I. General Provisions on Obligations (Arts. 1156-1162)

I.1. Distinguished from ContractsI.2. ConceptI.3. Essential ElementsI.4. Sources

NUGUID V. NICDAO

Facts:

II. Prestations (Arts. 1163-1168)

II.1. To GiveII.1.1. Determinate and Generic

TermsII.1.2. Accessory Obligations in

Obligations to Give Determinate Thingsa. Exercise of diligence of

a good father of a familyb. Fruits (Art. 1187)c. Accessions and

Accessories

II.2. To Do or Not To Do

II.3. Consequences of Failure to Comply with Required Prestation Cf. Art. 1191)

ANGELES V. CALASANZ

Facts:On Dec.19, 1957, defendants-appellants, Ursula Torres Calasanz and Tomas Calasanz, and plaintiff-appellees, Buenaventura Angeles and Teofila Juani, entered into a contract to sell a piece of land in Cainta, Rizal, for Php 3,920 plus 7% interest per annum. Angeles, etc made a downpayment of Php 392 upon execution of the contract, and promised to pay the balance in monthly installments. They continued paying until July 1966 when the aggregate payment amounted to Php 4,533.38. On numerous occasions, they gave delayed installment payments.

On Dec. 6, 1966, Calasanz, etc. requested payment of past remittances. On Jan. 28, 1967, they cancelled said contract because Angeles failed to meet the payments. Angeles filed a civil case to compel Calasanz to execute a deed of sale. Calasanz alleged that they refused to pay the installments corresponding to the month of August 1966 for more than five months. The lower court rendered judgment in favor of Angeles, stating that the contract was not validly cancelled.

Issue:W/N the contract to sell has been automatically and validly cancelled by the defendant appellees.

Held:In Art.1191, either party has the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder, in reciprocal obligations. A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. It must be

understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that it was not warranted, the responsible party shall be subject to damages. In other words, the party who deems the contract violated may consider it rescinded and proceed accordingly, without previous court action, but it proceeds at its own risk. The right to rescind the contract for non-performace of its stipulations is not absolute. Rescission of a contract will only be permitted for substantial and fundamental breach as would defeat the very object of the parties in making the agreement.

The breach of contract (failing to pay the August installment despite demand, for more than four months) is so slight and casual when we consider that the plaintiff-appellees had already paid the monthly installments for almost 9 years, including the initial downpayment, amounting to Php 4,553.38. When the defendants-appellants, instead of availing their alleged right to rescind, accepted and received delayed installment payments, though the plaintiff-appellees have been in arrears beyond the grace period, the defendant-appellants waived and are estopped from exercising their alleged right to rescission. To sanction the rescission made by the defendants-appellants will work injustice against the plaintiff-appellees. Art. 1234 provides that if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. It also militates against the unilateral act of the defendants-appellants in cancelling the contract.

The contract to sell has characteristics of a contract of adhesion. The defendants-appellants drafted the contract and the plaintiffs-appellees had no opportunity to change the terms. It was offered on a take it or leave it basis. Contracts of adhesion are contracts where almost all the provisions have been drafted by one party. The participation of the other is the signing of his signature or his adhesion thereto. Contracts of sale of lots on the installment plan fall under this category. This contract must be construed against the party causing it. The decision appealed from is affirmed with the modification that plaintiff-appellees should pay the balance without any interests.

RELIANCE COMMODITIES, INC. v. INTERMEDIATE APPELLATE COURTFacts:Martin Paez entered into a contract with Samuel Chuason, president and general manager of Reliance Commodities, Inc. on Apr. 19, 1972 where the latter agreed to provide the former with funds and equipment for the operation of manganese mining claims of Daniel Garde in Nueva Ecija. On Jun. 1, 1972, they entered into another agreement called “Addendum to Operating Agreement” which provides that Paez must segregate the Manganese Ores into 2 classes with Reliance Commodities, Inc. giving Paez a cash advance of P8,300 to hire laborers, tools, supplies and food. The bulldozer, dump truck and cobra drill were provided by petitioner. On Jul. 28, 1972, Paez executed a deed of first real estate mortgage on their property as security for more cash advances to sustain the operation, amounting to P25,030.

A difference arose between petitioner and Paez regarding the cash advances. Petitioner demanded the tools back, which Paez’ laborers refused to return because they had not been

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paid their wages. Petitioner gave Paez P800 to pay their salaries and foreclosed extrajudicially the mortgage executed by plaintiffs in its favor. Paez filed an action for preliminary injunction to stop the sheriff from proceeding with the auction sale, annulling the Deed of First Real Estate Mortgage and the Addendum and directing petitioner to make further cash advances in the amount of P75,000 plus damages. Judgment was rendered in favor of the petitioners dismissing the complaint and ordering Paez to pay the sum of P41,130 representing the cash advances with interest at the rate of 12% per annum from the date of receipt, attorney’s fees and ordering the restraining order for the auction sale set aside upon failure to pay.

Paez appealed with the CA who set aside the decision and declared both the Deed and the Addendum null and void, and ordered the petitioner to pay P20,000 for unrealized profits.

Issue:Whether the IAC erred in finding that the petitioner, not respondent, have cause for rescission of the contracts and in ruling that rescission was not available in rescission of contracts under Art. 1191.

Held:In favor of petitioners.Under the agreement, Reliance Commodities was to pay Paez P70 for every ton of manganese ores delivered with a grade of 40-46% or over, to be made upon delivery to the stockpile yard in Nueva Ecija. Petitioner was to advance the expenses of mining and haling as they were incurred every 15 days, and advances made deductible from the agreed consideration.

Paez failed to make a single delivery of manganese ores. In fact, there was no mining operation at all. Petitioner rescinded the contracts. In reciprocal obligations, the power to rescind or resolve is given to the injured party. It requires the parties to restore to each other what they have received by reason of the contracts. The rescission has the effect of abrogating the contracts in all parts.

Decision of the IAC is reversed and the decision of the trial court is revived and affirmed.

BARREDO v. LEANO

Facts:In 1979, Manuel and Jocelyn Barredo bought a house and lot in Las Pinas with an SSS loan of P50,000 payable in 25 yrs. and an Apex Mortgage and Loans Corporation of P88,400 payable in 20 years. To secure the loans, they executed a first mortgage in favor of SSS and a second one for Apex. On Jul. 10, 1987, the sold their house and lot to Eustaquio and Emilda Leano by way of a Conditional Deed of Sale with Assumption of Mortgage. The Leano Spouses would pay the Barredo Spouses P200,000, half of which would be payable on Jul. 15, 1987, with the balance paid in 10 equal monthly payments after the signing of the contract. They would also assume the mortgages and pay the monthly amortizations beginning Jul. 1987 until both obligations were fully paid.

Two years later, Sept. 4, 1989, the Barredo Spouses initiated a complaint before the RTC of Las Pinas seeking the rescission of the contract on the ground that the Leanos failed to pay the mortgage amortizations despite repeated demands. The Leanos contended that they were up-to-date with Apex payments but were not able to pay SSS because

their payments were refused upon instructions by the Barredos. The Barredos took it upon themselves to settle the mortgage loans and paid P27,494 on Sept. 11, 1989 and P41,401.91 on Jan. 9, 1990. SSS issued a Release of Real Estate Mortgage Loan. They also settled the Apex loan with P5,379.23 on Oct. 3, 1989 and P64,000 on Jan. 9, 1990. Apex issued a Certification of Full Payment of Loan. The Barredos also paid the real estate property taxes for 1987-1990. The RTC ruled in favor of the Barredos, declaring the contract as rescinded and null and void, and ordering the defendants to pay.

The Leanos, who had turned over the house and lot to the Barredos, appealed to the CA, who reversed the decision on the ground that the payments of amortization were mere collateral matters which did not detract from the condition of paying the principal consideration, and ordered the Barredos to execute the Deed of Absolute Sale upon full payment of P140,492.74 and turn over the property to the Leanos.

Issue:W/N the CA erred in holding that the payments of amortization are mere collateral matters.

Held:The principal object of the contract was the sale of the Barredo house and lot, for which the Leanos gave P200,000. The assumption of the mortgages by the Leanos and their payment of amortizations are just mere collateral matters which are natural consequences of the sale of the mortgaged property. ¶3 of the agreement provides that the Leanos merely bound themselves to assume, which they actually did upon signing of the agreement, the obligations of the Barredos with SSS and Apex. Nowhere in the contract is it stipulated that the sale was conditioned upon their full payment of the loans. To include the full payment of the obligations with SSS and Apex as a condition would be to unnecessarily stretch and put a new meaning to the provisions of the agreement.

Even if the payment of the amortizations to SSS and Apex are considered as a condition on which the sale is based on, rescission would still not be available since non-compliance with such condition would just be a minor or causal breach as it does not defeat the very object of the parties in entering into the contract. The main consideration of the sale is the payment of P200,000 within the period agreed upon. The assumption of mortgage is a natural consequence of buying a mortgaged property. The Barredos do not stand to benefit from the payment of the amortizations by the Leanos simply because the Barredos have already parted with their property, which they were already fully compensated for. In ordering rescission, the trial court should have ordered the Barredos to return the P200,000 they received as purchase price plus interests. Art. 1385 provides that “rescission creates the obligation to return the things which were the object of the contract, together with the fruits, and the price with its interest.” The vendor is obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale. Thus, where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they

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have respectively received and place each other as far as practicable in his original situation.

VILLANUEVA v. ESTATE OF GERARDO L. GONZAGA

Facts:On Jan. 15, 1990, Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloading stations and sugar trading, and the Estate of Gerardo L. Gonzaga, represented by its Judicial Administratix, Ma. Villa J. Gonzaga, executed a MOA which read that the latter was the owner of land in Bacolod City, mortgaged with the Philippine National Bank as collateral for loan, and that the former was to purchase portions of the lot for P150 per sq. m. for the total price of P486,000 subject to the ff. conditions:

a.) That the Estate of Gonzaga would release the lots from PNB.

b.) That the Villanuevas would pay the amount P100,000 upon signing the agreement, P191,600 on Jan. 10, 1990, and P194,400 upon approval of the PNB of the release of the lots.

c.) That the P100,000 downpayment shall be considered forfeited if the Villanuevas withdraw from their agreement.

d.) Upon 60% payment, the Villanuevas may start to introduce improvements.

e.) Upon the release of the lots by the PNB, the Estate of Gonzaga would execute a Deed of Sale.

The Villanuevas started improving after paying P291,600 or 60% of the purchase price and requested permission to use the lots for the next milling season. It was refused on the ground that they had not yet paid the full purchase price. The Villanuevas informed them that the immediate use was absolutely necessary and delay would cause them substantial damages. The Estate was firm in their refusal unless they paid the full purchase price, which the Villanuevas reminded them of their obligation to redeem the lots from mortgage from PNB, giving them 10 days to do so. The Estate informed the Villanuevas of the PNB’s approval (which contained 3 conditions: that the sale be approved by the Court, that payment of 2 annual amortizations in addition to P50,000 be derived from sale of lot ought to be released, and terms and conditions that their Legal Dept. might impose in the interest of PNB), of which they demanded the clean titles to the lots.

On May 28, 1991, Gonzaga executed a Deed of Rescission rescinding the MOA on 2 grounds: that they failed to pay the balance despite notice of the lots’ release from mortgage, and for using the lots for transloading without permission. The Villanuevas demanded the lot titles before the full payment, which was ignored. They filed a complaint for breach of contract, specific performance and damages before the RTC. The trial court ruled in favor of the Estate declaring the MOA rescinded, ownership and possession restored to them and ordering them to refund the sum of P100,000 and another payment of P191,600 with legal interest at 6% per annum. The Villanuevas filed a petition for review in the CA where they affirmed the trial court’s decision excepting the award for moral damages on the ground that they were not

guilty of bad faith for refusing to pay the balance of the purchase price.

Issue:W/N respondents failed to comply with their reciprocal obligation of securing the release of the lots from mortgage indebtedness with the PNB.

Held:The PNB’s letter of approval shows that the approval was conditional. It was therefore premature for respondents to demand payment of the balance of the purchase price and rescinding the MOA. Moreover, there is no legal basis for the rescission. The remedy of rescission under Art. 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. The remedy does not apply to contracts to sell. In a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. In a contract to sell, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it.

The MOA between the two parties is a conditional contract to sell. Ownership over the lots is not to pass to the petitioners until full payment of the purchase price. The petitioners’ obligation to pay, in turn, is conditioned upon the release of the lots from mortgage with the PNB to be secured by the respondents. Since ownership had not been transferred, no legal action need have been taken by the respondents. The records show that the lots were finally released from mortgage in Jul. 1991 and petitioners should be allowed to pay. However, petitioners may not demand production of the titles as condition for the payment as it was not required under the MOA. Petition is granted and the decision is reversed.

III. Breach

III.1. CausesIII.1.1.DoloIII.1.2.Culpa

RCPI v. CA

Facts:A telegram sent through Radio Communications of the Philippines, Inc. was sent to Loreta Dionela. He alleged that it contained defamatory words causing him undue embarrassment and affected adversely his business. The corporation alleged that the additional words was a private joke between the sending and receiving operators, not meant for Dionela, not part of the telegram and not defamatory. The trial court ruled in favor of Dionela, stating that the defendant is sued directly. If they escape liability by the simple expedient of showing that it employees acted beyond the scope of their assigned tasks, it would open the door to frauds and allow the corporation to act with impunity. The

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appellate court confirmed their decision, stating that the proximate cause resulting in injury was the failure of the corporation to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident. The company had not imposed any safeguard against such eventualities and this void did not speak well of their concern for their client’s interests. There is libel because a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see.

Issue:W/N the CA erred in holding that the company should answer directly and primarily for the civil liability arising from the criminal acts of its employees.W/N the CA erred in holding that the liability of the company is predicated on Arts. 19 and 20.

Held:The cause of action of Dionela was based on Arts. 19 and 20, as well as the respondents’ breach of conduct through the negligence of its employees. Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Every time a person transmits a message through the corporation’s facilities, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. Libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to Dionela. As a corporation, the petitioner can act only through its employees. Hence, the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for its employees’ acts in the pursuit of the corporation’s business is to deprive the general public availing of their services of an effective and adequate remedy.

FEBTC v. CA

Facts:Luis A. Luna applied for a FarEastCard, along with a supplemental card to Clarita S. Luna. In Aug. 1988, Clarita lost her credit card and FEBTC was informed. She submitted an affidavit of loss to replace the lost card. On Oct. 6, 1988, Luis hosted a despedida lunch for a friend in the Intercon Hotel. He presented his card which was not honored. On Oct. 11, 1988, he demanded the payment of damages. Adrian V. Festejo, VP, expressed the bank’s apologies in a latter stating that the bank failed to inform him about its security policy and that an overzealous employee did not consider the possibility that his card had been hotlisted. Still feeling aggrieved, Luna filed a complaint for damages with the RTC. The trial court ruled in favor of Luna and ordered FEBTC to pay damages. The CA affirmed the trial court’s decision.

Issue:W/N FEBTC should pay damages.

Held:In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. Art. 2220: Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Bad faith includes gross, but not simple, negligence. The bank was remiss in neglecting to personally inform Luna of his own card’s cancellation. However, there was no deliberate intent to cause harm and

negligence in failing to give personal notice be considered as amounting to malice or bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. The Court finds that the award of moral damages to be inordinate and substantially devoid of legal basis. In quasi-delicts, exemplary or corrective damages are granted if the defendant is shown to have been so guilt of gross negligence as to approximate malice. In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

Nevertheless, the bank’s failure to honor its credit card should entitle him to recover a measure of damages sanctioned under Art. 2221: Nominal damages are adjudicated in order that a right of plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. The appealed decision is modified by deleting the award for moral and exemplary damages.

III.1.3.Mora/Defaulta. By the Obligor/Debtor

BRICKTOWN DEVT. CORP. V. AMOR TIERRA DEVT. CORP.

Facts:On Mar. 31, 1981, Bricktown Devt. Corp. executed 2 Contracts to Sell in favor of Amor Tierra Devt. Corp. covering a total of 96 residential lots in Multinational Village Subdivision in Paranaque with a total price of P21,639,875 to be paid as follows: P2,200,000 on Mar. 31, 1981, P3,209,968.75 on Jun. 30, 1981, P4,729,906.25 on Dec. 31, 1981 and the balance of P11,500,000 to be paid by means of an assumption of Amor Tierra of Bricktown’s mortgage liability to Philippine Savings Bank or, alternatively, to be made payable in cash. They executed a Supplemental Agreement, providing that Amor Tierra would additionally pay to Bricktown the amounts of P55,364.68 or 21% interest on the balance of downpayment for the period from Mar. 31 to Jun. 30, 1981, and P390,369.37 representing interest paid by Bricktown to the Philippine Savings Bank in updating the bank loan for Feb. 1 to Mar 31, 1981.

Amor Tierra was only able to pay P1,334,443.21 but the parties continued to negotiate a possible modification for the agreement, though nothing conclusive arrived. On Oct. 12, 1981, Bricktown sent Amor Tierra a Notice of Cancellation of Contract on account of the failure to pay the installment due on Jun. 30, 1981 and the interest on the unpaid balance of the stipulated initial payment. Bricktown advised Amor Tierra that it still had the right to pay its arrearages within 30 days from receipt of notice before actual cancellation. On Sept. 26, 1983, Amor Tierra demanded the refund of various payments amounting to P2,455,497.91 with interest within 15 days from receipt of letter or to assign them an equivalent number of unencumbered lots at the same price. The demand was ignored and Amor Tierra filedan action. The trial court decided in favor of Amor Tierra, ordering the Contracts to Sell and Supplemental Agreement rescinded and the refund of P1,334,443.21 with interest at 12% per annum. The CA affirmed the trial court’s decision.

Issues:W/N the contracts to sell were validly rescinded or cancelled by petitioner corporation.

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W/N the amounts already remitted by Amor Tierra under said contracts were rightly forfeited by Bricktown.

Held:The terms of payment were not met by Amor Tierra, including the initial payment, and no additional payments were made. A notice of cancellation was made months after the lapse of the contracted grace period. A grace period is a right of the debtor. When unconditionally referred, the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right.

The cancellation of the contracts to sell by Bricktown accords with the contractual covenants of the parties. In a contract to sell, the non-payment of the purchase price (which is normally the condition for the final sale) can prevent the obligation to convey title from acquiring any obligatory force.

Though Bricktown still acted within its legal right to declare the contracts to sell rescinded or cancelled, it would be unconscionable to sanction the forfeiture of payments by Amor Tierra. Because of the negotiations between the parties and that Amor Tierra never took actual possession of the properties, they were led to believe that the parties might enter into another agreement in place of the contracts to sell. There was no malice or bad faith on their part in suspending payment. Bricktown had not only contributed but consented to the delay or suspension of payments. They did not give Amor Tierra a categorical answer that their counter-proposals would not materialize. It is not equitable to adjudge any interest payment by Bricktown on the amount to be refunded for they should not be totally free of its own breach. The appealed decision is affirmed as it declares the cancellation of the contracts but modified by ordering the refund of P1,334,443.21 with 12% interest per annum to commence only from the date of finality of the decision.

TAGUBA v. DE LEON

Facts:Berlin Taguba married to Sebastiana Domingo is the owner of a residential lot in Isabela. Pedro Asuncion and Marita Lungab (also petitioners), and respondent, Maria Peralta Vda de De Leon were separately occupying portions of the lot as lessees. On Aug. 27, 1972, Taguba sold a portion of the lot to De Leon, comprising the area occupied by the Asuncions and De Leon, in a Deed of Conditional Sale which stated that it would be sold for P18,000 as follows: P3,500 upon signing the contract, the pay P1,000 monthly starting Sept. 1972, and that failure to pay the whole payment by Dec. 31, 1972, the vendee will be given a 6 month extension with interest after which the vendor may increase the price to P50 per sq. meter which the vendee agrees to pay.

De Leon alleged that she had paid P12,500 and tendered payment of the balance of P5,500 but the latter refused to receive payment, and since negotiations for settlement failed, De Leon instituted a complaint for Specific Performance. Taguba claimed that De Leon failed to comply with her obligation despite several extensions granted her, by which Taguba was compelled with the consent of De Leon to negotiate the sale of a portion of the property to the Asuncions. Taguba alleged that they had agreed that De Leon and the Asuncions would buy only the portions they held as lessees. The trial court ordered Taguba to execute a Deed of Absolute Sale for the area she occupied and reimbursement of the ayment for the excess area. The CA reversed the decision ordering Taguba to execute a deed of absolute sale to De Leon, and declaring the deed of sale with the Asuncions

as null and void in view of the proper sale of the property, allowing with reimbursement to them.

Held:The contract of sale between Taguba and De Leon was absolute in nature. Despite the Deed of Conditional Sale, nowhere in the contract can a stipulation or proviso be found that title of the property sold is reserved in the vendor until full payment of the purchase price. There is also no stipulation giving Taguba the right to unilaterally rescind the contract the moment De Leon fails to pay within the fixed period. The only right of Taguba as vendor was to collect interest at the legal rate if De Leon fails to pay the full purchase price and to increase the price after Dec. 31, 1972 for 6 mos. The applicable provision is Art. 1592: In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand the court may not grant him a new term. Taguba never notified De Leon by notarial act that he was rescinding the contract, and neither had he filed a suit in court to rescind the sale. “Where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement.” Considering that De Leon had already paid, equity and justice mandate that she be given additional period within which to complete payment. The deed of sale to the Asuncions cannot prevail over the previous sale. They cannot be considered buyers in good faith because they are aware of the earlier sale to De Leon.

b. By the Obligor/Creditor

MCLAUGHLIN V. CA

Facts:On Feb. 28, 1977, petitioner Luisa F. McLaughlin and respondent Ramon Flores entered into a contract of conditional sale of real property with the total purchase price of Php 140,000, payable by Php 26,550 upon execution of the deed and the balane of Php 113,450 to be paid not later than May 31, 1977, with an interest rate of 1% per month to commence from Dec. 1, 1976 until the full purchase price is paid.

Petitioner filed a complaint in the CFI of Rizal for the rescission of the deed of conditional sale due to the failure of private respondent to pay the balance due on May 31, 1977. The parties submitted a Compromise Agreement on the basis of which the court rendered a decision, in which the private respondent acknowledged his indebtedness to the petitioner which would be payable as follows: Php 50,000 upon signing of the agreement, and the balance in two equal installments. It further stated that in event that the respondent fails to comply with his obligation, petitioner is entitled to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property. Respondent would have to waive his right to appeal and all payments would be forfeited in favor of the petitioner as liquidated damages.

Petitioner wrote to respondent demanding the installment payments, which respondent responded to signifying his willingness and intention to pay and demanding to see the certificate of title of the property and the tax payment receipts. Petitioner filed a Motion for Writ of Execution alleging that the private respondent failed to pay the installment due and monthly rentals. The trial courted granted the motion. Private respondent filed a motion for

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reconsideration, along with a check. This was denied. The trial court granted the petitioners ex-parte motion for clarification of the order of execution rescinding the deed of conditional sale of real property.

Respondent filed with the CA a petition for certiorari and prohibition. The CA nullified and set aside the disputed orders of the trial court.

Issue:Whether the CA erred in not observing the provisions of Art.1306 and in having arbitrarily abused its judicial discretion by disregarding the penal clause stipulated by the parties in the compromise agreement, which was the basis of the decision of the trial court.

Held:It would be inequitable to cancel the contract of conditional sale and to have the amount already paid by him forfeited in favor of the petitioner, particularly after respondent had tendered a check in full payment of his obligations.

R.A. 6552 (The Maceda Law)Sec. 4: in case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.Sec. 7: Any stipulation in any contract hereafter entered into contrary to the provisions of Secs. 3, 4, 5 and 6, shall be null and void.

Respondents tender of payment, together with his motion for reconsideration was well within the thirty-day period granted by law.

Sec. 49, Rule 130 of the Revised Rules of Court: an offer in writing to pay a particular sum of money or to deliver a written instrument or specific property is, if rejected, equivalent to the actual production and tender of the money, instrument, or property.

However, although respondent made a valid tender of payment which preserved his rights as a vendee in the contract of conditional sale of real property, he did not follow it with a consignation or deposit of the sum due with the court. The check was subsequently withdrawn and replaced by cash, but the cash was not deposited with the court. He remains liable for the payment of his obligation because of his failure to deposit the amount due with the court.

The decision of the CA is affirmed with modifications. Petitioner is ordered to accept the check, respondent is ordered to pay petitioner within 60 days from the finality of the decision the rentals and petitioner is ordered to execute a deed of absolute sale in favor of private respondent upon full payment of the amounts.

Art. 1256: if the creditor to whom the tender of paymenthas been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated therein.Art. 1257: in order that the consignation of the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

Art. 1258: consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified thereof.

Soco v. Militante: tender of payment must be distinguished from consignation. tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation.

c. Compensatio Morae

CORTES V. CA

Facts:The Corporation, as buyer, and Cortes, as seller, entered into a contract of sales over the lots covered by 3 Transfer Certificates of Title (TCT), located in Baclaran, Paranaque, for Php 3,700,000.

On Jan. 14, 1985, the Corporation filed a case for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. Cortes claimed that the owners duplicate copy of the TCTs were delivered to the Corporation and the latter refused to pay in full the agreed upon payment. The trial court rendered a decision rescinding the sale and directed Cort4es to return to the Corporation the amount of Php 1,213,000, plus interest. In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivered the TCTs. The motion was denied and it was held that the rescission should stand because the Corporation did not act upon the offer to deliver the TCTs upon payment of the balance of the down payment.

On appeal, the CA reversed the decision and directed Cortes to execute a Deed of Absolute Sale and the TCTs, simultaneous with the Corporations payment of the balance. It found that the records showed no delivery was made, hence, the Corporation was not remiss in the performance of its obligation and justified in not paying the balance.

Issue:Whether there is delay in the performance of the parties obligation that would justify the rescission of the contract of sale.

Held:Both parties were in delay. Considering that their obligation was reciprocal, performance must be simultaneous. The mutual inaction of both parties gave rise to a compensation morae or default on the part of both parties because neither completed their part in the reciprocal obligation. This mutual delay cancels out the effects of default, such that no one is guilty of delay. The CA correctly ordered the parties to perform their respective obligation in the contract of sale. The petition for the rescission of the sale is denied and the decision of the CA is affirmed.

The stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the down payment upon execution of the contract. The transcript of stenographic notes reveal Cortes admission that he agreed that the Corporations full payment of the sum would depend upon his delivery of the TCTs of the three lots. By agreeing to transfer title upon full payment, Cortes impliedly agreed to deliver the

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TCTs to the Corporation to effect the transfer. The meaning of execution is not limited to the signing of a contract but includes the performance or implementation or accomplishment of the parties agreement. With the transfer of titles as the corresponding reciprocal obligation of payment, Cortes obligation is to set into motion the process that would facilitate the transfer of title of the lots.

What strengthened the findings of the CA that Cortes did not surrender the subject documents was the offer of his counsel at the pre-trial to deliver the TCTs and Deed of Absolute Sale if the Corporation will pay the balance of the down payment.

The decisive factor in evaluating an agreement is the intention of the parties, as shown by terminology, conduct, words, actions and deeds prior to, during and immediately after executing the agreement.

Reciprocal obligations are those which arise from the same cause and which each party is a debtor and a creditor of the other,such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.

Art. 1191: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

When failure or delay in performance arises,

Art. 1169: In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

YAO V. MATELA

Facts:On Mar. 30, 1997, the spouses Yao contracted the architectural services of Matela to manage and supervise the construction of a 2 unit townhouse at a total cost of P5,090,560. It was completed in April 1998, with additional works costing P300,000. Matela alleged that the Yaos paid him P4,649,078, leaving a balance of P741,482, the demand of which they ignored and he filed a complaint with the RTC of Las Pinas. The Yaos claimed that they paid Matela that sum which should be considered as sufficient payment considering Matela had used substandard materials causing damage to the project which needed a substantial amount of money to repair. The trial court ruled in favor of Matela ordering the Yaos to pay him the balance, stating that the Building Officials of Makati City, had issued documents stating that the construction was completed in accordance with the plans and specifications. The CA affirmed but modifying the amount of actual damages to P391,582, stating that any delay in the delivery is cured by the acceptance of the thing after delay incurred, in answer to the argument of the Yaos that Matela failed to finish the project within the agreed period.

Issue:W/N Matela is entitled to the additional construction cost.

Held:The factual findings of the trial court and CA are contradicted by the evidence on record. An evaluation of the records reveal that Matela failed to comply with his obligation to construct the townhouses based on the agreed specifications. He cannot be discharged from his obligations

by mere delivery of the same to the Yaos. The agreed construction cost of the project was P5,090k560 but the amounts reflected in the Building Permit, the Certificate of Completion and the Certificate of Occupancy are far less. The Yaos likewise failed to comply with their undertakings. They refused to pay the balance of the agreed construction cost despite demands, justifying their non-payment by arguing that the Matelas abandoned the project and that there were defects in the construction. Both parties breached their respective obligations. The law does not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he was doing and entered into and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact. Where it cannot be conclusively determined which of the parties first violated the contract, the solution is in Art. 1192: In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. The losses to be incurred shall be as follows: for Matela, in the form of the alleged unpaid balance, and for Yao, the losses they will bear repairing the defects.

Reciprocal obligations are those which are created or established at the same time, out of the same cause, and which result in mutual relationships of creditor and debtor between the parties. These obligations are conditional in the sense that the fulfillment of an obligation by one party depends upon the fulfillment of the obligation by the other. The general rule is that fulfillment by both parties should be simultaneous or at the same time. One party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. If neither party complies or is ready to comply with what is incumbent upon him, the default of one compensates for the default of the other. In such case, there can be no legal delay.

III.1.4.Effect on Persons Subsidiarily Liable

III.2. Fortuitous Events

JUNTILLA V. FONTANAR

Facts:Roberto Juntilla was a passenger of a jeepney driven by Berfol Camoro, which was registered under the franchise of Clemente Fontanar and owned by Fernando Banzon. The right rear tire exploded causing the vehicle to turn turtle. Juntilla was seatedin the front and he was thrown out of the vehicle and lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm, injuries on his left arm, right thigh and back, and his Omega wristwatch was lost. He filed a case with the City Court of Cebu where judgment was rendered in favor of Juntilla, ordering defendants to pay him damages and reimbursement. The CFI reversed the decision, finding the accident a fortuitous incident and pronouncing them without liability.

Issue:W/N the Court committed GAD in failing to take cognizance of the fact that defendants failed to exercise utmost and/or extraordinary diligence required of common carriers contemplated under Art. 1755.

Held:There are specific acts of negligence on the part of the respondents. The passenger jeepney turned turtle and

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jumped into a ditch immediately after its rear tire exploded which shows that the jeepney was running at a very fast speed. It was also overloaded at the time of the accident. The sudden blow-up of the tire could have been caused by too much air pressure injected into the tire coupled by the fact that it was overloaded and speeding at the time of the accident. The accident was caused either through the negligence of the driver or because of the mechanical defects of the tire.

The rationale of the carrier’s liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable.

The source of a common carrier’s legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all circumstances.

A caso fortuito:(1) The cause of the unforeseen and unexpected

occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will.

(2) It must be impossible to foresee the event constituting the caso fortuito, or if it can be foreseen, it must be impossible to avoid.

(3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.

(4) The obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the creditor.

ACE-AGRO DEVT. CORP. V. CA

Facts:Ace-Agro had been cleaning soft drink bottles and repairing wooden shells for Cosmos within its company premises in San Fernando, Pampanga. On Apr. 25, 1990, fire broke out in the Cosmos plant. As a result, Ace-Agro’s work was stopped. On May 15, 1990, Ace-Agro requested Cosmos to resume its services but they were advised that on account of the fire destroying nearly all the bottles and shells, Cosmos was terminating their contract. Ace-Agro requested Cosmos to reconsider its decision but upon receiving no reply, they informed its employees of the termination of their employment, which led the employees to file a complaint for illegal dismissal before the Labor Arbiter against both Ace-Agro and Cosmos. Ace-Agro sent another letter for reconsideration to Cosmos, to which they replied that they could resume work but outside company premises. Ace-Agro refused the offer, claiming that to work outside would make them incur additional costs for transportation. Cosmos then advised Ace-Agro that they could resume work inside the company premises which Ace-Agro rejected citing the pending labor case. Ace-Agro brought a case against Cosmos for breach of contract and damages in the RTC, complaining that termination was illegal and arbitrary and stood to lose profits and be held liable to its employees for backwages, damages and separation pay. The labor court found Ace-Agro liable for the claims of its employees and they were ordered

to reinstate the employees and pay them backwages. The RTC, however, found Cosmos guilty of breach of contract and ordered it to pay damages though Ace-Agro’s claim for reimbursement of what it had paid in the labor case was denied. Cosmos appealed to the CA which reversed the trial court’s decision, finding that the petitioner had been the one to refuse to resume work after failing to secure an extension of its contract.

Issue:W/N there was valid cause for the termination for Cosmos unilaterally terminating the contract on account of a force majeure.

Held:The reason given by Cosmos for unilaterally terminating its contract was tat the prestation or the object of their agreement had been lost and destroyed in the fire. What they wanted was for this situation to fall within obligations extinguished by the happening of unforeseen events, under whose influence the obligations would never have been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting. However, there were still other bottles and shells; therefore, the suspension of the work is at best temporary. Cosmos reconsidered its decision to terminate the decision by trying to accommodate the petitioner albeit outside the company premises. However, Ace-Agro unjustifiably refused because it wanted an extension of the contract to make up for the period of inactivity. They were without legal ground to refuse resumption of work on the basis of it being outside the company premises and could not legally insist to work inside property it did not own or lease. The second time they refused resumption of work, in spite of it being inside company premises, was not because of the pending labor case but because Ace-Agro really wanted an extension of the period or duration of the contract to cover the period of inactivity. But the suspension of work due to the fire does not merit an automatic extension. The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not mean that it stops the running of the period the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective obligations during that time. Cosmos withdrew its unilateral termination of its agreement but Ace-Agro’s refusal to work was a unilateral termination – an act without legal basis, which must be construed as a breach of contract. While Cosmos made efforts towards accommodation, Ace-Agro was unwilling to make adjustments. While the “job-out” offer had the effect of varying the terms of the contract, what petitioner does not seem to realize is that the change was brought about by circumstances not of Cosmos’ making. When Cosmos advised Ace-Agro that they could work inside the premises, the latter only thought of its interest by insisting that the contract be extended. Cosmos was justified in insisting that after the expiration of the contract, the parties must negotiate a new one as they had done every year.

IV. Usurious Transactions/Obligations Payable in Installments (Arts. 1175-1176)

LIAM LAW V. OLYMPIC SAWMILL CO.

Facts:On Sept.7, 1957, plaintiff loaned P10,000 without interest to partnership and Elino Lee Chi, as the managing partner. It became ultimately due on Jan. 31, 1960, but was not paid, with debtors asking for an extension of 3 mos (apr. 30,1960). On Mar. 17, 1960, the parties executed another loan document, extending the deadline to Apr. 30 but the

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obligation increased by P6,000. Defendants failed to pay, and on Sept. 23, plaintiff instituted this collection case. Defendants claimed that the additional P6,000 constituted usurious interest. The trial court rendered in favor of the plaintiffs, ordering defendants to pay the amount of P10,000 plus the P6,000 for liquidated damages... with legal rate of interest for on both amounts from Apr. 30.

Issue:W/N the P6,000 is usurious interest.

Held: Under Art. 1354, in regards to the agreement of the parties relative to the P6,000 obligation, it is presumed that it exists and is lawful, unless the debtor proves the contrary. No evidentiary hearing having been held, the defendants have not proven that the P6,000 obligation was illegal. The P6,000 obligation is viewed as liquidated damages suffered by plaintiff, as of Mar. 17, representing loss of interest income, attorneys fees and incidentals.

Sec.9 of the Usury Law (Act 2655): The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed against said person or corporation before a competent court to recover the money or other personal or real property, seeds or agricultural products charged or received in violation of the provisions of this Act. The lack of taking an oath to answer to a complaint will mean the admission of the facts contained in the latter.

The provision does not apply to the case, where it is the defendant, and not the plaintiff, who is alleging usury, regardless of the plaintiff not admitting the claim of usury and not denying it specifically and under oath. Moreover, for sometime now, usury has been legally nonexistent. Interest can now be charged as lender and borrowers may agree upon. The Rules of Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect. The appealed judgment is affirmed.

V. Rights of Creditors (Arts. 1177-1178)

VI. Different Kinds of Obligations

VI.1. Pure (Art. 1179)VI.2. Conditional (Arts. 1179-1180)

VI.2.1. Suspensive ConditionVI.2.2. Resolutory ConditionVI.2.3. Potestative, Casual or

Mixed

SBTC (SECURITY BANK AND TRUST COMPANY) V. CA

Facts:Respondent Ysmael C. Ferrer was contracted by SBTC to construct their building in Davao City for P1,760,000. The contract dated Feb. 4, 1980 provided that Ferre finish construction in 200 working days. He was able to complete the construction on Aug. 15 (within contracted period) but he was compelled by a drastic increase in the cost of construction materials to incur expenses of about P300,000 on top of the original cost. Ferrer made timely demands for payment of the increased cost, supported by receipts, etc. proving the additional expense.

In Mar. 1981, SBTC verified Ferrers claims for additional cost and a recommendation was made to settle his claim but only for P200,000. Instead of paying the recommended additional amount, SBTC denied ever authorizing payment

beyond the original contract price. SBTC also denied liability for the additional cost based on Art. XI of the building contract: If at any time prior to the completion of the work to be performed, increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor which directly or indirectly affects the increase of the cost of the project, OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties.

Ferrer filed a complaint for breach of contract with damages. The trial court ruled in his favor and ordered SBTC to pay, along with damages. The CA affirmed the trial courts decision.

Issue:W/N petitioners are liable for damages in the absence of a mutual agreement by both parties.

Held: Petitioners arguments to support absence of liability are not persuasive.

Art. 22 embodies the maxim Nemo ex alterius incommodo debet lecupletari (No man ought to be made rich out of anothers injury): Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

Under Art. IX of the construction contract, petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor. Ferrer informed SBTC of the drastic increase in construction materials as early as Mar. SBTC in turn had the increased cost evaluated and audited then a recommendation was made to payP200,000. SBTC failed to pay and denied authorizing the settlement of Ferrers claim, due to the absence of a mutual agreement, making his demand premature and baseless.

SBTC admitted liability when a recommendation was made to settle the additional claim. Under Art. 1182, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. The absence of a mutual agreement which SBTC relies upon is in effect a condition dependent on the banks sole will, since Ferrer would naturally and logically give consent to such an agreement which would allow him recovery of increased cost. It cannot be denied that SBTC derived benefits when Ferrer completed the construction even at an increased cost. To allow SBTC to acquire the building at a price below its construction cost would constitute unjust enrichment to the prejudice of Ferrer. The decision of the CA is affirmed.

RUSTAN PULP & PAPER MILLS, INC. V. INTERMEDIATE APPELLATE COURT

Facts:Petitioner established a pulp and paper mill in Baloi,Lanao del Norte. Respondent Romeo Lluch entered into a contract of sale with petitioner where Lluch agreed to sell at P30 per cubic meter of pulp raw materials to petitioner. The contract was non-exclusive and petitioner had the option to buy from other suppliers, though respondent has priority. It was further stipulated that the petitioner is barred from buying from other sellers pulp wood emanating from the respondent´s lumber and firewood concession. The petitioner also had the right to stop delivery when supply became sufficient provided that there is sufficient notice. During the test run,

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the machinery had major defects and it was recommended that deliveries of the raw material, which had accumulated, be stopped. A letter was issued on Sept. 30, 1968 to respondent requesting that deliveries be stopped within 30 days. Respondent sent a query if the deliveries were temporarily stopped or terminated completely,which was not answered. Respondent and other suppliers continued deliveries.

When petitioners informed respondents (Iligan Diversified Projects, Inc., Romeo A. Lluch and Roberto G. Borromeo) to stop the delivery of pulp wood supplied by them according to a contract of sale between them, respondents sued for breach of conduct. The court dismissed the complaint but enjoined petitioners to respect the contract of sale if circumstances warrant the full operation in a commercial scale of petitioner´s Baloi plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch. On appeal in the IAC, the court modified the judgment by directing petitioners to pay respondents moral damages.

Issue:W/N the IAC erred in holding that petitioner´s decision to suspend taking delivery of pulp wood from respondent was not in the lawful exercise of its right under the contract of sale.

Held:The Court found it ironic that petitioner´s had to exercise the prerogative regarding the stoppages of deliveries because they never really stopped accepting deliveries from respondent until Dec. 23, 1968. It was preposterous that the petitioners continued to buy and accept pulp wood materials from other sources, belying that they have more than sufficient supply of pulp wood, that their machineries were defective or that the materials coming from the respondents were defective. The petitioner continued accommodating all suppliers even after the commercial operation was delayed. This is a breach of contract. It would also be unjust for the court to rule that the contract of sale be temporarily suspended until petitioners were ready to accept deliveries from the respondent. This would make the resumption of the contract purely dependent on the will of one party, the petitioners, who could claim that they have sufficient supply of materials while accepting from other suppliers. The court would have been imposing a raw condition that had not been agreed upon by the parties. There is basis for the respondent´s apprehension inasmuch as it suggests a condition solely dependent upon the will of petitioners. A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its imposition. A condition which is both potestative (or facultative) and resolutory may be valid but is inapplicable to the case at hand because the proviso in the Taylor case which allowed a condition for unilateral cancellation of the contract when the machinery did arrive on time relates to the birth of the undertaking and not the fulfillment of an existing obligation. The contract speaks loudly of the prerogative of the petitioner to the right to suspension of delivery (which petitioner took to mean the right to terminate the contract) but what diminishes its legal efficacy is the condition attached to it which is dependent exclusively on their will. The stipulation is inoperative and the decision appealed from is modified in the sense that only petitioner shall pay moral damages.

VI.2.4. Effect of Immoral, Illicit and Impossible Conditions

VI.2.5. Coupled with a Term

a) If a period intended for fulfillment cf. Art. 1197

MILLARE V. HERNANDO

Facts:On Jun. 17, 1975, a 5 yr. Contract of Lease was executed between Pacifica Millare and Elsa Co. Co would rent the “People’s Restaurant” at P350/mo. In May-July 1980, a dispute arose when Millare informed Co that they would continue leasing the restaurant as long as they were amenable to paying P1,200/mo. A counter-offer of P700 was made by Co, to which Millare allegedly stated that the amount of monthly rentals could be resolved at a later time which Co took to mean that the Contract of Lease had been renewed. In contrast, Millare flatly denies ever having considered or offered a renewal of the Contract of Lease. On Jul. 22, Millare requested them to vacate the premises, and Co reiterated her unwillingness to pay P1,200 for being excessive and their intention to deposit the rentals in court, as Millare refused to accept their counter-offer. Co filed a complaint with the CFI of Abra and Millare filed an ejectment case against them. The judge ordered the renewal of the Contract of Lease and allowed Co to deposit the rentals in court.

Issue:(1) W/N the trial court acquired jurisdiction over the

case.(2) W/N Co had a valid cause of action against

petitioner.

Held:(1) The conciliation procedure is not a jurisdictional

requirement in the sense that failure to have prior recourse would not deprive a court of its jurisdiction. Secondly, the records show that 2 complaints were submitted to the barangay authorities for conciliation, which proved fruitless, and Certifications to File Action authorizing the parties to continue in court were issued.

(2) ¶13 of the Contract of Lease reads that it can be renewed after a period of 5 yrs. under the terms and conditions as will be agreed upon by the parties at the time of its renewal. Failure to reach an agreement would prevent the contract from being renewed. Parties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provisions of the statute, a contract may be annulled if tainted by violence, intimidation or undue influence.

Art. 1670: if at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of he lessor and unless a notice to the contrary by either party has previously been given. It is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Arts. 1682 and 1687. The other terms of the original contract shall be revived.

VI.3. Reciprocal ObligationsVI.3.1. Nature; Effect

Condition for PerformanceVI.3.2. Necessity for court approval

IRINGAN V. CA

Facts:

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Antonio Palao sold an undivided portion of land in Tuguegarao to Alfonso Iringan. A Deed of Sale was executed with the purchase price of P295,000 payable as follows: P10,000 upon execution of the contract, P140,000 on or before Apr. 30, 1985, and P145,000 on or before Dec. 31, 1985. On the 2nd payment, Iringan only paid P40,000, and Palao sent a latter on Jul. 18, 1985 stating that he considered the contract as rescinded. Iringan replied that they were not opposing the revocation of the contract but asked for reimbursement of the ff. amounts: P50,000 as cash received by Palao, P3,200 as geodetic engineer’s fee, attorney’s fee and the current interest of P53,700. Palao replied that he was not amenable to this. Iringan proposed that the P50,000 be reimbursed or a portion of the land be sold to him. Palao replied that Iringan’s standing obligation had reached P61,600 for rental arrears. Palao filed a complaint for Judicial Confirmation of Rescission of Contract and Damages. The RTC ruled in favor of Palao and affirmed the rescission of the contract, which the CA affirmed.

Issue:(1) W/N the contract was validly rescinded.(2) W/N the award of moral and exemplary damages is

proper.

Held:(1) Art. 1592: In the sale of immovable property, even

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

When Palao filed an action for Judicial Confirmation of Rescission and Damages, he complied with the requirement of the law for judicial decree of rescission. The complaint categorically stated that the purpose was (a) to compel appellants to formalize in a public document, their mutual agreement of revocation and rescission; and/or (b) to have a judicial confirmation of the said revocation/rescission under terms and conditions fair, proper and just for both parties.

VI.3.3. Resolution under Art. 1191 v. Rescissions under Arts. 1381-1384

SURIA V. IAC

Facts:Plaintiffs entered into a Deed of Sale with Mortgage with defendants over a parcel of land in Laguna. Defendants violated the terms and conditions of the contract by failing to pay the stipulated installments and only one installment was made, despite repeated demands. They formally offered to pay the outstanding balance under the Deed of Sale of Mortgage which was rejected.

Issue:(1) Is the subsidiary and equitable remedy of rescission

available in the presence of the remedy of foreclosure in the light of Art. 1383.

Held:(1) The parties entered into a contract of sale where the

vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer, who is obligated to pay a price certain in money or its equivalent. The respondents have complied with their

part and parted with the title. The buyer fulfilled his end of the bargain when he executed the deed of mortgage. The relationship between the parties is no longer as buyer and seller, because the contract of sale has been perfected and consummated and it is already of a mortgager and mortgagee. The petitioner’s breach of obligation is not with respect to the perfected contract of sale but in the obligations created by the mortgage contract. The remedy of rescission is not a principal action retaliatory in character but becomes a subsidiary one which by law is available only in the absence of any other legal remedy. Foreclosure here is not a remedy accorded by law but is a specific provision found in the contract.

ONG V. CA

Facts:Jaime Ong and Miguel and Alexandra Robles executed an Agreement of Purchase and Sale regarding two parcels of land in Quezon, for the total purchase price of P2,000,000. The initial payment of P600,000 would be paid as follows: P103,499.91 already paid before the Agreement, P496,500.09 directly to Bank of the Philippine Islands for the loan of Robles, and the P1,400,000 balance in 4 quarterly installments of P350,000. Ong paid but the installments in postdated checks were not honored for having insufficient funds. Out of the loan to be paid to BPI, only P393,679.60 was paid. When the bank threatened to foreclose on the mortgage, Robles sold three transformers of the rice mill worth P51,411 to pay off their obligation, with the knowledge of Ong. Ong voluntarily gave Robles authority to operate the rice mill, though he continued with possession of the two parcels of land, while Robles was forced to use the rice mill for residential purposes. Robles sent a demand letter asking for the return of their properties, which was unheeded, and they filed with the RTC of Lucena City a complaint for rescission of contract and recovery of properties with damages. Ong continued with improvements on the properties while the case was pending, leading Robles to ask for a writ of preliminary injunction, which the trial court granted. The trial court rendered a judgment in favor of Robles, declaring the contract set aside, ordering Ong to deliver the 2 parcels of land to them and Robles to return P497,191.51 to Ong, and damages to be paid to Robles. The CA affirmed the RTC’s decision, but deleted the award for exemplary damages, noting that Ong’s failure to completely pay the purchase price was a substantial breach of his obligation entitling Robles to rescind their contract under Art. 1191.

Issue:(1) Whether the contract may be validly rescinded under Art. 1191.(2) Whether the parties had novated their original contract as to time and manner of payment.

Held:(1) Art. 1191 refers to rescission applicable to reciprocal

obligations. Reciprocal obligations are those which arise from the same cause and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under Art. 1191 should be distinguished from rescission of contracts under Art. 1383. While Art. 1191 uses the term “rescission,” the original term was “resolution.” Resolution is a principal action which is based on breach of a party, while rescission under Art.

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1383 is a subsidiary action limited to cases of rescission for lesion under Art. 1381 .

The Agreement of Purchase and Sale shows that it is in the nature of a contract to sell, where the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation which prevents the obligation of the vendor to convey title from acquiring an obligatory force. Ong failed to complete payment of the purchase price which rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Art. 1191 is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not a breach but merely an event that prevents Robles’ obligation to convey title from acquiring binding force. Hence the agreement may be set aside, not because of a breach for failure to complete payment of the purchase price but that the failure to pay brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force.

(2) Art. 1291: in order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Novation is never presumed, it must be proven as fact either by express stipulation of the parties, or by implication derived from an irreconcilable incompatibility between the old and new obligations. Records show that the parties never intended to novate their previous agreement. While Ong had paid small sums of money in contravention of the manner of payment stipulated in their contract, Robles had objected to which Ong replied that these installments were the interest of the principal amount he owed. Ong had also agreed to the sale of the transformers. Although the parties agreed to credit the sale to Ong’s obligation, he was supposed to reimburse the same to Robles.

In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation2. There must be an agreement of the parties to a new

contract3. There must be the extinguishment of the old

contract4. There must be the validity of the new contract

VI.4. Obligations with a PeriodVI.4.1. ConceptVI.4.2. ‘Day Certain’ MeaningVI.4.3. Distinguished from

Conditional ObligationsVI.4.4. Kinds

a) Suspensiveb) Resolutionary

VI.4.5. Effects; Non-retroactivityVI.4.6. Rights of Parties Before

Arrival of Terma) Loss, Deterioration of

Improvementb) Payment; Recovery

VI.4.7. Period; For whose benefita) Exceptions

VI.4.8. When courts may fix period

CHUA V. COURT OF APPEALS

Facts:Petitioners (Jose L. Chua and Co Sio Eng) were lessees of a commercial unit in Paranaque, The lease was for 5 years, from Jan.1, 1985 to Dec. 31 1989. The contract expressly provided for the renewal of the lease at the option of the lessees ¨in accordance with the terms of agreement and conditions set by the lessor (respondent Ramon Ibarra).¨ Prior to the expiration of the lease, the parties discussed the possibility of renewing it, exchanged proposals, but failed to reach an agreement. The dispute was referred to the barangay captain for conciliation but no settlement was reached by the parties.

Respondent filed a complaint for unlawful detainer against petitioners in the MTC which ruled in favor of the respondent, giving the petitioners (Chua) an extension of 2 years starting the date of the filing of the instant petition, and ordering petitioners to pay P188,806 in back rentals as of 1991 and a monthly rental of P10,000 until the expiration of their extension.

Both parties appealed and the RTC ruled that the lease was for 5 years, after which petitioners´ stay would be illegal. Art. 1687 provides that the Court may fix the period of the lease only in cases where the parties fail to do so. The RTC dismissed the petitioners' claim for lack of merit, ordered them to vacate the premises and pay back rentals of P42,306 for Jan. 1, 1987 to Dec. 31, 1989 and the monthly rentals of P7,203.50 starting Jan. 1, 1990 until Jul. 24, 1990 and P10,000 from Jul. 24, 1990 until the petitioners' have vacated.

Petitioners' appealed to the CA who affirmed the decision, with modifications that the monthly rental from Jul. 24, 1990 until they vacate the premises is reduced to P7,230.

Issues:1. W/N the CA erred in affirming the lower court´s

findings that they owe respondent P42,306 in unpaid rentals from Jan. 1, 1987 to Dec. 31, 1989.

2. W/N petitioners are entitled to an extension of time and W/N they are entitled to a reasonable extension of time.

3. W/N petitioners acted in good faith under the belief that they were entitled to an extension of the lease for having made repairs and improvements on the premises.

4. W/N petitioners are entitled to damages for their failure to enjoy peaceful possession of the premises because the respondent allowed vendors to sell in front of their leas premises.

Held: The CA decision is affirmed.1. According to petitioners, neither the letter of

demand nor the complaint for unlawful detainer alleged a claim for unpaid rentals. However, the issue of arrearages was raised at the pre-trial by the respondent and evidence was presented without objection by petitioners. At the hearing, respondent testified that though the lease contract stipulated an annual 10% additional rental starting in 1986, petitioners only paid the original monthly rental of P5,000 stipulated in their contract. Considering that the contract which is the law between the parties was not followed by the petitioner, good faith demands that they pay the back rentals. To absolve the petitioners from paying arrears would allow them to enrich themselves at the expense of the

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respondents. Any objection to admissibility of evidence should be made when evidence is offered or as the objection to its admissibility is required, otherwise the objection is considered waived.

2. Without merit. After the lease terminated on Jan. 1, 1990 and without the parties reaching a renewal agreement, petitioners became subject to ejectment. The MTC had made a contract for the parties which it did not have the party to do so, when it gave petitioners an extension of 2 years. Art. 1687 applies only when there is no period of time fixed by the parties, which had been provided for from Jan. 1,1985 to Dec. 31, 1989. The court has no power to alter a contract or make a new one for the parties, and its duty is confined to interpretation of the contract the parties made for themselves, as the court cannot supply material stipulations or read into contract words which it does not contain. Art. 1675 excludes cases falling under Art. 1673 (which allows lessors to judicially eject lessees after the period of occupancy has expired), from cases where Art. 1687 is applicable.

3. Without merit. There is no provision of law which grants the lessee a right of retention over the leased premises on that ground. Art. 440, in relation to Art. 546,which provides for full reimbursement of useful improvements and retention of premises until reimbursement is made applies only to a possessor in good faith or one who builds on a land in the belief that he is the owner. This right does not apply to a mere lessee, otherwise it would always be in his power to ¨improve¨ his landlord out of his own property. Art. 1678 merely grants to such a lessee making in good faith useful improvements the right to be reimbursed ½ of the value of the improvements upon the termination of the lease, or remove the improvements if the lessor refuses to make reimbursement.

4. There is no evidence to support the claim. Petitioners had previously never complained about the sidewalk vendors occupying a portion of the leased property. It was only after negotiations for renewal of the lease had failed and the complaint for unlawful detainer was filed that they complained about the vendors.

VI.5. Multiple ObligationsVI.5.1. ConjunctiveVI.5.2. Alternative

a) Right of choice1) Debtor’s choice2) Creditor’s choice

VI.5.3. FacultativeVI.6. Joint Obligations

VI.6.1. ConceptVI.6.2. Distinguished from Solidary

ObligationsVI.6.3. Liability of joint debtorVI.6.4. Court decisions

VI.7. Solidary ObligationsVI.7.1. Concept

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