OBLICON CASE DIGEST

Gertrude

Held: Decision affirmed

PAY V. VDA. DE PALANCA  Promissory note was executed: Appear that petitioner was hopeful that the
satisfaction of his credit could be realized either through debtor sued
FACTS: receiving cash payments form he estate of Carlos Palanca presumptively
as one of his heirs or as expressed ―upon demand‖
 Petitioer George Pay is a creditor of Late Justo Palanca : died : 1963
 Undeniable : more than 15 years after execution of promissory note---
 Claim of petitioner based o promissory note dated 1952 whereby late Justo
when this petition was filed
Palannca and Rosa Gonzzales Vda de Carlos Palanca promised to pay
George Php 26,900 + 12% interest/annum
 Art 1179 of CC: ―Every obligation whose performance does not depend
 George Pay now before the Court asig Segundina Chua vda. De Palanca : upon future or uncertain event or upon a past event unknown to parties is
appointed as administratrix of certain property in Manila assessed at Php demandable at once.
41,800.00
 Obligation being due and demandable it would appear that filling of suit
 There was refusal on the part of Segundina to be appointed stating that after 15 years was much too late. --- Prescriptive period : 10 years.
property sought to be administered no longer belonged to debtor and that
rights of petitioner creditor had already prescribed. GONZALES V. HEIRS OF THOMAS AND PAULA CRUZ
Ruling of Lower court : DISMISSAL
FACTS:
 ―For value receied from time to time since 1947, we promise to pay Mr.
 1983 Paula Ano Cruz together with plaintiffs entered into contract of
George in his office Php 29,900.00 with interest at rate of 12%/annum
lease/purchase with defendant Felix Gonzales, sole proprietor and
upon receipt by either of the undersigned of cash payments from the
manager of Felgon Farms.
Estate of late Don Carlos Palanca and Justo Palanca.
Important details in contract of lease :
 Then came this paragraph :―court has inquired whether any cash payment
has been received either of signers of promissory note from Estate of late  For a period of 1 year upon signing
Carlos Palanca. Petitioner informed that he does no insist on this provision
but that petitioner is only claiming on his right under promissory note‖  After the period of contract, Lessee shall purchase property with the price
of P1M + 12%/ annum.
 After which then came the ruling that wording of promissory note ―upon
demand‖ obligation was immediately due.  Upon execution of deed of slae 50% and 25% thereafter shall be paid
every 6 months thereafter
 Since it was dated 1952: it was clear that more than 10 years have already
transpired from time until to date. Action therefore has prescribed.  Annual rental of Php 2,500

Appeal:SC  Lessors commit themselves and shall undertake to obtain a separate and
distinct TCT over herirn leased portion to Lessee within reasonable period
 Only question: prescription. of time which shall not n any case exceed 4 years.

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 Rentals where paid but upon end of Contract, defendant Gonzales did not incumbent upon him. The injured party may choose between the fulfillmet
however exercise his option to purchase the property immediately after of obligation, with payment of damages in either case. He may seek
expiration of lease. rescission even after he has chosen fulfillment, if the latter should become
impossible.xxx the power to rescind is given to the injured party Where the
 He remained in possession of property without paying purchase price plaintiff is the party who did not perform, he is not entitled to insist upon
provided in contract of Lease/Purchase and without paying any further that the performance of contract by the defendant or recover damages by
rentals. reason of his own breach.

 Letter was sent by one of plaintiffs-heirs Ricardo Cruz to defendant CA: REVERSED
Gonzales informing him of lessor’s decision to rescind the contract of
Lease/Purchase due to breach committed by defendant + It also served as  Transfer of title to the property in the appelee’s name cannot be
a demand for the defendant to vacate the premises. interpreted as a condition precedent to the payment of agreed
purchase price.
 Defendant Gonzales refused to vacate and continued the possession
thereof.  Terms of contract are explicit and require no interpretation. Upon the
expiration of contract of lease, lessee shall purchase the property.
 Property subject of Contract of Lease/Purchase is currently the subject of There must first be payment before transfer of title to vendee’s name
Extra-Judicial Partition Title of which remains in name of plaintiff’s can be made.
predecessor in interest Bernardina Calixto and Severo Cruz.
 4 year period only starts to run the moment lessee exercises his right
 Par 9 of contract: clearly indicates that lessors-plaintiffs shall obtain to purchase.
transfer Cert of Title within 4 years before new contract is to be entered
into. Thus before a deed of sale can be entered ito between parties, ISSUES:
plaintiffs have to obtain the TCT in favor of the Defendant.
INTERPRETATION OF PARAGRAPH 9
TRIAL COURT
 Basic to the rule of interpretation of contracts : understood as bearing that
 Art 1181 of the New CC: In conditional obligations, the acquisition of rights import most adequate to render it effectual
as well as the extinguishment or loss of those already acquired shall
depend upon the happening of an event which constitutes as the condition.  Record shows that at time the contract was executed land in question was
still registered to the name of Calixto and Cruz, respondent’s predecessor
 When obligation is assumed by party to a contract is expressly subjected in interest. No showing whether respondents were the onl heirs of Cruz or
to a condition, the obligation cannot be enforced against him unless whether the other half of land named to Calixto was adjudicated to them by
condition is complied with. any means.

 Failure of plaintiffs to secure the TCT as provided for in the contract does  Hence when the contract of lease/purchase was executed, there was no
not entitle them to rescind the contract assurance that the respondents were indeed the owners of the lot, in what
concept and to what extent.
 Art 1191 of the New CC: Power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is

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th
 Clear intent of the 9 par. Was for respondents to obtain separate and SMITH BELL & CO V. SOTELO MATTI
distinct TCT in their names. This was necessary to enable them to show
their ownership of stipulated portion and their concomitant right to dispose Facts :
of it.
 1918, Plantiff Corporation and defendant Sotello entered into contracts
 Nemo dat quod non habet ― no one can give what he does not have‖ whereby former obliged itself to sell and the latter to purchase

 In a contract of sale title to property passes to vendee upon delivery of TANKS Php New york 3-4 months NO FIXED
thing sold. In this case, the respondent could not deliver ownership or title 21,000.00 PERIOD
to a specific of a portion of the yet undivided property.
EXPELLERS Php 25,000 San Month of
Francisco Sept/ ASAP
 Par 9 requires respondent to obtain a TCT.
ELECTRIC 2,000 each Approximate
MOTORS delivery
 Petitioner cannot be compelled to perform his obligation under the contract
within 90
only after respondents complied with his obligation. days—not
guaranteed
NINTH CLAUSE: CONDITIONAL PRECEDENT  Plaintiff corp notified the defendant Mr. Sotelo of the arrival of these gods
but Mr Sotelo refused o received them and to pay for the prices stipulated.
 Undertaking was a contition precedent to the latter’s obligation to purchase
and pay for thel and.  Plaintiffs brought suit against defendant Mr. Sotelo of the arrival of these
goods, but Mr.Sotelo refused to receive them and to pay for pries
 Art 1181:
stipulated.
 Condition: every future and uncertain event upon which an obligation or
 Defendant Mr.Sotelo and intervenor ManilaOil Refining denied plaintiff’s
provision is made to depend. It is the future and uncertain event upon
allegation
which the acquisition or resolution of rights was made
- It was only in May 1919 that it notified the intervenor that said tanks
 When the obligation assumed by party to a contract is expressly subject to
arrived, motors and expellers having arrived incomplete and long after
a condition, the obligation cannot be enforced against him unless condition
date stipulated.
is complied with.
- Plaintiff’s delay in making delivery
 Obligatory force of conditional obligation is subordinated to the happening
of a future and uncertain event so that if event does not take place, parties
- Suffered damages due to nondelivery of thanks and motors in due time.
would stand as if conditional obligation has never existed.
LOWER COURT : absolved the defendants : but rendered judgment against
RESPONDENT CANNOT RESCIND CONTRACT
them ordering them to pay amount of money for sum of goods with legal
interest
 Because they have not caused he transfer of TCT to their names, which is
a condition precedent t the petitioner’s obligation
ISSUE: WON UNDER CONTRACTS ENTERED INTO AND THE
CIRCUMSTANCES ESTABLISHED IN THE RECORD, THE PLAINTIFF HAS

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FULFILLED IN DUE TME ITS OBLIGATION TO BRNG THE GOODS IN  Fulfullment of condition does not depend on will of obligor but on that of 3
QUESTION IN MANILA person who can in no way be compelled to carry it out, obligor’s part of
contract is complied with if he does all that is in his power and has he right
HELD: to demand performance of the contract by the other party.

 It appears that these contracts were executed at time of world war when  It is sufficiently proved in the records that plaintiff has made all the efforts it
there existed rigid restrictions on the export from US of articles like the could possible be expected to make under the circumstances to bring the
machinery in question. (which in fact was known to parties) goods in question to manila as soon as possible.

 At time of execution, parties were not unmindful of the contingency of US  When time of delivery: not fixed = reasonable time: determined by
govt not allowing the export of goods nor of the fact hat the other foreseen circumstances
circumstances therein stated might prevent it.
 Plaintiff did all within his power to comply = reasonable time. Not guilty of
 Considering these contracts in light of civil law, we cannot but conclude delay
that the term which parties attempted to fix is so uncertain that one cannot
just tell whether as a matter of fat, those goods could be brought to MNL or SECURITY BANK AND TRUST COMPANY V. CA
not.
FACTS:
 Obligation must bee regarded as conditional.
 Private respondent Ysmael ferrer was contracted by petitioners to
 Obligations for the performance of which a day certain has been fixed shall construct building of SBTC in Davao for Php 1,760,000.00/
be demandable only when the day arrives.
 Contract dated Feb 4,1980 provided that Ferrer would finish construction
 A day certain= must necessarily arrive, even though its date be unknown. within 200 working days

 If uncertainty consists of the arrival or non-arrival of the day, the obligation  Ferrer was able to complete said building within stipulated period but he
is conditional and shall be governed by the rules of the next proceeding was compelled by drastic increase in the cost of construction materials to
section. incur expenses of about Php 300,000.00 on top of original cost.

 In cases lie this, which is not expressly provided for but impliedly covered  Additional expenses made known to SBTC through its VP as early as
by the Civil Code, the obligor will be deemed to have sufficiently performed March 1980, demands were supported by documentary proofs
his part if he has done all that was in is power even if the conistion has not
been fulfilled in reality.  March 1981, SBTC Assitant VP Guanio and archi representative consulted
by SBTC verified Ferrer’s claims of additiona cost. Recommendation was
 Obligee having done all that was in his power, was entitled to enforce made to settle ferrer’s claim but only for Php 200,000.00.
performance of obligation
 SBTC instead of paying denied ever authorizing payment of any amount
 First: When fulfillment of condition does not depend on will of the obligor beyond its original cost
but on that of a third person who can in no way be compelled to carry it out
--- judgment of said court ordering other party to comply with his part is not  SBTC likewise denied any liability for additional cost based on Art 9 of
contrary t aw of contracts building contract

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 --- if an time prior to completion, increasein prices of construction/lbor shall  Art 1182 of CC: conditional obligation shall be void if its fulfillment depends
supervene through no fault on part of contractor whatsoever or any act of upon the sole will of the debtor, In present case, mutual agreement, the
government and its instrumentalities which directly or indirectly affects the absence of which petitioner bank relies upon to support non-liability for
increase of cost of project, OWNER shall equitably make appropriate increased construction cos is in effet a condition depending on bank’s sole
adjustments on mutual agreement/ will

 Ysmael Ferrer filed a complaint for breach of contract with damages.  Petitioner bank derived benefits when private resp completed building.

 TC ruled for Ferre and ordered SBTC and Rosito Manhit to pay.  To allow petitioner ban to acquire building at price far below its actual
construction cost would undoubtedly constitute unjust enrichment for bank
 CA affirmed TC decision to the prejudice of the private respondent.

Petitioner’s argument:

 Petitioners argue that under Art 9, any increase will not automatically make ROMERO V. CA
petitioners liable to pay for such increase cost .
FACTS:
 Appropriate adjustment will be made upon mutual agreement of both
parties. It is contended that since here was no mutual agreement between  Romero : Civil Engineer. In 1998, petitioner and his partners decided to put
parties, petitioner’s obligation to pay amounts above original price never up a ware house in Manila
materialized.  Flores spouses accompanied by a broker offered a parcel of land in the
name of private respondents Chua Vda de Ongsiong
HELD:  Property w/ squatters but suitable for central warehouse
 Flores Proposal : should petitioner advance P50,000.00 which could be
 Art 22 of CC: No man ought to be made rich out of another’s injury used in taking up ejectment case against squatters, private respondent
would agree to sell property for only P800/sqm ---petitioner agreed
 In the present case: petitioner’s argument to support absence of liability for
the cost of construction beyond original contract price in case the cost of Important parts of deed of conditional sale
rpoheect increases through no fault of conractor. o Balance paid 45 days after removal of all squatters from property
o If after 60 days from signin, Vendor shall not be able to remove squatters
 Private respondent informed petitioner of drastic increase in construction
from property being purchased, downpayment made by buyer shall be
as early as March 1980.
reimbursed/returned
o Vendee shall not be able to pay vendor, Php50,000 –forfeited in favor of
 It is not denied that private respondent incurred additional expenses in
vendor
constructing petitioner bank’s building due to drastic and unexpected
 Private respondent : filed complaint for ejectment
increase.
 But on a latter date sought return of Php50,000 since she could not get rid
 In fact, petitioner bank admitted liability for increased cost when of squatters.
recommendation was made to settle private respondents claim for 200k .  Atty.Apostol counsel of petitioners refused tender and stated that he shall
take it upon himself to remove the squatters, expenses thereof shall be
 Claim was adequately proven chargable to the purchase of land

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 PCUP asked for MTC 45 days to relocate the squatters  Option to rescind or to proceed clearly belongs to petitioner and not private
 Thereafter Atty.Apostol reminded private respondents of expir of 45 day respondents
period and client’s willingness to underwrite the expenses for execution of  Mixed condition: dependent upon will of vendor alone but also of third
judgment and ejectment of occupants persons like squatters and government agencies and personnel
 Atty.Yuseco Jr. counsel of privae respondents advised Atty.Apostol that concerned.
Deed of Conditional sale has been rendered null and void by virtue of his  Where so called potestative condition is imposed not on the birth of
client’s failure to evct squatters from premises within agreed 60 day period obligation but on its fulfillment, only condition is avoided leaving unaffected
the obligation itself.
Atty. Apostol : letter  In any case: private respondent’s action for rescission is not warranted.
o Contract of sale : perfected from the moment there was a meeting of minds She is not the injured arty. He right of resolution of party to an obligation
of parties upon subject lot and price. under Art 1191 is predicated on breach of faith by party that violates
o Contract has been partially fulfilled upon receipt of down payment reciprocity.
o Provisions of Deed of Conditional sale do not grant private respondent the  Petitioners have opted to proceed with the sale, neither may petitioner
option or prerogative to rescind the contract and to retain the property demand its reimbursement from private respondent nor may prvate
should she fail to comply with the obligation she assumed under the respondent subject it to forfeiture.
contract.
o Petitioner even opted to take it upon himself to eject said squatters DUCUSIN V. CA
o Power to rescind belongs to the injured party and under this case, it is the
petitioner/buyer. FACTS:
o Vendor did not comply with his obligation in good faith
Agapito Ducusin (Lessor) Spouses Baiola (Lessee)
RTC  Vendor does not have right to rescind—she violated her obligation 1 door apartment in Sta.Mesa
 Petitioner : Injured party who under Art 1191 has right to rescind.  Baiola spouses occupied said property for 2 years
 Not convinced with the reasons of private respondent in failing to comply with such
obligation (1) Afraid of Squatters (2) Spending too much  Jan 1977: petitioner gave notice to terminate contract and that they have
CA  Contract entered into b parties was subject to a resolutory condition (ejectment of until March 1977 to vacate premises since two of their children are getting
squatters from land and non-concurrence of which resulted in failure of object of
contract
married and needs such apartment for their residence.
 Private respondent substantially complied with her obligation to evict squatters  Petitioner filed a case for ejectment in City Court
 It wwas petitioner who was not ready to pay purchase price
 Lessor claims: Agapito Jr. has decided to live independently and needs the
ISSUE: NATURE OF CONTRACT X REMITTANCE
apartment unit as his place of residence + lessees have violated the terms
HELD: of contract
 Condition : compliance of party : undertake fulfillment of which  Lessee claim: well planned scheme to rid them + circumvent law
demandability of reciprocal resentation of another party prohibiting raising of rentals in apartments
 In the case – vendee: payment & vendor : fulfillment of certain express
City Court  Defendantss contract with plaintiff has already terminate dwith the
warranties (timely eviction of squatters on the property notice of termination sent by plaintiff on the ground that he needs the
 Sale: perfected when a person obligates himself, for a price certain to premises for his own children
deliver and to transfer ownership of specified thing/right to another over CFI  Affirmed
which latter agrees.  Mere allegation of landlord due to use of immediate members of
family and marriage of son evidenced by photographs and a
 Private Respondents : obliged to evict squatters : ejectment (condition sets marriage certificate – already a sufficient cause
into motion the compliance of the petitioner) CA:  Clause in contract : terminate in lieu of the need of his children to

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occupy premises  resolutory condition  Such acts are illogical and contrary to business practice
 Resolutory condition – (x) condition depending solely on will of  Rustan: liable for breach of contract.
debtor but that of third person (lessor’s child) ISSUE: WON RUSTAN PULP AND PAPER MILLS MAY LEGALLY EXERCISE
 Need : satisfactorily proven by clear, strong and substantial
evidence. RIGHT OF STOPPAGE
SC Affirms
 Lease contract expressly stipulates that lessor may terminate HELD: NO
the lease when his children shall need the same, such
condition is valid as happening of such dodition depends not  There is a cogent basis for private respondent’s apprehension on illusory
on the lessor but on a third party resumption of deliveries inasmuch as the prerogative suggests a condition
 Testimony that lessor’s son wh got married in Canada solely dependent upon will of petitioners
intends to Settle in PH sufficient evidene to establish lessor’s  Petitioners can stop delivery of pulp wood from private respondents if the
son’s need for leased premises.
supply at plant is sufficient as ascertained by petitioners subject t re-
 Contention of the petitioner that contract of lease In question is for a
delivery when need arises as determined by the petitioners
definte period being on a month to month basis beginning Feb 1975, not
 A purely potestative imposition of this character must be obliterated from
covered with PD 20 .
the face of contract without affecting the rest of the stipulations considering
 Definite : Disict/Certain limit. /Ascertainable time
that the condition relates to the fulfillment of an already existing obligation
 Month to month -30 days (repeating until Llave exercised right/prerogative
and not its inception.
to terminate.
 President and Manager of corporation who entered into and signed a
conrtact in his official capacity cannot be made liable thereunder in his
RUSTAN PULP & PAPER MILLS INC V. IAC
individual capacity in absence of stipulation to that effect due to personality
FACTS: of corporation being separate and distinct from persons composing it.

 1966: Rustans Pup & Paper Mill LIM V DEVELOPMENT BANK OF THE PHILIPPINES
 1967: Lluch holder of forest license transmitted a letter to petitioner
Facts:
Rustan for suppy of raw materials.
Spouses Lim DBP
PETITIONER RUSTAN PROPOSED:
1969 Php 40,000
9% / annum
o Rustan : option to buy from other suppliers 11% / annum : penalty charge
o Lluch (Seler) 30/cm of pulp wood raw material 1970 Php 960,000.00
o #7 Clause: buyer has right to stop delivery of raw materials when suppl of 12% /annum
same shall become sufficient until such time when need of said raw 1/3 /month penalty charge on overdue amortization
materials shall have become necessary provided the seller is given Secured by mortage over real properties
sufficient notice.  Due to violent confrontations between Government and Muslim Rebels :
 Test Run of Pup Mills: Major defects Spouses li were forced to abandon business , and failed to pay the loan
 Recommended stoppage of delivery amortizations
LC  Ironic : Stoppage via letter on Speteber because petitioners  1978 : made partial payment on the amount of Php 902,800.00 leaving
never really stopped accepting deliveries from private outsanding loan balance of Php 610,498.00
respondents until December.  Notice of foreclosure-- to stop foreclosure respondent spouses paid 60 k
 Accepting of supplies from other suppliers

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 They had several negotiations about computations, proposals to settle  DBP Prevented them by charging different cut off dates and
amount , restructuring agreements however there was non-compliance on excessive interests and penalties different incentive schemes
the part of Edmundo. not stipulated in promsory notes  Foreclosure sale is valid because
 Foreclosure void for lack of notice gross inadequacy of bid price as
 Jan 1994: DBP sent Edmundo a final demand letter asking that he pay the
and inadequacy of bid price. a ground for annulment of sale
outstanding amout of Php 6,404,412.92 exclusive of interest and penalty  At time of foreclosure, petitioner’s applies only in judicial foreclosure
charges. obligation was not yet due and  Promissory notes and
 Jul 1994: Auction sale of mortagaged properties for the satisfaction of demandable and that mortgrages were not novated by
petitioner’s total obligations. restructuring agreement novated the proposed restructuring
 1995: Lim filed with RTC against DBP for annulment of foreclosure and and extinguished petitioner’s loan agreement.
obligation.
damages. Petitioners allege that DBP’s acts and omissions prevented
them from fulfilling their obligation; thus they prayed that they be
Held:
discharged from their obligation and that their foreclosure mortgage be
Obligation was not extinguished or discharged
declared void.
 Art 1186 of CC: Condition shall be deemed fulfilled when the obligor
 DBP : peitioners have no cause of action, that petitioners failed to pay their
voluntarily prevents its fulfillment does not apply in this case.
loan obligation . DBP gave written and verbal demands as well as
 3 requisites : Constructive fulfillment of suspensive condtion
sufficient time to settle their obligations and that under Act 3135, DBP has
1. Condition is suspensive
the right to foreclose their properties,
2. Obligor actually prevents fulfillment of condition
3.He acts voluntarily
RTC In favor of Lim Spouses
 Petitioners have fully extinguished or discharged their obligation to  Suspensive condition: happening of which gives rise to obligation
respondent bank  Petitioner has only himself to blame : failure to pay
 Foreclosure null and void  The DBP therefore had reason to cancel the restructuring agreement
CA Reversed  Since restructuring agreement was cancelled, it could not have novated or
 Extrajudicial foreclosure valid extinguished petitioner’s oan obligation.
 Ordering petitioners to pay the respondent the amount of  And in absence of perfected restructuring agreement, there was no
2,592,000.00 plus interests and penalties
impediment for DBP to exercise its right to foreclose mortgage properties
ISSUES:
The foreclosure sale is not valid
WON RESPONDENT’S OWN WANTON, RECKLESS AND OPPRESIVE  While DBP had right to foreclose the mortgage, there was failure upon its
ACTS AND OMISSIONS IN DISCHARGING ITS RECIPROCAL part to send notice of foreclosure to petitioners
OBLIGATIONS TO PEITIONERS EFFETIVELY PREVENTED THE  unless the parties stipulate ―personal notice to the mortgagor in
PETITIONERS FROM PAYING THEIR LOAN OBLIGATIONS IN A PROPER extrajudicial foreclosure proceeding is not necessary.‖
AND SUITABLE MANNER  Par 11 of mortgage: ― All correspondence relative to this mortgage
WON AS A RESULT OF RESPONDENT’S ACTS AND OMISSIONS, including demand letters, summons, subpoenas or notification of any
PETITIONERS OBLIGATION SHOULD BE DEEMED FULLY COMPLIED judicial or extra-judicial action shall be sent to mortgage at xxx or at the
WITH AND EXTINGUISHED IN ACCORDANCE WITH PRINCIPLE OF address that may hereafter be given in writing
CONSTRUTIVE FULFILLMENT  However no notice of extrajudicial foreclosure was sent by DBP to
petitioners about foreclosure sale
Petitioner’s argument Respondent’s argument
 Obligation should be deemed  No bad faith  When petitioner failed to send notice of foreclosure sale to respondent, he
fulfilled  Computation were based on committed a contractial breach sufficient to render such sale void.

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Penalties and interest rates should be expressly stipulated in writing  Plaintiff Magdalo received his salary as Chief Chemist in amount of
 Imposition of additional interest and penalties not stipulated in Promissory P300/month only untl his services were terminated on Nov 3,1960.
notes should not be allowed.  Due to successive memoranda without plaintiff Magdalo being recalled
 Art 1957 of CC: ― no interest shall be due uness it has been expressly back to work, latter filed the present action on Feb 14,1961.
stipulated in writing.  A month afterwards, he was required to report for duty, but he declined
 Payment of interest and penalties in loans is allowed only if parties agreed because the present action was already filed in court.
to it and reduced their agreement in writing. Petioner’s contention
 In thi case, petitioners never agreed to pay additional interests and o Respondents not entitled to rescission.
penalties. = illegal and void. o Under Art 1191 of CC: right to rescind reciprocal obligation is not asolute
 The act of respondent bank in unilaterally changing stipulated interest rate and can be demanded only if one is ready, willing and able to comply with
is violative of principle of mutuality of contracts under 1308 of CC and his own obligations and the other is not.
contravenes Art 1956 of CC. o Under Art 1169 of CC: in reciprocal obligations, neither party incurs in
DBP did not act in bad faith or in a wanton, reckless or oppressive delay if the other does not comply or is not ready to comply in a proper
manner. manner with what s incumbent upon him
 DBP had reason to cancel restructuring agreement because petitioeners o Magdalo: remiss in the compliance of his contractual obligation to cede
failed to pay amount required by it when it reconsidered request to and transfer to defendant the formula of Mafran sauce
restructure loan. ISSUE:
 DBP’s failure to send notice of foreclosure= (x) bad faith. There is no WON BY VIRTUE OF TERMS OF BILL OF ASSIGNMENT RESPONDENT
showing that these contractual breach were done in bad faith or in a MAGDALO FRANCISCO SR. CEDED AND TRASFEERRED TO PETITIONER
wanton, reckless or oppressive manner. CORPORATION THE FORMULA FOR MAFRAN SAUCE.
HELD:
UNIVERSAL FOOD CORP V. CA NO.
Facts:  He did not surrender formulaa
 1938: Magdalo Francisco invented the Mafran sause  What was actually ceded and transferred was only the use of Mafran
 1942: registered s trademark in his anme and as an owner and inventor sauce formula only. Magdalo returns ownership.
with Bureau of Patents .  Royalty : paid for use of patented invention.
 1960: entered into Bills of Assignment with Universal Food Corp  Magdalo intends to preserve the secrecy of Mafran sauce.
 Magdalo : Chief Chemist  In order to preserve the secrecy of Mafran formula, and to prevent its
 Victoriano : Auditor and Superintendent unauthorized proliferation, patentee would be appointed as chief chemist :
 1960: Only Supervisor Ricaro Francisco should be retained in factory and permanent character and in case of his death or other disabilities, his heirs
that plaintiff Magdalo Fancisco Sr. should be stopped for the time until the and assigns who may have necessary qualifications shall be preferred to
corporation should resume it operations. succeed him
 5 days later, Reyes (President and General Manager) issued a  Bill of assignment clearly shows tha intention of respondent patentee at
memorannndum to Victoriano ordering him to produce Mafran sause and time of its execution was to part not with formula but only with its use.
to take only necessary daily employees without employing permanent ISSUE:
employees. WON RESPONDENT MAGDALO WAS DISMISSED FROM IS POSITION
 Another memorandum was issued : instructing that Assistant Chief WITHIOUT JUSTIFIABLE CAUSE AND IN VIOLATION OF PAR 5 (A) OF BILL
Chemist Ricardo Francisico to recall all daily employees who are OF ASSIGNEMNT WHICH IN PART PROVIDES ― APPOINTED IN
connected in production of mafran sause and porky pops PERMANENT CHARACTER‖

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 Petitioner acting throg its corporate officers, schemed and maneuvered to Magdalena Estate (seller) Louis Myrick (Buyer)
ease out, separate and dismiss said respondent from service as Lot in San Juan Rizal
permanent chemist in flagrant violation of Bill of Assignment. P7,953 shall be payable in 120 equal monthly installments of P96.39 each on
ISSUE: the 2nd day of every month beginning the date of execution of the agreement.
Facts:
WHETHER OR NOT THERE IS A VALID RECISISSION OF BILL OF
ASSIGNMENT  In pursuance of said agreement, the vendee made several monthly
payments amounting to P2,596.08, the last being on October 4, 1930,
although the first installment due and unpaid was that of May 2, 1930.
HELD:  By reason of this default, the vendor, notified the vendee that, in view of
Art 1191 provides: his inability to comply with the terms of their contract, said agreement had
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors been cancelled as of that date, thereby relieving him of any further
should not comply with what s incumbent upon him. obligation thereunder, and that all amounts paid by him had been forfeited
The injured party may choose between fulfillment and the rescission of the obligation with in favor of the vendor, who assumes the absolute right over the lots in
the payment of damages in either case. He may also seek rescission even after he has question.
chosen fulfillment if latter should become impossible.
 On July 22, 1936, Louis J. Myrick, respondent herein, commenced the
The court shall decree the rescission claimed unless there be just cause authorizing the
present action in the Court of First Instance of Albay, praying for an entry
fixing of period
This should be understood without prejudice to the rights of third persons who have of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08
acquired the thing in accordance with Art 1385 and 1388 of Mortgage law with legal interest thereon from the filing of the complaint until its payment,
and for costs of the suit.
 Bills of Assignment : reciprocal in nature.  Said defendant, the herein petitioner, on September 7, 1936, filed his
 The petitioner corporation violated Bill of assignments by terminating answer consisting in a general denial and a cross-complaint and
services of respondent patentee without lawful and justifiable cause. counterclaim, alleging that contract SJ-639 was still in full force and effect
 The general rule is that rescission of contract will not be permitted for slight and that, therefore, the plaintiff should be condemned to pay the balance
or casual breach but only for such substantial and fundamental breach as plus interest and attorneys' fees.
would defeat the very object of the parties in making assignment. CFI ordering the defendant to pay the plaintiff the sum of P2,596.08 with
 Sailent provisions of Bill of assignment namely, the transfer of corporation legal interest from December 14, 1932 until paid and costs, and
of only use of the formula; appointment of respondent patentee as second dismissing defendant's counterclaim.
VP and chief chemist on a permanent status; obligation of said respondent CA confirmed the decision of the lower court, with the only modification
that the payment of interest was to be computed from the date of the
patentee to continue research to improve the quality of products of corp;
filing of the complaint instead of from the date of the cancellation of
need of absolute control and supervision over laboratory assistants and the contract.
personnel and in purchase and safekeeping of chemicals and other
mixtures –all these provisions of Bill of Assignment are so interdependent Petitioner’s claim:
that violation of one would result in nullification of the rest.  Petitioner holds that contract SJ-639 has not been rendered inefficacious
 One of the considerations for transfer of use was the undertaking made by by its letter to the respondent, dated December 14, 1932, and submits the
petitioner corporation to employ respondent patentee on a permanent following propositions: (1) That the intention of the author of a written
status, its monthly salary and the right of succession of his heir as priority instrument shall always prevail over the literal sense of its wording; (2) that
in case of his death/disability. a bilateral contract may be resolved or cancelled only by the prior mutual
agreement of the parties, which is approved by the judgment of the proper
MAGDALENA ESTATE V. LOUIS MYRICK court; and (3) that the letter of December 14, 1932 was not assented to

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by the respondent, and, therefore, cannot be deemed to have  The contract of sale, contract SJ-639, contains no provision authorizing the
produced a cancellation, even if it ever was intended. vendor, in the event of failure of the vendee to continue in the payment of
 Petitioner contends that the letter in dispute is a mere notification and, to the stipulated monthly installments, to retain the amounts paid to him on
this end, introduced in evidence the disposition of Mr. K. H. Hemady, account of the purchase price.
president of the Magdalena Estate, Inc., wherein he stated that the word  The claim, therefore, of the petitioner that it has the right to forfeit said
"cancelled" in the letter of December 14, 1932 sums in its favor is untenable.
 Under article 1124 of the Civil Code, however, he may choose between
HELD: demanding the full- fillment of the contract or its resolution. These
 The intent to resolve the contract is expressed unmistakably not only in the remedies are alternative and not cumulative, and the petitioner in this
letter of December 14, 1932, but is reiterated in the letters which the case, having elected to cancel the contract, cannot avail himself of the
president of the defendant corporation states that plaintiff 'lost his rights for other remedy of exacting performance: which can be approximated only by
the land for being behind more than two years,' and of April 10, 1935 ordering, as we do now, the return of the things which were the object of
where defendant's president makes the following statement: 'Confirming the contract, with their fruits and of the price, with its interest (article 1295,
the verbal arrangement had between you and our Mr. K. H. Hemady Civil Code), computed from the date of the institution of the action.
regarding the account of Mr. Louis J. Myrick under contract No. SJ-639,
already cancelled.' " UP V. DE LOS ANGELES
 Some circumstances of record which demonstrate the unequivocal UP ALMUCO
determination of the petitioner to cancel their contract. They are: (1) the act Logging agreement
of the petitioner in immediately taking possession of the lots in question  Latter grated exclusive authority from 1960 to Dec 31,1965 extendible to 5
and offering to resell them to Judge M. V. del Rosario, as demonstrated by years by mutual agreement to cut collect and remove timber from Land
grant
his letter marked Exhibit G, shortly after Dcember 14, 1932; (2) his failure
 Payment to UP of royalties, forest fees, etc.
to demand from the respondent the balance of the account after the
Facts:
mailing of the disputed letter; and (3) the letters of January 10, 1933 and
 As of December 1964, ALMUCO incurred an unpaid account of Php 219,
April 10 1935
362.94, which, despite repeated demands, it had failed to pay
 In clear terms, the intention to cancel first announced by petitioner since
 After it had received notice that UP would rescind or terminate the logging
December 14, 1932
agreement, ALUMCO executed an instrument, entitled "Acknowledgment
It is next argued that contract SJ-639, being a bilateral agreement, in the
of Debt and Proposed Manner of Payments,"
absence of a stipulation permitting its cancellation, may not be resolved
Material Content :
by the mere act of the petitioner.
o In the event that the payments called for in Nos. 1 and 2 of this paragraph are not
 The fact that the contracting parties herein did not provide for resolution is sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the
now of no moment, for the reason that the obligations arising" from the CREDITOR, the balance outstanding after the said payments have been applied
contract of sale being reciprocal, such obligations are governed by article shall be paid by the DEBTOR in full no later than June 30, 1965;
1124 of the Civil Code which declares that the power to resolve, in the o Failure to comply any of its promises or undertakings in this document, the
event that one of the obligors should not perform his part, is implied. DEBTOR agrees without reservation that the CREDITOR shall have the right and
the power to consider the Logging Agreement dated December 2, 1960 as
 Upon the other hand, where, as in this case, the petitioner cancelled the
rescinded without the necessity of any judicial suit, and the CREDITOR shall be
contract, advised the respondent that he has been relieved of his
entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for
obligations thereunder, and led said respondent to believe it so and act liquidated damages;
upon such belief.

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 19 July 1965, petitioner UP informed respondent ALUMCO : it considered WON PETITIONER UP CAN TREAT ITS CONTRACTWITH ALMUCO
as rescinded and of no further legal effect the logging agreement that they RESCINDED AND MAY DISREGAR THE SAME BEFORE ANY JUDICIAL
had entered in 1960 PRONOUNCEMENT TO THAT EFFECT
 UP filed complaint against ALUMCO in CFI for the collection or payment of Held: YES
the herein before stated sums of money and alleging the facts  Respondent ALUMCO contended, and the lower court, in issuing the
hereinbefore specified, together with other allegations; it prayed for and injunction order of 25 February 1966, it is only after a final court decree
obtained an order, dated 30 September 1965, for preliminary attachment declaring the contract rescinded for violation of its terms that U.P. could
 Before the issuance of the aforesaid preliminary injunction UP had taken disregard ALUMCO's rights under the contract and treat the agreement as
steps to have another concessionaire take over the logging operation, by breached and of no force or effect.
advertising an invitation to bid;, and the concession was awarded to Sta.
Clara Lumber Company, Inc.; the logging contract was signed on 16 We find that position untenable.
February 1966.
 That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner  In the first place, UP and ALUMCO had expressly stipulated in the
University from conducting the bidding; on 27 November 1965, it filed a "Acknowledgment of Debt and Proposed Manner of Payments" that, upon
second petition for preliminary injunction; and, on 25 February 1966, default by the debtor ALUMCO, the creditor (UP) has "the right and the
 Respondent judge issued the first of the questioned orders, enjoining UP power to consider, the Logging Agreement dated 2 December 1960 as
from awarding logging rights over the concession to any other party. rescinded without the necessity of any judicial suit."
 That UP received the order of 25 February 1966 after it had concluded its  there is nothing in the law that prohibits the parties from entering into
contract with Sta. Clara Lumber Company, Inc., and said company had agreement that violation of the terms of the contract would cause
started logging operations. cancellation thereof, even without court intervention.
 It reiterated, however, its defenses in the court below, which maybe boiled  It is not always necessary for the injured party to resort to court for
down to: blaming its former general manager, Cesar Guy, in not turning rescission of the contract.
over management of ALUMCO, thereby rendering it unable to pay the sum  Act of party in treating a contract as cancelled or resolved on account of
of P219,382.94; that it failed to pursue the manner of payments, as infractions by the other contracting party must be made known to the other
stipulated in the "Acknowledgment of Debt and Proposed Manner of and is always provisional, being ever subject to scrutiny and review by the
Payments" because the logs that it had cut turned out to be rotten and proper court.
could not be sold to Sta. Clara Lumber Company, Inc., under its contract  If the other party denies that rescission is justified, it is free to resort to
"to buy and sell" with said firm, and which contract was referred and judicial action in its own behalf, and bring the matter to court.
annexed to the "Acknowledgment of Debt and Proposed Manner of  Then, should the court, after due hearing, decide that the resolution of the
Payments"; contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
 UP's unilateral rescission of the logging contract, without a court order,
consequent indemnity awarded to the party prejudiced.
was invalid; that petitioner's supervisor refused to allow respondent to cut
 In other words, the party who deems the contract violated may consider it
new logs unless the logs previously cut during the management of Cesar
resolved or rescinded, and act accordingly, without previous court action,
Guy be first sold; that respondent was permitted to cut logs in the middle of
but it proceeds at its own risk.
June 1965 but petitioner's supervisor stopped all logging operations on 15
 For it is only the final judgment of the corresponding court that will
July 1965;
conclusively and finally settle whether the action taken was or was not
correct in law.
ISSUE:

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 But the law definitely does not require that the contracting party who representing respondent's balance owing as of May, 1966; 3) to pay
believes itself injured must first file suit and wait for a judgment before petitioner the sum of P 630.00 every month after May, 1966, and costs.
taking extrajudicial steps to protect its interest.  Respondent controverted by contending that
 Otherwise, the party injured by the other's breach will have to passively sit  the Municipal Court had no jurisdiction over the nature of the action as it
and watch its damages accumulate during the pendency of the suit until involved the interpretation and/or rescission of the contract;
the final judgment of rescission is rendered when the law itself requires  that prior to the execution of the contract to sell, petitioner was already
that he should exercise due diligence to minimize its own damages indebted to him in the sum of P31,269.00 representing the cost of two
 in case of abuse or error by the rescinder the other party is not barred from movies respondent made for petitioner and used by the latter in his political
questioning in court such abuse or error, the practical effect of the campaign in 1964 when petitioner ran for Congressman, as well as the
stipulation being merely to transfer to the defaulter the initiative of cost of one 16 millimeter projector petitioner borrowed from respondent
instituting suit, instead of the rescinder. and which had never been returned, which amounts, according to their
ZULUETA V. MARIANO understanding, would be applied as down payment for the property and to
Jose Zulueta (seller) Lamberto Avellana (buyer) whatever obligations respondent had with petitioner
Contract to sell house and lot MTC respondent Avellana had failed to comply with his financial obligations
 P75,000.00 payable in 20 years with respondent buyer assuming to pay a under the contract and ordered him to vacate the premises and deliver
down payment of P5,000.00 possession thereof to petitioner; finding that breach of any of the
 Monthly installment of P630.00 payable in advance before the 5th day of conditions by private respondent converted the agreement into a lease
the corresponding month, starting with December, 1964 contractual and upon the following considerations:
 Failure of the BUYER to fulfill any of the conditions herein stipulated, CFI Dismssed : lack of jurisdiction
BUYER automatically and irrevocably authorizes OWNER to recover extra- Although the contract to sell object of this case states that the same
judicially, physical possession of the land, building and other may be converted into a lease contract upon the failure of the
improvements which are the subject of this contract, and to take defendant to pay the amortization of the property in question, there is
possession also extra-judicially whatever personal properties may be no showing that before filing this case in the lower court, the plaintiff
found within the aforesaid premises from the date of said failure to answer has exercised or has pursued his right pursuant to the contract which
for whatever unfulfilled monetary obligations BUYER may have with should be the basis of the action in the lower court.
OWNER; and this contract shall be considered as without force and effect
also from said date ISSUE:
 All payments made by the BUYER to OWNER shall be deemed as rental
WON ACTION BEFORE MUNCIPAL COURT ESSENTIALLY FOR DETAINER
payments without prejudice to OWNER's right to collect from BUYER
whatever other monthly installments and other money obligations which AND THEREFORE WITHIN ITS DECISION OR ONE FOR RESCISSION OR
may have been paid until BUYER vacates the aforesaid premises; ANNULMEN OF CONTRACT WHICH SHOULD BE LITIGATED BEFORE CFI?
 in all cases herein, demand is waived;
 Respondent Avellana occupied the property from December, 1964, but title  In his Complaint, petitioner had alleged violation by respondent Avellana of
remained with petitioner Zulueta. the stipulations of their agreement to sell and thus unilaterally considered
 Upon the allegation that respondent Avellana had failed to comply with the the contract rescinded.
monthly amortizations stipulated in the contract, despite demands to pay  Respondent Avellana denied any breach on his part and argued that the
and to vacate the premises, petitioner, on June 22, 1966, commenced an principal issue was one of interpretation and/or rescission of the contract
Ejectment suit against respondent before the Municipal Court of Pasig (CC as well as of set-off. Under those circumstances, proof of violation is a
No. 1190), praying that judgment be rendered ordering respondent 1) to condition precedent to resolution or rescission. It is only when the violation
vacate the premises; 2) to pay petitioner the sum of P11,751.30 has been established that the contract can be declared resolved or

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rescinded. Upon such rescission, in turn, hinges a pronouncement that the complaint on November 8, 1974
possession of the realty has become unlawful. OP affirmed the Resolution of the NHA. Reconsideration sought by
 Thus, the basic issue is not possession but one of rescission or petitioners was denied for lack of merit
annulment of a contract. which is beyond the jurisdiction of the
Municipal Court to hear and determine. ISSUES x HELD
 True, the contract between the parties provided for extrajudicial rescission. Whether notice or demand is not mandatory under the circumstances and,
This has legal effect, however, where the other party does not oppose it. therefore, may be dispensed with by stipulation in a contract to sell.
Where it is objected to, a judicial determination of the issue is still  On the first issue, petitioners maintain that it was justified in cancelling the
necessary. contract to sell without prior notice or demand upon respondent in view of
 A stipulation entitling one party to take possession of the land and building paragraph 6
if the other party violates the contract does not ex proprio vigore confer  Well settled is the rule, that judicial action for the rescission of a contract is
upon the former the right to take possession thereof if objected to without not necessary where the contract provides that it may be revoked and
judicial intervention and' determination. cancelled for violation of any of its terms and conditions.
 However, there was at least a written notice sent to the defaulter informing
PALAY INC V CLAVE him of the rescission.
Play Inc (Pres Onstott) Nazario Dumpit  Of course, it must be understood that the act of a party in treating a
Contract to sell parcel of land contract as cancelled or resolved in account of infractions by the other
 P23,300.00 with 9% interest per annum, payable with a downpayment contracting party must be made known to the other and is always
of P4,660.00 and monthly installments of P246.42 until fully paid provisional being ever subject to scrutiny and review by the proper court.
Paragraph 6 of the contract provided for automatic extrajudicial rescission  If the other party denies that rescission is justified it is free to resort to
upon default in payment of any monthly installment after the lapse of 90 judicial action in its own behalf, and bring the matter to court.
days from the expiration of the grace period of one month, without need of  In other words, the party who deems the contract violated may consider it
notice and with forfeiture of all installments paid.
resolved or rescinded, and act accordingly, without previous court action,
 Respondent Dumpit paid the downpayment and several installments but it proceeds at its own risk.
amounting to P13,722.50. The last payment was made on December 5,  For it is only the final judgment of the corresponding court that will
1967 for installments up to September 1967. conclusively and finally settle whether the action taken was or was not
 6 years later, private respondent wrote petitioner offering to update all his correct in law.
overdue accounts with interest, and seeking its written consent to the  since in every case where the extrajudicial resolution is contested only the
assignment of his rights to a certain Lourdes Dizon. final award of the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense that judicial
 Replying petitioners informed respondent that his Contract to Sell had long
action win be necessary, as without it, the extrajudicial resolution will
been rescinded pursuant to paragraph 6 of the contract, and that the lot
remain contestable and subject to judicial invalidation unless attack
had already been resold.
thereon should become barred by acquiescense, estoppel or prescription.
 Questioning the validity of the rescission of the contract, respondent filed a
 In other words, resolution of reciprocal contracts may be made
letter complaint with the National Housing Authority (NHA) for
extrajudicially unless successfully impugned in Court. If the debtor
reconveyance with an altenative prayer for refund
impugns the declaration, it shall be subject to judicial determination.
NHA rescission void in the absence of either judicial or notarial demand,
In this case, private respondent has denied that rescission is justified and
ordered Palay, Inc. and Alberto Onstott in his capacity as President of
the corporation, jointly and severally, to refund immediately to Nazario has resorted to judicial action. It is now for the Court to determine
Dumpit the amount of P13,722.50 with 12% interest from the filing of whether resolution of the contract by petitioners was warranted.

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 We hold that resolution by petitioners of the contract was ineffective and  It would be most inequitable if petitioners were to be allowed to retain
inoperative against private respondent for lack of notice of resolution, as private respondent's payments and at the same time appropriate the
held in the U.P. vs. Angeles case, supra proceeds of the second sale to another.
 It should be noted that even in that case notice in writing was made to the Whether the doctrine of piercing the veil of corporate fiction has
vendee of the cancellation and annulment of the contract although the application to the case at bar.
contract entitled the seller to immediate repossessing of the land upon Whether respondent Presidential Executive Assistant committed grave
default by the buyer. abuse of discretion in upholding the decision of respondent NHA holding
 The indispensability of notice of cancellation to the buyer was to be later petitioners solidarily liable for the refund of the installment payments
underscored in Republic Act No. 6551 entitled "An Act to Provide made by respondent Nazario M. Dumpit thereby denying substantial
Protection to Buyers of Real Estate on Installment Payments." which took justice to the petitioners, particularly petitioner Onstott
effect on September 14, 1972, when it specifically provided:  We find no badges of fraud on petitioners' part. They had literally relied,
Sec. 3(b) ... the actual cancellation of the contract shall take place after albeit mistakenly, on paragraph 6 (supra) of its contract with private
thirty days from receipt by the buyer of the notice of cancellation or the demand respondent when it rescinded the contract to sell extrajudicially and had
for rescission of the contract by a notarial act and upon full payment of the cash sold it to a third person.
surrender value to the buyer.
 The contention that private respondent had waived his right to be notified ANGELES V. CALASANZ
under paragraph 6 of the contract is neither meritorious because it was a Ursula Torres Calasanz and Tomas Buenaventura Angeles and Teofila
contract of adhesion, a standard form of petitioner corporation, and private Calasan (defendants-appellants) Juani(plaintiffs-appellees)
respondent had no freedom to stipulate. Contract to sell a piece of land located in Cainta, Rizal
 A waiver must be certain and unequivocal, and intelligently made; such  P3,920.00 plus 7% interest per annum.
waiver follows only where liberty of choice has been fully accorded.  downpayment of P392.00 upon the execution of the contract
 Promised to pay the balance in monthly installments of P 41.20 until fully
Whether petitioners may be held liable for the refund of the installment
paid, the installments being due and payable on the 19th day of each
payments made by respondent Nazario M. Dumpit. month.
 ART. 1385. Rescission creates the obligation to return the things which Facts:
were the object of the contract, together with their fruits, and the price with  Plaintiffs-appellees paid the monthly installments until July 1966, when
its interest; consequently, it can be carried out only when he who demands their aggregate payment already amounted to P4,533.38.
rescission can return whatever he may be obliged to restore.  On numerous occasions, the defendants-appellants accepted and received
 In this case, indemnity for damages may be demanded from the person delayed installment payments from the plaintiffs-appellees.
causing the loss.
 On December 7, 1966, the defendants-appellants wrote the plaintiffs-
 As a consequence of the resolution by petitioners, rights to the lot should
appellees a letter requesting the remittance of past due accounts.
be restored to private respondent or the same should be replaced by
 On January 28, 1967, cancelled the said contract because the plaintiffs-
another acceptable lot.
appellees failed to meet subsequent payments.
 However, considering that the property had already been sold to a third
 The plaintiffs-appellees filed with the Court of First Instance of Rizal, to
person and there is no evidence on record that other lots are still available,
compel the defendants-appellants to execute in their favor the final deed of
private respondent is entitled to the refund of installments paid plus interest
sale alleging inter alia that after computing all subsequent payments for the
at the legal rate of 12% computed from the date of the institution of the
land in question, they found out that they have already paid the total
action.
amount of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.

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 The defendants-appellants alleged in their answer that the complaint Held:

states no cause of action and that the plaintiffs-appellees violated  Article 1191 is explicit. In reciprocal obligations, either party the right to
paragraph six (6) of the contract to sell when they failed and refused to pay rescind the contract upon the failure of the other to perform the obligation
and/or offer to pay the monthly installments corresponding to the month of assumed thereunder. Moreover, there is nothing in the law that prohibits
August, 1966 for more than five (5) months, the parties from entering into an agreement that violation of the terms of
CFI in favor of the plaintiffs-appellees. the contract would cause its cancellation even without court intervention.
Contract subject matter of the instant case was NOT VALIDLY cancelled  The rule that it is not always necessary for the injured party to resort to
by the defendants. court for rescission of the contract when the contract itself provides that it
Consequently, the defendants are ordered to execute a final Deed of may be rescinded for violation of its terms and conditions, was qualified by
Sale in favor of the plaintiffs
this Court in University of the Philippines v. De los Angeles
CA certified the case to us considering that the appeal involves pure
questions of law.  The party who deems the contract violated may consider it resolved or
ISSUE: rescinded, and act accordingly, without previous court action, but it
Whether or not the contract to sell has been automatically and validly proceeds at its own risk. For it is only the final judgment of the
cancelled by the defendants-appellants. corresponding court that will conclusively and finally settle whether the
Defendant Appellants Argument: action taken was or was not correct in law.
 The contract was validly cancelled pursuant to paragraph six of the  The general rule is that rescission of a contract will not be permitted for a
contract. slight or casual breach, but only for such substantial and fundamental
 The defendants-appellants argue that the plaintiffs-appellees failed to pay breach as would defeat the very object of the parties in making the
the August, 1966 installment despite demands for more than four (4) agreement.
months.  In this case the breach of the contract adverted to by the defendants-
appellants is so slight and casual when we consider that apart from the
 The defendants-appellants also argue that even in the absence of the
initial downpayment of P392.00 the plaintiffs-appellees had already paid
aforequoted provision, they had the right to cancel the contract to sell
the monthly installments for a period of almost nine (9) years
under Article 1191 of the Civil Code of the Philippines.
 In other words, in only a short time, the entire obligation would have been
Plaintiff-Appellee’s Argument:
paid. Furthermore, although the principal obligation was only P 3,920.00
 Paragraph 6 of the contract to sell is contrary to law insofar as it provides
excluding the 7 percent interests, the plaintiffs- appellees had already paid
that in case of specified breaches of its terms, the sellers have the right to
an aggregate amount of P 4,533.38.
declare the contract cancelled and of no effect, because it granted the
 To sanction the rescission made by the defendants-appellants will work
sellers an absolute and automatic right of rescission.
injustice to the plaintiffs- appellees..
Article 1191 of the Civil Code on the rescission of reciprocal obligations
Article 1234 of the Civil Code which provides that:
provides:
The power to rescind obligations is implied in reciprocal ones, in case one of
If the obligation has been substantially performed in good faith, the obligor may
the obligors should not comply with what is incumbent upon him.
recover as though there had been a strict and complete fulfillment, less
The injured party may choose between the fulfillment and the rescission of the
damages suffered by the obligee.
obligation, with the payment of damages in either case. He may also seek
 The defendants-appellants cannot rely on paragraph 9 of the contract
rescission, even after he has chosen fulfillment, if the latter should become
 We agree with the plaintiffs-appellees that when the defendants-
impossible.
appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the

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plaintiffs-appellees have been in arrears beyond the grace period not later than thirty [30] days thereafter should a postponement be
mentioned in paragraph 6 of the contract, the defendants-appellants have mutually agreed upon,
waived and are now estopped from exercising their alleged right of  and that Boysaw would not, prior to the date of the boxing contest, engage
rescission. in any other such contest without the written consent of Interphil
Promotions, Inc.
 It is admitted that the delayed payments were received without protest or
Facts:
qualification
 Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar agreement,
 The plaintiffs-appellees on the other hand are firm in their submission that
that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on
since they have already paid the defendants-appellants a total sum of
September 30, 1961.
P4,533.38, the defendants-appellants must now be compelled to execute
 On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round
the final deed of sale pursuant to paragraph 12 .
non-title bout held in Las Vegas, Nevada, U.S.A.
 The contract to sell entered into by the parties has some characteristics of
a contract of adhesion.  July 2, 1961, Ketchum on his own behalf, assigned to J. Amado Araneta
 The defendants-appellants drafted and prepared the contract. The the managerial rights over Solomon Boysaw.
plaintiffs-appellees, eager to acquire a lot upon which they could build a  On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr.
home, affixed their signatures and assented to the terms and conditions of the managerial rights over Boysaw that he earlier acquired from Ketchum
the contract. They had no opportunity to question nor change any of the and Ruskay.
terms of the agreement. It was offered to them on a "take it or leave it"  On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of
basis. his acquisition of the managerial rights over Boysaw and indicating his and
 While it is true that paragraph 2 of the contract obligated the plaintiffs- Boysaw's readiness to comply with the boxing contract of May 1, 1961
appellees to pay the defendants-appellants the sum of P3,920.00 plus 7%  Sarreal wrote a letter to the Games and Amusement Board [GAB]
interest per annum, it is likewise true that under paragraph 12 the seller is expressing concern over reports that there had been a switch of managers
obligated to transfer the title to the buyer upon payment of the P3,920.00 in the case of Boysaw, of which he had not been formally notified, and
price sale. requesting that Boysaw be called to an inquiry to clarify the situation.
 The contract to sell, being a contract of adhesion, must be construed  The GAB called a series of conferences of the parties concerned
against the party." culminating in the issuance of its decision to schedule the Elorde-Boysaw
 Thus, since the principal obligation under the contract is only P3,920.00 fight for November 4, 1961.
and the plaintiffs-appellees have already paid an aggregate amount of  Yulo, Jr. refused to accept the change in the fight date.
P4,533.38, the courts should only order the payment of the few remaining  While an Elorde-Boysaw fight was eventually staged, the fight
installments but not uphold the cancellation of the contract. contemplated in the May 1, 1961 boxing contract never materialized.
 Upon payment of the balance of P671.67 without any interest thereon, the  Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in
defendants-appellants must immediately execute the final deed of sale in the CFI for damages allegedly occasioned by the refusal of Interphil and
favor of the plaintiffs-appellees and execute the necessary transfer Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor
documents as provided in paragraph 12 of the contract. their commitments under the boxing contract of May 1,1961.
CFI judgment dismissing the plaintiffs' complaint
BOYSAW V. INTERPHIL PROMOTIONS INC
Boysaw and Manager Ketchum Interphil Promotions Inc (Lope Sarrea Sr) ISSUE x HELD:
Contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior Whether or not there was a violation of the fight contract of May 1, 1961;
lightweight championship of the world. and if there was, who was guilty of such violation.
 held at the Rizal Memorial Stadium in Manila on September 30, 1961 or

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 The evidence established that the contract was violated by appellant  The refusal of appellants to accept a postponement without any other
Boysaw himself when, without the approval or consent of Interphil, he reason but the implementation of the terms of the original boxing contract
fought Louis Avila on June 19, 1961 in Las Vegas Nevada. entirely overlooks the fact that by virtue of the violations they have
 While the contract imposed no penalty for such violation, this does not committed of the terms thereof, they have forfeited any right to its
grant any of the parties the unbridled liberty to breach it with impunity. enforcement.
 Our law on contracts recognizes the principle that actionable injury inheres  On the validity of the fight postponement, the violations of the terms of the
in every contractual breach. Thus: Those who in the performance of their original contract by appellants vested the appellees with the right to
obligations are guilty of fraud, negligence or delay, and those who in any rescind and repudiate such contract altogether. That they sought to seek
manner contravene the terms thereof, are liable for damages. [Art. 1170, an adjustment of one particular covenant of the contract, is under the
Civil Code].Also: The power to rescind obligations is implied, in reciprocal circumstances, within the appellee's rights.
ones, in case one of the obligors should not comply with what is incumbent
upon him. [Part 1, Art. 1191, Civil Code].
 There is no doubt that the contract in question gave rise to reciprocal PILIPINAS BANK V. IAC
obligations. 1961- Hacienda Benito, Inc. and private respondents, as vendees
 The power to rescind is given to the injured party. "Where the plaintiff is (petitioner's predecessor-in-interest)
the party who did not perform the undertaking which he was bound by the as vendor
terms of the agreement to perform he is not entitled to insist upon the Contract to Sell over a parcel of land with an area of 5,936 square meters of
the Victoria Valley Subdivision in Antipolo, Rizal
performance of the contract by the defendant, or recover damages by
 P47,488.00
reason of his own breach‖
 total sum, an amount of Pl2,182.00 was applied thereto so as to reduce
 Another violation of the contract in question was the assignment and the balance on the principal to P35,306.00;
transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo,  aforesaid balance, together with the stipulated interest of 6% per annum,
Jr., of the managerial rights over Boysaw without the knowledge or was to be paid over a period of 8-1/2 years starting on May 1, 1961
consent of Interphil.  monthly installment of P446.10 until fully paid-although this monthly
 The assignments, from Ketchum to Araneta, and from Araneta to Yulo, installment was later adjusted to the higher amount of P797.86, starting on
were in fact novations of the original contract which, to be valid, should April 1, 1965
have been consented to by Interphil.  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;
 Novation which consists in substituting a new debtor in the place of the
 contract shall be considered automatically rescinded and cancelled and of
original one, may be made even without the knowledge or against the will no further force and effect upon failure of the vendee to pay when due,
of the latter, but not without the consent of the creditor. [Art. 1293, Civil three or more consecutive installments as stipulated therein or to comply
Code, with any of the terms and conditions thereof, in which case the vendor
 That appellant Yulo, Jr., through a letter, advised Interphil on September 5, shall have right to resell the said parcel of land to any person interested,
1961 of his acquisition of the managerial rights over Boysaw cannot forfeiting payments made by the vendee as liquidated damages.
change the fact that such acquisition, and the prior acquisition of such Facts:
rights by Araneta were done without the consent of Interphil.  Petitioner requested remittance of installment arrears showing partial
 There is no showing that Interphil, upon receipt of Yulo's letter, acceded to payments for the month of April 1965 and May 1965 and complete default
the "substitution" by Yulo for June, July and August, 1965; with the incoming installment for
 Under the law when a contract is unlawfully novated by an applicable and September 1965
unilateral substitution of the obligor by another, the aggrieved creditor is
not bound to deal with the substitute.

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 In partial compliance with the aforesaid Statements of Account, private May 18, 1977 (when petitioner made arrangements for the acquisition of
respondents paid on September 3, 1965 the sum of Pl,397.00 which additional 870 square meters) petitioner could not have delivered the
answers for the installments for the months of June 1965 to August 1965; entire area contracted for, so, neither could private respondents be liable
in default, citing Art. 1 189 of the New Civil Code.
 On March 17, 1967, petitioner sent private respondents a simple demand
CA: Affirrmed
letter showing a delinquency in their monthly amortizations for 19 months ISSUE:
 On April 17, 1967, petitioner again sent private respondents a demand whether or not the Contract to Sell No. VV-18(a) was rescinded or
letter showing total arrearages of 20 months as of April 1965, but this time cancelled, under the automatic rescission clause contained therein.
advising that unless they up-date their installment payments, petitioner
shall be constrained to avail of the automatic rescission clause HELD:
 On May 17, 1967, private respondents made a partial payments  A contractual provision allowing "automatic rescission" (without prior need
continuously requesting for an extention to pay all their arrearages and of judicial rescission, resolution or cancellation) is VALID, the remedy of
update their payments 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
 After almost three (3) years, or on July 16, 1970, private respondents circumstances.
wrote a letter to petitioner requesting for a Statement of Account as of date  In the instant case there is a clear WAIVER of the stipulated right of
in arrears and interests "automatic rescission," as evidenced by the many extensions granted
 On May 19, 1971, petitioner wrote a letter to private respondents, private respondents by the petitioner.
reminding them of their balance which will be due on the 31st instant  In all these extensions, the petitioner never called attention to the proviso
 More than two (2) years from May 19, 1971 or on July 5, 1973, private on "automatic rescission."
respondents wrote a letter to petitioner expressing their desire to fully
settle their obligation, requesting for a complete statement of all the ONG V. CA
balance due including interests; 1983- Jaime Ong (buyer) Spouses Robles (seller)
 On March 27, 1974, petitioner wrote a letter to private respondents, Agreement of Purchase and Sale respecting two parcels of land situated at
informing them that the contract to sell had been rescinded/cancelled by a Barrio Puri, San Antonio, Quezon
notarial act, to which letter was annexed a "Demand for Rescission of  P2,000,000.00
Contract", notarized on March 25,  initial payment P600,000.00
 P103,499.91 shall be paid, and as already paid by the BUYER to the
 In view of the foregoing, private respondents filed Complaint for Specific
SELLERS on March 22, 1983
Performance with Damages to compel petitioner to execute a deed of sale  P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine
in their favor, and to deliver to them the title of the lot in question. Islands to answer for the loan of the SELLERS which as of March 15, 1983
 Petitioner filed an Answer with counterclaim for damages in the form of amounted to P537,310.10, and for the interest that may accrued (sic) from
attorney's fees, claiming that Contract to Sell No. VV-18(a) has been March 15, 1983, up to the time said obligation of the SELLERS with the
automatically rescinded or cancelled by virtue of private respondents' said bank has been settled, provided however that the amount in excess of
failure to pay the installments due in the contract under the automatic P496,500.09, shall be chargeable from the time deposit of the SELLERS
with the aforesaid bank.
rescission clause.
 balance P1,400,000.00 paid by the BUYER to the SELLERS in four (4)
LC: decision in private respondents' favor, holding that petitioner could not equal quarterly installments of THREE HUNDRED FIFTY THOUSAND
rescind the contract to sell, because: (a) petitioner waived the automatic PESOS (P350,000.00),
rescission clause by accepting payment on September 1967, and by  promise to sell to said BUYER the two (2) parcels of agricultural land
sending letters advising private respondents of the balances due, thus, including the rice mill and the piggery which are the most notable
looking forward to receiving payments thereon; (b) in any event, until improvements thereon, situated at Barangay Puri, San Antonio Quezon,

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 upon the payment of the total purchase price by the BUYER the SELLERS  Spouses filed with the Regional Trial Court of Lucena City, Branch 60, a
bind themselves to deliver to the former a good and sufficient deed of sale complaint for rescission of contract and recovery of properties with
and conveyance for the described two (2) parcels of land, free and clear damages. Later, while the case was still pending with the trial court,
from all liens and encumbrances petitioner introduced major improvements on the subject properties
 immediately upon the execution of this document, the SELLERS shall
 Writ of preliminary injuction was issued by RTC
deliver, surrender and transfer possession of the said parcels of land
including all the improvements that may be found thereon, to the BUYER, RTC Ordering defendant, Jaime Ong to deliver the two (2) parcels of land
and the latter shall take over from the SELLER the possession, operation, which are the subject matter of Exhibit A together with the
control and management of the RICEMILL and PIGGERY found on the improvements thereon to the spouses Miguel K. Robles and Alejandro
aforesaid parcels of land. M. Robles
Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to
return to Jaime Ong the sum of P497,179.51;
CA Affirmed
Noted that the failure of petitioner to completely pay the purchase price
 On May 15, 1983, petitioner Ong took possession of the subject parcels of is a substantial breach of his obligation which entitles the private
land together with the piggery, building, ricemill, residential house and respondents to rescind their contract under Article 1191 of the New
other improvements thereon. Civil Code
 Pursuant to the contract they executed, petitioner paid respondent ISSUES:
spouses the sum of P103,499.91[2] by depositing it with UCPB. Whether the contract entered into by the parties may be validly rescinded under
Subsequently, petitioner deposited sums of money with BPI Article 1191 of the New Civil Code; and
 To answer for his balance of P1,400,000.00 petitioner issued four (4) post- Whether the parties had novated their original contract as to the time and
dated Metro Bank checks payable to respondent spouses in the amount of manner of payment.
P350,0000.00 each,
 When presented for payment, however, the checks were dishonored due  Petitioner contends that Article 1191 of the New Civil Code is not
to insufficient funds. Petitioner promised to replace the checks but failed to applicable since he has already paid respondent spouses a considerable
do so. sum and has therefore substantially complied with his obligation. He cites
 To make matters worse, out of the P496,500.00 loan of respondent Article 1383 instead, to the effect that where specific performance is
spouses with the Bank of the Philippine Islands, which petitioner, as per available as a remedy, rescission may not be resorted to.
agreement, should have paid, petitioner only managed to dole out no more
than P393,679.60. Art 1380 Art 1191
 remedy granted by law to the  Refers to rescission applicable to
 When the bank threatened to foreclose the respondent spouses
contracting parties and even to reciprocal obligations. Reciprocal
mortgage, they sold three transformers of the rice mill worth P51,411.00 to third persons, to secure the obligations are those which arise
pay off their outstanding obligation with said bank, with the knowledge and reparation of damages caused to from the same cause, and in
conformity of petitioner. them by a contract, even if this which each party is a debtor and
 Petitioner, in return, voluntarily gave the spouses authority to operate the should be valid, by restoration of a creditor of the other, such that
rice mill.[ He, however, continued to be in possession of the two parcels of things to their condition at the the obligation of one is
moment prior to the celebration of dependent upon the obligation of
land.
the contract. the other.
 On August 2, 1985, respondent spouses, through counsel, sent petitioner  It implies a contract, which even if  They are to be performed
a demand letter asking for the return of the properties. Their demand was initially valid, produces a lesion or simultaneously such that the
left unheeded. a pecuniary damage to someone. performance of one is
conditioned upon the

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simultaneous fulfillment of the to pay, in this instance, is not even a breach but merely an event which
other prevents the vendors obligation to convey title from acquiring binding force
rescission under Article 1383 is a Resolution is a principal action which  Hence, the agreement of the parties in the case at bench may be set
subsidiary action limited to cases of is based on breach of a party aside, but not because of a breach on the part of petitioner for failure to
rescission for lesion under Article
complete payment of the purchase price. Rather, his failure to do so
1381 of the New Civil Code
1. Entered into by guardians brought about a situation which prevented the obligation of respondent
2. Those agreed upon in spouses to convey title from acquiring an obligatory force.
representation of absentees Petitioner insists, however, that the contract was novated as to the
3. Undertaken in fraud of creditors manner and time of payment.
when the latter cannot in any manner We are not persuaded.
collect the claims due them  Article 1292 of the New Civil Code states that, In order that an obligation
4. Refer to things under litigation if
may be extinguished by another which substitutes the same, it is
they have been entered into by the
defendant without the knowledge and imperative that it be so declared in unequivocal terms, or that the old and
approval of the litigants or of the new obligations be on every point incompatible with each other.
competent judicial authority;  Novation is never presumed, it must be proven as a fact either by express
5. All other contracts specially stipulation of the parties or by implication derived from an irreconcilable
declared by law to be subject to incompatibility between the old and the new obligation.
rescission.  Petitioner cites the following instances as proof that the contract was
 Obviously, the contract entered into by the parties in the case at bar does
novated: the retrieval of the transformers from petitioners custody and their
not fall under any of those mentioned by Article 1381.
sale by the respondents to MERALCO on the condition that the proceeds
May the contract entered into between the parties, however, be rescinded
thereof be accounted for by the respondents and deducted from the price
based on Article 1191?
of the contract; the take-over by the respondents of the custody and
operation of the rice mill; and the continuous and regular withdrawals by
Contract to Sell Contract of Sale
respondent Miguel Robles of installment sums per vouchers on the
ownership is, by agreement, reserved the title to the property passes to the
condition that these installments be credited to petitioners account and
in the vendor and is not to pass to the vendee upon the delivery of the thing
vendee until full payment of the sold deducted from the balance of the purchase price.
purchase price  Contrary to petitioners claim, records show that the parties never even
payment of the purchase price is a ownership is transferred to the buyer intended to novate their previous agreement.
positive suspensive condition right upon its execution  records are bereft of evidence that respondent spouses willingly agreed to
 Respondents in the case at bar bound themselves to deliver a deed of modify their previous arrangement.
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. (suspensive In order for novation to take place, the concurrence of the following
condition) requisites :
 Petitioner, however, failed to complete payment of the purchase price. The (1) there must be a previous valid obligation;
non-fulfillment of the condition of full payment rendered the contract to sell (2) there must be an agreement of the parties concerned to a new contract;
ineffective and without force and effect. (3) there must be the extinguishment of the old contract; and
 It must be stressed that the breach contemplated in Article 1191 of the (4) there must be the validity of the new contract.[
New Civil Code is the obligors failure to comply with an obligation already  aforesaid requisites are not found in the case at bench. The subsequent
extant, not a failure of a condition to render binding that obligation.Failure acts of the parties hardly demonstrate their intent to dissolve the old

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obligation as a consideration for the emergence of the new one. We repeat refused to issue the stock certificate covering the subject share despite
to the point of triteness, novation is never presumed, there must be an repeated demands.
express intention to novate.  On the basis of its rights under Article 1191 of the Civil Code, Vertex
 petitioner is a builder in bad faith. He introduced the improvements on the prayed for the rescission of the sale and demanded the reimbursement of
premises knowing fully well that he has not paid the consideration of the the amount it paid (or ₱1,100,000.00), plus interest.
contract in full and over the vigorous objections of respondent spouses.
RTC  delay in the issuance of stock certificates does not warrant
FIL-ESTATE GOLF AND DEVELOPMNET INC V. VERTEX SALES AND rescission of the contract as this constituted a mere casual or slight
TRADIG INC breach.
FEGDI Stock corporation : primary business: dev’ of golf courses  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
FELI Stock corporation : Real estate development
relation of shareholder."
FEGDI developer of Forest Hills and in consideration for its efforts, was issued
CA Reversed
several shares of stock of Forest Hills
 no valid transfer of shares where there is no delivery of the stock
Facts:
certificate.
FEGDI  Prolonged issuance of the stock certificate a substantial breach that
Class "C" served as basis for Vertex to rescind the sale.
FEGDI Argument
Common Share
 delay cannot be considered a substantial breach because Vertex was
of Forest Hills for
unequivocally recognized as a shareholder of Forest Hills.
₱1,100,000.00 VERTEX
 RSACC also used its shareholder rights and eventually sold its share to
Vertex despite the absence of a stock certificate
FELI
RSACC  just recklessly dragged into the action due to a mistake committed by
FEGDI’s staff on two instances. The first was when their counsel used the
prior to full letterhead of FELI instead of FEGDI in its reply-letter to Vertex; the second
paymen sold to was when they used the receipt of FELI for receipt of the documentary
 RSACC advised FEGDI ofVertex said
the sale to Vertex and FEGDI, in turn, stamp tax paid by Vertex.
shares
instructed Forest Hills to recognize Vertex as a shareholder. For this VERTEX Argument:
reason, Vertex enjoyed membership privileges in Forest Hills.  fulfillment of its obligation to pay the purchase price called into action the
Illustration petitioners’ reciprocal obligation to deliver the stock certificate
 Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote  Since there was delay in the issuance of a certificate for more than three
FEDGI a letter demanding the issuance of a stock certificate in its name. years, then it should be considered a substantial breach warranting the
 FELI replied, initially requested Vertex to first pay the necessary fees for rescission of the sale
the transfer. Although Vertex complied with the request, no certificate was ISSUE
issued. Whether the delay in the issuance of a stock certificate can be considered a
 Vertex filed on January 7, 2002 a Complaint for Rescission with Damages substantial breach as to warrant rescission of the contract of sale.
and Attachment against FEGDI, FELI and Forest Hills. It averred that the
petitioners defaulted in their obligation as sellers when they failed and Held:
 Physical delivery is necessary to transfer ownership of stocks

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 In this case, Vertex fully paid the purchase price by February 11, 1999 but levied upon by the Bangko Sentral ng Pilipinas (BSP) without their
the stock certificate was only delivered on January 23, 2002 after Vertex knowledge
filed an action for rescission against FEGDI.  For their part, petitioners maintained that at the time of the execution of the
 Under these facts, considered in relation to the governing law, FEGDI contract, Sps. Fajardo were actually aware that GPI's certificate of title had
clearly failed to deliver the stock certificates, representing the shares of no technical description inscribed on it. Nonetheless, the title to the subject
stock purchased by Vertex, within a reasonable time from the point the lot was free from any liens or encumbrances.
shares should have been delivered.  Petitioners claimed that the failure to deliver the title to Sps. Fajardo was
 This was a substantial breach of their contract that entitles Vertex the right beyond their control
to rescind the sale under Article 1191 of the Civil Code.  Petitioners thus argued that Article 1191 of the Civil Code (Code) – the
 Vertex already enjoyed the rights a shareholder can exercise but the provision on which Sps. Fajardo anchor their right of rescission – remained
enjoyment of these rights cannot suffice where the law, by its express inapplicable since they were actually willing to comply with their obligation
terms, requires a specific form to transfer ownership. but were only prevented from doing so due to circumstances beyond their
 Regarding the involvement of FELI in this case, no privity of contract exists control
between Vertex and FELI. HLURBENCRFO Infavor of Sps. Fajardo,
 In the sale of the Class "C" Common Share, the parties are only FEGDI, as  GPI’s obligation to execute the corresponding deed
seller, and Vertex, as buyer. and to deliver the transfer certificate of title and
possession of the subject lot arose and thus became
GOTESCO PROPERTIES INC V. FAJARDO due and demandable at the time Sps. Fajardo had fully
paid the purchase price for the subject lot
Spouses Fajardo (buyer) Gotesco properties Inc (seller)
 GPI’s failure to meet the said obligation constituted a
Purchase of 100 sqm lot: a subjdivision owned and developed by GPI.
substantial breach of the contract which perforce
 ₱126,000.00 within a 10-year period, including interest at the rate of nine
warranted its rescission.
percent (9%) per annum.
HLURB Board of Affirmed
 GPI, on the other hand, agreed to execute a final deed of sale (deed) in Commissioners
favor of Sps. Fajardo upon full payment of the stipulated consideration
CA Affirmed
Facts:
HELD:
 Despite its full payment of the purchase price on January 17, 2006 and A. Sps. Fajardo’s right to rescind
subsequent demands, GPI failed to execute the deed and to deliver the
title and physical possession of the subject lot.  In a contract to sell, the seller's obligation to deliver the corresponding
 Thus, on May 3, 2006, Sps. Fajardo filed before the Housing and Land certificates of title is simultaneous and reciprocal to the buyer's full
Use Regulatory Board-Expanded National Capital Region Field Office () a payment of the purchase price
complaint for specific performance or rescission of contract with damages Spouses Fajardo claim GPI claim
against GPI and the members of its Board of Directors GPI breached the contract due to its GPI could not have committed any
 Sps. Fajardo averred that GPI violated Section 209 of Presidential Decree failure to execute the deed of sale breach of contract considering that
No. 95710 (PD 957) due to its failure to construct and provide water and to deliver the title and its purported non-compliance was
facilities, improvements, infrastructures and other forms of development possession over the subject lot, largely impelled by circumstances
including water supply and lighting facilities for the subdivision project. notwithstanding the full payment of beyond its control i.e., the legal
the purchase price mad as well as proceedings concerning the
 GPI also failed to provide boundary marks for each lot and that the mother the latter’s demand for GPI to subdivision of the property into
title including the subject lot had no technical description and was even comply with the aforementioned individual lots
obligations per the letter dated

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September 16, 2002. REYES V. ROSSI

Teodoro Reyes (Buyer) Advanced Foundation (Seller)
deed of conditional sale involving the purchase by Reyes of equipment
 No plausible explanation was advanced by the petitioners as to why the consisting of a Warman Dredging Pump HY 300A worth ₱10,000,000.00
petition for inscription (docketed as LRC Case No. 4211) dated January 6,  Reyes would pay the sum of ₱3,000,000.00 as downpayment, and the
2000,25 was filed only after almost eight (8) years from the acquisition of balance of ₱7,000,000.00 through four post-dated checks
the subject property.  In January 1998, Reyes requested the restructuring of his obligation under
the deed of conditional sale by replacing the four post-dated checks with
 Neither did petitioners sufficiently explain why GPI took no positive action
nine post-dated checks that would include interest at the rate of
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 ₱25,000.00/month accruing on the unpaid portion of the obligation.
dismissed GPI’s earlier petition based on technical defects, this  Advanced Foundation assented to Reyes’ request, and returned the four
notwithstanding Sps. Fajardo's full payment of the purchase price and prior checks. In turn, Reyes issued and delivered the following nine postdated
demand for delivery of title checks in the aggregate sum of ₱7,125,000.00 drawn against the United
 Clearly, the long delay in the performance of GPI's obligation from date of Coconut Planters Bank,
demand on September 16, 2002 was unreasonable and unjustified.  Rossi deposited three of the post-dated checks (i.e., No. 72807, No.
 It cannot therefore be denied that GPI substantially breached its contract 79125 and No. 72808) on their maturity dates in Advanced Foundation’s
to sell with Sps. Fajardo which thereby accords the latter the right to bank account at the PCI Bank in Makati. Checks were denied.
rescind the same pursuant to Article 1191 of the Code  In the meanwhile,Reyes commenced an action for rescission of contract
B. Effects of rescission and damages in and ordering Advanced Foundation to return the
 Rescission does not merely terminate the contract and release the parties ₱3,000,000.00 downpayment with legal interest from June 4, 1998 until
from further obligations to each other, but abrogates the contract from its fully paid; and to pay to him attorney’s fees, and various kinds and
inception and restores the parties to their original positions as if no contract amounts of damages.
has been made.  Rossi charged Reyes with cases of estafa and of violation of Batas
 This Court has consistently ruled that this provision applies to rescission Pambansa Blg. 22 in the Office of the City Prosecutor of Makati for the
under Article 1191: dishonor of Checks.
Since Article 1385 of the Civil Code expressly and clearly states that  On September 29, 1998, Reyes submitted his counter-affidavit in the
"rescission creates the obligation to return the things which were the object Office of the City Prosecutor claiming that the checks had not been issued
of the contract, together with their fruits, and the price with its interest," the for any valuable consideration; that he had discovered from the start of
Court finds no justification to sustain petitioners’ position that said Article using the dredging pump involved in the conditional sale that the
1385 does not apply to rescission under Article 1191. x x x33 (Emphasis Caterpillar diesel engine powering the pump had been rated at only 560
supplied; citations omitted.) horsepower instead of the 1200 horsepower Advanced Foundation had
 In this light, it cannot be denied that only GPI benefited from the contract, represented to him; that welding works on the pump had neatly concealed
having received full payment of the contract price plus interests as early as several cracks; that on May 6, 1998 he had written to Advanced
January 17, 2000, while Sps. Fajardo remained prejudiced by the Foundation complaining about the misrepresentations on the specifications
persisting non-delivery of the subject lot despite full payment. of the pump and demanding documentary proof of Advanced Foundation’s
 As a necessary consequence, considering the propriety of the rescission ownership of the pump; that he had caused the order to stop the payment
as earlier discussed, Sps. Fajardo must be able to recover the price of the of three; that he had subsequently discovered other hidden defects,
property pegged at its prevailing market value consistent with the prompting him to write another letter; and that instead of attending to his

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complaints and request, Advanced Foundation’s lawyers had threatened intimately related to the issue raised in the subsequent criminal action, and (b)
him with legal action. the resolution of such issue determines whether or not the criminal action may
Assistant recommended the dismissal of the charges of estafa and the proceed
Prosecutor suspension of the proceedings relating to the violation of Batas  Contending that the rescission of the contract of sale constitutes a
Pambansa Blg. 22 based on a prejudicial question. prejudicial question, Reyes posits that the resolution of the civil action will
City Approved recommendation be determinative of whether or not he was criminally liable for the
Prosecutor
violations of Batas Pambansa Blg. 22.
Secretary Denied petition for Review
of Justice  He states that if the contract would be rescinded, his obligation to pay
CA Instant petition is GRANTED in so far as the issue of the under the conditional deed of sale would be extinguished, and such
existence of prejudicial question is concerned. Accordingly, the outcome would necessarily result in the dismissal of the criminal
order suspending the preliminary investigation in I.S. No. 98- proceedings for the violations of Batas Pambansa Blg. 22.
40024-29 is REVERSED and SET ASIDE, and the dismissal of  The action for the rescission of the deed of sale on the ground that
the complaint for estafa is AFFIRMED. Advanced Foundation did not comply with its obligation actually seeks one
of the alternative remedies available to a contracting party under Article
 Reyes asserts that the CA erred in ruling that there was no prejudicial 1191 of the Civil Code, to wit:
question that warranted the suspension of the criminal proceedings against  Article 1191 of the Civil Code recognizes an implied or tacit resolutory
him; that the petition suffered fatal defects that merited its immediate condition in reciprocal obligations. The condition is imposed by law, and
dismissal; applies even if there is no corresponding agreement thereon between the
 Rossi counters that the petition for review should be outrightly dismissed parties.
because of its fatal defect; that the CA did not err in ruling that the action  The explanation for this is that in reciprocal obligations a party incurs in
for rescission of contract did not pose a prejudicial question that would delay once the other party has performed his part of the contract; hence,
suspend the criminal proceedings. the party who has performed or is ready and willing to perform may rescind
ISSUE: the obligation if the other does not perform, or is not ready and willing to
Whether or not the civil action for rescission of the contract of sale raised a perform.
prejudicial question that required the suspension of the criminal prosecution for  However, until the contract is rescinded, the juridical tie and the
violation of Batas Pambansa Blg. 22. concomitant obligations subsist.
 To properly appreciate if there is a prejudicial question to warrant the
Ruling suspension of the criminal actions, reference is made to the elements of
the crimes charged. The violation of Batas Pambansa Blg. 22 requires the
The petition for review is without merit. concurrence of the following elements, namely: (1) the making, drawing,
and issuance of any check to apply for account or for value; (2) the
 A prejudicial question generally comes into play in a situation where a civil knowledge of the maker, drawer, or issuer that at the time of issue he does
action and a criminal action are both pending, and there exists in the not have sufficient funds in or credit with the drawee bank for the payment
former an issue that must first be determined before the latter may of the check in full upon its presentment; and (3) the subsequent dishonor
proceed, because howsoever the issue raised in the civil action is resolved of the check by the drawee bank for insufficiency of funds or credit or
would be determinative juris et de jure of the guilt or innocence of the dishonor for the same reason had not the drawer, without any valid cause,
accused in the criminal case. ordered the bank to stop payment.
Section 7. Elements of prejudicial question. – The elements of a prejudicial  His obligation to fund the checks or to make arrangements for them with
question are: (a) the previously instituted civil action involves an issue similar or the drawee bank should not be tied up to the future event of

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extinguishment of the obligation under the contract of sale through Delivered within 45 working days
rescission. Indeed, under Batas Pambansa Blg. 22, the mere issuance of a P 1,685,200 in installments based on progress accomplishment of work stated
worthless check was already the offense in itself. Under such Facts:
circumstances, the criminal proceedings for the violation of Batas  August 1995, Rosario faculty member of respondent claimed to have been
Pambansa Blg. 22 could proceed despite the pendency of the civil action verbally authorized by its president allegedly received life boats in good
for rescission of the conditional sale. order and condition
 Accordingly, we agree with the holding of the CA that the civil action for the  November 1995, respondent sent an independent inspection team to
rescission of contract was not determinative of the guilt or innocence of where two lifeboats were docked to check whether plans and work
Reyes. We consider the exposition by the CA of its reasons to be specifications had been complied with.
appropriate enough, to wit:  Isuzu C-240 engines were installed instead of the agreed upon 45 HP
Gray Marine Diesel engines and that for electric starting systems there
 he posits that his consent to the contract was vitiated by the fraudulent act was no manual which is necessary in case systems failed and that
of the company in misrepresenting the condition and quality of the construction of engine compartment was not in conformity with the
dredging pump. approved plan.
 Alternatively, he claims that the company committed a breach of contract  Sandoval Shipping was reminded that they should strictly comply with the
which is a ground for the rescission thereof. Either way, he in effect admits agreed plan and specifications of life boats as there was no authorized
the validity and the binding effect of the deed pending any adjudication alterations thereof.
which nullifies the same.  1996, COA through its technical audit specialist, Guantero made an ocular
 Indeed, under the Law on contracts, vitiated consent does not make a inspection of lifeboats and reported that lifeboats were corroded and
contract unenforceable but merely voidable, the remedy of which would be deteriorating since its plankings and benches were not coated with
to annul the contract since voidable contracts produce legal effects until fiberglass and no mast sails or row lacks were installed and that the prime
they are annulled. mover was an isuzu engine contrary to the agreed specifications and that
 On the other hand, rescission of contracts in case of breach pursuant to life boats had been paid in full except for the 10% retention.
Article 1191 of the Civil Code of the Philippines also presupposes a valid  Despite repeated demands, petitioners refused to deliver lifeboats to
contract unless rescinded or annulled. comply with agreed plans
 In this light, it is clear that the pendency of the civil case does not bar the  Respondent filed for complaint for recession with the RTC
continuation of the proceedings in the preliminary investigation on the RTC
ground that it poses a prejudicial question.  Petitioners were found to have violated contract by installing surplus diesel
 Considering that the contracts are deemed to be valid until rescinded, the engines contrary to agreed plan.
consideration and obligatory effect thereof are also deemed to have been CA: REVERSED
validly made, thus demandable. Consequently, there was no failure of  Petitioners indeed committed a clear substantial breach of contract which
warranted rescission.
consideration at the time when the subject checks were dishonored.
 Rescission requires mutual restoration of benefits
 HOWEVER Petitioners failed to deliver life boats; as Rosario was not an
SANDOVAL V. PMMA authorized representative
Philippine Merchant Marine Academy Sandoval Shipyards Inc (Seller)  Hene, petitioners could not compel respondent to return something they
(Buyer) never had in possession.
SHIP BUILDING CONTRACT : December 1994 MOTION FOR RECONSIDERATION
2 Units of lifeboats to be used as training boats for the students of respondent  Engines installed were different from what had been agreed : breach of
45-HP Gray Marine Diesel Engines specifications In contract (although petitioner claims its of the same quality

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
nd
and are not 2 hand, but an old stock) EMI and HCI hammered out its handwritten 5 point agreement
 Documentary and testimonial evidence: both partie established that  #4: No renewal of contract with HCI should there be another suspension of
lifeboats remained docked at Navotas in the possession of petitioners services in any hospitals to be chosen within present contract period
 Athoug HCI had not yet to settle its accounts with it, DLSUMC resumed
ISSUE:
servies on July 24.
WHETHER THE CASE IS FOR RESCISSION AND NOT DAMAGES/BREACH
 However, HCI failed to preserve its credit standing with DLSUMC promting
OF CONTRACT
the latter to suspend its accreditation for the second time and third
suspension was still to follow on September 9 and remained in force until
HELD:
end of contract period.
 Petitioners claim that CA erred in upholding the RTC’s substitution of
 Sept 3, EMI formally notified HCI that it was rescinding their April 1998
respondent’s cause of action for rescission to breach of contract. Had It
agreement on account of HCI’s serious and repeated breach of its
done so, then it would have merely ordered mutual restoration of what
undertaking including but not limited to the unjustified non-availability of
each of them received – 2 life boats in exchange for P1,516,680.
services
 The breach was found to be substantial and sufficient to warrant a
 HCI asked for surrender of the cards so that it could process the
rescission of contract
pretermination of contract and finalize the reconciliation of accounts. Until
 Rescission entails a mutual restitution of benefits received. An injured
they have received IDs, HCI said tha they will consider the account on
party who has chosen rescission is entitled to payment of damages.
going and existing thus subject for inclusion to present billing and payment
 THE FACTUAL CIRCUMSTANCES HOWEVER RENDERED MUTUAL
 Jan 1999 EMI sent HCI 2 letters demanding for payment of 2/3 of the
RESTITUTION IMPOSSIBLE.
premium tha remained unutilized after the agreement was rescinded.
 Both RTC and CA found that petitioner delivered life boats to Rosario.
 HCI filed a legal action before RTC
Petitioners never authorized him to receive life boats
 Hence as the delivery to Rosario was invalid, it was as if respondent ever HCI EMI
received the life boats. As it never reeived the object of contract, it cannot Unlawful pretermination of contract EMI responded alleging that HCI
and failure of EMI to submit to a joint reneged on its duty to provide
return the object (wiity besh)
reconciliation of accounts and deliver adequate medical coverage after EMI
 Unfortunately, the same thing cannot be said of the petitioners. They admit such assets as properly belonged to paid full premium. It was entitled to
that they received a total amount of P1,516,680, for this reason they HCI the unutilizd portion of premium that
should return the same the accounting required by HCI could
not be undertaken until it submitted
EDS MANUFACTURING V. HEALTHCHECK monthly utilization reports
Health Check Inc (Health Insurance Eds Manufactring Inc (Insured its RTC: IN FAVOR OF HCI
Provider) employees) - EMI’s rescission was not done through court action or by notarial act and
was based on casual or slight breaches of contract
1 year contract from May 1 1998 – April 30,1999 in which HCI was to provide
- Despite of announced rescission, employees of EMI continued to avail
employees and their depends medical services and benefits
HCI’s services until March 1999
EMI paid full premium for coverage P8,856,307.50
- Services rendered by HCI from May 1998 to March 1998 purportedly
Facts:
came to total of P10,149,821.13
 On July 17, HCI notified EMI that its accreditation with DLSUMC was CA: REVERSED
suspended and advised it to avail of services of nearby accredited - Although HCI substantially breached their agreement it appears that HMI
institutions did not validly rescind contract between them
 There were problems in HMO industry in the wake of Asian regional - CA dismissed complaint filed by HCI at the same time dismissing
financial crisis and proposing interim measures for servie contracts. counter claim filed by EMI

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PLANTERS DEVELOPMENT BANK V. LOPEZ

ISSUE Spouses Lopez (Debtor) Planter Bank (Creditor)
: WHETHER OR NOT THERE WAS A VALID RESCISSION OF CONTRACT REAL ESTATE LOAN :
DONE BY EMI Initially : Php 3,000,000
HELD: NO Additional : Php 1,200.000
THIRD AMENNDMET :
 The General rule is that rescission (resolution) of contract will not be
- Php 4,200.00 27% pa
permitted for a slight casual breach but only for such substantial and - Term 1 year
fundamental violations as would defeat the very object of parties in making Facts:
the agreement  On 1984, Planters Bank unilaterally increased the interest rate to 32% pa
 Rescissio referred in Art 1191 more appropriately referred to as resolution  Spouses Lopez failed to avail full amount because Planters Bank refused
is on the breach of faith by one of parties which is violative of the to release remaining amount of Php 700,000.
reciprocity between them Spouses Lopez Planters Bank
 In the present case, it is apparent that HCI violated its contract with EMI to Spouse filed against Planters Ban a complaint for Refusal to release the loan was the result of
rescission of loan agreement and for damage spouses Lopez’s vilation of the loan agreement
provide medical services to its employees in a substantial way. alleging that they could not continue construction (1) Non-submission of accomplishment reports
 However although a ground exists to validly rescind the contract between of dormitory building because Planters Bank (2) Construction of 6 story building
the parties, it appears that EMI failed to judicially rescind the same refused to release remaining balance.
** On Nov 1984, Planters bank forclosed
 In absence of stipulation, a party cannot unilaterally and extrajudicially mortgaged properties in favor of 3rd parties.
rescind a contract. A judicial or notarial act is necessary before a valid RTC IN FAVOR OF PLANTERS BANK
- Spouses Lopez had no right to rescind because they were not the injured parties. They
rescission can take place. violated loan agreemet
 Even if Art 1191 were applicable, the petitioner would still not be entitled to - Rescission could not be carried out because mortgaged properties had already been sold in
favor of third persons
automatic rescission The right to resolve reciprocal obligations is deemed CA REVERSED
implied in case one of the obligor shall fail to comply with what is - Planters Bank’s refusal to release loan was a substantial breach of contract.
- Spouses Lopez submitted accomplishment reports as evidenced by Engineer Fianza’s
incumbent upon him. But that right must be invoked judicially. testimony who prepared accomplishmen reports prior to release of funds.
rd
 The requirement has been retained in 3 paragraph of Art 1191 which - Planters Bank was estopped from raising issue of spouses deviation of project because it
conducted several ocular inspections of building and released partial amounts of loan despite
states that ―court shall decree the rescission claimed upon unless there is of knowledge of construction of 6 story building
a just cause authorizing the fixing of period. MOTION FOR RECONSIDERATION
- Loan agreement between parties including all its accessory contracts: Rescinded
 Consequently even if right to rescind is made available to the injured party, - Plaintiff appellants are ordered to return to defendant-appelee ban the amount of
the obligation is not ipso facto erased by the failure of the other party to P2,885,830.56 with interest above 12% pa from time decision is final
- Defendant-appellee bank is ordered to convey and restore to plaintiffs the foreclosed property
comply with what is incumbent upon him.
 Party entitled to rescind should apply to court for a decree of recession.
Petitioners Position
 Right cannot be exercised solely on party’s own judgment that other
- Lopez violated loan agreement : failure to submit accomplishment
committed breach of obligation
reports and by constructing 6 story building instead of 4 story
 EMI has not rescinded contract at all. Despite of EM’s announcement it
No estoppel because only 1 year and 20 days elapsed from violation (no
failed to surrender HMO cards of its employees although it was reqired by
unjustifiable neglect)
the agreemet and allowed them to continue using them beyond date of
- Assuming it breached the contract, it is only slight breach because only
rescission.
P700,000 out of P4,200,000 was not released.
 Continued use by them of their privileges under contract with apparent
-
consent of EMI belies any intention to cancel or rescind it.

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ISSUE X HELD :  Estate of Florentina Lopez shall pay planters bank the amount of
WON SPOUSES LOPEZ VIOLATED LOAN AGREEMENT P3,500,000 with 12% monetary interest PA from June 22,1984 until full
 Spouses Lopez submitted accomplishment reports evidenced by Engr. payment of obligation.
Fianza’s submission of accomplishment reports corroborated by testimony  Estate of Florentina Lope shall further be liabe for compensatory interest at
of Marayag, Planters Bank appraisal department head rate of 12% pa until June 30,2013 and 6% pa from July 1,2013 until finality
 Planters Bank is estopped from opposing spouses Lopez deviation from of decision
construction project ;
 Sec 2, Rule 131, Rules of Court : whenever a party has, by his own RELIANCE V IAC
declaration, act or omission intentionally and deliberately led another to Marvin Paez Reliance Commodities Inc (Samuel Chuason,
believe that a particular thing is true, and to act upon such belief, he president and general manager)
cannot in any litigation arising out of such declaration, act or omission be Addendum to Operating Agreement
permitted to falsify it. - Latter agreed to provide former with funds and equipment for the
operation of manganese mining claims
 Inaction or silence may under some circumstances amount to a
- PAEZ shall segregate the Maganese Ores
misrepresentation, so as to raise equitable estoppel, -
st
Deed of 1 real estate mortgage in favor of Reliance Commodities as
 Principle of equitable estoppel prevents Planters Bank from raising the security for more cash advancements needed to sustain mining
spouses Lopez’s violation of loan agreement. operations.
 Planters bank was already aware of spouses Lopez were building 6 floors
as early as September 30,1983. There were series of ocular inspections. Facts:
 Despite of such knowledge, it keept silent on the violation of loan  A difference arose between plaintiff Paez and defendant company
agreement and still continued to release loan in partial amounts concerning cash advances.
WON SPLANTERS BANK SUBSTANTIALLY BREACHED THE LOANN  Defendant Reliance Commodities Inc demanded return of its equipments
AGREEMENT  Marvin Paez laborers refused to release equipment for the reason that
 Planters Bank only committed slight/casual breach of contract. they had not been paid their wages
 Breach is not sufficiently fundamental to defeat object of parties in entering  Defendant Reliance Commodities gave Paez the amount of P800.00 for
into loan agreement. the salaries.
 Released P3,500,000 out of P4,200,000 loan.(16.66% of actual loan)  Later, defendant Reliance Commodities foreclosed extrajudicially the
(85% building was completed) mortgage executed by plaintiffs.
 Even assuming that Planters Bank substantially breached its obligations,  Provincial Sheriff of Nueva Ecija served notice of Public auction
th
4 paragraph of Art 1191 expressly provides that rescission without
prejudice to the rights of 3 P who have acquired thing in accordance with Plaintiff spouses filed the present Defendants claimed: violation of
Art 1385 of CC ―rescission cannot take place when thing are already the action to annul Deed of First Real contracts came from plaintiffs
object of contract are legally in possession of 3 P who did not act in bad Estate Mortgage and to compel because they failed to deliver all
faith Reliance Commodities to make manganese ores stipulated in the
 In present case, mortgaged properties had already been foreclosed in a further cash advances. contract according to the schedule
public auction outlined. Hence plaintiffs are not
entitled to rescind contracts or recover
 Respondents did not overcome the presumption that buyers bought
damages.
foreclosed properties with actual knowledge of pendency of present case RTC: In favor of defendants
 No annotation of notice lis pendens at back of title of mortgaged lot CA: In favor of Plaintiff spouses
OTHERS:::: - Deed of first real estate mortgage and addendum to Operating

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agreement is declared void  Although Fidela intended to sign only the Kasunduan and the Real Estate
- Defendants: pay plaintiffs the amount of Php20,000 for unrealized profits Mortagage, she inadvertently affixed her signature on all 3 documents in
and attorneys feees office of Atty.Barangan.
 While Mariano was making payments to Oscar, Fidela entrusted the
ISSUE
owners copy of TCT to Mariano to guarantee compliance with the
WHETHER PETITIONER GAVE DUE CAUSE FOR RESCISSION OF
Kasunduan
CONTRACT AND THAT RESCISSION WAS NOT AVAILABLE UNDER ART
 When Mariano unreasonably refused to return the TCT, one of the
1191 OF CC
respondents caused annotation on TCT of an Affidavit of Loss of owners
HELD:
duplicate copy of title.
 Petitioner made cash advances to respondent Paez totaling P41,130.00
 Annotation was however offset when Mariano registered Deed of Absolute
and also turned over to him, 3 heavy equipment for use in mining
Sale on October and afterwards caused the annotation of an Affidavit of
operations
Recovery of Title. Thus I was registered in the name of petitioner Riveras
 Paez failed to make even a single delivery of manganese ores to stockpile
 Riveras, representing themselves as owners, were also negotiating with
yard. There’s no mining operation at all
tenant Nieto, to rid land. When he refused, Riveras offered to give 4,500
 In reciprocal obligations, power to rescind or resolve is given to the injured
sqm in exchange of surrender. He accepted.
party.
 Feb 18, 1993: respondents
 Rescission of contract requires the parties to restore to each other what
they have received by reason of contracts. Rescission has the effect of Del Rosarios Riveras
- Filed a complaint RTC: asking - Denied allegations and avered
abrogating contracts in all parts.
that Kasunduan be rescinded hat Deed of Aboslute Sale was
for failure of Riveras to comply validly entered into by both
RIVERA V. DEL ROSARIO with the conditions, with parties.
Del Rosarios ( registered land Rivera (creditor) damages. They also sought the - Fidela del Rosario mortaged lot
owners) (debtor) annulment of Deed of Absolute to their predecessor Mariano
- 1963: De Rosario children executed a Special Power of Atty in favor of Sale on ground of fraud, and Rivera but on following day,
their mother and co-respondent, Fidela authorizing her to sell, lease, the conveyance to them of the Fidela decided to sell lot to
mortgage, transfer and convey their rights over lot entire property petitioners for P2,161,622.50.
- Fidela borrowed P250,000 from Mariano Rivera in 1987 - Fidela never entered into deed - After drawing Kasunduan,
- To secure loan, the entered into deed of real estate mortgage and an of sale and signed on the Fidela informed Mariano of
agreement to sell the land mistaken belief that she was existence of Nieto’s tenancy
- Kasunduan provided that merely signing copies of right over lot to the extent of
 Petitioners would purchase Lot for a consideration of Kasunduan. (Advanced age of 9,000sqm
P2,141,622.50. P.price was paid in 3 installments 72) (presumed documents ere - Parties drafted deed of
nd
 Deed of Absolute Sale would be executed only after 2 the same) absolute sale to supersede
installment is paid and postdated check for the last installment is - Petitioners acquired kasunduan.
deposited with Fidela. possession of TCT through - Cause of action barred by
- As previously stated owever, Mariano had already caused the fraud and machination laches/estoppel : more than 4
drafting of Deed of Absolute Sale, but unlike the Kasunduan the years lapsed from time they
said deed stipulated a purchase price of P601,160 and covered the executed Deed of Absolute
lot A in addition to lot C Sale
- Such deed and Kasunduan was signed by Mariano’s children. RTC: In favor of respondents
- Deed of Absolute Sale : Nund Void
- Annulling TCT under name of Riveras
Facts

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- Recovery land to Del Rosarios and pay for damages and attorneys fees  Promise to sell was subject to fulfillment of suspensive condition that
- Fidela’s signature genuine but never intended to sign deed. petitioners pay P750,000 on August 31,1987 and deposit postdated check
- Rescinded Kasunduan but ruled that P450,000 paid by petitioners be retained by rd
respondents as payment of 4,500 sqm lot, petitioners gave to Nieto. for 3 installment of P1,141,622.50.
nd
CA: AFFIRMED  Petitioners however failed to complete payment of 2 installment. Non-
fulfillment rendered contract to sell ineffective and without force and effect.
ISSUE X HELD  Breach contemplated in 1191 is the obligor’s failure to comply with an
WHETHER OR NOT DEED OF ABSOLUTE SALE IS VALID IN SO FAR AS obligation already extant and not a failure of a condition to render binding
LOT A IS CONCERNED that obligation.
 Deed of absolute sale is void on its entirety  Failure to pay is not even breach but an event that prevents vendor’s
 Both petitioners and respondents admitted that Lot A had been obligation to convey title from acquiring binding force.
expropriated by government long before deed of absolute sale was  ACTION NOT BARRED BY PRESCRIPTION. 4 years, shall begin from
entered into . Likewise CA had no jurisdiction to adjudicate on Lot A as it time fraud or mistake is discovered. It was discovered in 1992 and action
was never touched upon in thee pleadings or made subject of evidence in was filed in 1993.
Trial.
BARREDO V. LEANO
IS THE RESPONDENTS CAUSE OF ACTION BARRED BY PRESCRIPTION Spouses Barredo (Seller) Spouses Leano) (Buyer)
 Rescission of reciprocal obligations under Art 1191 is different from Conditional Deed of Sale with Assumption of Mortgage
resistible contracts under Chapter 6 of Law on contracts under the Civil - Spouses Leano would pay Spouses Bareddo P200,000.00
Code. - Php 100,000 payable on July 1987, balance of Php 100,000 / 10
installments
ART 1383 ART 1191
- Leano spouses would assume the first and second mortgages and pay
Subsidary action limited to cases of Resolution : principal action that is the monthly amortizations to SSS and Apex beginning July 1987 until
lesion under Art 1381 based on breach of a party both obligations are fully paid.
 Obviously Kasunduan does not fall in any of the situations provided for in Facts:
Art 1381.
 2 years later, Bareddo spouses initiated complain before RYC on ground
 Kasunduan reveals that it is in the nature of contract to sell as
that Leano spouses despite their repeated demands failed to pay
distinguished from contract of sale
mortgage amortizations to SSS and Apex causing them great irreparable
Contract to Sell Contract of Sale
damage.
ownership is, by agreement, reserved the title to the property passes to the
in the vendor and is not to pass to the vendee upon the delivery of the thing  Leano spouses however answered : up to date with their amortization
vendee until full payment of the sold payment with Apex but were not able to pay SSS amortizations because
purchase price their payments were refused upon instruction of the Barredo spouses.
payment of the purchase price is a ownership is transferred to the buyer  Meanwhile to save their good name and credit standing, Bareddo spouses
positive suspensive condition, failure right upon its execution took it upon themselves to settle their mortgage loans and paid to SSS the
of which is not breach, casual or non-payment of price is a negative sum of P27,494.00 and P41,401.91.
serious but a situation that prevents resolutory condition
 SSS issued a Release of Real Estate Mortgage Loan and they also settled
obligation of vendor to convey title
from acquiring an obligatory force. their loan with Apex which issued a ccertification of full payment of loan.
 Respondents bound themselves to deliver deed of absolute sale and clean They also paid real estate property taxes from 1987-1990.
title covering Lot C after petitioners have made the second installment. RTC IN FAVOR OF BARREDO SPOUSES
- Assumption of mortgage debts of Barredo spouses by Leano Spouses is
a very substantial condition

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- Credit standing of Barredo spouses will be greatly prejudiced should  Leano spouses merely bound themselves to assume which they actually
they appear delinquent or not pay at all. did, the obligations of Barredo spouses with SSS and Apex.
- Conditional Deed of Sale with assumption of Mortgage entered into :  Nowhere in the agreement was it stipulated that the sale was conditioned
rescinded and therefore null and void. upon their full payment of loans with SSS and Apex.
CA: REVERSED
 To include full payment of obligations with SSS and Apex as a condition
- Payment of amortization to Apex and SSS were mere collateral matters
which do not detract from condition of paying principal condition. would be unnecessarily stretch and put a new meaning to the provisions of
- Ordered execution of Deed of Absolute sale upon full payment of the agreement.
amounts.  Agreement of the parties must be respected and each is bound to fulfill
ISSUE: what has been expressly stipulated therein.
WON THERE WAS SUBSTANTIAL BREACH BY RESPONDENTS OF THEIR  BUT EVEN IF WE CONSIDER PAYMENT OF MORTGAGE
RECIPROCAL OBLIGATION TO ASUME AND PAY THE MORTGAGE AMORTIZATION TO SSS AND APEX AS A CONDITION ON WHICH THE
OBLIGATION OF PETITIONER WITH SSS AND APEX SALE IS BASED, RESCISSION WOULD NOT BE AVAILABLE
BARREDO SPOUSES LEANO SPOUSES  Non-compliance with such condition would just be minor or casual breach
- Terms of argreement called for - They were only obliged to thereof and does not defeat the object of parties entering into contract.
strcit compliance with 2 equally assume amortization payment  Main consideration of sale: payment of assumption of mortgage by the
essential and material of Barredo spouses with SSS Leano spouses of Php 200,000 within the period agreed upon.
obligations on part of Leano and Apex which they did upon
 Assumption of mortgage: natural consequence of buying mortgaged
spouses (1) payment of signing the agreement.
P200,000 and (2) payment of - Contract does not stipulate as property,
mortgage amortizations to SSS a condition the full payment of  In fact, Barredo spouses do not stand to benefit from payment of
and Apex SSS and Apex mortages. amortizations by Leano spouses directly to Apex and SSS simply because
- Failure of Leano spouses to - Could no be faulted because they have already parted with the property which they were already fully
pay mortgage amortizations to their payments were not compensated in the amount of P200,000.00
SSS and Apex gave rise to the accepted by SSS since the
 If Barredo spouses were really protective of their reputation, and credit
right of Barredo spouses to Bareddo spouses failed to
refrain from executing deed f notify the SSS of the standing, they should have sought the consent or at least notified SSS and
sale and in fact ask rescission assignment of their debt. Apex of the assumption by the Leano spouses of their indebtedness.
as an injured party - Alleged breach if any was only
casual or slight and does not VILLANUEVA V. ESTATE OF GERARDO GONZAGA
defeat the very object of Generoso and Raul Villanueva Estate of Gerardo Gonzaga
parties. Second Party (BUYER) (Administrix: Ma Villa J. Gonzaga)
- Barredo spouses (x) injured First party
party because if the SELLER
amortizations were not paid, Memorandum of Agreement (MOA)
Leano spouses will eventually - Estate of Gonzaga : true and lawful owner of a parcel of land
lose the house and lot - Land mortgaged with PNB
- Villanuevas : purchase said property
HELD: - P150.00 / sqm = Php 486,000.00
 Par 3 of agreement : provides that Leano spouses bind themselves to - Conditions:
assume as they hereby assume beginning on July 1,1987 the payment of  Release from Mortgage by Gonzaga estate at the earliest possible
unpaid balance time
 (3) payments by Villanuevas : (1) 100k – signing of agreement
(2)191,600 – Jan 10,1990 (3) 194,400 – approval by PNB of release

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of loan.  It was only on July 1991 that final release papers were prepared by bank
 Upon payment of 60% Villanuevas may start to introduce because it was only at such time that the respondents complied with said
improvements in area if they so desire. conditions
 Upon approval by PNB of the release of lots: payment shall e made by WON DELIVERY OF TITLE SUBJECT TO MOA IS A PRECONDITION TO
VIllanueva
PAYMENT BY PETITIONERS OF BALANCE OF CONSIDERATION
Facts:
 IT was therefore premature for respondents to demand payment of
 Petitioners introduced improvements after paying 60% of total price of lot.
balance of purchase rice from petitioners on April 1991 failing in that to
 Petitiner then requested permission from respondent Administratrix the use
rescind the MOA in May 1991
of premises for next milling season.
WON PETITIONERS DID INCUR DELAY IN THE PERFORMANCE OF THEIR
 Respondents refused on the ground that petitioners cannot use such until
RECIPROCAL OBLIGATION UNDER MOA
full payment of purchase price
HELD:
 Administratix wrote to petitioners informing them that PNB agreed to  There is no legal basis for rescission.
release lots from mortgage. She demanded payment of balance of  Remedy of rescission under Art 1191 of CC is predicated on breach of
purchase price. faith by the other party that violates the reciprocity between them.
 Petitioners demanded that respondent show the clean titles to the lots first  In a contract to sell, title remains with the vendor and does not pass on
before they pay the balance of purchase price. vendee until the purchase price is paid in full.
 Respondent merely reiterated demand for payment  Payment of purchase price is a positive suspense condition. Failure to pay
 Administratrix executed a Deed of Rescission rescinding the MOA on 2 price agreed upon is not mere breach, casual or serious but a situation that
grounds (1) Failure to pay the balance of purchase price despite release of prevents obligation of vendor to convey title from acquiring obligatory
lots from mortgage (2) Petitioners violated MOA by using lots for force.
transloading stations without permission from respondents  This is entirely different from contract of sale, where non-payment of price
 Petitioners formally demanded production of titles before they pay balance is a negative resolutory condition
of purchase price.  MOA : is a conditional contract to sell. Ownership over lots shall not pass
 Petitioners filed a complaint : breach of contract, specific performance and to petitioners until full payment of purchase price. Petitioners obligation to
damages before RTC: respondents delayed performance of their obligation pay, in turn is conditioned upon the elease of lots from mortgage with PNB
by unreasonably failing to secure release of lots from mortgage with PNB to be secured by respondents.
within the earliest possible time.  Although there was no express provision regarding reserved ownership
RTC: IN FAVOR OF RESPONDENTS until full payment of purchase price,the intent of the parties in this regard is
- MOA: rescinded and ownership and possession of lot shall be restored evident in the provision that that deed of absolute sale shall be executed
to defnedants only when lots have been released from mortgage and balance paid by
- Payment of plaintiff of moral damages and attorneys fees
petitioners .
- Solidarily pay or refund : downpaymet by plaintiff
CA: AFFIRMED ; deleted award for moral damages  Since ownership has not been transferred, no further legal action need
ISSUE X HELD: have been taken by respondents except an action to recover possession in
WON RESPONDENTS FAILED TO COMPLY WITH THEIR RECIPROCAL case petitioners refuse to voluntarily surrender lots.
OBLIGATION OF SECURING REEASE OF SUBJECT LOTS FROM  Lots were finally released on July 1991. Petitioners have always expressed
MORTGAGE INDEBTEDNESS WITH PNB readiness to pay. Hence petitioners should be allowed to pay balance now
 Letter by PNB clearly shows that approval was conditional. There were 3 if they so desire.
conditions laid down by bank .  However, petitioners may not demand production by respondents title to
lots as a condition for payment ; not required under MOA.

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CO V. CA WON COS SHOULD RETURN $30,000 PAID BY CUSTODIO PURSUANT TO

Mrs. Adoracion Custodio (Buyer) Spouses Co. (Seller) OPTION GRNATED TO HER OVER BEATTA PROPERTY
VERBAL CONTRACT OF SALE OF HOUSE AND LOT IN MUNTINLUPA HELD: no
- $100,000.00 purchase price  Option is a contract granting a privilege to buy or sell within an agreed time
- 1 week before she left for the US Custodio paid $1,000.00 and P40,000 and at a determined price. It is a separate and distinct contract. It must be
as earnest money and so that property may be reserved for her supported by a consideration.
purchase.  However March Letter sent by Cos to Custodio reveals that the parties
- Purchase price is payable in 2 payments (1) December 4,1984 $40,000 entered into a perfected contract of sale and not an option contract
(2) Januaary 5,1985 $60,0000  Elements of valid contract of sale under Art 1458 CC
(1) Consent
Facts: (2) Determinate Subject Matter
 On January 25,1985, although period of payment had already expired, (3) Price certain in money or its equivalent
plaintiff paid to defendant Melody Co sum of $30,0000 as partial payment.  Despite the fact that Custodio failed to pay $40K and $60K on or before
 Lawyer of Defendant sent a letter demanding payment of $70,000 balance Jan 4,1984 and Jan 5,1985, breach of her obligation under Art 1191 CC
but there was no response  COS did not sue for either specific performance or rescission of contract
 On a subsequent letter she was informed that she already lost her option  In absence of an express stipulation authorizing seer to extra judicially
to purchase rescind the contract of sale, COS cannot unilaterally and extrajudicial
 September 1986: counsel of plaintiff informed counsel of defendant that rescind the contract of sale.
they are ready to pay remaining balance to complete $100,0000 and on  CUSTODIA acted within her rights when she attempted topay the
Oct 1986, plaintiff filed the instant complaint remaining balance.
RTC: IN FAVOR OF CUSTODIO  When COS refused to accept remaining payment CUSTODIO immediately
- Petitioner Co must refund $30,000 In Custodios favor. sued for the rescission of the contract of slae and prayed for return of what
- $1,000 and P40,0000 is forfeited in favor of defendants she initially paid
- Remit to Custodio peso equivalent of $30,000
CA : Affirmed CENTRAL BANK V. BICHARA
 COS argue that CA erred in ruling that Custodio could still exercise her
Spouses Bichara (Seller) Central Bank of the Philippine (Buyer)
option to pay balances of purchase price of property.
Sold : 2 properties covered by TCT P405,500
 Cos claims: Custodio : in default since she failed to pay after a demand - Such payment effected only after Deed of Sale shall hve been duly
was made. They never granted extension to option to purchase. 30 dys registered ad clean title is issued in the name of Vendee
period of time was granted to her but said period refers to another option - Vendor : Undertake at their expense to fill parcels of land with an
which Cos gave to Custodio to buy anoher piece of property and not the escombro free from waste materials compacted on street upon signing
Beata property as they could o longer hold Beata property for Custodio of Deed of Sale
.Facts:
 This being the case, CA should have ruled that COS properly rescinded
 TCT was issued in the name of petitioners. Despite issuance of title,
their contract with CUSTODIO over the Beata property pursuant to Art
petitioner failed to pay respondent.
1191 of CC and should have further ordered her to pay them damages
consequent tor rescission  On its part, respondents did not fill up the lot with escobro despite several
demands made by petitioner.
 Even assuming that they waived deadline by accepting $30 K , custodio
still failed to pay remaining balance.  Petitioner was thus constrained to undertake the filling up of said lots by
ISSUE: contracting BGV Construction costing them P45,000.00. Petitioner
deducted said amount from purchase price payable to respondents

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 Petitioner still did not pay  Certainly, non-payment of purchase price constitutes a very good reason to
 Respondents commenced Civil case, an action for rescission or specific rescind a sale for it violates the very essence of contract of sale
performance failed to pay the purchase price despite demand.  Non-payment of purchase price is a resolutory condition for which the
 They prayed for rescission of contract of sale and thee return of properties remedy of either rescission or specific performance under Art 1191
or in the alternative that petitioner be compelled to pay the purchase price  By law, vendee is bound to accept delivery and to pay price of thing sold at
plus interest at rate of 12% annum from July 19,1983 untl fully paid and to time and place stipulated in the contract .
pay capital gains and documentary taxes with BIR and registration fees  In the case at bench, petitioner’s obligation to pay arose as soon was deed
with register of deeds. of sale was registered and a clean title was issued. However, petitioner
 Petitioner tendered payment to respondents by Central Bank Check, but justifies non-payment on breach of several stipulations of contract
respondents refused payment WON CBP WAS JUSTIFIED IN WITHHOLDING PAYMENT OF PURCHASE
 Petitioner averred that it was justified in delaying payment , it alleged that PRICE OF SUBJECT LOT SOLD TO THEM
respondents failed to deliver to the former free and legal possession of two Petitioner’s claim Court response
properties, presence of squatters were not evicted by respondents and that Entitled to retain purchase price Reading contract of sale, we found nothing
due to respondent’s failure to pay therein to show that payment of said taxes
it did not fill up los with escombro free from waste materials.
the capital gains and and fees is conditioned upon petitioner’s
RTC documentary stamp taxes and duty to pay
- Plaintiff ordered to accept deposited amount other transfer fees
- Defendant ordered to pay plaintiff legal interest at rate of 6% pa on Delay justified since squatters Squatters illegal occupation (x)
original purchase price occupied the premises lien/encumbrance
- Pay legal interest rate of 6% pa on the remaining amount contravening stipulation that Art 1590 CC: A mere act of trespass will
- And other forms of damages sustained by either plaintiffs or defendants respondent vendors shall convey not authorize suspension of payment of
are borne or shouldered by the respective party. the properties free from liens and price
CA: REVERSED encumbrances
- Respondents : reimburse petitioner the cost of filling up lot with Not obliged to pay until Project had its peculiar requirement.
escombro and petitioner to pay respondent attorneys fees and costs respondents compact the lots to Petitioner specified that lots be filled up I a
ISSUE X HELD: street level with escombro free manner specified in par 4. Importance
WON PRIVATE RESPONDENTS DID NOT COMPLY WITH THEIR from waste material. thereof could not have been lost on
OBLIGATION TO CBP IN GOOD FAITH THUS PRIVATE RESPONDENTS respondents
ARE NOT ENTITLED AS A MATTER OF RIGHT TO RESCISSION Evidently, respondents were guilty of non-
 Art 1191: performance of said stipulation. This
obligation was to be accomplished upon
(1) Power to rescind obligations is implied in reciprocal ones in case one of
signing of contract and in so far as
the obligors should not comply with what is incumbent upon him petitioner was concerned, respondent’s
(2) The injured party may choose between fulfillmen and rescission of obligation was demandable at once.
obligation, with payment of damages in either case. He may also seek Petitioners are in no position to question
rescission even after he has chosen fulfillment if latter should be the expense of CBP in filling up land, had
impossible they performed their obligation at a proper
(3) The court shall decree the rescission claimed, unless there be just time, the expense would surely have not
been even less than 9,000
cause authorizing the fixing of a period
 In this context, respondents should not be allowed to rescind contract
(4) This is understood to be without prejudice to the rights of third person
where they themselves did not perform their essential obligation
who have acquired the thing in accordance with Art 1385 and 1388 and
thereunder. Respondents : in bad faith
Mortgage law

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IRIGAN V. COURT OF APPEALS Judicial or notarial act is necessary and had effect of mutually agreed
Antonio Palao (Seller) Alfonso Irigan (Buyer) before one party can ulnilaterally rescission
Undivided portion of lot in Tuguegarao effect rescission
- P295,000.00 payable as follows  Art 1592: In the sale of immovable property, even though it may have been
(a) 10,000—execution of instrument stipulated that upon failure to pay the price at the time agreed upon the
(b) 140,000 –on or before April 30,195 rescission of contract shall of right take place, the vendee may pay even
(c) 145,000 –on or before December 31,1985 after the expiration of period, as long as no demand for rescission of
Facts: contract has been made upon him either judicially or by notarial act. After

nd
2 payment: Irigan paid only P40,000. Thus Palao sent letter stating that the demand, the court may no grant him new term,
he considered contract rescinded and that he would not accept any further  Art 1592 requires the rescinding party to serve judicial or notarial act of his
payment considering that Irigan failed to comply with his obligation to pay intent to resolve the contract
full amount  Clearly a judicial and notarial act is necessary before a valid rescission can
 Irigan’s counsel replied stating that they are not opposing revocation of take place, whether or not automatic rescission has been stipulated.
Deed of Sale but are asking for reimbursement  In our view, even if Art 1191 were applicable petitioner would still not be
 Counsel of Palao replied that he was not amenable to reimbursement entitled to automatic rescission.
claimed by Irigan  Right to resolve reciprocal obligations is deemed implied in case one of the
 Irigan represented by a new counsel proposed that the P50,000 which he obligors fail to comply with what is incumbent upon him; but right must be
had already paid to Palao be reimbursed or Palao could sell to Irigan and invoked judicially.
equivalent portion of land.  Same article provides ―The court shall decree the reolution demanded
 Palao instead wrote that Irigan’s standing obligation had reached P61,600 unless there should be grounds which justify the allowance of a term for
representing payment of arrears for rentals, parties failed to arrive at an the reciprocal obligation.
agreement  Consequently, even if right to rescind is made available to injured party,
 On July 1,1991, Palao filed a complaint for Judicial confirmation for the obligation is not ipso facto erased by failure of other party to comply
rescission of contract and damages against spouses Irigan. with what is incumbent upon him. The party is entled t rescind to apply to
 Spouses Irigan alleged that contract of sale was a consummated contract, court for a decree of rescission.
hence remedy of Palao was for the collection of purchase price and not  Right cannot be exercised solely on a party’s own judgment that the other
rescission. committed breach of obligation
RTC  In our view, private respondent filed an action for Judicial confirmation of
- Ruled in favor of Palao and affirmed the rescission of contract rescission and damages before RTC: complied with requirement of judicial
CA decree of rescission.
- Affirmed  Prescriptive period for rescission : 10 years from time right of action
accrues. The suit was brought on July 1991, 6 years after default. It was
ISSUE:
filed within period for rescission.
WON CONTRACT OF SALE WAS VALIDLY RESCINDED

HELD:
Petitioner contends that no rescission Right to rescind is vested by law to
was effected simply by virtue of letter the oblige and since petitioner did not
sent by respondents stating that he oppose the intet to rescind the
considered contract of sale rescinded contract, Irigan in effect agreed to it

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SURIA V. IAC HELD:

Suria (Buyer) Spouses Crispin (Seller)
- Parcel of land in Laguna  Art 1191 on reciprocal obligations is not applicable under the facts of this
- Deed of Sale with Mortgage case.
Facts :  Art 1383 provides : ―Action for rescission is subsidiary; it cannot be
 Defendants violated terms and conditions of contract by failing to pay instituted except when party suffering damage has no other legal means to
the stipulated installments and in fact only one installment due in July obtain reparation of the same.
1975 was paid.
 Repeated written and verbal demands were made by plantiff upon (J.B.L REYES OPINION IN UNIVERSAL FOOD CORP)
defendants for payment of installment but defendants had no The rescission on account of breach of stipulation is not predicated on
justifiable reason to comply with demands of plaintiff. injury to economic interest of party plaintiff but on the breach of faith by the
Petitioners Allege that defendant that violates the reciprocity between the parties.
- Plaintiff is not entitled to subsidiary remedy of rescission because of It is not in subsidiary action, and under Art 1191 may be scanned without
presence of remedy of foreclosure in the Deed of Sale with Mortgage disclosing anywhere that action for rescission thereunder is subordinated
- Assuming arguendo that rescission was proper, it is apparent in the facts on anything other than the culpable breach of his obligation by the
of complaint that plaintiff failed to comply with requirement of law, hence defendant.
rescission is illegal, null void and invalid This rescission is principal action retaliatory in character; it being unjust
that the party be held bound to fulfill his promises when the other violates
IAC : his.
- 2 grounds invoked by defendants in their motion to dismiss: not On the contrary, recession by reason of lesion or economic prejudice, the
meritorious. cause of action is subordinated to the existence of prejudice because its
ISSUE: raison d’etre as well as the measure of right to rescind
Hence when defendant makes good the damages caused, the action
IN A DEED OF SALE WHICH IS COUPLED WITH A MORTGAGE TO
cannot be maintained or continued as expressly provided in Art 1383and
SECURE PAYMENTT OF BALANCE OF PURCHASE PRICE, MAY THE
1384. (Limited to those enumerated in Art 1381)
SELLER RESORT TO THE REMEDY OF RESCISSION UNDER ART 1191
 There is no dispute that parties entered into a contract of sale as
OF THE CIVIL CODE WHICH PROVIDES FOR SUBSIDIARY AND
distinguished from contract to sell .
EQUITABLE REMDY OF RESCISSION IN CASE OF BREACH OF
 By a contract of sale: vendor obliges himself to transfer ownership of and
RECIPROCAL OBLIGATIONS?
to deliver a determinate thing to buyer who in turn, is obliged to pay a price
MAY THE SELLER LEGALLY DEMAND RESCISSION OF DEED OF SAE certain in money or its equivalent.
WITH MORTGAGE WITHOUT OFFERING TO RESTROE TO THE BUYER  From the respondents own arguments, we note that they have fully
WHAT HE HAS PAID AS REQUIRED BY ART 1385 OR COMPLYING WITH complied with their part of reciprocal obligations. As a matter of fact, they
THE REQUIREMENTS OF MACEDA LAW (RA 6552) GRANTING BUYER have already parted with title of property.
A GRACE PERIOD TO PAY WITHOUT INTEREST AND IN CASE OF  The buyer, in turn fulfilled his end of the bargain when he executed the
CANCELLATION IN CASE BUYER STILL COULD NOT PAY WITHIN deed of mortgage.
GRACE PERIOD, REQUIRING THE SLLER TO ORDER PAYMENT OF  The relationship between the parties is no onger one of buyer and seller
THE CASH SURRENDER VALUE BEFORE CANCELLATION MAY because contract of sale ::: PERFECTED AND CONSUMATED
LEGALLY TAKE EFFECT SEC 3(B) LAST PAR R.A 6552  It is already one of MORTGAGOR AND MORTGAGEE.
 Opinion, different from what was envisioned by opinion of JBL Reyes

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 The breach of obligation is not with respect to contract of sale but in the accumulated interest.
obligation created by mortgage contract. The defendant claims that:
 Remedy of rescission is not a principal action retaliatory in character but - Defendant Rogelio Kaparaz testified that plaintifs did not comply with th
becomes a subsidiary one, which by law is available only I absence of any terms of agreement and paid to make 10 equal mothly installments
- It is likewise admitted that 600 sqm lot has already been adjudicated to
other legal remedy.
defendant Rogelio Kaparaz and is now registered under his name
 Foreclosure here is not only a remedy accorded by law but is a specific RTC ruling:
provision found in the contract of parties. - Plaintiffs : owners of property
 (Remedy of sale with mortagage) : Foreclosure and not Art 1191 - Ordering Kaparaz to reconvey this property to plaintiffs herein
- All the payments claimed are certified by DBP to have been made to
plaintiff Oscar Jacinto and applied to accounts of Domingo and Narcisa
JACINTO V. KAPARAZ Kapraz.
CA: REVERSED
Oscar Jacinto and LIbrada Franco- Rogelio , Raul and Rose Kaparaz
- Petitioners had not fully discharged their obligation under the agreement
Jacinto (Seller)
considering that the last payment to DBP of P300 and P200 were
(Buyer)
several months delayed beyond date agreed upon by parties and that
Contract to sell and convey 600 sqm lot in Davao Oriental agricultural loan to which amortizations of unpaid balance of P1,000 of
- P1,800.00 the purchase price were to be applied had in fact been fully settled by
- Downpayment of P800.00 : paid upon execution of agreement private respondents.
- Balance of P1,000 paid by petiioners on installment P100/month to DBP - Evidence discloses that private respondents demanded from petitioners
- Par 9: execute deed of absolute sale as soon as the settlement / the balance of obligation after the latter had defaulted; having received
partition of estate of deceased Narcisa Kaparazhave been no response, private respondents themselves paid for the agricultural
consummated and effected but not later than March 31, 1967 loan.
Facts: - Delay in payments (x) slight breach. The dates of payment was so
 Upon execution of agreement, petitioners paid downpayment of P800.00 essential that they were specifically stipulated upon by the parties.
and were placed in possession of portion described therein. - The importance of timely payments sprang from nature of subject bank
 As to P1,000 which was to be paid directly to DBP, petitioners claim that account consisting of loan secured by real estate mortgage which
they have made excess payment of P100.00 demanded up to date amortization to prevent foreclosure
- WHILE TC WAS CORRECT IN HOLDING THAT BOTH PARTIES
 In view of refusal of private respondents to execute deed of sale, DEFAULTED IN THE PERFORMANCE OF THEIR OBLIGATIONS,
petitioners filed complaint for specific performance in CFI (RTC) PETITIONERS WERE THE FIRST TO INCUR DELAY.
 Private respondents allege that the sale did not materialize because of - Moreover, even granting that their was no evidence as to who violated
failure of petitioners to fulfill their promise to make timely payments on the agreement first, then contract is deemed extinguished pursuant to
nd
stipulated price, as a result of failure, they failed to secure the release of the 2 sentence of Art 1192:
mortgage on property, ―in case of both parties have committed breach of obligation, the liability
of the first infractor shall be equitably tempered by the courts. If it cannot
RTC: In favor of petitioners determine which of the parties have first violated the contract, the same
Plaintiffs claim: shall be deemed extinguished and each shall bear his own damage
- Plaintiffs, all in all, aside from payment made to surveyor have paid DBP
for the account of late Domingo Kaparaz in the total amount of P700.00
which is already in excess of price consideration of P1,800 after ISSUE: WHETHER OR NOT THERE WAS FAILURE UPON THE PART OF
defendants had received the amount of P1,2000.00 THE PLAINTIFF, WHICH JUSTIFIES THE RESCISSION OF CONTRACT
- Plaintff Oscar Jacinto explained that the payment was in excess of CONTRACT TO SELL CONTRACT OF SALE
P100, because balance of P600 which was originally intended to be paid Ownership is retained by seller and is Non-payment of price is a resolutory
for the surveyor was instead paid by him to the bank plus P100 to cover not to pass until full payment of price condition, remedy of seller is Art 1191

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Payment = positive suspensive Article must be read together with Art  In the case at bar there was non-compliance with the requirements
condition, failure of which is not a 1592 prescribed in this provisions.
breach, casual or serious, but simply ―In the sale of immovable property,  In the case at bar, there was non-compliance with the requirements
an event that prevents obligation of even though it may have been prescribed in these provisions. (filing of action for specific performance or
vendor to convey title from acquiring stipulated that upon failure to pay the
rescission)
binding force price at time agreed upon the
rescission of contract shall of right  Even if we apply Art 1191, our decision would still be for the petitioners. It
take place, the vendee may pay, even is not denied that petitioners made 2 payments in the sums of P200 and
after the expiration of period as long P300 at time when what remained unsettled under the agreement was only
as no demand for rescission of P400.
contract has been made upon him  Private respondents neither complained of delay in these payments or
either judicially or by notarial act. After
rejected the application to their account. They were undoubtedly benefited
the demand, the court may not grant
him a new term‖ by application because it either satisfied their account or correspondingly
 Art 1592 applies to instances reduced it.
where no stipulation for automatic  Agreement fails to disclose an express agreement that monthly
rescission is made because it amortizations on P1,000.00 unpaid balance of purchase price to be made
says ―even though‖ to DBP should be applied exclusively to the agricultural loan indicated in
There can be no rescission or exordium of agreement.
resolution of an obligation as it is not
 Loan was mentioned only to lay basis for private respondents need for
yet in existence ; suspensive
condition did not happen downpayment.
 To allow private respondents to reject payment of P400 plus excess of
 The agreement in the instant case has all the earmarks of a contract of P100 after they had benefited therefrom would be unjust
sale. The possession of the portion sold was immediately delivered to the  Finally, delay incurred by petitioners was but a casual or slight breach of
petitioner. They were granted the right to enjoy all the improvements the agreement which did not defeat the object of parties entering into
therein effective from the execution of agreement. agreement.
 Private respondents unqualifiedly bound themselves to execute the  Respondent court erred in declaring agreement extinguished pursuant to
nd
final deed of sale “as soon as the settlement or patition of estate of 2 sentence of Art 1192 of CC. It applies only to cases where it cannot be
deceased Narcisa R. Kaparaz shall have been consummated and determined who first violated the contract
effected but not latter than March 31,1967 and only upon full payment
of unpaid portion of purchase price. CENTRAL BANK OF THE PHILIPPINES VS CA
 Private respondents did not reserve unto themselves the ownership Sulpicio Tolentino (Debtor) Island Savings Bank (Creditor)
of property until full payment of unpaid balance of P1,000. Loan: Lump sum Php 80,000, repayable In semi-annual installments for period
of 3 years, 12% annual interest.
 There is no stipulation giving the private respondents the right to
- Security: Real estate mortgage over his 100 hectare land
unilaterally rescind the contract the moment when vendee fails to pay - It was required that Tolentino shall use the loan proceeds solely as an
within a fixed period. additional capital to develop his other property into a subdivision.
 Agreement was not the absolute sale which allowed petitioners to pay Facts:
remaining balance of purchase price in installment  May 1965, mere P17,000 a partial release of the P80,000 loan was made
 In a contract of sale, the remedy of an unpaid seller is either specific by the bank.
performance or rescission. The latter, with respect to the sale of
immovable, specifically governed by Art 1592 of CC .

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 Tolentino spouses sgned a promisorry note for P17,000 at 12% annual HELD:
interest payable within 3 years from date of execution of contract in semi-  P80,000 loan agreement = reciprocal obligations –promise of each party is
annual installments of P3,459.00 the consideration for that of the other
 An advance interest for P80,000 loan covering a 6-month period  The promise of Tolentino to pay was the consideration for the obligation of
amounting to P4,800 was deducted from partial release of P17,000 Island Savings Bank to furnish P80,000 loan.
 But pre-deducted interest was refunded to Tolentino upon being informed  When Tolentino executed a real estate mortgage on April, he signified his
that there was no fund yet available for the release of P63,000 balance. willingness to pay P80,000 loan. From such date, the obligation of Island
 On August 1965,Monetary Board of BCP after finding that Island Savings Savings Bank to furnish P80,000 loan accrued.
Bank was suffering liquidity problems issued a resolution prohibiting bank  Bank’s delay in furnishing entire loan started on April 28,1965 and lasted
form making new loans and investments for a period of 3 years or when Monetary Board of CBP issued a resolution
 On June 1968- CBP prohibited Island Savings Bank from doing business on June 14,1968 which prohibited it from doing further business
in the Philippines and instructed Acting Superintendent of Banks to take  Such prohibition made it legally impossible for Island Savings Bank to
charge of assets of Island Savings Bank furnish P63,000 loan balance.
 August 1968—in view of nonpayment of P17,000 covered by promissory  The Monetary Board resolution on August 1965 cannot interrupt the default
note, Island Savings Bank filed an application for extrajudicial foreclosure of Island Savings Bank in complying with its obligation of releasing the
of real estate mortgage covering 100 hectare land and scheduled an P63,000 because said resolution merel prohibited Bank from making new
auction. loans and investment and nowhere did it prohibit the bank from releasing
 Jan 1969,Tolentino filed a petition with CFI for injuction, specific balance of loan agreements previously contracted
performance or rescission and damgaes with prelimnary injunction alleging  Mere fact of insolvency of debtor is never an excuse for the nonfulfillment
that since Island Savings Bank failed to deliver P63,000 balance of of an obligation but instead it is taken as a breach of contract by him.
P80,000 loan, he is entitled to specific performance, by ordering Island  The fact that Tolentino demanded and accepted refund of pre-deducted
Savings Bank to deliver P63,000 with interest of 12% per annum, if it interest amounting to P4,800 for supposed P80,000 loan covering a 6
cannot be delivered, to rescind the real estate mortgage. month period cannot be taken as waiver of his right to collect P63,000
balance.
RTC
- Unmeritorious: Tolentino’s petition  Act of Island Savings Bank in asking the advance interest for 6 months on
- Orders Tolentino to pay Island Savings Bank the amount of P17,000 supposed P80,000 loan was improper considering that only P17,000 out of
plus legal interest and legal charges due thereon and lifting restraining P80,000 was released. A person cannot be legally charged for non-
order so that sheriff may proceed with foreclosure existing debt.
CA  Alleged discovery of Island Savings Bank of overvaluation of loan collateral
- Modified CFI decision : Dismissal of Tolentino’s petition for specific cannot exempt it from complying with its reciprocal obligation to furnish
performance
entire loan It is their oblation to investigate the existence and valuation of
- BUT it ruled that Island Savings Bank can neither foreclose the real
estate mortagage nor collect the P17,000 loan properties being offered as loan security.
ISSUE  Since Island Savings Bank was in default in fulfilling its reciprocal
WON TOLENTINO’S ACTION FOR SPECIFIC PERFORMANCE WILL obligation under their loan agreement, under Art 1191, Tolentino may
PROSPER choose between specific performace or rescission with damages in either
WON TOLENTINO IS LIABLE TO PAY P17,000 DEBT COVERED BY THE case.
PROMISSORY NOTE  But since Island Savings Bank is now prohibited from doing business, we
IF TOLENTINO’S LIABILITY TO PAY P17,000 SUBSISTS, CAN HIS REAL cannot grant specific performance. Rescission is the only alternative
ESTATE MORTGAGE BE FORECLOSED TO SATISFY SAID AMOUNT? remedy left.

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 We rule however that rescission is only for the P63,000 balance of Facts:
P80,000 loan.  Matella alleged that spouses Yao paid him the amount of P4,649,078.00
 The promissory note gave rise to Tolentino’s reciprocal obligation to pay thereby leaving a balance of P741,482.00. His demand was unheeded.
P17,000 loan when it falls due. His failure to pay the overdue amortizations  He thereby filed a complaint for a sum of money with RTC
under promissory note made him party in default, hence not entitled to  In their response, spouses Yao denied that project was completed and
rescission. alleged that Matella abandoned project without notice. They claimed that
 If there is right to rescind the promissory note, it shall belong to the they paid Matela the sum of P4,699,610.93 which should be considered as
aggrieved party, that is Island Savings bank sufficient payment considering that Matela used sub-standard materials
 If Tolentino had not signed the promissory note setting date of payment, he causing damage to project which needed a substantial amount of money to
would be entitled to ask for rescission of entire loan because he cannot repair.
possibly be in default as there was no date for him to perform his RTC: In favor of Matela
reciprocal obligation. - Ordering Spouses Yao to pay Matella P741,428.00 plus legal interest
 Art 1192 provides that in case both parties have committed a breach of from filing of complaint until fully paid
their reciprocal obligations, the liability of the first infractor shall be - Construction of 2 unit town houses were completed by plaintiff as shown
equitably tempered by the courts. by the fact that Building Official of Makati, after inspection issued an
evaluation sheet occupancy permit , certificate of completion and
 Liability of Island Savings Bank for damages in not furnishing entire loan is
progress flow sheet of occupancy permit.
offset by the liability of Tolentino for damages in form of penalties and - It has been completed on April 5 and have been done in accordance to
subcharges for not paying overdue debt. plans and specifications
 Since Tolentino derived some benefit for his use of P17,000, it is just that CA: Affirmed
he should account for the interest thereon.
 Real estate mortgage cannot be entirely foreclosed to satisfy his P17,000 ISSUE:
debt. WON MATELA IS ENTITLED TO ADDITIONAL CONSTRUCTION COST
 Where the indebtedness actually owing to the holder of mortgage is less MATELA CLAIMS: SPOUSES YAO CONTENDS :
than sum named in the mortgage, mortgage cannot be enforced more than Although spouses Yao did no Complaint for collection of sum of
actual sum due. expressly admit obligation as regard money by Matella should be
 Since Island Savings Bank failed to furnish P63,000 balance of P80,000 the additional construction cost of dismissed because it was the latter
P300,000, they impliedly admitted it who breached his undertaking by
loan, real estate mortgage of Tolentino became unenforceable to such
as evidenced by testimony of Mrs.Yao using sub-standard materials and not
extent. completing the project
 P63,000 is 78.75% of P80,000, hence real estate mortgage covering 100 They made payment of amount of
hectares is unenforceable to the extent of 78.75 hectares. However the P4,699,610.93 should be considered
rule of indivisibility of mortgage is provided for under Art 2089 CC sufficient payment
 But such, article presupposes several heirs of debtor or creditor, which HELD:
does not obtain in this case, hence rule of indivisibility of mortgage cannot  Factual findings of lower courts are contradicted by evidence on record.
apply.  As agreed by parties, Matela will construct townhouse in acc to the
specification while spouses Yao will pay Matela the agreed construction
YAO v. MATELA cost based on progress billings. The spouses Yao will not pay in full
Spouses Yao (Client) Matela (Licensed Architect) unless latter has fully complied with or has discharged his obligation.
- Architect : manage and supervise construction of 2 unit townhouse : at a  Our evaluation of records reveal that Matela failed to comply with his
total cost of P5,090,560.000 obligation to construct townhouses based on the specifications

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 Such he cannot be discharged from his obligation by mere delivery of the

same to spouses Yao.
 Photographs offered by the spouses Yao exhibits unfinished and uneven
ceilings, rotten door jabs, and door posts, unfinished wooden partitions and
unhinged and unfinished doors, unfinished electrical conduits, electrical
outlets, wirings etc.
 We cannot rely on permits and certificates to prove the project completion.
 The agreed construction cost was P5,090,560, however, the amounts
reflected in Building Permit, was only P2,191,700 Certificate of
Completion: P2,347,706.81, Certificate of Occupancy: P2,341,706
 Considering all the discrepancies, conclusiveness of said documents fall
when arrayed against the pieces of evidence produced by spouses Yao.
 However, we find that spouses Yao likewise failed to comply with their
undertakings
 They refused to pay balance agreed upon despite demands, justifying
such by reason of the abandonment and defects of project
 Evidently both parties in this case breached their respective obligations.
 The law does not relieve party from effects of unwise, foolish, or disastrous
contracts entered into with full awareness of what he was doing and
entered into and carried out in good faith.
 Art 1192: In case both parties have committed a breach of obligation, the
liability of 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.
 Losses incurred by parties will come, as far as Matela is concerned in form
of alleged unpaid balance For the latter, the losses that they will bear is the
cost of repairing the defects of project. We considered the amount of
P4,699,610.93 which Matela has received as sufficient payment for his
services and materials used in the project

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