the property.
2) Since the land in question was still registered in the name of Bernardina Calixto and Severo Cruz and that extrajudicial
proceedings were still on going, it shows that when the contract was executed, there was no assurance that the respondents
indeed were the owners of the specific portion of the lot that the petitioner wanted to buy.
3) As earlier noted, petitioner disagrees with the interpretation of the two courts and maintains that respondents were obligated to
procure a TCT in their names before he could be obliged to purchase the property in question.
4) Basic is the rule in the interpretation of contracts that if some stipulation therein should admit of several meanings, it shall be
understood as bearing that import most adequate to render it effectual. [9]
5) Considering the antecedents of the ownership of the disputed lot, it appears that petitioners interpretation renders clause nine
most effectual.
6) The court concludes that the intent of the 9th paragraph of the contract was for respondents to obtain a separate and distinct
TCT in their names.
7) This was necessary to enable them to show their ownership of the stipulated portion of the land and to show their right to
dispose of it.
8) The CA relied on a literal interpretation to the effect that the TCT should be obtained in the name of the petitioner-vendee.
9) It reasoned that the title could be transferred to the name of the buyer only after the completion of the purchase.
10) Thus, petitioner should first purchase the property before respondents could be obliged to transfer the TCT to his name (for the
CA, the condition is the purchase for the transfer for TCT. But SC said that the condition is the obtaining of TCT in
respondents’ name)
11) It is more than reasonable to state that the first paragraph was effectively modified by the 9th
12) Because the ninth clause required respondents to obtain a separate and distinct TCT in their names and not in the name of
petitioner, it logically follows that such undertaking was a condition precedent to the latters obligation to purchase and pay for
the land.
a. IN OTHER WORDS, RESPONDENTS HAD TO SECURE THE TCT IN THEIR NAMES BEFORE THEY CAN COMPEL PETITIONER
TO BUY THE LOT.
13) Without it, the sale of the property under the Contract cannot be perfected, and petitioner cannot be obliged to purchase the
property.
14) When the consent of a party to a contract is given subject to the fulfillment of a suspensive condition, the contract is not
perfected unless that condition is first complied with. [15]
15) Furthermore, [t]he obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event,
so that if that event does not take place, the parties would stand as if the conditional obligation had never existed.[17]
16) In this case, the obligation of the petitioner to buy the land cannot be enforced unless respondents comply with the suspensive
condition that they acquire first a separate and distinct TCT in their names. The suspensive condition not having been fulfilled,
then the obligation of the petitioner to purchase the land has not arisen.
17) In the same vein, respondents cannot rescind the contract, because they have not caused the transfer of the TCT to their names,
which is a condition precedent to petitioners obligation.
18) This Court has held that there can be no rescission (or more properly, resolution) of an obligation as yet non-existent, because
the suspensive condition has not happened.[18]
19) Since the reversal of the CA Decision is inevitable, the trial courts judgment should be reinstated. However, we find no sufficient
factual or legal justifications for the award of moral damages and attorneys fees.

3. Smith Bell v. Sotelo Matti

1) In August 1918, petitioner Smith, Bell & Co. and private respondent Mr. Vicente Sotelo entered into contracts whereby
petitioner obligated itself to sell the following:
2) 2 steel tanks for the total price of P21,000 to be shipped from NYK and delivered at Manila "within 3 or 4 months -- The
promise or indication of shipment carries with it absolutely no obligation on our part. Government regulations and a number
of causes may act to entirely vitiate the indication of shipment as stated"
3) 2 expellers at the price of P25,000 each, to be shipped from San Francisco in the month of September 1918, or "as soon as
possible"
4) 2 electric motors for the price of P2,000 each to be delivered "Approximate delivery within 90 days. This is not guaranteed--
this sale is subject to our being able to obtain Priority Certificate, subject to the US Gov't requirements"
5) For the record, it appears that these contracts were executed at the time of the world war when there existed rigid restrictions
of the export from the US of articles like the machinery mentioned thus transportation was difficult which is why those clauses
were included
6) The tanks arrived at Manila on April 27, 1919; the expellers on October 26, 1918 and the motors on February 27, 1919
7) Petitioner notified respondent of the arrival of the goods but the former refused to receive them and to pay the prices
stipulated
8) Petitioner then brought suit against the defendant, alleging that it immediately notified Mr. Sotelo of the arrival of the goods
but defendant refused to comply
9) In their answer, Mr. Sotelo and the intervenor Manila Oil Refining and By-Products denied petitioner's allegations and that it
was only in May 19, 1919 that petitioner notified the intervenor that said goods had finally arrived but were incomplete and
long after the date stipulated
10) Respondents also alleged that because of the non-delivery of the tanks, intervenor suffered damages in the sums of
P116,783.91 and P21,250 on account of the expellers and motors not arriving on time.
11) The case having been tried, the court below absolved the respondents from the complaint insofar as the tanks and the electric
motors were concerned.
12) The lower courts rendered judgment in favor of petitioner, ordering respondent to receive the expellers and pay the petitioner
P50,000 for the price of said expellers with legal interest
ISSUE: W/N there was a definite date that was fixed for the delivery of the goods
HELD: YEEEeeeeeesss
1) It cannot be said that any definite date was fixed for the delivery of the goods.
2) Delivery terms used were "within 3 or 4 months" but subject to contingencies referred to in a subsequent clause, or "within the
month of September 1918" but to this is added "or as soon as possible" and with the motors, it was noted that they were not
guaranteed.
3) At the time of the execution of the contracts, the parties were not unmindful of the contingency of the US Gov't not allowing
the export of the goods, nor the fact that the other foreseen circumstances therein stated might prevent it
4) ART 1193 3rd Par - If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall
be governed by the rules of the preceding section
ISSUE: W/N the fulfillment of the condition depends upon the sole will of the debtor
HELD: NOOOOoooooooooo
1) It depends upon the will of a third person.
2) At the time of the execution of the contracts, the parties were not unmindful of the contingency of the US Gov't not allowing
the export of the goods, nor the fact that the other foreseen circumstances therein stated might prevent it
3) The obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power,
even if the condition has not been fulfilled in reality
4) Manresa's views:
5) FIRST. That when the fulfillment of the condition does not depend on the will of the obligor, who can in no way be compelled to
carry it out, and it is found by the lowerr court that the obligor has done all in his power to comply with the obligation, the
judgment of the said court, ordering the other party to comply with his part of the contract, is not contrary to the law of
contracts xxx
6) SECOND. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a third person,
who can in no way be compelled to carry it out, the obligor's part of the contract is complied with if he does all that is in his
power, and has the right to demand performance of the contract by the other party xxx
7) It was sufficiently proven that petitioner made all the efforts it could possibly be expected to make under the circumstances to
bring the goods in question to Manila as soon as possible.
8) In a contract of sale, when the time of delivery is not fixed in the contract, time is regarded unessential
9) "as soon as possible" means that the seller is entitled to a reasonable time. It does not mean immediately. It simply means that
goods should be sent as soon as the seller coud possible send them
10) The question as to what is a reasonable time for the delivery of the goods by the seller is to be determined by the circumstances
attending the particular transaction
11) Mr. Vicente Sotelo Matti is sentenced to accept and receive from the petitioner the tanks, the expellers and the motors in
question and to pay the petitioner P96,000 with legal interest
OTHER ISSUE JUST IN CASE:
1) Intervenor, Manila Oil Refining did not in any way take part in these contracts. The contracts were signed by the respondent in
his individual capacity. Intervenor has no right of action against petitioner.
2) When an agent acts in his own name, the principle shall have no right of action against the persons with whom the agent has
contracted, or such persons against the principal.
3) The agent is directly liable to the person with whom he has contracted
4) Sotelo should have stated the fact that he was transacting business in the name of the principal Manila Oil Refining
4. Security Bank Trust Company v. CA
1) Private Respondent (PR) Ysmael C. Ferrer was contracted by Petitioners Security Bank & Trust Company (SBTC) and Rosito
Manhit to construct the building of SBTC in Davao City for an amount of P 1,760,000
2) The contract (dated February 4, 1980) states that Ferrer would finish the building within 200 working days and it was finished
on August 15, 1980 (which was within the number of days)
3) Although the Ferrer was able to finish the building, he was forced to spend P 300,000 more on top of the original cost and such
cost was made known to the company’s Vice President and Supervising Architecture as early as March 1980 and also that such
Ferrer made timely demands for such costs
4) In March 1981, SBTC consulted Susan Guanio of the building made by Ferrer and verified his claims for additional cost
 The recommendation was made but limited it only to P 200,000
 SBTC ignored the recommendation and refused to pay Ferrer beyond the original contract
 They likewise denied any liability for the additional cost even though it was already stated in Article IX of their building
contract
5) Ferrer filed a case in the trial court ruled for the breach in contract
6) The Trial court ruled in PR’s favor and ruled SBTC and Manhit to pay Ferrer
7) The Court of Appeals later affirmed their decision.

ISSUE: W/N the Court of Appeals erred in ruling in favor of the Ferrer by interpreting a clear and otherwise unambiguous contract
between the parties.
RULING: NOooooooooo
1) Petitioner Argues that under Art IX of the building contract it allows for the adjustment of the contract price upon mutual
agreement of the parties.
2) It is the absence of this mutual agreement that the bank is using to support its contention that it is not liable for the increased
cost,
3) In effect this is an obligation dependent on SBTC’s sole will, since its consent is required for the recovery of the increased cost to
be allowed.
4) Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the
debtor.
5) This in effect allows SBTC to acquire the constructed building at a price that is far below its actual construction cost,
6) The court ruled that following the maxim under Article 22 Nemo ex alterius incommodo debet lecupletari (no man ought to be
made rich out of another's injury- unjust enrichment), the petition should fail because of the fact the petitioner finished the
construction even at an increased cost.
7) And if the court were to allow the Petitioners to own a building at a price far below it’s actual construction would create a
situation of unjust enrichment, and under Article 22, such is not allowed.

5. Romero v. CA
Relevant Provisions:

Civil Code—Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party
may refuse to proceed with the contract or he may waive performance of the condition.

FACTS:
1) Virgilio R. Romero (Romero), a civil engineer, was engaged in the business of production, manufacture and exportation of perlite
(an amorphous volcanic glass) filter aids, permalite insulation and processed perlite ore.
2) In 1988, Romero and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of
approximately 2,000 square meters. The project was made known to several freelance real estate brokers.
3) A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring
1,952 square meters located in Barangay San Dionisio, Parañaque, Metro Manila. The lot was covered by TCT No. 361402 in the
name of private respondent Enriqueta Chua vda. de Ongsiong.
4) Romero visited the property and, except for the presence of squatters in the area, he found the place suitable for a central
warehouse.
5) Later, the Flores spouses called on Romero with a proposal that should he advance the amount of P50,000.00 which could be
used in taking up an ejectment case against the squatters, Ongsiong would agree to sell the property for only P800.00 per
square meter.
6) Romero agreed to the offer.
7) On 09 June 1988, a contract, denominated “Deed of Conditional Sale,” was executed between petitioner and private
respondent.
8) The 1,952 sq. m. lot was then sold to Romero for the amount of P1,561,600.00.
9) 50,000 pesos of which was to be paid upon the execution of the instrument and the balance of P1,511,600.00 shall be paid 45
days after the removal of all squatters from the property.
10) Upon full payment of the overall purchase price as aforesaid, vendor without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in favour of the vendee.
11) In the contract, it was also stipulated that if after 60 days from the date of the signing of this contract the VENDOR shall not be
able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
12) The contract also provided that in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase
price of P1,511,600.00 after 45 days from written notification to the VENDEE of the removal of the squatters from the property
being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in favor of the
VENDOR.
13) Romero then paid the 50,000 pesos to Flores who represented Ongsiong.
14) Pursuant to the agreement, Ongsiong then filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29
other squatter families with the Metropolitan Trial Court of Parañaque.
15) A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The
decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of
execution of the judgment was issued, still later, on 30 March 1989.
16) In a letter, dated 07 April 1989, Ongsiong then sought to return the P50,000.00 she received from Romero since, she said, she
could not “get rid of the squatters” on the lot.
17) Romero, thru his counsel, refused the tender of Ongsiong and replied that there is no need to return to him the 50,000 as the
court has already issued a writ of execution to eject the squatters on the lot. For this reason, Romero shall take it upon himself
to eject the squatters provided that the expenses shall be chargeable to the purchase price.
18) Meanwhile, the Presidential Commission for the Urban Poor (“PCUP”), asked the Metropolitan Trial Court of Parañaque for a
grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. For this reason, the court
suspended the enforcement of the writ of execution accordingly.
19) On 08 June 1989, Atty. Apostol reminded Ongsiong on the expiry of the 45-day grace period and his client’s (Romero’s)
willingness to “underwrite (to give money to support and agree to be responsible for any losses if it fails) the expenses for the
execution of the judgment and ejectment of the occupants.”
20) In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for Ongsiong, advised Atty. Apostol that the Deed of Conditional
Sale had been rendered null and void by virtue of his client’s failure to evict the squatters from the premises within the agreed
60-day period. He added that Ms. Ongsiong had “decided to retain the property.”
21) Atty. Apostol replied that Ms. Ongsiong is precluded from rejecting the binding effects of the contract relying upon her inability
to eject the squatters from the premises of the subject property during the agreed period. The provision of the Deed of
Conditional Sale does not grant her the option or prerogative to rescind the contract and to retain the property should she
fail to comply with the obligation she has assumed under the contract.
22) Ms. Ongsiong then filed with the RTC for rescission of the deed of “conditional” sale, plus damages, and for the consignation of
P50,000.00 cash.
23) The RTC ruled in favour of Romero explaining that private respondent had no right to rescind the contract since it was she who
“violated her obligation to eject the squatters from the subject property”.
24) On Appeal, the CA ruled in favour of Ms. Ongsiong saying that the contract entered into by the parties was subject to a
resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of
the object of the contract.

ISSUE: Whether or not the CA erred in reversing and setting aside the decision of the RTC.
RULING: YES, the CA erred in reversing and setting aside the decision of the RTC.
1) The contract in the case at bar is a perfected contract as a sale is perfected the seller obligates himself, for a price certain, to
deliver and to transfer ownership of a specified thing or right to the buyer over which the latter agrees.
2) A perfected contract of sale may either be absolute or conditional depending on whether the agreement is subject to any
condition or not.
3) The term “condition” in the context of a perfected contract of sale pertains refers to the compliance by one party of an
undertaking which would give rise to the demandability of the reciprocal prestation of the other party—in the case of vendee,
the payment of the agreed purchase price and; in the case of the vendor, the fulfillment of certain express warranties (which, in
the case at bench is the timely eviction of the squatters on the property).
4) In determining the real character of the contract, it is the substance of the contract which is given more weight and not the title
given to it.
5) In the case at bar, the contact is a conditional one as both parties’ obligations to each other are predicated on the conditions
stipulated in the contract— in this case, to first remove the squatters from the premises of the area.
6) If the condition imposed on an obligation of a party is not complied with, the other party may either refuse to proceed or waive
the said condition (Art. 1545, Civil Code).
7) The object of the sale, in the case before us, is the 1,952-square meter lot in San Dionisio, Parañaque, Rizal.
8) The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale
and the balance of P1,511,600.00 payable “45 days after the removal of all squatters from the above described property.”
9) From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.
10) Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters
is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to
pay the balance of the purchase price.
11) Ms. Ongsiong’s failure “to remove the squatters from the property” within the stipulated period gives Romero the right to
either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code.
12) In this case, Romero has waived the performance of the condition imposed on private respondent to free the property from
squatters.
13) Ms. Ongsiong has no right to rescind the contract for failing to comply with her obligation in the contract. She is not the injured
party to the case.
14) In accordance with Art. 1545 of the civil code, it is Romero who has the right to rescind or not rescind the contract.
15) Romero’s offer to shoulder the expenses of the execution of the judgment in the ejectment case indicates his choice to proceed
with the contract. Thus, Ms. Ongsiong should respect the lawful actions of Mr. Romero.

Note:
The condition in the case at bar (to eject the squatters within 60 days) is not a potestative condition dependent solely on the will of
the debtor which is void according to Article 1182 of the Civil Code. Instead, the condition in this case is a “mixed” condition
“dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel
concerned.”

Note:
• When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty
to convey title from acquiring an obligatory force.
• Where the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the
juridical relation itself from coming into existence.
• For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to
the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract on
account of the fulfillment or non-fulfillment of the prescribed condition.

6. Ducusin v. CA
Art 1308- The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
Art. 1182- When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this
Code.

Facts:
1) On February 20. 1975, petitioner Agapito Ducusin leased to respondent Baliola and his wife a one door apartment (3319-A) in St
Bacood, Sta. Mesa Manila.
2) Their terms included:
a. Payment of P220 every month without need of demand

b. The term of this contract shall be in a month to month basis commencing on February 19,1975 until terminated by the
lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for
in accordance with law
c. Exclusive use by the lessee of the apartment as residence and not to encumber or sublease it
d. Maintain premises and keep it clean and sanitary
e. Utilities paid by lessees
f. Minor repairs by lessees
 g. Rental Deposit of 440 pesos for the Lessor.
3) Apartment was occupied by the Baliolas for two years when on January 18, 1977, Ducusin sent a “Notice to Terminate Lease
Contract” which terminated the lease and giving them until March 15. 1977 to vacate.
4) The reason being that his children particularly Agapito Jr was getting married and that he needed to independently live in the
apartment.
5) Respondents did not reply to Ducusin and they wrote a letter to the Secretary of National Defense stating that they were being
evicted.
6) Petitioners then filed for ejectment against the Baliola spouses in the City Court alleging that the spouses had violated the terms
of the contract. They ruled in favor of the petitioners and ordered Baliola to vacate.
a. Alleged that the premises were also used to store goods and for manufacturing- later proven untrue due to lack of
evidence
b. Terminated lease due to his children needing the apartment
7) Respondents appealed to the Court of First Instance which affirmed the city court
8) Respondents then went to the CA which affirmed that an owner of a leased premises can unilaterally terminate the contract of
lease under the terms and conditions stated therein yet ruled against the petitioners regarding the need of the children of
Ducusin to the apartment (due to lack of preponderance of evidence- later proven to be false by the SC)
a. CA alleged that no proof was presented of the marriage until June 5. 1979 -> wrong
b. Petitioners did not show that the one-door apartment was the only place available for the use of his son -> wrong
9) Petitioners then brought the issue to the SC

ISSUE: W/N an owner of a leased premises can unilaterally terminate the contract of lease under the terms and conditions stated
therein.
RULING: YEEEEEEEeeeeessss
1) The contract stated that it can be terminated by the lessor on the ground that his children need the premises for their own
use or residence which in this case was proved.
2) The parties agreed that the obligations arising from the contract shall be extinguished by:
a. termination of the contract by mutual consent of the Parties;
b. when the lessor elects to terminate the contract on the ground that his children need the premises for their own use or
residence and
c. for any cause as provided in accordance with law.
3) The happening of the resolutory condition allowed the obligation to be extinguished by the lessor.
4) Art 1182 provided that the fulfillment of a condition can depend upon the will of a third person which in this case was the
children of the petitioner.
5) Contract of lease is for a definite period and does not fall under PD No. 20 (AN ACT TO REGULATE RENTALS FOR THE YEARS OF
DWELLING UNITS OR OF LAND ON WHICH ANOTHER'S DWELLING IS LOCATED AND PENALIZING VIOLATIONS THEREOF, AND FOR
OTHER PURPOSES")

ISSUE: W/N the happening of the resolutory condition re: the need of the immediate members of the family of the lessor of the
leased premises has been established by a preponderance of evidence
RULING: YEEEEeeeeeeeesss
1) For the second issue, it was shown that Agapito Ducusin Sr. testified about how his son was married in Canada and that he was
present during the ceremony, along with testimony from his other son, Arturo.
2) The Court held that the CA gravely erred in excluding the evidence described above due to the CA thinking the evidence to be
mere hearsay.
3) The Court concluded that the intention to use the leased premises as the residence of Ducusin Jr was proved through telephone
conversations between Agapito Jr and his brother and father where Agapito said that he would be leaving Canada and wanted
to settle in the Philippines.
4) Also there were other apartments in the building but three were untenantable due to wear and tear and five others had
tenants thus petitioner could only give respondent’s unit to his son.
5) Findings of the CA are not conclusive when there is a grave abuse of discretion.

7. Rustan Pulp v. IAC

DOCTRINE:
 A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of
the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception.
 A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will
of the obligor.
FACTS:
1) Petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte.
2) Respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw
materials by the former to the latter.
3) In response thereto, petitioner Rustan proposed that the contract to supply should not be exclusive--that Rustan shall have the
option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose
pulp wood.
4) In April 1968, a contract of sale was executed.
5) In the contract, Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic
meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte.
6) Important stipulations in the said contract:
a. BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government
authority or license to sell or dispose
b. BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from
the SELLER'S lumber and/or firewood concession
c. SELLER has the priority to supply the pulp wood materials requirement of the BUYER
d. BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the
same shall become sufficient until such time when need for said raw materials shall have become necessarily provided,
however, that the SELLER is given sufficient notice.
7) In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of
deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were made.
8) However, during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials
piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries.
9) The suppliers were informed to stop deliveries.
10) The letter of similar advice sent by petitioners to private respondents informed them that the supply of raw materials has become
sufficient and that there will be no need for more delivery. As per the terms of our contract, please stop delivery after thirty (30)
days.
11) Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination of the
contract of sale was intended, but the query was not answered by petitioners.
12) This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Romeo
S. Vergara and Romeo Lluch.
13) A complaint for contractual breach was filed which was dismissed.

ISSUE:
 whether or not Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut of raw materials
at its plant
 whether or not Tantoco and Vergara are jointly and severally liable
 whether or not the appellate court erred in awarding moral damages and attorney's fees in the absence of fraud or bad faith

HELD:
1) Insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage, there is cogent basis
for private respondent's apprehension on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition
solely dependent upon the will of petitioners.
2) According to paragraph 7 of the subject obligation, petitioners can stop delivery of pulp wood from private respondents if the
supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as determined likewise
by petitioners.
3) A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the
stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception.
4) A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will
of the obligor.
5) The petitioners believe that the letter they sent the respondents is well within the right of stoppage guaranteed to them by
paragraph 7 of the contract of sale which was construed by petitioners to be a temporary suspension of deliveries.
6) There is no doubt that the contract speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such
right is the condition attached to it which, as aforesaid, is dependent exclusively on their will for which reason must be treated
as inoperative (Article 1306, New Civil Code).
7) It is for this same reason that the Court is not inclined to follow the interpretation of petitioners that the suspension of delivery
was merely temporary since the nature of the suspension itself is again conditioned upon petitioner's determination of the
sufficiency of supplies at the plant.
8) The Court also cannot accept petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of the
New Civil Code, because petitioners continued accepting deliveries from the suppliers.
9) This conduct will estop petitioners from claiming that the breakdown of the machinery line was an extraordinary obstacle to their
compliance to the prestation.
10) It was incongruous for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own
advice by accepting the deliveries from the suppliers.
11) The demeanor of petitioners along this line was sought to be justified as an act of generous accommodation, which entailed
greater loss to them and "was not motivated by the usual businessman's obsession with profit".
12) Altruism may be a noble gesture but petitioners' stance in this respect hardly inspires belief for such an excuse is inconsistent
with a normal business enterprise which takes ordinary care of its concern in cutting down on expenses.
13) Knowing fully well that they will encounter difficulty in producing output because of the defective machinery line, petitioners
opted to open the plant to greater loss, thus compounding the costs by accepting additional supply to the stockpile.
14) Verily, the petitioner's action when they acknowledged that "if the plant could not be operated on a commercial scale, it would
then be illogical for defendant Rustan to continue accepting deliveries of raw materials."
15) Tantoco and Vergara—the President and Manager of a corporation who entered into and signed a contract in his official
capacity, cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the
personality of the corporation being separate and distinct from the person composing it.

DISPOSITIVE: WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan Pulp and Paper
Mills is ordered to pay moral damages and attorney's fees as awarded by respondent Court.

Relevant Provisions:
ART. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this
Code.

ART. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.

ART. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself
or exceeds the limits of his authority without giving such party sufficient notice of his powers.

8. Lim v. DBP
1) In November of 1969, petitioners Lim obtained a loan of P40,000.00 from respondent DBP to finance their cattle-raising business.
2) Such acquisition was accompanied by a promissory note. (Lim Account)
3) In December of 1970, the same petitioners obtained another loan from the same DBP.
4) The amount of P960,00.00 was thus credited to their Diamond L Ranch Account.
5) A similar promissory note stipulating the terms of payment for this loan accompanied it.
6) A Mortgage construing the titles of a number of parcels of lands in South Cotabato in favor of DBP was executed to secure the
loans.
7) Due to the violence in Mindanao from the years 1972-1977, petitioners were forced to abandon their cattle ranch.
8) The business collapsed and they were thus unable to pay their loan amortizations.
9) In 1978, petitioners made a partial payment of P902,800.00, leaving around P600,000.00 worth of unpaid debt.
10) In 1989, petitioners as represented by Edmundo Lim requested for the Statements of Account for both Lim and Diamond L Ranch.
11) He asked that the same be amended to reflect the payments that were already made.
12) In 1990, petitioners requested for updates on the status of the accounts.
13) The DBP complied (around P2,000.000.00 worth of credit was reflected in the account as of September 1989) and transmitted as
well that some of their mortgaged properties have been subjected to an Operation Land Transfer under the Comprehensive
Agrarian Reform Program of the government.
14) A series of inquiries and negotiations began. The first notice of foreclosure sent to Edmundo was dated February 21, 1982.
Edmundo moved to stop the foreclosure by negotiating with the DBP.
15) In 1992, Edmundo began to coordinate with the DBP-Makati Branch Head Bonifacio Tamayo, Jr.
16) They eventually agreed upon a Restructuring Agreement which Tamayo was tasked to prepare.
17) The Agreement did not pass the Regional Credit Committee (RCC). Edmundo promptly moved for the restoration of a previous
agreement.
18) The same RCC approved a prior Agreement made by the parties subject to a number of additional conditions. Edmundo did not
comply to any of these.
19) In 1993, the mortgaged properties were set to be auctioned. Edmundo was given due notice, and he again asked for an extension
which was granted to him subject to a number of additional conditions.
20) Edmundo requested Tamayo that the Agreement be finalized. They met in Manila to coordinate this. Before the end of 1993, he
was able to receive this draft.
21) In 1994, Tamayo forwarded to Edmundo that the bank had cancelled the Agreement due to his non-compliance.
22) The public auction sale for the mortgaged properties pushed through in July of 1994. A complaint was thus filed by the
petitioners before the RTC of General Santos City assailing the legality of the ‘extrajudicial foreclosure.’

Regional Trial Court

1) The RTC deemed that the petitioners have already fully extinguished discharged their obligation to the Respondent Bank.
2) Thus, the foreclosure of the mortgaged properties and their consequent sale should be deemed NULL and VOID. It was ordered
that the respondents return the properties to the petitioners.

Court of Appeals
1) The CA REVERSED and SET ASIDE the RTC Decision, dismissing the complaint and declaring the extrajudicial foreclosure of the
mortgaged properties as valid. Petitioners must thus pay the amount stipulated in the originally issued promissory notes.
WON DBP‘s acts and omissions in discharging its reciprocal obligations to petitioners effectively prevented the petitioners from
paying their loan obligations in a proper and suitable manner hence the obligation should be deemed fully complied with and
extinguished in accordance with the principle of constructive fulfillment. NO.
ISSUE: W/N the obligation was extinguished or discharged
RULING: NOOOOOOOOoooooooooooo
1) The Promissory Notes subject of the instant case became due and demandable early on and the only reason the mortgaged
properties were not foreclosed was because of the restraining order from the court.
2) Petitioners made a partial payment of P902,800.00 but no subsequent payments were made.
3) Although DBP could have foreclosed the mortgaged properties, it instead agreed to restructure the loan.
4) In fact, DBP gave several extensions for petitioners to settle their loans, but they never did, thus, prompting DBP to cancel the
Restructuring Agreement.
5) Petitioners, however, insist that DBP‘s cancellation of the Restructuring Agreement justifies the extinguishment of their loan
obligation under the Principle of Constructive Fulfillment found in Article 1186 of the Civil Code. We do not agree.
6) As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that "the condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment," does not apply in this case, viz:
7) Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which applies when the following three
(3) requisites concur, viz:
a. The condition is suspensive;
b. The obligor actually prevents the fulfillment of the condition; and
c. He acts voluntarily.
8) Suspensive condition is one the happening of which gives rise to the obligation.
9) It will be irrational for any Bank to provide a suspensive condition in the Promissory Note or the Restructuring Agreement that
will allow the debtor-promissor to be freed from the duty to pay the loan without paying it.
10) Besides, petitioners have no one to blame but themselves for the cancellation of the Restructuring Agreement.
11) It is significant to point out that when the Regional Credit Committee reconsidered petitioners‘ proposal to restructure the loan,
it imposed additional conditions which petitioners failed to do.
12) DBP therefore had reason to cancel the Restructuring Agreement.
13) Moreover, since the Restructuring Agreement was cancelled, it could not have novated or extinguished petitioners‘ loan
obligation. And in the absence of a perfected Restructuring Agreement, there was no impediment for DBP to exercise its right to
foreclose the mortgaged properties.
ISSUE: W/N the foreclosure was valid
RULING: NOOOOooooo
1) But while DBP had a right to foreclose the mortgage, we are constrained to nullify the foreclosure sale due to the bank‘s failure
to send a notice of foreclosure to petitioners.
2) We have consistently held that unless the parties stipulate, "personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary" because Section 3 of Act 3135 only requires the posting of the notice of sale in three public places
and the publication of that notice in a newspaper of general circulation.
3) Paragraph 11 of the Mortgage contract requires this
4) However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure sale.
5) The letters advising petitioners to immediately pay their obligation to avoid the impending foreclosure of their mortgaged
properties are not the notices required in paragraph 11 of the Mortgage.
6) The failure of DBP to comply with their contractual agreement with petitioners, i.e., to send notice, is a breach sufficient to
invalidate the foreclosure sale.
7) Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner might take on the
subject property, thus according him the opportunity to safeguard his rights.
8) When petitioner failed to send the notice of foreclosure sale to respondent, he committed a contractual breach sufficient to
render the foreclosure sale on November 23, 1981 null and void. (Emphasis supplied)
ISSUE: W/N penalties and interest rates should be expressly stipulated in writing
RULING: Yes
1) Impositions of additional interest and penalties not stipulated in the Promissory Notes should not be allowed.
2) Article 1956 of the Civil Code states that “no interest shall be due unless it has been expressly stipulated in writing.”
3) Thus, the payment of interest and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in
writing.
4) Petitioners never agreed to such in the instant case. And thus, the Court agrees with the RTC insofar as it declared these as illegal
and void.
5) This Court thus orders that the case be remanded to the RTC for the proper determination of the petitioners’ loan obligation
based on the interest and penalties stipulated in the original Promissory Notes.
ISSUE: W/N DBP acted in bad faith or in a wanton, reckless, or oppressive manner
RULING: NOOOoooooooooo
1) The DBP did not act in bad faith in cancelling the Restructuring Agreement.
2) It has already been established that they had all the reason to cancel the same on account of the petitioners’ non-compliance to
the generously stipulated conditions.
PNB v. Spouses Rocamora has said that:
“We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton disregard of its contractual obligations,
simply because it increased the interest rates and delayed the foreclosure of the mortgages.”

9. Universal Food Corp v. CA

Facts:
1. In 1938, Magdalo Francisco, Sr. discovered or invention the MAFRAN SAUCE.
2. Magdalo used it in commercial scale and in 1942, registered his trademark in his name as owner and inventor.
3. In 1960, due to lack of financing, Magdalo sought the help of Tirso Reyes to finance expansion, which resulted in the petitioner
company, UFC.
4. In May 1960, they executed a Bill of Assignment wherein:
a. THAT Magdalo V. Francisco, Sr. is the sole and exclusive owner of the MAFRAN trade-mark and the formula for
MAFRAN SAUCE;
b. THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which UFC obliges itself to pay to
Magdalo as founder and as owner of the MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at every
end of the Fiscal Year
c. (a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist
d. THAT in case of death or other disabilities they should become incapacitated to discharge the duties of their respective
position, then, their shares or assigns and who may have necessary qualifications shall be preferred to succeed them;
e. THAT in the manufacture of MAFRAN SAUCE and other food products by UFC, the Chief Chemist shall have and shall
exercise absolute control and supervision over the laboratory assistants and personnel and in the purchase and
safekeeping of the Chemicals and other mixtures used in the preparation of said products;
f. THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall Magdalo ask, demand or
sue for the surrender of its rights and interest over said MAFRAN trademark and MAFRAN formula, except when a
dissolution of UFC, voluntary or otherwise, eventually arises, in which case then the property rights and interests
over said trademark and formula shall automatically revert the Magdalo.
5. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff requesting him to permit one or two members of
his family to observe the preparation of the 'Mafran Sauce'
6. On November 28, 1960, a memo was issued that only Supervisior Ricardo Francisco should be retained in the factory and that
the salary of Magdalo should be stopped from the time being until the corporation should resume its operation
7. On December 3, 1960, a memo was issued ordering Victoriano Franciso to report to the factory and produce Mafran sauce at
the rate of not less than 100 cases a day
8. On December 6, 1960, a memo was issued to recall all daily employees who are connected to the production of Mafran.
9. On Jan 9 and 16, 1961, UFC authorized Porfirio Zarraga and Paula da Bacula to look for a buyer of UFC, including its trademarks,
formulas and assets.
10. Magdalo was never recalled to work, and filed and action on Feb 14, 1961.
11. He was requested to be recalled afterwards but Magdalo declined.

ISSUE: Whether or not Magdalo was dismissed from his position without just cause (connected with main issue
RULING: YESSsss.
1) UFC contends that there is nothing in the successive memoranda that states that Magdalo was dismissed. They state:
a. Magdalo was present during the special meeting of the board of directors of the corporation held on October 14, 1960,
when the board decided to suspend operations of the factory for two to four months and to retain only a skeletal force
to avoid further losses
b. The salary of the respondent patentee would not be paid only during the time that the petitioner corporation was idle,
and that he could draw his salary as soon as the corporation resumed operations.
c. The import of the bill was disregarded by the CA, which concluded that since the petitioner resumed partial production
of Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief chemist,
d. The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated December 29,
1960, the records will show that the petitioner was set to resume full capacity production only sometime in March or
April, 1961, and the respondent patentee cannot deny that in the very same month when the petitioner was set to
resume full production, he received a copy of the resolution of its board of directors, directing him to report
immediately for duty;
2) The Court held that UFC, acting through its corporate officers, schemed and maneuvered to ease out, separate and dismiss the
said respondent from the service as permanent chief chemist, in flagrant violation of the Bill of Assignment.

ISSUE: Whether or not Magdalo is entitled to rescission on the Bill of Assignment.

RULING: YEEEeeeeesssss
1) Magdalo would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of UFC to
appoint him as its second vice-president and chief chemist on a permanent basis;
2) That in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safeguarding of said products;"
3) And that only by all these measures could Magdalo preserve effectively the secrecy of the formula, prevent its proliferation,
enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income.
4) The salient provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification
of the rest.
5) LIKEWISE, it was held by The Court that Magdalo did not violate the terms of the Bill of Assignment since, due to the clear
intention of Magdalo in keeping complete control of the formula, “a perceptive analysis of the entire instrument and the
language employed therein 3 would lead one to the conclusion that what was actually ceded and transferred was only the
use of the Mafran sauce formula.
6) This was the precise intention of the parties, as we shall presently show.”

ISSUE: Whether or not it was an error for CA to hold patentee entiled to payment of monthly salary from December 1, 1960
RULING: NOOOooooooooo
1) One of the considerations for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to
employ the respondent patentee as the Second Vice- President and Chief Chemist on a permanent status, at a monthly salary of
P300, unless "death or other disabilities supervened.
2) Under these circumstances, the petitioner corporation could not escape liability to pay the private respondent patentee his
agreed monthly salary, as long as the use, as well as the right to use, the formula for Mafran sauce remained with the
corporation.

ISSUE: Whether or not CA erred in ordering UFC to return to respondents the trademark of the Mafran Sauce.
RULING: YES. UFC is not aware nor is in possession of the formula for Mafran sauce.

JBL Reyes, concurring:

1) I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo
Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines rescission cannot be demanded
except when the party suffering damage has no other legal means to obtain reparation, is predicated on a failure to distinguish
 between a rescission for breach of contract [faith] under Article 1191 of the Civil Code and a rescission by reason of lesion or
economic prejudice, under Article 1381, et seq.
2) The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on
the breach of faith by the defendant, that violates the reciprocity between the parties.
3) It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant.
4) This rescission is in principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises
when the other violates his.
5) As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the
breach is purely secondary.
6) On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence
of that prejudice, because it is the raison d'etre as well as the measure of the right to rescind.
7) Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384.
8) But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under Article 1191.
9) It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as
rescission without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for
breach of stipulations from "rescission" by reason of lesion or damage.
10) But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes
and results of either action.

10. Magdalena Estate v. Myrick

FACTS:
1) Magdalena Estate, Inc., sold to Louis J. Myrick lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivisions, San Juan, Rizal.
2) Their contract of sale No. SJ-639 providing that the price of P7,953 shall be payable in 120 equal monthly installments of P96.39
each on the 2nd day of every month beginning the date of execution of the agreement.
3) Simultaneously, the vendee executed and delivered to the vendor a promissory note for the whole purchase price.
4) Pursuant to said agreement, vendee made several monthly payments amounting to P2596.08, the last being on October 4, 1930,
although the first installment due and unpaid was that of May 2, 1930.
5) By reason of this default, vendor notified vendee that, in view of his inability to comply with the terms of their contract, said
agreement had been cancelled as of that date, thereby relieving him of any further obligation thereunder, and that all amounts
paid by him had been forfeited in favor of the vendor, who assumes the absolute right over the lots in question.
6) Court of First Instance of Albay: ordered defendant to pay plaintiff the sum of P2596.08 with legal interest from December 14,
1932 until paid and costs, and dismissing defendant’s counterclaim.
7) Court of Appeals: confirmed the decision of the lower court.

ISSUE/S: W/N the contract SJ-639, being a bilateral agreement, in the absence of a stipulation permitting its cancellation, can be
rescinded by Magdalena Estate.
RULING: NOooooooooo
1) The reason that the obligation arising from the contract of sale being reciprocal, such obligation are governed by article 1124 of
the Civil Code which declares that the power to resolve, in the event that one of the obligors should not perform his part, is
implied.
2) In this case, petitioner (Magdalena Estate), cancelled the contract, advised the respondent that he has been relieved of his
obligations thereunder, and led said respondent to believe it so and act upon belief, the petitioner may not be allowed.
3) Contract SJ-639, contains no provision authorizing the vendor, in the event of failure of the vendee to continue payment of the
stipulated monthly installments, to retain the amounts paid to him on account of the purchase price.
4) The claim of petitioner that it has the right to forfeit said sums in its favor is untenable.
5) Under article 1124 of the Civil Code, however, he may choose between demanding the fulfillment of the contract or its
resolution. These remedies are alternative and not cumulative.
6) Petitioner in this case elected to cancel the contract, cannot avail himself of the other remedy of exacting performance.
7) As a consequence of the resolution, the parties should be restored, as far as practicable, to their original situation which can
be approximated only be ordering, as we do now, the return of the things which were the object of the contract, with their
fruits and of the price, with its interest.
11. University of the Philippines v. Delos Angeles
DOCTRINE: 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, without court intervention. In other words, it is not always necessary for the injured
party to resort to court for recession of the contract.

Relevant Provisions:
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.”

FACTS:
1) In 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 5 years by mutual agreement,
to cut, collect and remove timber form the Land Grant.
2) ALUMCO cut and removed timber therefrom 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.
3) 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,” date 9 December 1964, which was approved by the president of
UP.
4) In the contract had been stated, “…the balance outstanding after the said payments have been applied shall be paid by the debtor
in full no later than June 30, 1965…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 og any judicial sui, and the creditor
shall be entitled as a matter of right to P50,000.00 by way of and for liquidated damages.
5) In 1965, 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
6) UP filed a complaint to restrain ALUMCO from continuing its logging operations in the Land Grant.
7) Before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the
logging operation. It conducted bid and awarded it to Sta. Clara Lumber Company.
8) Court of First Instance of Rizal (Quezon City): issued order enjoining UP from awarding logging rights over the concession to any
other party. It also declared UP in contempt of court and also ordered Sta. Clara Lumber Company, Inc. to refrain from exercising
logging rights or conducting logging operations in the concession.

ISSUE/S: W/N UP petitioner can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect.
RULING: YEEEEeeeesss
1) 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 dated 2 December 1960
as rescinded without the necessity of any judicial suit.
2) 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.
3) 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.
4) In fact, even without express provision conferring the power of cancellation upon one contracting party, the Supreme Court of
Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our Civil Code is practically a
reproduction), has a repeatedly held that a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless
successfully impugned in court.

12. Zulueta v. Mariano

Doctrine: A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not
ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and'
determination. While a violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle
the other party to resolved or rescind it, proof of violation of a contract is a condition precedent to resolution or rescission. It is only
when the violation has been established that the contract can be declared resolved or rescinded.
When the contract between the parties provided for extrajudicial rescission, this takes legal effect only when the other party does not
oppose it. Where it is objected to, a judicial determination of the issue is still necessary.
FACTS:
 Petitioner Jose C. Zulueta is the registered owner of a residential house and lot situated w/in the Antonio Subdivision, Pasig, Rizal
 On November 6, 1964, petitioner Zulueta and private respondent Lamberto Avellana, a movie director, entered into a "Contract to
Sell" the aforementioned property for P75,000.00 payable in 20 years w/ respondent buyer assuming to pay a down payment of
P5,000.00 and a monthly installment of P630.00 payable in advance before the 5th day of the corresponding month, starting with
December, 1964
 It was further stipulated:
o That upon failure of the BUYER to fulfill any of the conditions herein stipulated, BUYER automatically and irrevocably
authorizes OWNER to recover extra-judicially, physical possession of the land, building and other improvements which are
the subject of this contract, and to take possession also extra-judicially whatever personal properties may be found within
the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations BUYER may
have with OWNER;
o and this contract shall be considered as without force and effect also from said date; all payments made by the BUYER to
OWNER shall be deemed as rental payments without prejudice to OWNER's right to collect from BUYER whatever other
monthly installments and other money obligations which may have been paid until BUYER vacates the aforesaid premises;
o upon his failure to comply with any of the herein conditions BUYER forfeits all money claims against OWNER and shall pay
a monthly rental equivalent to his monthly installment under Condition 1 of this Contract from the date of the said failure
to the date of recovery of physical possession by OWNER of the land, building and other improvements which are the
subject of this Contract;
o BUYER shall not remove his personal properties without the previous written consent of OWNER, who, should he take
possession of such properties following the aforesaid failure of BUYER, shall return the same to BUYER only after the latter
shall have fulfilled all money claims against him by OWNER; in all cases herein, demand is waived;
 Respondent Avellana occupied the property from December 1964, but title remained with petitioner Zulueta.
 Upon the allegation that respondent Avellana had failed to comply with the monthly amortizations stipulated in the contract, despite
demands to pay and to vacate the premises, and that thereby the contract was converted into one of lease, petitioner, Zulueta, on
June 22, 1966, commenced an Ejectment suit against respondent before the Municipal Court of Pasig, praying that judgment be
rendered ordering respondent 1) to vacate the premises; 2) to pay petitioner the sum of P11,751.30 representing respondent's
balance owing as of May, 1966; 3) to pay petitioner the sum of P 630.00 every month after May, 1966, and costs.
 Respondent refuted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the
interpretation and/or rescission of the contract; that prior to the execution of the contract to sell, petitioner was already indebted
to him in the sum of P31,269.00 representing the cost of 2 movies respondent made for petitioner and used by the latter in his
political campaign in 1964 when petitioner ran for Congressman, as well as the cost of one 16 millimeter projector petitioner
borrowed from respondent and which had never been returned, which amounts, according to their understanding, would be applied
as downpayment for the property and to whatever obligations respondent had with petitioner
 Petitioner strongly denied such an understanding. Respondent's total counterclaim against petitioner was in the amount of
P42,629.99 representing petitioner's pleaded indebtedness to private respondent, claim for moral damages, and attorney's fees.
 The counterclaim was dismissed by the Municipal Court for being in an amount beyond its jurisdiction. However, as a special
defense, private respondent sought to offset the sum of P31,269.00 against his obligations to petitioner.
 Deciding the case on May 10, 1967, the Municipal Court found that respondent Avellana had failed to comply with his financial
obligations under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner; to pay petitioner
the sum of P21,093.88 representing arrearages as of April, 1967, and P630.00 as monthly rental from and after May, 1967 until
delivery of possession of that premises to petitioner.
 That conclusion was premised on title finding that breach of any of the conditions by private respondent converted the agreement
into a lease contractual and upon the following considerations:
o The question involved herein is that of possession, that who of the contending parties has the better right to possession of
the properly in question. The issue in this case being that of possession, the claim of defendant against plaintiff or P 31,269.00
indebtedness, has no place as a defense here. It should be the subject- matter of a separate action against, plaintiff Jose C.
Zulueta. As it is, said indebtedness is only a claim still debatable and controversial and not a final judgment. 'It is our considered
opinion that to admit and to allow such a defense would be tantamount to prejuding the claim on its merits prematurely in
favor of defendant. This court can not do without violating some rules of law. This is not the proper court and this is not the
proper case in which to ventilate the claim.
o Respondent Avellana appealed to the CFI of Rizal presided by respondent Judge. Petitioner summoned for execution alleging
private respondent's failure to deposit in accordance the monthly rentals, w/c the latter denied. Respondent Judge held
resolution thereof in abeyance.
o On Feb 19, 1968, respondent Avellana filed a Motion to Dismiss Appeal alleging that, inasmuch as the defense set up in his
Answer was that he had not breached his contract with petitioner, the case necessarily involved the interpretation and/or
rescission of the contract and, therefore, beyond the jurisdiction of the Municipal Court.
 Petitioner opposed claiming that the Complaint had set out a clear case of unlawful detainer considering that judicial action for the
 rescission of the contract was unnecessary due to the automatic rescission clause therein
 On March 21, 1968, respondent Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court, explaining:
The decision of the lower court declared said Contract to Sell to have been converted into a contract of lease. It is the contention
of the defendant that the lower court had no jurisdiction to entertain the case as the same involves the interpretation of contract
as to w/n the same has been converted to lease contract. Although the contract to sell object of this case states that the same
may be converted into a lease contract upon the failure of the defendant to pay the amortization of the property in question,
there is no showing that before filing this case in the lower court, the plaintiff has exercised or has pursued his right pursuant to
the contract which should be the basis of the action in the lower court.
 Petitioner's Motion for Reconsideration was denied by respondent Judge as follows:
The plaintiff having filed a MR of this Court's Order dismissing the appeal, the Court, while standing pat on its Order dismissing
this case for lack of jurisdiction of the lower court over the subject matter, hereby takes cognizance of the case and will try the
case as if it has been filed originally in this Court.
WHEREFORE, let this case be set for pre-trial on July 12, 1968 at 8:30 a.m. with notice to all parties. Petitioner then availed of the
instant recourse.
ISSUE: W/N the action before the Municipal Court of Pasig essentially for detainer and, therefore, within its exclusive original
jurisdiction, or one for rescission or annulment of a contract, which should be litigated before a CFI?
RULING: YEEEEEeeeeeessss
HELD:

1) The Municipal Court had no jurisdiction over the case as it was one for rescission or annulment of a contract. When the contract
between the parties provided for extrajudicial rescission, this takes legal effect only when the other party does not oppose it.
Where it is objected to, a judicial determination of the issue is still necessary.
2) In his Complaint, petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell and thus
unilaterally considered the contract rescinded. Respondent Avellana denied any breach on his part and argued that the principal
issue was one of interpretation and/or rescission of the contract as well as of set-off.
3) Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is only when the violation has
been established that the contract can be declared resolved or rescinded. Upon such rescission, in turn, hinges a pronouncement
that possession of the realty has become unlawful. Thus, the basic issue is not possession but one of rescission or annulment of a
contract. which is beyond the jurisdiction of the Municipal Court to hear and determine. And if this is proved a justice of the peace
court might make a finding to that effect, but it certainly cannot declare and hold that the contract is resolved or rescinded. It is
beyond its power so to do.
4) The illegality of the possession of realty by a party to a contract to sell is premised upon the resolution of the contract, it follows
that an allegation and proof of such violation, a condition precedent to such resolution or rescission, to render unlawful the
possession of the land or building erected thereon by the party who has violated the contract, cannot be taken cognizance of by
a justice of the peace court.
5) A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex
proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and'
determination. While a violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle
the other party to resolved or rescind it, proof of violation of a contract is a condition precedent to resolution or rescission. It is
only when the violation has been established that the contract can be declared resolved or rescinded.

13. Palay v. Clave

Doctrine:
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. 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.

Relevant Provisions:
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. 2203
The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the
act or omission in question.

Art. 1385
Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to
restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons
who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss. (1295)

FACTS:
1) Petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract
to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, and owned by said corporation.
a. Sale price- P23,300.00 with 9% interest per annum
b. Payable with a downpayment of P4,660.00
c. Monthly installments of P246.42 until fully paid.
d. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly
installment 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 installments paid.
2) Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on
December 5, 1967 for installments up to September 1967.
3) On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts
with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon.
a. He followed this up with another letter dated June 20, 1973 reiterating the same request.
4) Replying 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.
5) Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority
(NHA) for reconveyance with an altenative prayer for refund (Case No. 2167).
6) In a Resolution, NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the
amount of P13,722.50 with 12% interest from the filing of the complaint on November 8, 1974. Petitioners' Motion for
Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979.
7) On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law (O.P. Case No. 1459),
respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by
petitioners was denied for lack of merit.

ISSUE: W/N demand is necessary to rescind a contract

RULING: YEEEEEeeeesss
1) Petitioners maintain that it was justified in cancelling the contract to sell without prior notice or demand upon respondent in view
of paragraph 6 thereof which provides:
a. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed upon, the BUYER
shall be granted a month of grace within which to make the payment of the t in arrears together with the one
corresponding to the said month of grace.
 b. It shall be understood, however, that should the month of grace herein granted to the BUYER expire, without the
payment & corresponding to both months having been satisfied, an interest of ten (10%) per cent per annum shall be
charged on the amounts the BUYER should have paid;
c. it is understood further, that should a period of NINETY (90) DAYS elapse to begin from the expiration of the month of
grace hereinbefore mentioned, and the BUYER shall not have paid all the amounts that the BUYER should have paid
with the corresponding interest up to the date, the SELLER shall have the right to declare this contract cancelled and of
no effect without notice, and as a consequence thereof, the SELLER may dispose of the lot/lots covered by this Contract
in favor of other persons, as if this contract had never been entered into.
d. In case of such cancellation of this Contract, all the amounts which may have been paid by the BUYER in accordance with
the agreement, together with all the improvements made on the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises and for liquidated damages suffered by virtue of the failure of the
BUYER to fulfill his part of this agreement : and
e. the BUYER hereby renounces his right to demand or reclaim the return of the same and further obligates peacefully to
vacate the premises and deliver the same to the SELLER.
2) Well settled is the rule, as held in previous jurisprudence, that 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. As stressed in University of
the Philippines vs. Walfrido de los Angeles, the act of a party in treating a contract as cancelled should be made known to the
other. We quote the pertinent excerpt:
a. “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. 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”
3) In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination.
4) In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for the Court to
determine whether resolution of the contract by petitioners was warranted.
5) "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on September 14, 1972, when
it specifically provided:
a. 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.
6) The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious
because it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to
stipulate. A waiver must be certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has
been fully accorded.
7) Moreover, it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments.

ISSUE: W/N petitioners may be held liable for the refund of the installment payments made by respondent
RULING: YEEEeeeeeeeeeeeesss

1) Article 1385 of the Civil Code provides:

a. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
b. Neither sham rescission take place when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
c. In this case, indemnity for damages may be demanded from the person causing the loss.
2) Rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. However,
considering that 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 installments 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.
14. Angeles v. Calasanz
DOCTRINE: Nothing in Art 1191 of the new Civil Code prohibits agreement on cancellation of contract by a party without judicial
intervention. The right to cancel a contract even if agreed upon may, however, be questioned in court by the affected party to
determine whether or not cancellation was warranted.
However, unilateral cancellation of contract to sell is not warranted if breach is only slight or casual.

Relevant Provisions:
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.”

1) Defendants-appellants (aka respondents) Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees (aka petitioners)
Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for Php3,920 plus
7% interest per annum.
2) Plaintiffs-appellees made a downpayment of Php392 upon the execution of the contract. They promised to pay balance in monthly
installments of Php41.20 until fully paid. The installments are due and demandable every 19th day of each month.
3) Plaintiffs paid monthly installments until July 1966, their aggregate payment amounting to Php4,553.38.
4) On numerous occasions, the defendants accepted delayed installment payments from the plaintiffs.
5) On Dec 7, 1966, the defendants wrote the plaintiffs a letter requesting the remittance of past due accounts. The defendants
cancelled the said the contract because the plaintiffs failed to meet subsequent payments.
6) The plaintiffs filed a case with the Court of First Instance to compel defendants to execute in their favor the final deed of sale.
They alleged that they have already paid Php4,533.38 including interests, realty taxes and incidental expenses.
7) The defendants alleged that the complaint has no cause of action and that the plaintiffs violated paragraph 6 of the contract when
they failed to pay the monthly installments corresponding to August 1966 for more than 5 months.
8) Lower court: rendered judgment in favor of plaintiffs and ordered defendants to pay Php500 by way of attorney’s fees.
9) Court of Appeals: certified the case to the Supreme Court considering that the appeal involves pure questions of law.

ISSUE/S: W/N the contract to sell has been automatically and validly cancelled by the defendants.
HELD:
1) Paragraph 6 of the contract states that: it is understood farther, that should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts he should have
paid with the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled
and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this
contract in favor of other persons, as if this contract had never been entered into.
2) Defendants argue that even in the absence of the aforequoted provision (paragraph 6 of the contract), they had the right to cancel
the contract to sell under Article 1191 of the Civil Code (see relevant provisions) of the Philippines.
3) Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the failure of the other to
perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into
an agreement that violation of the terms of the contract would cause its cancellation even without court intervention.
4) The rule is that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract
itself provides that it may be rescinded for violation of Its terms and conditions.
5) 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.
6) 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.
7) For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was
correct in law.
8) It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.
9) The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. “The general rule is
that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement.
10) The question of whether a breach of a contract is substantial depends upon the attendant circumstances.
11) The breach of the contract adverted to by the defendants is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs had already paid the monthly installments for a period of almost nine (9) years. In other
words, in only a short time, the entire obligation would have been paid.
12) Furthermore, although the principal obligation was only P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had
already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-appellants will work injustice
to the plaintiffs-appellees. It would unjustly enrich the defendants.
13) Article 1234 of the Civil Code which provides that:
14) “If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.” also militates against the unilateral act of the defendants in cancelling
the contract.
15) The defendants argue that paragraph nine of the contract clearly allows the seller to waive the observance of paragraph 6 not
merely once, but for as many times as he wishes.
16) The defendants’ contention is without merit. We agree with the plaintiffs that when the defendant, instead of availing of their
alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiff have been in arrears
beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now estopped
from exercising their alleged right of rescission.
17) The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants
drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed
their signatures and assented to the terms and conditions of the contract They had no opportunity to question nor change any of
the terms of the agreement. It was offered to them on a “take it or leave it” basis.
18) While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of
P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the
buyer upon payment of the P3,920.00 price sale.
19) The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation
of the plaintiffs-appellees to the effect that “the terms of a contract must be interpreted against the party who drafted the same,
especially where such interpretation will help effect justice to buyers
20) Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs have already paid an aggregate
amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the
cancellation of the contract.
21) Upon payment of the balance of P671.67 without any interest thereon, the defendants must immediately execute the final deed
of sale in favor of the plaintiffs and execute the necessary transfer documents as. The attorney’s fees are justified.

15. Boysaw v. Interphil

DOCTRINE: The violations of the terms of the original contract by appellants vested the appellees with the right to rescind and
repudiate such contract altogether.

1) On May 1, 1961, Solomon Boysaw with his then Manager Ketchum signed with Interphil Promotions, Inc., represented by
Sarreal, Sr., a contract to engage Gabriel “Flash Elorde in a boxing contest for the junior lightweight championship of the world.
2) The contract stipulated that the fight would be held at Rizal Memorial Stadium in Manila on September 30, 1961 or not later
than 30 days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the
boxing contest, engage in any other such contest without the written consent of Interphil.
3) Thereafter, Interphil signed Elorde to a similar agreement, that is, to engage Boysaw on September 30, 1961.
4) On July 2, 1961, Ketchum assigned to J. Araneta the managerial rights over Boysaw. On July 31, Boysaw arrivied in the
Philippines. The managerial rights over Boysaw were subsequently assigned by Araneta to Alfredo Yulo, Jr. on Sept. 1, 1961.
5) Sarreal, of Interphil, wrote a letter to the Games and Amusement Board (GAB) expressing concern over reports that there had
been a switch of managers in the case of Boysaw, requesting that Boysaw be called to an inquiry to clarify the situation.
6) The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule the fight
for Nov. 4, 1961.
7) Yulo refuse to accept the change in the fight date, maintaining his refusal when Sarreal previously offered to advance the fight
date to Oct. 28, 1961, which was within the 30-day period stipulated on the May 1 contract.
8) While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1 boxing contract never materialized.
9) Boysaw and Yulo sued Interphil for breach of contract. The lower court rendered its judgment dismissing the complaint.

ISSUE: W/N there was a violation of the fight contract of May 1.

HELD:YES.
1) The evidence established that the contract was violated by Boysaw himself when, without the approval or consent of Interphil,
he fought Louis Avila on June 19, 1961 in Las Vegas. Appellant Yulo admitted this fact during trial.
2) While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to breach it
with impunity. Our law on contract recognizes the principle that actionable injury inheres in every contractual breach. Thus:
3) Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art. 1170, Civil Code].
4) 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. [Part 1, Art. 1191, Civil Code].
5) There is no doubt that the contract in question gave rise to reciprocal obligations. These are those which arise from the same
cause, and in which each party is a debtor and creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.
6) The power to rescind is given to the injured party.
7) Another violation was the assignment and transfer of managerial rights over Boysaw without the knowledge or consent of
Interphil. These assignments, from Ketchum to Araneta, and from Aranetta to Yulo, were in fact novations of the original
contract which, to be valid, should have been consented to by Interphil. Not being reliably informed, appellees cannot be
deemed to have consented to such changes. Under the law, when a contract is unlawfully novated by an applicable and
unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.
8) The appellees, instead of availing themselves of the options given to them by law of rescission or refusal to recognize the
substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That
the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts
aforestated. Under the circumstances, the appellees’ desire to postpone the fight date could neither be unlawful nor
unreasonable.
9) The violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate
such contract altogether. That they sought to seek an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee’s rights.

Relevant Provision:
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 chose 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
1384 and 1388 and the Mortgage Law.

16. Pilipinas Bank v. Intermediate Appellate Court

Doctrine: A contractual provision allowing “automatic rescission” (without prior need of judicial rescission, resolution or
cancellation) is VALID.
1) In 1961, Hacienda Benito, Inc. (petitioner’s predecessor-in-interest) as vendor, and private respondents, as vendees executed a
Contract to Sell a parcel of land in Victoria Valley Subdivision in Antipolo, Rizal (area: 5,936sqm)
2) Shown hereunder are the terms and conditions relevant to the petition:
a. Total contract price for the entire lot= P47,488.00;
b. Of the total sum, an amount of Pl2,182.00 was applied thereto so as to reduce the balance on the principal to P35,306.00;
c. The aforesaid balance, together with the stipulated interest of 6% per annum, was to be paid over a period of 8-1/2 years
starting on May 1, 1961 at a monthly installment of P446.10 until fully paid-although this monthly installment was later
adjusted to the higher amount of P797.86, starting on April 1, 1965;
d. Upon complete payment by the vendee of the total price of the lot the vendor shall execute a deed of sale in favor of the
vendee;
e. The contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure
of the vendee to pay when due, three or more consecutive installments as stipulated therein or to comply with any of
the terms and conditions thereof, in which case the vendor shall have right to resell the said parcel of land to any
person interested, forfeiting payments made by the vendee as liquidated damages.
3) In 1965, petitioner sent 2 Statement of Accounts to private respondents
4) August: request for remittance of installment arrears showing partial payment for the months of April and May of 1965 and
complete default for June to August 1965
5) September: included additional entries of interests and the incoming installment for the month of September of the same year.
6) Private respondents then paid on September the sum of Pl,397.00 which answers for the installments for the months of June
1965 to August 1965;
7) In 1967, petitioner sent 2 demand letters on different occasions
a. March: simple demand letter to private respondents showing a delinquency in their monthly amortization for 19 months.
b. June: demand letter total arrearages of 20 months. Petitioner advised private respondents that petitioner shall be
constrained to avail of the automatic rescission clause UNLESS they update their installment payments.
8) On May 17, 1967, private respondents made a partial payment of Php2,000 —WITH a request for extension of 60 days from the
said date within which to update their account. Thereafter, petitioner asked for another extension of 60 days to pay all their
arrearages and update their payments under the contract
9) 2 months after, private respondents paid PHP5,000 as partial payment and requested another extension of 30 days from the date
of payment within which to update their account. However, private respondents failed to update their arrearages. They did not
request for any further extension.
10) After almost 3 years (July 1970), private respondents wrote a letter to petitioner requesting for a Statement of Account as of date
in arrears and interest
11) In May 1971, almost a year after, petitioner wrote a letter to private respondents, which served as a reminder to settle their
balances which will be due on the 31st.
12) On the 5th of July 1973, private respondents wrote a letter to petitioner expressing their desire to fully settle their obligation,
requesting for a complete statement of all the balances due including interest. Almost a year after the request was made, private
respondents wrote another letter reiterating their request for a complete statement of the balances which has yet to be supplied
by the petitioner despite several follow-ups.
13) Because of this, private respondent Carmen Diokno met up with the Chairman of petitioner’s Board of Directors on the matter
informing him that she had a buyer who was ready to purchase the property.
14) A couple of days after, petitioner wrote a letter to private respondents, informing them that the contract to sell had been
rescinded/cancelled by a notarial act notarized on March 25, 1974
15) Private respondent filed a Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in
their favor, and to deliver to them the title of the lot in question.
16) Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees, claiming that the contract has been
automatically rescinded or cancelled by virtue of private respondents' failure to pay the installments due in the contract under
the automatic rescission clause.
17) A trial ensued wherein the lower court rendered a decision in favor of the private respondent. The court held that petitioner
could not rescind the contract to sell based on the following reasons:
a. petitioner waived the automatic rescission clause by accepting payment on September 1967, and by sending letters
advising private respondents of the balances due, thus, looking forward to receiving payments thereon;
b. In any event, until May 18, 1977 (when petitioner made arrangements for the acquisition of additional 870 square
meters) petitioner could not have delivered the entire area contracted for, so, neither could private respondents be liable
in default, citing Art. 1 189 of the New Civil Code. (Decision, pp. 141-148, Amended Record on Appeal).
18) The Court of Appeals affirmed the decision of the trial court.
Issue: Whether or not the Contract to Sell was rescinded/cancelled under the automatic rescission clause contained therein.
Held:
1) The petition is meritless.
2) The assailed decision is affirmed BUT actual damages are reduced to PHP250,000 which represents the profit private respondents
could have earned had the land been delivered to them at the time they were ready to pay all their damages) MINUS whatever
private respondents still owe the petitioner (with the stipulate 6% annual interest up to March 25, 1974) as a result of the contract.
3) While it is true that in the leading case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., 43 SCRA
93 the Supreme Court reiterated among other things that a contractual provision allowing "automatic rescission" (without prior
need of judicial rescission, resolution or cancellation) is VALID, the remedy of one who feels aggrieved being to go to Court for
the cancellation of the rescission itself, in case the rescission is found unjustified under the circumstances
a. In the instant case there is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many
extensions granted private respondents by the petitioner. In all these extensions, the petitioner never called attention
to the proviso on "automatic rescission."

17. Ong v. CA
Doctrine:
Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise
from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other.
vs
Rescission, as contemplated in Articles 1380 of the New Civil Code, is a remedy granted by law to the contracting parties and even to
third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things
to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a
lesion or a pecuniary damage to someone.
1) On May 10, 1983, petitioner Jaime Ong and respondent spouses Miguel K. Robles and Alejandra Robles, executed an "Agreement
of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions of
the contract read:" That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00), Philippine
currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed by the parties, shall be broken
down as follows:
1. P103,499.91 shall be paid, and as already paid by the BUYER to the SELLERS on March 22, 1983, as stipulated
under the Certification of undertaking dated March 22, 1983 and covered by a check of even date.
2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine Islands to answer
for the loan of the SELLERS which as of March 15, 1983 amounted to P537,310.10, and for the interest that
may accrued (sic) from March 15, 1983, up to the time said obligation of the SELLERS with the said bank has
been settled, provided however that the amount in excess of P496,500.09, shall be chargeable from the time
deposit of the SELLERS with the aforesaid bank.
B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS shall be paid by the BUYER to the
SELLERS in four (4) equal quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to
be due and payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by these presents
promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill and the piggery which are the
most notable improvements thereon, situated at Barangay Puri, San Antonio Quezon, . . .
2) That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to deliver to the former a good and
sufficient deed of sale and conveyance for the described two (2) parcels of land, free and clear from all liens and encumbrances.
3) That immediately upon the execution of this document, the SELLERS shall deliver, surrender and transfer possession of the said
parcels of land including all the improvements that may be found thereon, to the BUYER, and the latter shall take over from the
SELLER the possession, operation, control and management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.
4) That all payments due and payable under this contract shall be effected in the residence of the SELLERS located at Barangay Puri,
San Antonio, Quezon unless another place shall have been subsequently designated by both parties in writing.
5) On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill,
residential house and other improvements thereon.
6) Petitioner Ong paid respondent spouses the sum of P103,499.91 by depositing it with the United Coconut Planters Bank.
7) Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), in accordance with their stipulation
that petitioner pay the loan of respondents with BPI.
8) To answer for his balance of P1,400,000.00, petitioner issued four (4) post-dated Metro Bank checks payable to respondent
spouses in the amount of P350,0000.00 each, namely:
9) Check No. 157708 dated June 15, 1983, Check No. 157709 dated September 15, 1983, Check No. 157710 dated December 15,
1983, and Check No. 157711 dated March 15, 1984.
10) When presented for payment, the checks were dishonored due to insufficient funds.
11) Petitioner promised to replace the checks but failed to do so.
12) To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, petitioner
only managed to dole out no more than P393,679.60.
13) When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth
P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of petitioner.
14) Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill.
15) He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill
for residential purposes.
16) On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the properties.
Their demand was left unheeded
17) On September 2, 1985, they filed with the Regional Trial Court of Lucena City, Branch 60, a complaint for rescission of contract
and recovery of properties with damages.
18) Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties
by constructing a complete fence made of hollow blocks and expanding the piggery.
19) These prompted the respondent spouses to ask for a writ of preliminary injunction.
20) The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for
repairs.
21) On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:
22) IN VIEW OF THE FOREGOING, judgment is hereby rendered:
 a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles
and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set
aside;
b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of
Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M.
Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of
P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the
sum of P20,000.00 as attorney's fees and litigation expenses.
23) From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but deleted
the award of exemplary damages.
24) In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase
price is a substantial breach of his obligation, which entitles the private respondents to rescind their contract under Article 1191
of the New Civil Code. Hence, the instant petition.
25) Petitioner meanwhile contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent
spouses a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383 instead, to the
effect that where specific performance is available as a remedy, rescission may not be resorted to.

ISSUES: Whether the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code;
HELD: YES
1) Rescission, as contemplated in Articles 1380 of the New Civil Code, is a remedy granted by law to the contracting parties and even
to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of
things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid,
produces a lesion or a pecuniary damage to someone.
2) Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other.
3) Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts
under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution
when proper, they are not entirely identical.
4) While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the article was
based, was "resolution."
5) Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited
to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the following rescissible
contracts:
i. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more
than one fourth of the value of the things which are the object thereof;
ii. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
iii. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them;
iv. Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
v. All other contracts specially declared by law to be subject to rescission.
6) Obviously, the contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381.
Consequently, Article 1383 is inapplicable.
7) A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as
distinguished from a contract of sale.
8) In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price.
In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.
9) Respondents bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full
payment by the buyer of the purchase price of P2,000,000.00.
10) This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the
petitioner. However, he failed to complete the payment of the purchase price.
11) The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect.
12) It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an
obligation. Failure to pay, in this instance, is not even a breach but merely an event, which prevents the vendor's obligation to
convey title from acquiring binding force. Hence, the agreement of the parties in this case may be set aside, but not because of a
breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about
a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force.
ISSUE: Whether the parties had novated their original contract as to the time and manner of payment.
RULING: NOOooooooooo
1) Article 1292 of the New Civil Code states that, "In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other."
2) Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from
an irreconcilable incompatibility between the old and the new obligation.
3) Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. It is true
that petitioner paid respondents small sums of money amounting to P48,680.00, in contravention of the manner of payment
stipulated in their contract. These installments were, however, objected to by respondent spouses, and petitioner replied that
these represented the interest of the principal amount which he owed them.
4) Records further show that petitioner agreed to the sale of MERALCO transformers by private respondents to pay for the balance
of their subsisting loan with the Bank of Philippine Islands. This was shown in petitioner's letter of authorization.
5) It should be noted that while it was agreed that part of the purchase price in the sum of P496,500.00 would be directly deposited
by petitioner to the Bank of Philippine Islands to answer for the loan of respondent spouses, petitioner only managed to deposit
P393,679.60.
6) When the bank threatened to foreclose the properties, petitioner apparently could not even raise the sum needed to forestall
any action on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3) transformers.
7) However, although the parties agreed to credit the proceeds from the sale of the transformers to petitioner's obligation, he was
supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part
of either of the parties to novate petitioner's manner of payment.
8) Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent spouses proposed to
operate the rice mill on the condition that they will account for its earnings.
9) The court finds this unsubstantiated by the evidence on the record. Clearly, while petitioner might have wanted to novate the
original agreement as to his manner of payment, the records are bereft of evidence that respondent spouses willingly agreed to
modify their previous arrangement.
10) In order for novation to take place, the concurrence of the following requisites is indispensable:
a. there must be a previous valid obligation;
b. there must be an agreement of the parties concerned to a new contract;
c. there must be the extinguishment of the old contract; and
d. there must be the validity of the new contract.
11) The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to
dissolve the old obligation as a consideration for the emergence of the new one. There must be an express intention to novate.
12) As regards the improvements introduced by petitioner to the premises and for which he claims reimbursement, the court finds
no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced
the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the
vigorous objections of respondent spouses. Moreover, petitioner introduced major improvements on the premises even while
the case against him was pending before the trial court.
13) WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the MODIFICATION that respondent
spouses are ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded. Costs against
petitioner.

18. Fil Estate v. Vortex

DOCTRINE: 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)
FACTS:
1) petition for review on certiorari
2) FEGDI is a stock corporation whose primary business is the development of golf courses. FELI is also a stock corporation, but is
engaged in real estate development. FEGDI was the developer of the Forest Hills Golf and Country Club (Forest Hills) and, in
consideration for its financing support and construction efforts, was issued several shares of stock of Forest Hills.
3) In August 1997, FEGDI sold, on installment, to RS Asuncion Construction Corporation (RSACC) one Class “C” Common Share of
Forest Hills for P1,100,000.00. Prior to the full payment of the purchase price, RSACC sold, on February 11, 1999,5 the Class “C”
Common Share to respondent Vertex Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex and FEGDI, in
turn, instructed Forest Hills to recognize Vertex as a shareholder. For this reason, Vertex enjoyed membership privileges in Forest
Hills.
4) Despite Vertex’s full payment, the share remained in the name of FEGDI.
5) Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance of a stock
certificate in its name. FELI replied, initially requested Vertex to first pay the necessary fees for the transfer. Although Vertex
complied with the request, no certificate was issued. This prompted Vertex to make a final demand on March 17, 2001. As the
demand went unheeded, Vertex filed on January 7, 2002 a Complaint for Rescission with Damages and Attachment against FEGDI,
FELI and Forest Hills.
6) It averred that the petitioners defaulted in their obligation as sellers when they failed and refused to issue the stock certificate
covering the subject share despite repeated demands. On the basis of its rights under Article 1191 of the Civil Code, Vertex prayed
for the rescission of the sale and demanded the reimbursement of the amount it paid (or P1,100,000.00), plus interest. During
the pendency of the rescission action (or on January 23, 2002), a certificate of stock was issued in Vertex’s name, but Vertex
refused to accept it.
7) RTC ruling:
a. DISMISSED the complaint for insufficiency of evidence
b. delay in the issuance of stock certificates does not warrant rescission of the contract as this constituted a mere casual or
slight breach
c. notwithstanding the delay in the issuance of the stock certificate, the sale had already been consummated; the issuance
of the stock certificate is just a collateral matter to the sale and the stock certificate is not essential to “the creation of
the relation of shareholder.
8) CA ruling:
a. REVERSED; rescinded the sale of the share
b. there can be no valid transfer of shares where there is no delivery of the stock certificate. It considered the prolonged
issuance of the stock certificate a substantial breach that served as basis for Vertex to rescind the sale. The CA ordered
the petitioners to return the amounts paid by Vertex by reason of the sale.
ISSUE: Whether the delay in the issuance of a stock certificate can be considered a substantial breach as to warrant rescission of the
contract of sale
HELD: The petition lacks merit; Petition DENIED
1) Physical delivery is necessary to transfer ownership of stocks
2) Raquel-Santos v. Court of Appeals: “a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites
for the transfer of ownership of the stocks purchased.”
3) Section 63 of the Corporation Code provides:
a. SEC. 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred.
4) In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only delivered on January 23,
2002 after Vertex filed an action for rescission against FEGDI.
5) Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock certificates, representing
the shares of stock purchased by Vertex, within a reasonable time from the point the shares should have been delivered. This was
a substantial breach of their contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code.
6) It is not entirely correct to say that a sale had already been consummated as Vertex already enjoyed the rights a shareholder can
exercise. The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer
ownership.
7) “Mutual restitution is required in cases involving rescission under Article 1191” of the Civil Code; such restitution is necessary
to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the amount paid to FEGDI
by reason of the sale should be returned to Vertex. On the amount of damages, the CA is correct in not awarding damages since
Vertex failed to prove by sufficient evidence that it suffered actual damage due to the delay in the issuance of the certificate of
stock.
8) Regarding the involvement of FELI in this case, no privity of contract exists between Vertex and FELI. “As a general rule, a contract
is a meeting of minds between two persons. The Civil Code upholds the spirit over the form; thus, it deems an agreement to exist,
provided the essential requisites are present (proof of consent, subject matter and cause). From the moment there is a meeting
of minds between the parties, the contract is perfected."
9) In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller, and Vertex, as buyer. As can be seen from the
records, FELl was only dragged into the action when its staff used the wrong letterhead in replying to Vertex and issued the wrong
receipt for the payment of transfer taxes. Thus FELl should be absolved from any liability.

19. Gotesco v. Fajardo

DOCTRINE: It is settled in a contract to sell that the seller’s obligation to deliver the corresponding certificates of title is simultaneous
and reciprocal to the buyer’s full payment of the purchase price.
FACTS:
1) Respondent-spouses Eugenio and Angelina Fajardo entered into a Contract to Sell with petitioner-corporation Gotesco Properties,
Inc. (GPI) for the purchase of a 100-square meter lot.
2) Sps. Fajardo undertook to pay the purchase price of P126,000.00 within a 10-year period, including interest at the rate of nine
percent (9%) per annum.
3) GPI, on the other hand, agreed to execute a final deed of sale (deed) in favor of Sps. Fajardo upon full payment of the stipulated
consideration. However, despite its full payment of the purchase price on January 17, 20006 and subsequent demands,7 GPI failed
to execute the deed and to deliver the title and physical possession of the subject lot.
4) Sps. Fajardo filed before the Housing and Land Use Regulatory Board-Expanded National Capital Region Field Office
(HLURBENCRFO) a complaint8 for specific performance or rescission of contract with damages against GPI and the members of
its Board of Directors namely, Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go, and Vicente Go (individual petitioners).
5) Sps. Fajardo averred that GPI violated Section 209 of Presidential Decree No. 95710 (PD 957) due to its failure to construct and
provide water facilities, improvements, infrastructures and other forms of development including water supply and lighting
facilities for the subdivision project.
6) They also alleged that GPI failed to provide boundary marks for each lot and that the mother title including the subject lot had no
technical description and was even levied upon by the Bangko Sentral ng Pilipinas (BSP) without their knowledge.
7) Petitioners maintained that at the time of the execution of the contract, Sps. Fajardo were actually aware that GPI’s certificate of
title had no technical description inscribed on it. Nonetheless, the title to the subject lot was free from any liens or encumbrances.
8) RULING OF HLURB-ENCRFO
9) GPI’s obligation to execute the corresponding deed and to deliver the transfer certificate of title and possession of the subject lot
arose and thus became due and demandable at the time Sps. Fajardo had fully paid the purchase price for the subject lot.
Consequently, GPI’s failure to meet the said obligation constituted a substantial breach of the contract
10) On appeal, the HLURB Board of Commissioners affirmed the above ruling.
11) OP affirmed the HLURB rulings
12) CA affirmed the above rulings with modification, fixing the amount to be refunded to Sps. Fajardo at the prevailing market value
of the property.

ISSUE: Whether or not the Spouses Fajardo have the right to rescind the contract considering that GPI's inability to comply therewith
was due to reasons beyond its control. (Art 1191)
RULING: YEEEEEEess
1) In the present case, Sps. Fajardo claim that GPI breached the contract due to its failure to execute the deed of sale and to deliver
the title and possession over the subject lot, notwithstanding the full payment of the purchase price made by Sps. Fajardo on
January 17, 200021 as well as the latter’s demand for GPI to comply with the aforementioned obligations per the letter22 dated
September 16, 2002.
2) However, no plausible explanation was advanced by the petitioners as to why the petition for inscription (docketed as LRC Case
No. 4211) dated January 6, 2000,25 was filed only after almost eight (8) years from the acquisition of the subject property.
3) GPI took no positive action to cause the immediate filing of a new petition for inscription within a reasonable time from notice of
the July 15, 2003 CA Decision which dismissed GPI’s earlier petition based on technical defects, this notwithstanding Sps. Fajardo's
full payment of the purchase price and prior demand for delivery of title.
4) Clearly, the long delay in the performance of GPI's obligation from date of demand on September 16, 2002 was unreasonable and
unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. Fajardo which thereby
accords the latter the right to rescind.
ISSUE: Whether or not Sps.Fajardo are entitled for a refund. (Art 1385)
RULING: YES
1) On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous developers, operators
and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity and justice dictate that the injured
party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot
which had been fully paid for.
2) It cannot be denied that only GPI benefited from the contract, having received full payment of the contract price plus interests as
early as January 17, 2000, while Sps. Fajardo remained prejudiced by the persisting non-delivery of the subject lot despite full
payment.

ISSUE: Whether or not Sps. Fajardo should be granted moral, exemplary damages, and atty’s fees.
RULING: YEEEEEEEEEEesss
1) Moral damages- Court finds that there is proper legal basis to accord moral and exemplary damages and attorney's fees, including
costs of suit. Verily, GPI’s unjustified failure to comply with its obligations as above discussed caused Sps. Fajardo serious anxiety,
mental anguish and sleepless nights,
2) Exemplary damages - payment of exemplary damages remains in order so as to prevent similarly minded subdivision developers
to commit the same transgression
3) Atty’s fees- Sps. Fajardo were constrained to engage the services of counsel to file this suit,

ISSUE: Whether or not petitioners should be held solidarily liable.

RULING: NO.
1) The Court finds no basis to hold individual petitioners solidarily liable with petitioner GPI for the payment of damages in favor of
Sps. Fajardo since it was not shown that they acted maliciously or dealt with the latter in bad faith. Settled 1s the rule that in the
absence of malice and bad faith, as in this case, offieers · of the corporation cannot be made personally liable for liabilities ofthe
corporation
RELEVANT PROVISIONS
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.
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be
obligated to restore.

20. Reyes v. Rossi

Doctrine:
In reciprocal obligations a party incurs in delay once the other party has performed his part of the contract; hence, the party who has
performed or is ready and willing to perform may rescind the obligation if the other does not perform, or is not ready and willing to
perform.
To properly appreciate if there is a prejudicial question to warrant the suspension of the criminal actions, reference is made to the
elements of the crimes charged (Batas Pamabansa Blg. 22).
1) On October 31, 1997, petitioner Teodoro A. Reyes and Advanced Foundation Construction Systems Corporation (Advanced
Foundation), represented· by its Executive Project Director, respondent Ettore Rossi, executed a deed of conditional sale involving
the purchase by Reyes of equipment consisting of a Warman Dredging Pump HY 300A worth P10,000,000.00.
2) The parties agreed therein that Reyes would pay the sum of Php 3 million as downpayment, and the balance of Php 7 million through
four (4) post-dated checks.
3) However, in January 1998, petitioner requested the restructuring of his obligation under the deed of conditional sale by replacing
the four post-dated checks with nine post-dated checks that would include interest at the rate of P25,000.00/month accruing on the
unpaid portion of the obligation of the months of April, June, July, September, and October.
4) Advanced Foundation assented to Reyes’ request, and returned the four checks. In turn, Reyes issued and delivered the nine
postdated checks in the aggregate sum of P7,125,000.00 drawn against the United Coconut Planters Bank.
5) Rossi deposited three of the post-dated checks on their maturity dates in Advanced Foundation’s bank account. Two of the checks
were denied payment ostensibly upon Reyes’ instructions to stop their payment, while the third was dishonored for insufficiency of
funds.
6) Rossi likewise deposited two more checks in Advanced Foundation’s account, but the checks were returned with the notation
“Account Closed” stamped on them. He did not anymore deposit the three remaining checks on the assumption that they would be
similarly dishonored.
7) Petitioner Reyes commenced an action for rescission of contract and damages in the RTC in Quezon City. The complaint sought
judgment declaring the deed of conditional sale “rescinded and of no further force and effect,” and ordering Advanced Foundation
to return the Php 3 million downpayment with legal interest, attorney’s fees, and other damages.
8) Respondent Rossi, on the other hand, charged Reyes with five counts of estafa and five counts of violation of Batas Pambansa Blg.
22 in the Office of the City Prosecutor of Makati and Quezon City for the dishonor of the issued checks.
9) A counter-affidavit was submitted by petitioner Reyes claiming the following:
 the checks had not been issued for any valuable consideration
o the dredging pump involved was misrepresented to him for the reason that the Caterpillar diesel engine powering
the pump had been rated at only 560 horsepower instead of the 1200 horsepower presented by respondent
o welding works on the pump had neatly concealed cracks;
 he wrote to Advanced Foundation complaining about the misrepresentations on the specifications of the pump and
demanding documentary proof of ownership of the pump
 Advanced Foundation replied to his letter by saying that the pump had been sold to him on an “as is, where is” basis
10) Assistant City Prosecutor handling the preliminary investigation recommended the dismissal of the charges of estafa and the
suspension of the proceedings relating to the violation of Batas Pambansa Blg. 22 based on a prejudicial question.
11) City Prosecutor of Makati and the Secretary of Justice (DOJ), likewise, affirmed the suggested recommendation.
12) Upon appeal, respondent Rossi insisted that the Secretary of Justice had committed grave abuse of discretion in upholding the
suspension of the criminal proceedings by the City Prosecutor of Makati on account of the existence of a prejudicial question. CA then
modified the decision:
 Petition GRANTED in so far as the issue of the existence of prejudicial question is concerned
 the order suspending the preliminary investigation in is REVERSED and SET ASIDE
 dismissal of the complaint for estafa is AFFIRMED.
Issue/s: W/N the civil action for rescission of the contract of sale raised a prejudicial question that suspension of the criminal
prosecution for violation of Batas Pambansa Blg. 22.
Held/Ruling:
1) A prejudicial question generally comes into play in a situation where a civil action and a criminal action are both pending, and
there exists in the former an issue that must first be determined before the latter may proceed. The rationale for the suspension
on the ground of a prejudicial question is to avoid conflicting decisions.
2) Two elements that must concur in order for a civil case to be considered a prejudicial question are expressly stated in Section 7,
Rule 111 of the 2000 Rules of Criminal Procedure, to wit:
(a) the previously instituted civil action involves an issue similar or intimately related to the issue raised in the subsequent
criminal action, and
(b) the resolution of such issue determines whether or not the criminal action may proceed.
3) Petitioner’s Arguments: Contending that the rescission of the contract of sale constitutes a prejudicial question, Reyes posits that
the resolution of the civil action will be determinative of whether or not he was criminally liable for the violations of Batas
Pambansa Blg. 22. He states that if the contract would be rescinded, his obligation to pay under the conditional deed of sale would
be extinguished, and such outcome would necessarily result in the dismissal of the criminal proceedings for the violations of Batas
Pambansa Blg. 22.
4) The action for the rescission of the deed of sale on the ground that Advanced Foundation did not comply with its obligation
actually seeks one of the alternative remedies available to a contracting party under Article 1191 of the Civil Code.
5) The violation of Batas Pambansa Blg. 22 requires the concurrence of the following elements, namely: (1) the making, drawing,
and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment;
and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.
6) The issue in the criminal actions upon the violations of Batas Pambansa Blg. 22 is, therefore, whether or not Reyes issued the
dishonoured checks knowing them to be without funds upon presentment.
7) On the other hand, the issue in the civil action for rescission is whether or not the breach in the fulfilment of Advanced
Foundation’s obligation warranted the rescission of the conditional sale.
8) If, after trial on the merits in the civil action, Advanced Foundation would be found to have committed material breach as to
warrant the rescission of the contract, such result would not necessarily mean that Reyes would be absolved of the criminal
responsibility for issuing the dishonored checks because, as the aforementioned elements show, he already committed the
violations upon the dishonor of the checks that he had issued at a time when the conditional sale was still fully binding upon the
parties. His obligation to fund the checks or to make arrangements for them with the drawee bank should not be tied up to the
future event of extinguishment of the obligation under the contract of sale through rescission.
9) Indeed, under Batas Pambansa Blg. 22, the mere issuance of a worthless check was already the offense in itself. Under such
circumstances, the criminal proceedings for the violation of Batas Pambansa Blg. 22 could proceed despite the pendency of the
civil action for rescission of the conditional sale.
21. Sandoval v. PMMA
Doctrine:
A cause of action is an act or omission which violates the rights of another. Such failure of a person’s contractual rights is the cause of
action. Rescission or damages are part of the reliefs.
Relevant Provisions:
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.”
1) Respondent PMMA entered into a Ship Building Contract with petitioner Sandoval Shipyards, Inc.
2) The contract states that petitioners would construct 2 units of 9.10-meter lifeboats to be used as training boats for the students
of respondent. The lifeboats should have 45-HP Gray Marine diesel engines and should be delivered w/in 45 working days from
the date the contract signing and payment of the mobilization fund.
3) Respondent for its part, would pay petitioner Php1,685,200 in installments based on the progress accomplishment of the work
4) Respondent paid petitioner Php236,694 on March 8; Php504,947 on March 15; Php386,600 on March 25
5) Rosario, a faculty member of respondent who claimed to have been verbally authorized by its president, allegedly received the
lifeboats in good order and condition
6) Respondent subsequently sent an inspection team and found: (1) petitioners installed surplus Japanese Isuzu C-240 diesel engines
instead of the agreed upon 45-HP Gray Marine diesel engines (2) that for the electric starting systems of the engine, there was no
manual which was necessary in case the systems failed (3) construction of the engine compartment was not in conformity w/ the
approved plan
7) A meeting was held bet. Respondents and petitioners wherein the latter were reminded that they should strictly comply w/ the
agreed plan and specifications of the lifeboats; petitioner then wrote a letter requesting an extension of time for delivery
8) COA, through its technical audit specialist Guantero, conducted an ocular inspection of the lifeboats and found: (1) lifeboats were
corroded and deteriorating (2) plankings and benches were also deteriorating as they were not coated w/ fiberglass (3) it had no
mast sails or row locks installed on the boats (4) installed prime mover was an Isuzu engine, contrary to the agreed plans &
specifications (5) the lifeboats had been paid in full except for the 10% retention
9) Despite repeated demands from respondent, petitioner refused to deliver the lifeboats that would comply w/ the agreed plans &
specifications
10) Hence, respondent filed a Complaint for Rescission of Contract w/ Damages against petitioner
11) RTC: although the caption of the Complaint was “Rescission of Contract w/ Damages,” the allegations in the body were for breach
of contract; petitioners violated the contract by installing surplus diesel engines contrary to the agreed plan & specification;
petitioner are jointly and severally liable for actual damages (1.5M), penalty of 1% for every day of delay 200K atty’s fees
12) CA: petitioner committed a clear substantial breach of contract w/c warranted its rescission (rescission requires mutual
restoration of benefits received); Petitioners alleged delivery to Rosario was invalid, as he was not duly authorized to receive the
same which means that petitioners failed to deliver the lifeboats hence, petitioners could not compel respondent to return
something it never had possession of; CA deleted the award of atty’s fees (RTC failed to cite factual basis for awarding it)
13) Petitioners filed an MR. The same was denied by the CA.
14) Petitioner: CA erred in upholding the RTC’s substitution of respondent’s cause of action from rescission to breach of contract. Had
it not done so, then it would have merely ordered mutual restoration of what each of them received – the two lifeboats in
exchange for 1.5M

Issue: W/N the case is for rescission and not damages/breach of contract
Held/Ratio:
1) The RTC did not substitute the cause of action
2) Cause of action: act/omission w/c violates the rights of another
3) In the Complaint before the RTC, the respondent alleged that petitioners failed to comply w/ their obligation under the Contract.
Such failure/breach of respondent’s contractual rights is the cause of action
4) Hence, it was proper for the RTC to first make a determination of whether there was a breach on the part of the petitioner and
whether it would warrant rescission and/or damages
5) Petitioners violated the terms of contract by installing surplus diesel engines contrary to the agreed plans & specifications and by
failing to deliver the lifeboats w/in the agreed time
6) The breach is substantial and sufficient to warrant a rescission of the contract
7) Under the factual circumstances, restitution is impossible
8) Petitioners delivered the lifeboats to Rosario; he was never authorized to receive the same
9) The delivery to Rosario was invalid, it was as if respondent never received lifeboats; as it never received the object of the contract,
it cannot return the object
10) Petitioner, however, should return the 1.5M to respondent
22. EDS Manufacturing v. Healthcheck International
Doctrine: A judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been
stipulated. The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the
vendor.

1) April 1998 - Petitioner EDS Manufacturing (EMI) saw it fit to obtain insurance coverage from Healthcheck 1 (HCI) for its 5,000
employee because of being in close proximity to De La Salle University Medical Center, one of Healthcheck’s accredited hospitals.
They entered into a one-year contract (May 1, 1998 to April 30, 1999). EMI paid the full premium for the coverage in the amount
of P8,826,307.50.
2) July 1998 – Due to the problems of the HMO industry in the wake of the Asian regional financial crisis Respondents notified
Petitioners that its accreditation with DLSUMC was suspended and advised it to avail of the services of nearby accredited
institutions.
3) EMI and HCI undertook to settle all its accounts with DLSUMC in order to maintain its accreditation but HCI failed to preserve its
credit standing with DLSUMC prompting the latter to suspend its accreditation for a second time and even for a third time.
Complaints were then received from EMI employees and workers arguing that their HMO cards were not being honored by the
DLSUMC and other hospitals and physicians.
4) September 1998 - EMI formally notified HCI that it was rescinding their April 1998 Agreement on account of HCI’s serious and
repeated breach of its undertaking including but not limited to the unjustified non-availability of services. It demanded a return
of premium for the unused period after September 3, giving a ballpark figure of P6 million.
5) Then there was a failure of EMI to collect all the HMO cards of the employees and surrender them to HCI as stipulated in the
Agreement. Employees were still utilizing the cards even beyond the pre-termination date set by EMI. HCI said that until the IDs
are collected, account is considered as ongoing and existing, thus subject for inclusion to present billing and payment.
6) January 1999 - EMI sent HCI two letters in January 1999 demanding for the payment of the premium that remained unutilized
after rescinding the agreement.
7) HCI filed a case in Regional Trial Court of Pasig alleging an unlawful pre-termination of the contract and failure of EMI to submit
to a joint reconciliation of accounts and deliver such assets as properly belonged to HCI.
8) September 2000 – Trial Court ruled in favor of HCI finding that the rescission was not done through court action or by a notarial
act and was based on casual or slight breaches of the contract. EMI employees also continued to avail of HCI’s services until March
1999 entitling HCI to receive a net payable of P1,323,513.63 in addition to moral damages and attorney’s fees. EMI’s
counterclaims, on the other hand, were dismissed for lack of merit.
9) The Court of Appeals reversed the decision of the RTC and ruled that HCI substantially breached their agreement but EMI did
not validly rescind the contract between them so the CA dismissed the complaint filed by HCI, while at the same time dismissing
the counterclaim filed by EMI.

ISSUE: W/N there was a valid rescission of the Agreement between the parties.

HELD: nooooooooooooo

1) rescission of the agreement was invalid

2) The general rule is that rescission (more appropriately, resolution ) of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the
agreement

3) HCI violated its contract with EMI to provide medical service to its employees in a substantial way. However, although a ground
exists to validly rescind the contract between the parties, it appears that EMI failed to judicially rescind the same. In Iringan v.
Court of Appeals, this Court reiterated the rule that in the absence of a stipulation, a party cannot unilaterally and extrajudicially
rescind a contract. A judicial or notarial act is necessary before a valid rescission (or resolution) can take place.

4) A judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been
stipulated.

1 Health Maintenance Organization that provides prepaid health and medical insurance coverage to its clients
5) The party entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised solely on a party’s
own judgment that the other committed a breach of the obligation. The operative act which produces the resolution of the
contract is the decree of the court and not the mere act of the vendor.

6) Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent declaring his
intention to rescind did not operate to validly rescind the contract.

Relevant Provisions:

Article 1191 of the Civil Code

23. Planters Development Bank v. Lopez

1) Sometime in 1983, the spouses Emesto and Florentina Lopez applied for and obtained a real estate loan in the amount of
3,000,000.00 from Planters Bank.
2) The loan was intended to finance the construction of a four-story concrete dormitory building.
3) The loan agreement4 dated May 18, 1983 provided that the loan is payable for fourteen (14) years and shall bear a monetary
interest at twenty-one percent (21%) per annum (p.a.).
4) Furthermore, partial drawdowns on the loan shall be based on project completion, and shall be allowed upon submission of job
accomplishment reports by the project engineer. To secure the payment of the loan, the spouses Lopez mortgaged a parcel of
land covered by Transfer Certificate of Title No. T-16233.5
5) On July 21, 1983, the parties signed an amendment to the loan agreement. Accordingly, the interest rate was increased to
twenty-three percent (23%) p.a. and the term of the loan was shortened to three years.6
6) On March 9, 1984, the parties executed a second amendment to the loan agreement. The interest rate was further increased to
twenty-five percent (25%) p.a.
7) The contract also provided that releases on the loan shall be subject to Planters Bank’s availability of funds. 7
8) Meanwhile, the Philippine economy deteriorated as the political developments in the country worsened.
9) The value of the peso plunged. The price of the materials and the cost of labor escalated. 8 Eager to finish the project, the
spouses Lopez obtained an additional loan in the amount of ₱1,200,000.00 from Planters Bank.
10) On April 25, 1984, they entered into a third amendment to the loan agreement.
11) The amount of the loan and the interest rate were increased to ₱4,200,000.00 and twenty-seven percent (27%) p.a.,
respectively.
12) Furthermore, the term of the loan was shortened to one year.
13) The contract also provided that the remaining loan shall only be available to the spouses Lopez until June 30, 1984. 9
14) On the same date, the spouses Lopez increased the amount secured by the mortgage to ₱4,200,000.00. 10
15) On August 15, 1984, Planters Bank unilaterally increased the interest rate to thirty-two percent (32%) p.a.11
16) The spouses Lopez failed to avail the full amount of the loan because Planters Bank refused to release the remaining amount of
₱700,000.00.
17) On October 13, 1984, the spouses Lopez filed against Planters Bank complaint for rescission of the loan agreements and for
damages with the Regional Trial Court (RTC) of Makati City.12
18) They alleged that they could not continue the construction of the dormitory building because Planters Bank had refused to
release the remaining loan balance.
19) In defense, Planters Bank argued that the spouses Lopez had no cause of action.
20) It pointed out that its refusal to release the loan was the result of the spouses Lopez’s violations of the loan agreement, namely:
(1) non-submission of the accomplishment reports; and (2) construction of a six-story building. As a counterclaim, Planters Bank
prayed for the payment of the overdue released loan in the amount of ₱3,500,000.00, with interest and damages. 13
21) On November 16, 1984, Planters Bank foreclosed the mortgaged properties in favor of third parties after the spouses Lopez
defaulted on their loan.14
22) RTC ruled in Planters Bank’s favor. It held that the spouses Lopez had no right to rescind the loan agreements because they
were not the injured parties.
23) It maintained that the spouses Lopez violated the loan agreement by failing to submit accomplishment reports and by deviating
from the construction project plans. It further declared that rescission could not be carried out because the mortgaged
properties had already been sold in favor of third parties.
24) The spouses Lopez died during the pendency of the case.
25) On appeal to the CA, compulsory heirs Joseph Wilfred, Joseph Gilbert and Marlyn, all surnamed Joven 20 (respondents)
substituted for the deceased Florentina Lopez.
26) On November 27, 2006, the CA reversed the RTC ruling.21
27) It held that Planters Bank’s refusal to release the loan was a substantial breach of the contract.
28) It found that the spouses Lopez submitted accomplishment reports.
29) It gave weight to Engineer Edgard Fianza’s testimony that he prepared accomplishment reports prior to the release of the funds.
Moreover, Planters Bank’s appraisal department head, Renato Marayag, testified that accomplishment reports were a
prerequisite for the release of the loan.
30) It also declared that Planters Bank was estopped from raising the issue of the spouses Lopez’s deviation from the construction
project. Planters Bank conducted several ocular inspections of the building from 1983 to 1987. Planters Bank continuously
released partial amounts of the loan despite its knowledge of the construction of a six-story building.
31) It further concluded that Planters Bank did not release the loan because the Development Bank of the Philippines (DBP) lacked
funds.
32) The CA also denied Planters Bank’s Motion for Reconsideration
ISSUE: W/N CA erred in their deicision
RULING: YEEEEEEeeeeeesss
1) Planters Bank only committed a slight or casual breach of the contract
2) Despite our affirmation of the CA’s factual findings, we disagree with the CA’s conclusion that rescission is proper.
3) Planters Bank indeed incurred in delay by not complying with its obligation to make further loan releases. 36
4) Its refusal to release the remaining balance, however, was merely a slight or casual breach as shown below. In other words, its
breach was not sufficiently fundamental to defeat the object of the parties in entering into the loan agreement.
5) The well-settled rule is that rescission will not be permitted for a slight or casual breach of the contract.
6) The question of whether a breach of contract is substantial depends upon the attending circumstances. 37
7) The factual circumstances of this case lead us to the conclusion that Planters Bank substantially complied with its obligation.
8) To reiterate, Planters Bank released ₱3,500,000.00 of the ₱4,200,000.00 loan.
9) Only the amount of ₱700,000.00 was not released.
10) This constitutes 16.66% of the entire loan. Moreover, the progress report dated May 30, 1984 states that 85% of the six-story
building was already completed by the spouses Lopez. 38
11) It is also erroneous to solely impute the non-completion of the building to Planters Bank. Planters Bank is not an insurer of the
building’s construction.
12) External factors, such as the steep price of the materials and the cost of labor, affected the erection of the building.
13) More importantly, the spouses Lopez took the risk that the project would not be finished when they constructed a six-story
building instead of four-story structure.
14) Even assuming that Planters Bank substantially breached its obligation, the fourth paragraph of Article 1191 of the Civil Code
expressly provides that rescission is without prejudice to the rights of third persons who have acquired the thing, in accordance
with Article 1385 of the Civil Code.
15) In turn, Article 1385 states that rescission cannot take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
16) In the present case, the mortgaged properties had already been foreclosed.
17) They were already sold to the highest bidder at a public auction.
18) We recognize that transferees pendente lite are proper, but not indispensable, parties in this case, as they would, in any event,
be bound by the judgment against Planters Bank.39
19) However, the respondents did not overcome the presumption that the buyers bought the foreclosed properties in good
faith.40The spouses Lopez did not cause the annotation of notice of lis pendens at the back of the title of the mortgaged lot. 41
20) Moreover, the respondents did not adduce any evidence that would show that the buyers bought the property with actual
knowledge of the pendency of the present case. Furthermore, the spouses Lopez’s failure to pay the overdue loan made them
parties in default, not entitled to rescission under Article 1191 of the Civil Code.
21) The estate of Florentina Lopez shall pay Planters Bank the amount of ₱3,500,000.00 with 12% monetary interest p.a. from June
22, 1984 until full payment of the obligation
22) Planters Bank and the spouses Lopez undertook reciprocal obligations when they entered into a loan agreement.
23) In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other.
24) The mere pecuniary inability of one contracting party to fulfill an engagement does not discharge the other contracting party of
the obligation in the contract.42
25) Planters Bank’s slight breach does not excuse the spouses Lopez from paying the overdue loan in the amount of ₱3,500,000.00.
Despite this finding, however, we cannot sustain the imposition of the interest rate in the loan contract.
26) We are aware that the parties did not raise this issue in the pleadings.
27) However, it is a settled rule that an appeal throws the entire case open for review once accepted by this Court.
28) This Court has thus the authority to review matters not specifically raised or assigned as error by the parties, if their
consideration is necessary in arriving at a just resolution of the case. 43
29) In the present case, Planters Bank unilaterally increased the monetary interest rate to 32% p.a. after the execution of the third
amendment to the loan agreement. This is patently violative of the element of mutuality of contracts. Our Civil Code has long
entrenched the basic principle that the validity of or compliance to the contract cannot be left to the will of one party. 44
30) Even if we disregard the 32% p.a., the interest rate of 27% p.a. in the third amended agreement is still excessive.
31) Almost 29 years have elapsed since the filing of the complaint in 1984.
32) The amount of the principal loan already ballooned to an exorbitant amount unwarranted in fact and in operation. While the
Court recognizes the right of the parties to enter into contracts, this rule is not absolute.
33) We are allowed to temper interest rates when necessary.
34) We have thus ruled in several cases that when the agreed rate is iniquitous, it is considered as contrary to morals, if not against
the law. Such stipulation is void.46
35) The manifest unfairness caused to the respondents by this ruling and our sense of justice dictate that we judiciously reduce the
monetary interest rate.
36) Our imposition of the lower interest rate is based on the demands of substantial justice and in the exercise of our equity
jurisdiction.
37) We thus equitably reduce the monetary interest rate to 12% p.a. on the amount due computed from June 22, 1984 until full
payment of the obligation.
38) We point out in this respect that the monetary interest accrues under the terms of the loan agreement until actual payment is
effected47 for the reason that its imposition is based on the stipulation of the parties. 48
39) In the present case, the lower courts found that the monetary interest accrued on June 22, 1984. Incidentally, the lower courts
also found that June 22, 1984 is also the spouses Lopez’s date of default.
40) The estate of Florentina Lopez shall further be liable for compensatory interest at the rates of 12% p.a. from June 22, 1984 until
June 30, 2013 and 6% p.a. from July 1, 2013 until the finality of this Decision
41) With respect to the computation of compensatory interest, Section 1 of Bangko Sentral ng Pilipinas (BSP) Circular No. 799,
Series of 2013, which took effect on July 1, 2013, provides:
42) Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum. [emphasis ours]
43) This provision amends Section 2 of Central Bank (CB) Circular No. 905-82, Series of 1982, which took effect on January 1, 1983.
Notably, we recently upheld the constitutionality of CB Circular No. 905-82 in Advocates for Truth in Lending, Inc., et al. v.
Bangko Sentral ng Pilipinas Monetary Board, etc.49 Section 2 of CB Circular No. 905-82 provides:
44) Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall continue to be twelve percent (12%) per annum. [emphasis
ours]
45) In Nacar, we established the following guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi- contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
of credit. And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein. [emphasis ours]
46) Since we declare void the monetary interest agreed upon by the parties, we impose a compensatory interest of 12% p.a. which
accrues from June 22, 1984 until June 30, 2013, pursuant to CB Circular No. 905-82.52 As we have earlier stated, June 22, 1984 is
the spouses Lopez’s established date of default.
47) In recognition of the prospective application of BSP Circular No. 799, we reduce the compensatory interest of 12% p.a. to 6%
p.a. from July 1, 2013 until the finality of this Decision. Furthermore, the interest due shall earn legal interest from the time it is
judicially demanded, pursuant to Article 2212 of the Civil Code.
48) The estate of Florentina Lopez shall further be liable for interest at the rate of 6% p.a. from the finality of this decision until full
payment of the obligation
49) Also, pursuant to the above-quoted Section 1 of BSP Circular No. 799, we impose an interest rate of 6% p.a. from the finality of
this Decision until the obligation is fully paid, the interim period being deemed equivalent to a forbearance of credit.
50) Lastly, to prevent future litigation in the enforcement of the award, we clarify that the respondents are not personally
responsible for the debts of their predecessor.
51) The respondents’ extent of liability to Planters Bank is limited to the value of the estate which they inherited from Florentina
Lopez.53 In our jurisdiction, "it is the estate or mass of the property left by the decedent, instead of the heirs directly, that
becomes vested and charged with his rights and obligations which survive after his death."54To rule otherwise would unduly
deprive the respondents of their properties.

24. Reliance Commodities v. IAC

Doctrines: In reciprocal obligations, the power to rescind or resolve is given to the injured party. More, the rescission of the
contracts requires the parties to restore to each other what they have received by reason of the contracts. The rescission has the
effect of abrogating the contracts in all parts.

1) April 19, 1972, private respondent Marvin Paez entered into contract with Samuel Chuason, president and general manager of
petitioner Reliance Commodities. The latter agreed to provide the former with funds and equipment for the operation of
manganese mining in Nueva Ecija.
2) June 1, 1972, the parties entered into another agreement called “Addendum to Operating Agreement” whereby Paez promised
to sell petitioner with manganese ores. Pursuant to this, petitioner gave a cash advance of P8,300 and supplied a bulldozer,
dump truck, and cobra drill.
3) On July 28, 1972, Marvin Paez and his wife executed a deed of first real estate mortgage on their property in favour of petitioner
as security for more cash advances. With this petitioner made cash advances amounting to P25,030.
4) Due to a difference arising between the parties, petitioner demanded return of equipment and foreclosed extrajudicially the
mortgage.
5) Private respondent filed a complaint praying for a writ of preliminary injunction to enjoin the provincial sheriff from proceeding
with the public auction of the property.
6) Petitioners claimed that the violation of the contract came from the plaintiffs because they failed to deliver the manganese ores
stipulated in the contract.
7) Trial Court rendered a decision in favour of the petitioner.
8) Intermediate Appellate Court reversed RTC decision.

Issues: W/N the IAC erred in finding that petitioner gave cause for rescission of the contract and not the private respondent

Held: YEEEEEeeeeeesss
1) Under the agreement, Petitioner was to pay Paez P70 for every ton of manganese ores delivered, and that advances were made
deductible from the agreed price.
2) Petitioner made cash advances to respondent Paez totalling P41,130 and turned over to him three heavy equipments.
3) On the other hand, respondent Paez failed to make even a single delivery of manganese ores. In fact, there was no mining
operation at all.
4) Contrary to the IAC ruling, in reciprocal obligations, the power to rescind or resolve is given to the injured party. The rescission
of the contract requires the parties to restore to each other what they have received by reason of contracts. The rescission has
the effect of abrogating the contracts in all parts.

25. Rivera v. Del Rosario

1) Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos, Juanito and Eloisa, all surnamed Del Rosario,
were the registered owners of Lot No. 1083-C (LOT #1), a parcel of land situated at Lolomboy, Bulacan. This lot spanned an area
of 15,029 square meters and was covered by TCT No. T-50.668 (M) registered in the Registry of Deeds of Bulacan.
2) On May 16, 1983,the Del Rosarios, executed a Special Power of Attorney[3] in favor of their mother and co-respondent, Fidela,
authorizing her to sell, lease, mortgage, transfer and convey their rights over the lot.
3) Subsequently, Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and Mariano
Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land.
4) Consequently, on March 9, 1987, Mariano went to his lawyer, Atty. Barangan, to have three documents drafted: the Deed of
Real Estate Mortgage, a Kasunduan (Agreement to Sell), and a Deed of Absolute Sale.
5) The Kasunduan provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia and Jose, would purchase Lot #1
for a consideration of P2,141,622.50.
6) This purchase price was to be paid in three installments: P250,000 upon the signing of the Kasunduan, P750,000 on August 31,
1987, and P1,141,622.50 on December 31, 1987.It also provided that the Deed of Absolute Sale would be executed only after
the second installment is paid and a postdated check for the last installment is deposited with Fidela.
7) As previously stated, however, Mariano had already caused the drafting of the Deed of Absolute Sale. But unlike the Kasunduan,
the said deed stipulated a purchase price of only P601,160, and covered a certain Lot No. 1083-A (Lot #2) in addition to Lot
#1This deed, as well as the Kasunduan and the Deed of Real Estate Mortgage, was signed by Marianos children, petitioners
Adelfa, Cynthia and Jose, as buyers and mortgagees, on March 9, 1987
8) Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she inadvertently affixed her signature on
all the three documents in the office of Atty. Barangan on the said day, March 10, 1987.
9) Mariano then gave Fidela the amount of P250,000. On October 30, 1987, he also gave Fidela a check for P200,000.
10) In the ensuing months, also, Mariano gave Oscar del Rosario several amounts totaling P67,800 upon the latters demand for the
payment of the balance despite Oscars lack of authority to receive payments under the Kasunduan. While Mariano was making
payments to Oscar, Fidela entrusted the owners copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance with the
Kasunduan.
11) When Mariano unreasonably refused to return the TCT,respondents caused the annotation on TCT of an Affidavit of Loss of the
owner’s duplicate copy of the title.
12) However,Mariano then registered the Deed of Absolute Sale and got anew TCT.
13) Respondents then filed a complaint asking that theKasunduan be rescinded for failure of the Riveras to complywith its
conditions, with damages. They also sought theannulment of the Deed of Absolute Sale on the ground of fraud.
14) Respondents claimed that Fidela never intended to enter into a deed of sale at the time of its execution and that she signed the
deed on the mistaken belief that she was merely signing copies of the Kasunduan.
15) The case was brought to the RTC and they declared that the Deed of Absolute Sale is void and declared respondents to be the
legitimate owns of the Lot.
ISSUEs: Whether or not the Deed of Absolute sale is valid and binding
HELD: No.
1) Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts
under Article 1383 of the same Code. Both presuppose contracts validly entered into as well as subsisting, and both require mutual
restitution when proper, nevertheless they are not entirely identical.
2) While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191
was based, was resolution. Resolution is a principal action that is based on breach of a party, while rescission under Article 1383
is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code.
3) Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381. Consequently, Article 1383 is
inapplicable.
4) Hence, we rule in favor of the respondents. May the contract entered into between the parties, however, be rescinded based on
Article 1191
5) A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In
a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold;
6) While in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment
of the purchase price.
7) In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.
8) Coming now to the issue of prescription, contrary to petitioners assertion, prescription has not yet set in. Art. 1391 states that
the action for annulment of void contracts shall be brought within four years. This period shall begin from the time the fraud or
mistake is discovered. Here, it was discovered in 1992 and the complaint was filed in 1993

26. Barredo v. Leano

Doctrine: Rescission of a contract will not be permitted fir a slight or causal breach but only such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement.
1) Sometime in 1979, petitioners spouses Manuel and Jocelyn Barredo (Barredo Spouses) bought a house and lot with the
proceeds of a P50,000.00 loan from the Social Security System (SSS) which was payable in 25 years and an P88,400.00 loan from
the Apex Mortgage and Loans Corporation (Apex) which was payable in 20 years.
2) On July 10, 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio and Emilda Leao (Leao Spouses) by
way of a Conditional Deed of Sale with Assumption of Mortgage.
3) The Leao Spouses would pay the Barredo Spouses P200,000.00, P100,000.00 of which would be payable on July 15, 1987, while
the balance of P100,000.00 would be paid in ten (10) equal monthly installments after the signing of the contract. The Leao
Spouses would also assume the first and second mortgages and pay the monthly amortizations to SSS and Apex beginning July
1987 until both obligations are fully paid.
4) The purchase price of P200,000.00 was paid to the Barredo Spouses who turned over the possession of the house and lot in
favor of the Leao Spouses.
5) Two (2) years later, on September 4, 1989, the Barredo Spouses initiated a complaint before the Regional Trial Court of Las Pias
seeking the rescission of the contract on the ground that the Leao failed to pay the mortgage amortizations to the SSS and Apex
causing the Barredo Spouses great and irreparable damage. The Leano Spouses, however, answered that they were up-to-date
with their amortization payments to Apex but were not able to pay the SSS amortizations because their payments were refused
upon the instructions of the Barredo Spouses.
6) Barredo Spouses took it upon themselves to settle the mortgage loans and paid the SSS the sum of P27,494.00 on September
11, 1989, and P41,401.91 on January 9, 1990. The SSS issued a Release of Real Estate Mortgage Loan on January 9, 1990. They
also settled the mortgage loan with Apex and paid the sum of P5,379.23 on October 3, 1989, and P64,000.00 on January 9,
1990. Likewise, Apex issued a Certification of Full Payment of Loan on January 12, 1990. They also paid the real estate property
taxes.
7) The RTC rendered judgment in favor of the Barredo Spouses. The court stated that the assumption of mortgage debts of the
Barredo Spouses by the Leao Spouses is a very substantial condition.
8) The CA reversed and set aside the decision of the trial court on the ground that the payments of amortization to Apex and SSS
were mere collateral matters which do not detract from the condition of paying the principal consideration.

Issue: Whether or not the non-payment of mortgage debts are considered to be substantial and fundamental breaches that will
allow rescission of the contract?
RULING: NOOOOOOOOooooooooo
1) The pertinent provisions of the Conditional Deed of Sale with Assumption of Mortgage read as follows:
a. ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the VENDEES to the VENDORS on
July 15, 1987.
b. The balance of ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the VENDEES to
the VENDORS in ten (10) equal monthly installments at the VENDORS residence, after the signing of this Contract,
consisting of ten (10) post-dated checks drawn against the checking account of the VENDEES beginning August 1, 1987,
and the succeeding months x x x x until the amount is fully paid and the checks properly encashed x x x x
c. The VENDEES do hereby accept this Sale and bind themselves to assume as they hereby assume beginning on July 1,
1987, the payment of the unpaid balance of the First Mortgage indebtedness of the VENDORS with the Social Security
System as of June 1, 1987 x x x x and another indebtedness of the VENDORS in a 2nd Mortgage with the Apex Mortgage
and Loans Corporation, as of June 1, 1987, x x x x and that the herein VENDEES do hereby further agree to be bound by
the precise terms and conditions therein contained.
d. That should the VENDEES well and faithfully comply with the conditions set forth in this Contract, then the VENDORS
shall execute the corresponding Absolute Deed of Sale over the property herein conveyed with assumption of the
mortgages aforecited, in favor of the VENDEES herein.
2) A careful reading of the pertinent provisions of the agreement readily shows that the principal object of the contract was the
sale of the Barredo house and lot, for which the Leao Spouses gave a down payment of P100,000.00 as provided for in par. 1 of
the contract, and thereafter ten (10) equal monthly installments amounting to another P100,000.00, as stipulated in par. 2 of
the same agreement. The assumption of the mortgages by the Leao Spouses over the mortgaged property and their payment of
amortizations are just collateral matters which are natural consequences of the sale of the said mortgaged property.
3) Par. 3 of the agreement provides that the Leao Spouses bind themselves to assume as they hereby assume beginning on July 1,
1987, the payment of the unpaid balance.
4) Hence, the Leao Spouses merely bound themselves to assume, which they actually did upon the signing of the agreement, the
obligations of the Barredo Spouses with the SSS and Apex.
5) Nowhere in the agreement was it stipulated that the sale was conditioned upon their full payment of the loans with SSS and
Apex.
6) To include the full payment of the obligations with the SSS and Apex as a condition would be to unnecessarily stretch and put a
new meaning to the provisions of the agreement.
7) But even if we consider the payment of the mortgage amortizations to the SSS and Apex as a condition on which the sale is
based on, still rescission would not be available since non-compliance with such condition would just be a minor or casual
breach thereof as it does not defeat the very object of the parties in entering into the contract.
8) A cursory reading of the agreement easily reveals that the main consideration of the sale is the payment of P200,000.00 to the
vendors within the period agreed upon.
9) The assumption of mortgage by the Leao Spouses is a natural consequence of their buying a mortgaged property. In fact, the
Barredo Spouses do not stand to benefit from the payment of the amortizations by the Leano Spouses directly to the SSS and
Apex simply because the Barredo Spouses have already parted with their property, for which they were already fully
compensated in the amount of P200,000.00.

27. Villanueva v. Gonzaga

DOCTRINE:
“[In] a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full.
Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon
is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and
cannot recover it unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner
for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee
for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x x Article 1592 speaks of non-
payment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated
to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable [to a contract to sell].”

1) On January 15, 1990, herein petitioners Villanueva, businessmen, executed a Memorandum of Agreement (MOA) with the
Administratrix of the Estate of Gerardo L. Gonzafa, Ma. Villa J. Gonzaga.
2) The MOA indicates that 12 portions of land located in Brgy. Granada, Bacolod City will be sold to the petitioners for a total of
P480,000.00. At the time the MOA was executed, the said parcels of land were still mortgaged with the Philippine National Bank
(PNB). The MOA thus stipulated that a certain amount (P194,400.00) will only be payable upon the approved release of the said
lots by the PNB. A deed of Sale will only be executed upon this condition.
a. Additionally, paragraph 5. D.) of the MOA reads:
 That upon payment of the 60% of the purchase price, the SECOND PARTY may start to introduce improvements
in the area if they so desire.
3) After paying P261,000.00 or 60% of the purchase price, petitioners began to introduce improvements upon the lots. They
requested the permission of the respondent for usage of the same premises for the next milling season. Respondent denied their
request on the ground that they have not yet paid the full price. She moved for petitioners to withdraw their usage of the lands
until they pay in full. In return, petitioners reminded her of her obligation to redeem the lots from mortgage with the PNB.
4) In April 1991, respondent informed the petitioners that the PNB had approved the release of the lots from mortgage. She thus
again demanded the full payment for the lands through a letter. Attached to this was the approval letter from the PNB, stating
that the release would be made only upon the fulfillment of certain conditions.
5) In May 1991, respondent executed a Deed of Rescission rescinding the MOA on the ground of the petitioners’ failure to pay the
balance and their alleged violation of the MOA by introducing improvements upon the lots without her permission.
6) Petitioners demanded that the titles to the lots be produced before they paid in full. Their demand was ignored. They thus filed a
complaint before the trial court.
7) The trial court ruled in favor of the respondent, rescinding the MOA and restoring to her the lots. The Court of Appeals affirmed
the same.

ISSUE/s: W/N respondents failed to comply with their reciprocal obligation of securing the release of the subject lots from mortgage
indebtedness with the PNB
RULING/HELD: YEEEEEeeeesssssss
1) Even though they had supplied the petitioners with a letter evidencing the release of the lots from its indebtedness with the PNB,
this release was still conditional, as was stated by the letter itself. These conditions were only met in July of 1991, as was testified
by the Assistant Manager of the PNB Bank.
2) This thus does not justify the respondent’s motion to demand for payment of the balance from the petitioners on April of 1991,
and their consequent rescission of the MOA on May 1991.

ISSUE: W/N the delivery of the titles corresponding to the lots subject of the MOA is a precondition to the payment by the petitioners
of the balance demanded
RULING: NOooooooooooooo
1) The petitioners were in the wrong for demanding the delivery of the titles of the land before they would pay the balance in full.
2) This is because it was agreed upon in the MOA that the Deed of Absolute Sale would only be executed upon the release of the
lots from mortgage with the PNB, which did not occur until July 1991.
ISSUE: W/N petitioners incurred delay in the performance of their reciprocal obligation under the MOA?
RULING: No
1) The petitioners had always expressed their readiness to fulfill the obligations that were demanded of them upon the respondent’s
fulfillment of her own obligation. However, such did not occur for the respondent only complied with their obligation by July of
1991.
2) It was only then that the payment in full became demandable, and only then as well when any delay in relation to the fulfillment
of the obligation would be able to incur.

ISSUE: W/N there was legal, or factual, ground for the rescission of the Memorandum of Agreement
RULING: NOOOOOOOOoooo
1) There was no legal basis for the rescission. Article 1191 expressly states that the remedy of rescission will only be available upon
the breach of faith by one of the parties that violates the reciprocal character of their obligation. Jurisprudence has already
established that such remedy does not apply to contracts to sell.
2) (See DOCTRINE)

RELEVANT PROVISIONS:
Article 1592
 In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term.
Article 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.

28. CO v. CA
DOCTRINE: In the absence of an express stipulation authorizing the sellers to extra judicially rescind the contract of sale, the COs
cannot unilaterally and extra judicially rescind the contract of sale.

Relevant Provisions:
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.”

1) In October 9, 1984, plaintiff entered into a verbal contract with defendant for her purchase of the latter’s house and lot located
at 316 Beata St., New Alabang Muntinlupa, Metro Manila for the sum of $100,000.00.
2) A week after, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same
may be reserved for her purchase, said earnest money to be deducted from the total purchase price.
3) The purchase price of $100,000.00 is payable in 2 payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on
January 5, 1985.
4) Period of payment already expired and plaintiff paid to the defendant Melody Co in the US, the sum of $30,000.00 as partial
payment of purchase price.
5) Defendant’s counsel wrote a letter to plaintiff demanding the payment of $70,000.00. After no response, counsel wrote another
letter informing plaintiff that she had lost her option to purchase the property subject of this case and offered to sell her another
property.
6) RTC: Ruled in favor of Custodio (defendant) and ordered the Cos to refund the $30,000.00.
7) Court of Appeals: affirmed the decision of the RTC.

ISSUE/S: W/N the Court of Appeals erred in ordering the Cos to return the $30,000.00 paid by Custodio pursuant to the option granted
to her over the Beata property?
HELD: NOOOOOOOooooooooo
1) An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price.
2) However, the March 15, 1985 letter sent by the Cos through counsel revealed that the parties entered into a perfected contract
of sale and not an option contract
3) Custodio’s offer to purchase the Beata property, subject of the sale at a price of $100,000.00 was accepted by the Cos.
4) The Cos did not sue for either specific performance or rescission of the contract. In the absence of an express stipulation
authorizing the sellers to extra judicially rescind the contract of sale, the Cos cannot unilaterally and extra judicially rescind the
contract of sale.
5) Accordingly, Custodio acted well within her rights when she attempted to pay the remaining balance of $70,000.00 to complete
the sum owed as the contract was still subsisting at that time.
6) It appears that such condition was unilaterally imposed by the Cos and was not agreed to by Custodio. It cannot therefore be
considered as part of the contract of sale as it lacks the consent of Custodio.

29. Central Bank of the PH v. Bichara

Doctrine: 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 fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has choosen 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.
1) Respondents Alfonso and Anacleta Bichara were the former registered owners of two Lots situated in Legaspi City. The
properties have an area of 811 square meters. On July. 19 1983 they sold the properties to petitioner Central Bank for P405,000
or P500 per square meter.
2) Stipulations of the deed of sale included that the payment would be effected after the deed was duly registered and a clean title
issued. All fees and expenses, cost of documentary stamps and science stamps necessary for property registration and the
transfer of title as well as the transfer tax due shall be borne by the Vendors. Also the vendors would compact the land to street
level using escombro and evict the squatters in the area.
3) Despite respondent’s failure to pay the various taxes, the property was issued to the Central Bank
4) Central Bank failed to pay the respondents.
5) Respondents did not compact the land with escombro therefore they contracted BGV construction to do the same for them at a
cost of P45,000.
6) A civil case ensued wherein the respondents prayed for recission of the contract and the return of the properties
7) Petitioner tried to pay the respondent with a check with an amount of P360,500.00 yet respondents refused
8) Case was brought to RTC
a. Petitioner alleged that respondents failed to deliver to the former free and legal possession of the lots in view of the
taxes, the lack of escrombo and the non-eviction of squatters. They also counterclaimed for damages due to the leasing
of a new office etc.
b. RTC ruled that the spouses must accept the 360,500.00 check as full payment due to the central bank paying 45,000 for
their own escombro. The Central bank also owed the spouses interest due to their initial non-payment.
9) CA reversed RTC decision and ordered recission of the sale. Spouses to reimburse petitioner for escombro.
10) Case elevated to SC

ISSSUES: W/N the respondents are entitled to recission of the contract?

HELD: NO
1) The law speaks of the right of the injured party to choose between recission or fulfillment with damages.
2) However Article 1590 of the Civil Code states that the vendee can withhold payment of the purchase price when the vendee is
disturbed in the possession or ownership of the thing acquired.
3) However non payment of the purchase price constitutes a very good reason to rescind a sale yet that is not applicable in the
case at bar.
4) The Central Bank had actually come forward with a partial payment thus the respondents were bound to accept it.
ISSUE: W/N Central Bank was justified in withholding payment of the purchase price?
RULING: NOOooooooooo
1) Petitioner contended that it was entitled to retain the purchase price due to respondent’s failure to pay the taxes and various
fees.
2) Yet there is no evidence that shows that payment of said taxes and fees are conditions precedent to petitioner’s duty to pay.
3) Also the squatters cannot be considered an encumbrance to the same due to them leaving and due to the fact that a mere act
of trespass does not authorize suspension of payment.
4) Also in the question of the escrombo, the petitioners have the right to minus their expenses from the price of the land.
5) Respondents should not be allowed to rescind the contract where they themselves did not perform their essential obligation
thereunder.

30. Iringan v. CA
1) On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of
the Tuguegarao Cadastre, located at the Poblacion of Tuguegarao.
2) The parties executed a Deed of Sale[2] on the same date with the purchase price of P295,000.00, payable as follows:
i. P10,000.00 upon the execution of this instrument, and for this purpose, the vendor acknowledges having
received the said amount from the vendee as of this date;
ii. P140,000.00 on or before April 30, 1985;
iii. P145,000.00 on or before December 31, 1985
3) When the second payment was due, Iringan paid only P40,000.
4) Because of this, July 18, 1985, Palao sent a letter to Iringan stating that he considered the contract as rescinded and that he would
not accept any further payment considering that Iringan failed to comply with his obligation to pay the full amount of the second
installment.
5) Iringan, through his counsel, Atty. Aquino, did not oppose the revocation of the Deed of Sale but asked for reimbursement for the
following amounts:
i. (a) P50,000.00 cash received by you;
ii. (b) P3,200.00 geodetic engineers fee;
iii. (c) P500.00 attorneys fee;
iv. (d) the current interest on P53,700.00
6) Palao sent a letter to Atty. Aquino saying that he is not amenable to the reimbursements claimed by Iringan.
7) On February 21, 1989, Iringan, now represented by a new counsel Atty. Lasam, proposed that the P50,000 which he had already
paid Palao be reimbursed or Palao could sell to Iringan, an equivalent portion of the land.
8) Palao instead wrote Iringan that the latters standing obligation had reached P61,600, representing payment of arrears for rentals
from October 1985 up to March 1989.
9) The parties failed to arrive an agreement.
10) On July 1, 1991, Palao filed a Complaint for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his
wife.
11) In their Answer, the spouses alleged that the contract of sale was a consummated contract, hence, the remedy of Palao was for
collection of the balance of the purchase price and not rescission. Besides, they said that they had always been ready and willing
to comply with their obligations in accordance with said contract.
12) The RTC ruled in favor of Palao and affirmed the recission of the contract, with the dispositive of the ruling as follows:
a. WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and against the defendants and
judgment is hereby rendered as follows:
b. (a) Affirming the rescission of the contract of sale;
c. (b) Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790;
d. (c) Ordering the defendants to vacate the premises;
e. (d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as reasonable compensation for use of
the property minus 50% of the amount paid by them; and to pay P50,000.00 as moral damages; P10,000.00 as exemplary
damages; and P50,000.00 as attorneys fee; and to pay the costs of suit.
13) The CA affirmed the decision, hence this petition for review.
14) Petitioner contends: That no rescission was effected simply by virtue of the letter sent by respondent stating that he considered
the contract of sale rescinded. Petitioner asserts that a judicial or notarial act is necessary before one party can unilaterally effect
a rescission.
15) Respondent’s Comment: The right to rescind is vested by law on the obligee and since petitioner did not oppose the intent to
rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed rescission.

ISSUEs: Whether or not the contract of sale was validly rescinded.

HELD: YEEEEEEEEeesss
1) The contract of sale between the parties as far as the prescriptive period applies, can still be validly rescinded. Art. 1592 requires
the rescinding party to serve judicial or notarial notice of his intent to resolve the contract.
2) A judicial and notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been
stipulated.
3) The phrase “even though” emphasizes that when no stipulation is found on automatic rescission, the judicial or notarial
requirement still applies.
4) The right to resolve reciprocal obligations (Art 1191) is deemed implied in case one of the obligors shall fail to comply with what
is incumbent upon him.
5) But the right must be invoked judicially.
6) Even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the failure of the other
party to comply with what is incumbent upon him.
7) The party entitled to rescind should apply to the court for a decree of rescission. The operative act is the decree of the court.
8) When private respondent filed an action for Judicial Confirmation of Rescission and Damages before the RTC, he complied with
the requirement of the law for judicial decree of rescission.
9) The complaint categorically stated that the purpose was 1) to compel appellants to formalize in a public document, their mutual
agreement of revocation and rescission; and/or 2) to have a judicial confirmation of the said revocation/rescission under terms
and conditions fair, proper and just for both parties.

ISSSUE: Whether or not the award of moral and exemplary damages is proper
RULING: Yes.
1) Petitioner claimed he was ready to pay but never actually paid respondent, even when he knew that the reason for selling the lot
was for Palao to needed to raise money to pay his SSS loan.
2) Iringan knew Palao’s reason for selling the property, and still he did not pay Palao.
3) Petitioner refused to formally execute an instrument showing their mutual agreement to rescind the contract of sale, even when
it was Iringan who breached the terms of their contract, leaving Palao desperate to find other sources of funds to pay off the loan.
4) Petitioner did not substantiate by clear and convincing proof that he was ready and willing to pay respondent. It was more of an
afterthought to evade the consequence of the breach

31. Suria v. IAC

Doctrine: In a deed of sale with mortgage, once the contract is perfected i.e. transfer of title is finished and mortgage is executed,
the relationship of the buyer and seller now becomes a relationship of mortgagor and mortgagee thus if the mortgagee was not able
to pay the installments, the mortgagor should foreclose the property instead of rescinding the contract

FACTS:

1) On March 31, 1975, Private Respondents entered into a contract of DEED of SALE with MORTGAGE with the private
respondents.
2) The Private respondents only paid the installment due in July 1975 and nothing else
3) The Private respondents made a verbal and written demands of the payment of the installments but petitioners gave no
justifiable reason as to why they were not able to comply
4) The Private Respondents filed a case on June 30, 1983 to which the Petitioners filed their answer with counterclaim on
November 14, 1983.
5) The Petitioners filed a motion to dismiss on July 1984, saying that
a. The private respondents are not entitled to the subsidiary remedy of rescission because of the existence of the remedy to
foreclose the mortgaged property
b. Assuming that rescission is the proper remedy, it would fail as the private respondents did not comply with what is required
under the law, hence making it ineffectual
6) On August 6, 1984, the petitioners formerly offered to pay private-respondents all the outstanding balance of the deed of sale
with mortgage but the offer was rejected by the private respondents.
7) On November 26, 1984, The Regional Trial Court denied Petitioner’s Motion to dismiss as they failed to state a cause of action
8) The Petitioner filed a motion of reconsideration of the decision of the RTC but they denied it again for the lack of merit

ISSUE: W/N the Private respondents may legally demand for the rescission of contract because the petitioners were not able to pay

HELD: NO
1) The Appellate Court committed a reversible error by applying Article 1191, which is about reciprocal obligations (the issue of
this case is not about reciprocal obligations)
2) It is also provided in Article 1383 that the action for rescission is subsidiary and that it cannot be instituted except when the
party suffering damage has no other legal remedy to obtain reparation.
3) From the onset, the contract entered into was a contract of sale and not a contract to sell
4) Contract of sale -> vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in
turn, is obligated to pay a price certain in money or its equivalent
5) And according to the case of Universal Food Corp v. CA “The rescission on account of breach of stipulations is not predicated on
injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity
between the parties… while on the other hand, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d 'etre as well as the measure of the right to rescind.”
6) The private respondents was able to fulfill their part of the obligation which was to transfer certificate of title in the petitioner’s
name while the petitioner was able to fulfill their part of the obligation by executing the mortgage.
7) From the time the contract was perfected, the private respondents now automatically becomes the mortgagor while the
petitoners the mortagagee
8) Thus the case of Villaruel v. Tan King should be followed which concerns deed of sales with mortagage
9) And since the petitioners were not able to pay the installments, what the private respondents should have done was to
foreclose the mortgage property.
10) In the case at bar, since the petitioner offered to pay for the due accounts, private respondents has no choice but to accept such
offer

Relevant Provisions:

Article 1458 of Civil Code

By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.

Article 1138 of Civil Code

An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject
matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages. (1303a)

32. Jacinto v. Kaparaz

Doctrine: In a contract of sale, the non-payment of the price is a resolutory condition, the remedy of the seller under Article 1191 is
to exact fulfillment or to rescind the contract. A mere casual breach does not justify rescission
1) Petitioner Jacinto and private respondents entered into an agreement under which the latter agreed to sell and convey to
petitioners a portion consisting of 600 sqm of a lot located in Mati, Davao for a total consideration of P1,800.
2) A downpayment of P800 was paid upon execution of the agreement while the balance of P1,000 was to be paid by petitioners
on installment at the rate of P100 a month for 10 months to the Development Bank of the Philippines to be applied to
respondent's loan accounts
3) Paragraph 9 of the agreement provides that the final deed of absolute sale was to be executed in favor of petitioner as soon
as the settlement or partition of the estate of the deceased Narcisa Kaparaz shall have been consummated and effected but
not later than March 31, 1967
4) Upon execution of the payment, petitioners paid the DP of P800 and were placed in possession of the portion of land described
5) As to the P1,000, petitioners claimed that they even exceeded P100
6) Respondents refused to execute deed of sale, thus petitioners filed against them a complaint for specific performance with the
CFI
7) Respondents alleged that the sale did not materialize because of the failure of petitioners to fulfill their promise to make timely
payments(each installment not later than 15h day following the end of each month)
8) RTC(CFI back then) ruled in favor of petitioners, ordering respondents to reconvey the property to the petitioners and declaring
petitioners to be the owners of said land
9) RTC found that petitioners, despite the delay by several months, did in fact pay P200 and P300

ISSUE: W/N the breach on part of the petitioners because of delayed payments warranted rescission

HELD: NOOOOOOOOoo
1) First it had to be determined that it was a contract of sale, and not a contract to sell
2) Contract to sell is a positive suspensive condition and it contemplates that ownership is retained by the seller and is not to pass
until full payment of the price
3) In a contract of sale(which is the form of the contract between petitioner and respondents), the non-payment of the price is a
resolutory condition, the remedy of the seller under Art 1191 is to exact fulfillment or to rescind the contract
4) Private respondents unqualifiedly bound themselves to execute the final deed of sale "as soon as the settlement or partition of
the estate of the deceased shall have been consummated and effected.
5) Respondents did not reserve unto themselves the ownership of the property until full payment of the unpaid balance of P1,000
6) There was also no stipulation giving the respondents the right to unilaterally rescind the contract the moment the vendee fails
to pay within a fixed period
7) In reality, the agreement was an absolute sale which allowed the petitioners to pay the remaining balance of the purchase price
in installments
8) It was held in a case that a deed of sale is absolute in nature even if denominated as a "deed of conditional sale"
9) The remedy of an unpaid seller in a contract of sale is either specific performance or rescission.
10) In the case at bar, there was non-compliance with the requirements prescribed in these provisions.
11) It was necessary to communicate the intention of rescission as held in UP v. De los Angeles which said that the act of a party in
treating a contract as cancelled or resolved on account of infractions by the contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the court.
12) Also, the delay incurred by petitioners was but a casual or slight breach of the agreement, which did not defeat the object of the
parties entering into the agreement
13) A mere casual breach does not justify rescission. The prompt payment of the monthly amortizations of the unpaid balance was
not a condition precedent to the execution of the final deed of sale. Besides, petitioner already paid P1,400 of the total
consideration of P1,800.
14) Rescission of the agreement was not available to respondents.

Relevant Provisions:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.

33. Central Bank v CA

Doctrine: Where the bank failed to release the entire approved loan, but the borrower also failed to pay the partial loan release
he got after it fell due, both are in default and their respective liability for damages shall be offset equitably, exclusive of the
interest due on the overdue loan portion.

Relevant Provisions:
Civil Code—Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages.

FACTS:
1) On April 28, 1965, Island Savings Bank, upon favourable recommendation of its legal department, approved the loan application
for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan executed on the same day a real estate mortgage over
his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on
the said title the next day.
2) The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest.
3) It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision.
4) On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino
and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the
date of execution of the contract at semi-annual installments of P3,459.00.
5) An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00.
6) But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that
there was no fund yet available for the release of the P63,000.00 (80,000 minus 17,000) balance.
7) The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance.
8) On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems,
issued Resolution No. 1049 which prohibited the Island Savings bank from making new loans and investments [except
investments in government securities] .
9) On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed
the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank.
10) On August 1, 1968, Island Savings Bank, in view of nonpayment of the Php 17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino;
and the sheriff scheduled the auction for January 22, 1969.
11) On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan he is entitled to specific performance by ordering Island Savings Bank to deliver the
P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real
estate mortgage.
12) So basically hindi na deliver ni Island Bank young 63k at first kasi kulang cla ng pera , so triny nila iforeclose yung lupa ni
Tolentino dahil lang hindi nya binayaran ng interest yung partial release ng 80k which was 17k— and why would he???? di pa
nga narelease ni Island bank yung pinagusapan na 80k eh. Labo.
13) The RTC issued a TRO temporarily enjoining Island Savings Bank from foreclosing the real estate mortgage of Tolentino upon the
filing of a 5000 pesos surety bond.
14) Eventually, the RTC ruled in favour of Island Savings bank by lifting the TRO and ordering Tolentino to pay the legal interest due
on the 17k partial release for the 80k.
15) On appeal, the CA affirmed the dismissal of Tolentino’s petition for the specific performance of the remaining 63k loan from
Island Savings Bank BUT it ruled that Island Savings Bank CANNOT foreclose the real estate mortgage of Tolentino.
16) Hence, the Central Bank brought the case to the Supreme Court.

ISSUE/S: W/N the action of Mr. Sulpicio M. Tolentino for specific performance can prosper.
HELD: YESSSSSSSSsssss,
1) The action of Mr. Sulpico M. Tolentino for specific performance will prosper.
2) When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they
undertook a reciprocal obligation.
3) In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other and when one party
has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil Code).
4) The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan.
5) From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued.
6) Thus, the Island Savings Bank started to incur delay since April 28, 1965 when they were not able to tender the remaining 63k,
and that delay lasted for a period of 3 years because the Monetary Board of the Central Bank issued Resolution No. 967 on June
14, 1968 prohibiting Island Savings Bank from doing further business.
7) Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan.
8) The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from
making new loans and investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan
agreements previously contracted.
9) The mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute
any defence to a decree of specific performance.
10) The mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation but instead it is taken as a
breach of the contract by him.
11) The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for
the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00
balance.
12) The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper
considering that only P17,000.00 out of the P80,000.00 loan was released.
13) A person cannot be legally charged interest for a non-existing debt which in this case is the 63k remaining balance of the
principal which was still to be given by Island Bank.
14) The alleged discovery by Island Savings Bank of the overvaluation of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan.
15) Bank officials and employees are expected to exercise caution and prudence in the discharge of their functions. It is the
obligation of the bank's officials and employees to investigate the existence and valuation of the properties before they approve
the loan application of their customers.
16) The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being
offered as loan security is a patent non-performance of this responsibility. If ever, bank officials and employees totally rely on
 the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral
turn out to be over-valued.
17) Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in
either case.
18) But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE
cannot grant specific performance in favor of Sulpicio M. Tolentino.
19) Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as such amount is concerned.

ISSUE: W/N Tolentino is liable to pay the Php 17,000.00 debt covered by the promissory note.
RULING: YES, Tolentino is liable to pay the Php 17,000.00 debt covered by the promissory note.
1) As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the
bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to
Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due.
2) His failure to pay the overdue amortizations under the promissory note of Php 17,000.00 made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code).
3) If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank with regard to
the promissory note containing the 17,000 pesos partial release.
4) Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank
failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to
pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
5) Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the
liability of the first infractor shall be equitably tempered by the courts.
6) Therefore, pursuant to Art. 1192 which gives the courts the power to equitably temper the damages in case both parties are in
default, the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt.
7) The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in offsetting the liabilities of both
parties since Sulpicio M. Tolentino derived some benefit from the 17k. Therefore, Sulpico should pay for interest on the said
amount.

ISSUE: W/N Tolentino’s real estate mortgage can be foreclosed to pay the Php 17,000.00 partial release of the 80k with legal
interest.
RULING: Yes,
1) Tolentino’s real estate mortgage can be foreclosed to pay only to the extent of the Php 17,000.00 partial release of the 80k
with legal interest, which is 21.25 percent of the total debt— which is equivalent to 21.25 hectares (21.25% x 100 hectares) of
land in this case.
2) The real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P17,000.00 debt. The
consideration of the accessory contract of real estate mortgage is the same as that of the principal contract. For the debtor, the
consideration of his obligation to pay is the existence of a debt.
3) The fact that when Sulpicio M. Tolentino executed his real estate mortgage when no consideration was then in existence
because Island Savings Bank had not made any release on the loan yet does not make the real estate mortgage void for lack of
consideration.
4) It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage. It may
either be a prior or subsequent matter.
5) But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is
created as a binding contract to pay. And when there is partial failure of consideration, the mortgage becomes unenforceable to
the extent of such failure.
6) Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due.
7) Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio
M. Tolentino became unenforceable to such extent.
8) P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares.
9) The mortgage covering the remainder of 21.25 hectares subsists as a security for the P1 7,000.00 debt. 21.25 hectares is more
than sufficient to secure a P1 7,000.00 debt.
Note: The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of
this case.

Art. 2089. A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or
creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.

34. Yao v. Matela

DOCTRINE:
 Reciprocal obligations are those which are created or established at the same time, out of the same cause, and which result in
mutual relationships of creditor and debtor between the parties.
 In reciprocal obligations, the general rule is that fulfillment by both parties should be simultaneous or at the same time.
 If neither party complies or is ready to comply with what is incumbent upon him, the default of one compensates for the default
of the other. In such case, there can be no legal delay.
 In cases where it cannot be conclusively determined which of the parties first violated the contract, equity calls and justice
demands that each party will bear his own damages/losses.
1) The spouses Yao contracted the services of Matela, a licensed architect, to manage and supervise the construction of their two
unit townhouses in Makati City at the agreed construction cost of P5,090,560.00.
2) The construction started in the first week of April 1997 and was completed in April 1998, with additional works costing
P300,000.00.
3) Matela alleged that the spouses Yao paid him the amount of P4,649,078.00, thereby leaving a balance of P741,482.00.
4) When his demand for payment of P741,482.00 went unheeded, Matela filed a complaint for sum of money with the RTC of Las
Pinas City.
5) In their answer, the spouses Yao denied that the project was completed in April 1998. Instead, they alleged that Matela abandoned
the project without notice. They claimed that they paid Matela the sum of P4,699,610.93 which should be considered as sufficient
payment considering that Matela used sub-standard materials causing damage to the project which needed a substantial amount
of money to repair.
6) The RTC rendered judgment in favor of Matela, ordering the spouses to pay the Matela the sum of P741,428.00 plus legal rate of
interest from the filing of the Complaint until fully paid and P50,000.00 as and by way of attorney’s fees and to pay the costs.
7) Close scrutiny of the evidence reveals that contrary to the allegation of the defendant spouses the construction of the two unit
townhouses were completed by the plaintiff. This is shown by the fact that the Building Official of Makati City, after inspection of
the construction thereof, issued, the Evaluation Sheet Occupancy Permit, Certificate of Completion, Certificate of Occupancy and
Progress Flow Sheet of Occupancy Permit.
8) It appears from these documents that the construction was completed and that after inspection the same was found to have been
done in accordance with its plans and specifications.
9) If there were defects found all over the two unit townhouses, the Building Official of Makati City would not have issued the said
documents, which are presumed to have been executed in due course and good faith.
10) The Court of Appeals affirmed the decision of the lower court but modified the amount of actual damages to P391,582.00.

ISSUE: whether or not Matela is entitled to the additional construction cost

HELD:
1) The Court held that both parties failed to comply with their undertakings. Thus, they will shoulder their own losses.
2) In the instant case, the factual findings of the trial court and Court of Appeals are contradicted by the evidence on record.
3) As agreed by the parties, Matela will construct the townhouses in accordance with the Specification while spouses Yao will pay
Matela the agreed construction cost based on progress billings.
4) The spouses Yao will not pay Matela the agreed price in full unless the latter has fully complied with and has discharged his
obligations as specified in the contract.
5) Reciprocal obligations are those which are created or established at the same time, out of the same cause, and which result in
mutual relationships of creditor and debtor between the parties. In reciprocal obligations, the general rule is that fulfillment by
both parties should be simultaneous or at the same time.
6) The rule then is that in reciprocal obligations, one party incurs in delay from the moment the other party fulfills his obligation,
while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. If neither party
 complies or is ready to comply with what is incumbent upon him, the default of one compensates for the default of the other. In
such case, there can be no legal delay.
7) Both the trial court and the Court of Appeals found that Matela's delivery of the project constitutes a faithful discharge of his
duties. The Court disagrees; Matela failed to comply with his obligation to construct the townhouses based on the agreed
specifications. As such, he cannot be discharged from his obligations by mere delivery of the same to the spouses Yao.
8) Based on the photographs presented as evidence, it was found that there were unfinished electrical conduits, electrical outlets
with loose wirings and outlets with exposed wires.
9) The Specification provided for several kinds of tiles to be installed on the floors and on the walls. However, the exhibits showed
decaying and unfinished cabinet floors, stairways and bathroom floors with missing tiles, uninstalled bathroom fixtures and
exposed plumbing fixtures. The bath tub was uninstalled that it can be easily pulled out of its concrete receptacle. The exhibits
also showed unfinished windows, unpainted walls, rusted metal works and balusters.
10) The Building Permit, Certificate of Completion, and Certificate of Occupancy are not enough to prove the project's completion.
While it is true that under the Rules of Court, the issuance of the foregoing documents enjoy the presumption of regularity,
however, it is only a disputable presumption, which may be overcome by other evidence.
11) The agreed construction cost of the project was P5,090,560.00, however, the amounts reflected in the Building Permit, the
Certificate of Completion and the Certificate of Occupancy are far less. In the Building Permit, the total cost was pegged at
P2,191,700.00; in the Certificate of Completion, the actual cost of construction was P2,347,706.81; while in the Certificate of
Occupancy the cost of the project as built was declared at P2,341,706.00. Considering the discrepancies, the conclusiveness of
the said documents fall when arrayed against the pieces of evidence introduced by the spouses Yao.
12) The spouses Yao likewise failed to comply with their undertakings. They made periodic payments to Matela based on progress
billings. This was contained in the Summary of Cash Payments and the Summary of WLY Invoices submitted as part of evidence.
However, the spouses Yao refused to pay the balance of the agreed construction cost despite demands. The spouses Yao justified
their non-payment by arguing that Matela abandoned the project and that there were defects in its construction.
13) Evidently, both parties in this case breached their respective obligations. The well entrenched doctrine is that the law does not
relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he was doing
and entered into and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact.
14) Courts have no jurisdiction to look into the wisdom of the contract entered into by and between the parties or to render a decision
different therefrom. They have no power to relieve parties from obligation voluntarily assumed, simply because their contracts
turned out to be disastrous deals or unwise investments.
15) However, in cases where it cannot be conclusively determined which of the parties first violated the contract, equity calls and
justice demands that Article 1192 of the Civil Code is applied.
16) In the instant case, the losses to be incurred by the parties will come, as far as Matela is concerned, in the form of the alleged
unpaid balance of the construction cost that he is seeking to collect from the spouses Yao. For the latter, the loss that they will
bear is the cost of repairing the defects in the project.

Relevant Provisions:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered
by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages.