oblicon digests 2 (new edit)

5/24/2018 Oblicon Digests 2 (New Edit)

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OBLIGATIONS AND CONTRACTS 1SBCA

DIFFERENT KINDS OF OBLIGATIONS CASES:

PURE OBLIGATIONS

1) Seone v. Franco, 24 Phil 309

24 PHIL 309

FACTS: This is an appeal from a judgment of the Court of First Instance ofZamboanga in favor of the plaintiff, holding that the right of action upon themortgage debt which was the basis of the claim presented against theplaintiffs estate had already prescribed. The mortgage in question, which isto secure the payment of the sum of P4,876.01, the debtor agreeing to paythe sum little by little. After 27 years, nothing has been paid either of the

principal or of the interest. The obligation seems to leave the duration of theperiod for the payment thereof to the will of the debtor. It appears also thatit was the intention of the instrument to give the debtor time within which topay the obligation.

ISSUE: Whether or not the creditor may demand immediate performance ofthe obligation, given that there is no date stipulated by the parties as towhen it should become due and payable.

HELD: In such cases this court has held, on several occasions, that theobligation is not due and payable until an action has been commenced bythe mortgagee against the mortgagor for the purpose of having the court fixthe date on and after which the instrument shall be payable and the date ofmaturity is fixed in pursuance thereof. Such being the case, as action shouldhave been brought for the purpose of having the court set a date on whichthe instrument should become due and payable. Until such action wasprosecuted no suit could be instrument. It is, therefore, clear that this actionis premature. The instrument has been sued upon before it is due. The actionmust accordingly be dismissed. Ordinarily when an action of this sort isdismissed the plaintiff may at once begin his action for the purpose of fixinga date upon which the instrument shall become due. From the undisputedfacts in this case and from the facts and conditions that very probablycannot be charged hereafter, it is our present opinion that such action is

itself prescribed. The judgment was affirmed, with cost against theappellant.

2) Parks v. Province of Tarlac 49 Phil 142

Pure Obligations

G.R. Nos. L-24190

July 13, 1926

Facts:

On October 18, 1910, Private defendants, owners of parcel of land, donatesit perpetually to the municipality of Tarlac, Province of Tarlac, undercertain conditions specified in the public document. The parcel of land was

later registered to the name of the doness, the municipality of Tarlac.Private defendants then sold this parcel of land to plaintiff on January 21,1921. The municipality then conveyed the property to the Province ofTarlac. Plaintiff filed an action to recover property since conditions for thedonation of the parcel of land was not met by the defendant municipality.

Issues:

Whether or not, plaintiff has the right of action to claim the parcel of landsold by private defendant despite the fact that the parcel of land have beenpreviously donated to defendant municipality.

Held:

Plaintiff has no more right to action to claim the parcel of land. The parcelof land was already donated by private defendant to defendant municipalitybefore the said sale took place. The private defendant can no longer sellwhat is not already theirs. Moreover, there is no revocation of the donationsince there is no consent from the donee or there is no judicial decree.

Another point is that the revocation of donation has already prescribed. Theperiod of class of action is ten years. The action for revocation of thedonation for this cause to arose on April 19, 1911, that is six months afterthe ratification of the instrument of donation of October 18, 1910. The


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complaint in this action was presented July 5, 1924, more than ten yearsafter his cause accrued.

CONDITIONAL OBLIGATIONS

3) Javier v. CA, March 15, 1990

FACTS:

Leonardo Tiro is a holder of an ordinary timber license issued bythe Bureau of Forestry covering 2,535 hectares in the town of Medina,Misamis Oriental. On February 15, 1966, he executed a Deed ofAssignment in favour of Jose and Estrella Javier, stating that he will assign,transfer and convey unto the spouses his shares of stock in theTimberwealth Corporation in consideration of P120, 000: P20, 000 of whichwill be paid by the spouses upon signing of the contract and the balance

shall be paid P10, 000 every shipment of export logs actually producedfrom Timberwealths concession.

At the time the said agreement was executed, private respondenthad a pending application, dated October 21, 1965, for an additional forestconcession covering an area of 2,000 hectares southwest of the adjoiningarea of the concession subject to the deed of assignment. Hence, anotheragreement was entered into by the parties on February 28, 1966, stating thatrespondent shall transfer, cede and convey whatever rights he may acquireto Timberwealth over the forest concession then pending application inconsideration of a sum of P30, 000 to be paid by the Javier spouses, as bothdirectors and stockholders of Timberwealth, which amount of money shall

form part of their paid up capital stock in said corporation, subject to theapproval of the Board of Directors of the same.

On November 18, 1966, the Acting Director of Forestry wrote theprivate respondent that his concession was renewed up to May 12, 1967 butsince the land consisted of only 2,535 hectares, Tiro was given up to May12 to form a cooperative, partnership or corporation with other adjoininglicensees so as to have a total land area of not less than 20,000 hectares ofcontiguous and compact territory and an annual cut of not less than 25,000cubic meters, otherwise his license will not be renewed, in pursuance of apresidential directive issued on May 13, 1966.

Petitioners, acting as timber license holders, entered into a ForestConsolidation Agreement on April 10, 1967 with other timber licenseholders like Vicente de Lara, Jr., Salustiano Oca and Sanggaya Logging

Company. Under that agreement, they all agreed to pool together theirresources and merge their respective forest concessions into one workingunit. This consolidation was approved on May 10, 1967. The working unitwas subsequently incorporated as the North Mindanao Timber Corporation,with the petitioners and other signatories of the aforesaid ForestConsolidation Agreement as incorporators.

On July 16, 1968, private respondent filed a suit against thepetitioner spouses for failure to pay the balance due under the two deeds ofagreement, demanding them to pay the amount of P83, 138.15 with interestat 6% per annum from April 10, 1967 until full payment, plus P12, 000 forattorneys fees and costs. On September 23, 1968, the petitionersinterposed, along with its admittance of executing of the contracts, a special

defense of nullity thereof since private respondent failed to comply with hiscontractual obligations and, further, that the conditions for the enforceabilityof the obligations of the parties failed to materialize. As counterclaim,petitioners sought the return of P55, 586 which private respondent hadreceived from them pursuant to an alleged management agreement, plusattorneys fees and costs.

On October 7, 1968, Tiro stated that what were transferred to thedefendants were his rights and interest in a logging concession described inthe deed of assignment; that the shares of stocks referred to in the complaintare terms used therein merely to designate or identify those rights andinterests in said logging concession. The defendants actually made use of or

enjoyed not the shares of stocks but the logging concession itself; that sincethe proposed Timberwealth was owned solely by the defendants, thepersonalities of the former and the latter are one and the same; and that thecounterclaim of petitioners in the amount of P55, 586.39 is part of the sumof P69, 661.85 paid by the latter to the former in partial satisfaction of thelatters claim. Respondents claim was dismissed and he was ordered to payP33, 161.85 with legal interest at 6% per annum from the filing of theanswer until complete payment.


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Ten years later, on the 28th of March, petitioners filed a motion inthe Court of Appeals for extension of time to file a motion forreconsideration, for the reason that they had to change counsel. They weregiven 15 days to file said motion for reconsideration, provided that thesubject motion was filed on time. On April 11, 1978, petitioners filed their

motion for reconsideration with CA but it was denied for the petitionersmerely tried to refute the rationale of the Court in deciding to reverse theappealed judgment.

ISSUE:

Whether the deed of assignment dated February 15, 1966 and theagreement of February 28, 1966 are null and void, the former for totalabsence of consideration and the latter for non-fulfillment of the conditionsstated therein.

RULING:

The true cause or consideration of said deed was the transfer of theforest concession of private respondent to petitioners for P120, 000. Thisfinding is supported by the following considerations: (1) both parties, at thetime of the execution of the deed of assignment knew that TimberwealthCorporation stated therein was non-existent; (2) in their subsequentagreement, private respondent conveyed to petitioners his inchoate rightover a forest concession covering an additional area for his existing forestconcession, which area he had applied for, and his application was thenpending in the Bureau of Forestry for approval; (3) petitioners, after theexecution of the deed of assignment, assumed the operation of the loggingconcessions of private respondent; (4) the statement of advances torespondent prepared by petitioners stated: P55, 186.39 advances to L.A.

Tiro be applied to succeeding shipments. Based on the agreement, we payP10, 000 every after (sic) shipment. We had only 2 shipments; and (5)petitioners entered into a Forest Consolidation Agreement with otherholders of forest concessions on the strength of the questioned deed ofassignment.

The aforesaid contemporaneous and subsequent acts of petitionersand private respondent reveal that the cause stated in the questioned deed ofassignment is false. It is settled that the previous and simultaneous andsubsequent acts of the parties are properly cognizable indicia of their trueintention. Where the parties to a contract have given it a practical

construction by their conduct as by acts in partial performance, suchconstruction may be considered by the court in construing the contract,determining its meaning and ascertaining the mutual intention of the partiesat the time of the contracting. The parties practical construction of theircontract has been characterized as a clue or index to, or as evidence of, their

intention or meaning and as an important, significant, convincing,persuasive or influential factor in determining the proper construction of theagreement.

The deed of assignment of February 15, 1966 is a relativelysimulated contract which states a false cause or consideration, or one wherethe parties conceal their true agreement. A contract with a falseconsideration is not null and void per se. Under Article 1436 of the CivilCode, a relatively simulated contract, when it does not prejudice a thirdperson and is not intended for any purpose contrary to law, morals, goodcustoms, public order or public policy binds the parties to their realagreement. Petitioners are liable to respondent for the sale and transfer intheir favour of the latters forest concessions. P20, 000 of the P120, 000 tobe paid to Tiro was already paid upon signing of the contract and thebalance was to be paid at P10, 000 per shipment of logs from theconcession. Since petitioners forest concessions were consolidated withother license holders under the Forest Consolidation Agreement, then theunpaid balance of P49, 338.15 became due and demandable.

As to the nullity of the February 28, 1966 agreement, thepetitioners cannot be held liable thereon. The efficacy of said deed ofassignment is subject to the condition that the application of privaterespondent for an additional area for forest concession be approved by theBureau of Forestry. Since Tiro did not obtain that approval, said deedsproduced no effect. When a contract is subject to a suspensive condition, its

effectivity can take place only if and when the event which constitutes thecondition happens or is fulfilled. If the suspensive condition does not takeplace, the parties would stand as if the conditional obligation had never

existed.

The said agreement is a bilateral contract which gave rise toreciprocal obligations, meaning the obligation of private respondent totransfer his rights in the forest concession over the additional area and forthe petitioners to pay P30, 000. The demandability of the obligation of one


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party depends upon the fulfillment of the obligation of the other. In thiscase, the failure of Leonardo Tiro to comply with his obligation negates hisright to demand performance from petitioners. Delivery and payment in acontract of sale are so interrelated and intertwined with each other that

without delivery of the goods there is no corresponding obligation to pay.

Under par. 2, Art. 1461, the efficacy of the sale of a mere hope orexpectancy is deemed subject to the condition that the thing will come intoexistence. Since Tiro never acquired any right over the additionalconcession to be approved by the Bureau, the agreement executed therefor,which had for its object the transfer of said right to petitioners, neverbecame effective or enforceable.

Decision of the Court of Appeals is modified, in which theagreement dated February 28, 1966 is declared without force and effect andthe amount of P30, 000 is hereby ordered to be deducted from the sumawarded by respondent court to Leonardo Tiro.

4) Naga Telephone Co. Inc. et al v. CA, February 24, 1994 (Art. 1182)

G.R. No. 107112 February 24, 1994

FACTS:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone companyrendering local as well as long distance telephone service in Naga Citywhile private respondent Camarines Sur II Electric Cooperative, Inc.(CASURECO II) is a private corporation established for the purpose of

operating an electric power service in the same city.

In 1977, the parties entered into a contract for the use by petitioners in theoperation of its telephone service the electric light posts of privaterespondent in Naga City. In consideration therefor, petitioners agreed toinstall, free of charge, ten telephone connections for the use by privaterespondent.

After the contract had been enforced for over ten years, private respondentfiled in 1989 against petitioners for reformation of the contract withdamages, on the ground that it is too one-sided in favor of NATELCO; that

it is not in conformity with the guidelines of the National ElectrificationAdministration (NEA) which direct that the reasonable compensation forthe use of the posts is P10.00 per post, per month; that the telephone cablesstrung by them have become much heavier.

As second cause of action, private respondent alleged that starting with theyear 1981, petitioners have used 319 posts in the towns outside Naga City,without any contract with it. And as to the third cause of action, privaterespondent complained about the poor servicing by petitioners of the ten

telephone units.

NATELCO, on the other hand, averred that the first cause of action shouldbe dismissed because it does not sta te a cause of action for reformation ofcontract and it is barred by prescription for having been filed more than tenyears after the execution of the contract. As to the second cause of action,petitioners claimed that private respondent had asked for telephone lines inareas outside Naga City for which its posts were used by them. And withrespect to the third cause of action, petitioners claimed that their telephone

service had been categorized as "very high" and of "superior quality."

ISSUE:

Whether or not the continued enforcement of the contract betweenNATELCO and CASURECO II is disadvantageous to the latter and too

one-sided in favor of the former;

Whether or not the ruling that the prescription of the action for reformationof the contract commenced from the time it became disadvantageous toCASURECO II;

Whether or not the contract was subject to a potestative condition in favorof the petitioners

HELD:

While the contract appeared to be fair to both parties when it was enteredinto by them, it became too inequitous or disadvantageous to CASURECOand too one-sided in favor of NATELCO.

Petitioners assert that Article 1267 of the New Civil Code is not applicablebecause the contract does not involve the rendition of service or a personal


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prestation and it is not for future service with future unusual change.However, Article 1267 speaks of "service" which should be understood asreferring to the "performance" of the obligation. In the present case, theobligation of CASURECO consists in allowing NATELCO to use its postsin Naga City, which is the service contemplated in said article. Article 1267

states the doctrine of unforeseen events. It is based on the discredited theoryof rebus sic stantibus in public international law; under this theory, theparties stipulate in the light of certain prevailing conditions, and once theseconditions cease to exist the contract also ceases to exist. Consideringpractical needs and the demands of equity and good faith, the disappearanceof the basis of a contract gives rise to a right to relief in favor of the partyprejudiced.

On the issue of prescription of private respondent's action for reformation ofcontract, what is reformed in the reformation of contracts is not the contractitself, but the instrument embodying the contract. It follows that whether thecontract is disadvantageous or not is irrelevant to reformation and therefore,cannot be an element in the determination of the period for prescription ofthe action to reform.

Article 1144 of the New Civil Code provides that an action upon a writtencontract must be brought within ten years from the time the right of actionaccrues. Clearly, the ten year period is to be reckoned from the time theright of action accrues which is not necessarily the date of execution of thecontract. As correctly ruled by respondent court, private respondent's rightof action arose "sometime during the latter part of 1982 or in 1983 whenaccording to Atty. Luis General, Jr., he was asked by CASURECO IIsBoard of Directors to study said contract as it already appeareddisadvantageous to private respondent. Private respondent's cause of actionto ask for reformation of said contract should thus be considered to have

arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when thecomplaint in this case was filed, therefore, ten years had not yet elapsed."

Regarding the last issue, the prestations of either party are not purelypotestative because petitioner's permission for free use of telephones is notmade to depend purely on their will, neither is private respondent'spermission for free use of its posts dependent purely on its will.

A potestative condition is a condition, the fulfillment of which dependsupon the sole will of the debtor, in which case, the conditional obligation isvoid. Based on this definition, respondent court's finding that the provision

in the contract which states that That the term or pe riod of this contractshall be as long as the party of the first part (petitioner) has need for theelectric light posts of the party of the second part (private respondent) is apotestative condition, is correct. However, it must have overlooked the otherconditions in the same provision, particularly, it being understood that this

contract shall terminate when for any reason whatsoever, the party of thesecond part (private respondent) is forced to stop, abandoned its operationas a public service and it becomes necessary to remove the electric lightpost which are casual conditions since they depend on chance, hazard, orthe will of a third person.

In sum, the contract is subject to mixed conditions, that is, they dependpartly on the will of the debtor and partly on chance, hazard or the will of a

third person, which do not invalidate the aforementioned provision.

POTESTATIVE CONDITION

5) Taylor v. Uy Tieng Piao & 43 Phil 83

GR # L-16109

Justice Street

FACTS:

On December 12, 1918, Taylor contracted his services to Tan Liuan and Co.as superintendent of an oil factory to be established in the city. The contractwas supposed to span over two years from the execution of the contract andthe salary was said to be 600php per month during the first year and 700phpper month during the second year with an additional 60php per month forresidence and utilities. Additionally, the contract stipulated that if, for anyreason, the machinery for the factory, fail to arrive in the city of Manilawithin a period of six months, the contract may be cancelled by Tan Liuanand Co. It was additionally stated that such cancellation were not to occurbefore the expiration of the six months.

The machinery never arrived in the city of Manila within the six monthsafter the signing of the contract. It would appear before the courts that TanLiuan and Co. found the oil business to no longer see large returns and


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cancelled the order of the machinery. Taylor then instituted an action torecover the amount of 13,000php as damages for the unfulfilled contract.The lower court found Tan Liuan and Co. liable not liable for the periodsubsequent to the expiration of the first six months. However, the sum of

300php was awarded to Taylor as damage for breach of contract.

ISSUE:

Whether or not the Tan Liuan and Co. may be held liable fordamages for the breach of contract.

HELD:

Yes. The Supreme Court held that the lower court did not err intheir rejection damages sought by Taylor for the period subsequent to theexpiration of the first six months. However, it was seen that the trial judgefailed to consider the 60php specified in the contract for residence andutilities, which Taylor is clearly entitled to recover, in addition to the

300php awarded in the lower court. The Supreme Court ordered Tan Liuanand Co. to pay Taylor the sum of 360php instead of 300php with interestand costs.

6) SEBTC v. CA & Ferrer (11 Oct. 1995)

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT,petitioners, vs. COURT OF APPEALS and YSMAEL C. FERRER,

respondents.

G.R. No. 117009 October 11, 1995

Facts: Petitioners Security Bank and Trust Company (SBTC) and Rosito C.Manhit contracted with respondent Ysmael C. Ferrer to construct thebuilding of SBTC in Davao City for the price of P1,760,000.00. In thecontract, the building must be finished within 200 working days which therespondent was able to comply with. But there was a drastic increase inexpenses which cost P300,000 more than the original price agreed upon.These additional expenses were made known to the petitioner through theirVice President Fely Sebastian and Supervising Architect Rudy de la Rama.Respondent made this demands for payment of the increased cost as soonas possible. Furthermore the demands were supported by receipts, invoices,payrolls and other documents proving the additional expenses. SBTC

affirmed Ferrers claim and was recommended to settle an additionalP200,000 only. Nevertheless, instead of paying the recommended additionalamount, denied ever authorizing payment of any amount beyond theoriginal contract price. Ferrer then filed a complaint for breach of contractwith damages. The trial court ruled in favor for Ferrer and on appeal the

Court of Appeals affirmed the trial courts decision. In the present petitionfor review, Petitioner SBTC contends that the stipulated contract price willnot automatically make petitioners liable to pay for such increased cost, asany payment above the stipulated contract price has been made subject tothe condition that the "appropriate adjustment" will be made "upon mutualagreement of both parties". It is contended that since there was no mutualagreement between the parties, petitioners' obligation to pay amounts abovethe original contract price never materialized.

Issue: Whether or not, SBTC should pay the entire amount of additional

cost to respondent.

Held: The decision of the Court of Appeals is affirmed. Under the Civil

Code, Art 22. states that Every person who through an act of performanceby another, or any other means, acquires or comes into possession ofsomething at the expense of the latter without just or legal ground, shallreturn the same to him. Thus, to allow petitioner bank to acquire theconstructed building at a price far below its actual construction cost wouldundoubtedly constitute unjust enrichment for the bank to the prejudice of

private respondent. Such unjust enrichment is not allowed by law.

Lastly, Under Article 1182 of the Civil Code, a conditional obligation shallbe void if its fulfillment depends upon the sole will of the debtor. In thepresent case, the mutual agreement, the absence of which petitioner bankrelies upon to support its non-liability for the increased construction cost, is

in effect a condition dependent on petitioner bank's sole will, since privaterespondent would naturally and logically give consent to such an agreementwhich would allow him recovery of the increased cost.

7) Catungal et al v. Rodriguez (23 March 2011)

Facts: Before the Court is a Petition for Review on Certiorari, assailing thefollowing issuances of the Court of Appeals in CA-G.R. CV No. 40627consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,


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[1] which affirmed the Decision [2] dated May 30, 1992 of the RegionalTrial Court (RTC), Branch 27 of Lapu-Lapu City, Cebu in Civil Case No.2365- reconsideration of August 8, 2000 Decision.

Agapita Catungal owns a specific parcel of land in Cebu City. This saidproperty is allegedly the paraphernal property of Agapita. With herhusbands consent both spouses entered into contract to sell the same pieceof land to the respondent Rodriguez. The contract subsequently wasupgraded into a Deed of Sale between both of the parties. With negotiationsfor the sale, the spouses Catungal asked for the advancement amounting toP5,000,000 for personal reasons. Respondent then refused to pay theadvancement stating that this was not part of their agreement. Furthermore,he claims that the spouses were planning on selling the same property tointerested third parties. With a letter signed by Atty. Jose Catungal,respondents were then given an ultimatum whether or not they will buy thesaid property, and was warned that should they fail to pay the advancementthey will rescind the contract and will pursue other interested buyers insteadbecause they needed the down payment of P5, 000,000.

The respondent contended that the rescission of the deed of sale isunjustified stating that they have no right to rescind.

Issue:

Whether or not the provisions of the Contract of Deed of Sale constitutes apositive condition.

Held:

A provision in a Conditional Deed of Sale stating that the vendee shall pay

the balance of the purchase price when he has successfully negotiated andsecured a road right of way is not a condition on the perfection of thecontract nor on the validity of the entire contract or its compliance ascontemplated by Article 1308 of the Civil Code such condition is not purelypotestative such a condition is likewise dependent on chance as there is noguarantee that the vendee and the third-party landowners would commit anagreement regarding the road right of way, a type mixed condition expresslyallowed under Article1182 of the Civil Code. Where the so-calledpotestative condition is imposed not on the birth of the obligation but on itsfulfillment, only the condition is avoided, leaving unaffected the obligationitself.

CASUAL CONDITION

8) Cruz v. Gasilian (Impossible Conditions)

Facts:

On September 5, 1941, Santos Ilagan, administrator,one of the children andheir of Eulalio Ilagan Bisig executed an absolute deed of sale over twoparcels of land for P18,000 in favor of Severo Cruz and his wife. OnSeptember 18, Santos Ilagan submitted the deed of absolute sale to the courtand likewise set the same date as conveyance of approval of the deed. Theother children, and heirs of Eulalio Ilagan Bisig gave their approval andconformity to the said deed and signed on the administrator's motion. Themotion was set for hearing on September 22, but the motion was not actedupon.

On December 18, 1943, the heirs of the deceased, except the administrator,filed a written opposition to the sale. On June 30, 1944, Judge QuintinParedes, Jr., sustained the opposition and held that the sale was inpropersince the sale was primarily intended for the payment of the mortgage debt,and thus the property should be sold to the mortgagee. The opposition statedthat, the price fixed in the motion is not reasonable under the presentcondition and that the two parcels of land command a better and higherprice.

By reason of sale, and relying on good faith of these heirs, the vendees, Sps.Cruz, agreed to the cancellation of the mortgage and stopped collectinginterest.

To disallow estoppel against the appelles in the face of the lsecircumstances would be to allow them to profit by their own wrong and

inconsistency at the expense of the innocent parties.

Thus, this case is an appeal from an order of the Court of First Instance ofNueva Ecija in an intestate proceeding disapproving the sale of two parce lsof land by the administrator to the present appellant and her husband, sincedeceased.

Issue:


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Whether or not the sale of the two parcels of land to Sps. Cruz wasvalid and proper given the grounds of opposition of the heirs of EulalioIlagan Bisig, except the administrator.

Held:

At the case at bar, the court seemed to believe that the sale wasconditional. It should be noted that the disapproval, was caused by the heirsthemselves, and that, had no objection been offered by them there wouldbeen little likelihood of the approval being withheld. The point is that aparty to a contract may not be excused from performing his promise by thenon-occurence of an event which he himself prevented.

Wherefore, the order appealed from is reversed and the court below shallenter a new order approving the sale and ordering the delivery of the landsin question to the vendees or the successors in interest, with costs againstthe appellees.

9) Song Fo & Co. v. Hawaiian Phil. Co. 33 SCRA 1 (Art. 1191)

Simple breach does not justify resolution

G.R. No. 23769 (September 16, 1925)

FACTS

Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where itwould deliver molasses to the latter. Hawaiian-Philippine Co. was able todeliver 55,006 gallons of molasses before the breach of contract. SFC filed

a complaint for breach of contract against Hawaiian-Philippine Co. andasked P70,369.50. Hawaiian-Philippine Co. answered that there was a delayin the payment from Song Fo & Co. and that Hawaiian-Philippine Co. hasthe right to rescind the contract due to that and claims it as a specialdefense. The judgment of the trial court condemned Hawaiian-PhilippineCo. to pay Song Fo & Co. a total of P35,317.93, with legal interest from thedate of the presentation of the complaint, and with costs.

ISSUE

(1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molassesor 300,000 gallons of molasses?

(2) Had Hawaiian-Philippine Co. the right to rescind the contract of salemade with Song Fo & Co.?

(3) On the basis first, of a contract for 300,000 gallons of molasses, andsecond, of a contract imprudently breached by Hawaiian-Philippine Co.,what is the measure of damages?

HELD

(1) Only 300,000 gallons of molasses was agreed to by Hawaiian-PhilippineCo. as seen in the documents presented in court. The language used withreference to the additional 100,000 gallons was not a definite promise.

(2) With reference to the second question, doubt has risen as to when SongFo & Co. was supposed to make the payments for the delivery of molasses

as shown in the documents presented by the parties.

The Supreme Court said that Hawaiian-Philippine Co. does not have theright to rescind the contract. It should be noted that the time of paymentstipulated for in the contract should be treated as of the presence of thecontract. There was only a slight breach of contract when the payment wasdelayed for 20 days after which Hawaiian-Philippine Co. accepted thepayment of the overdue accounts and continued with the contract, waivingits right to rescind the contract. The delay in the payment of Song Fo & Co.was not such a violation for the contract.

(3) With regard to the third question, the first cause of action of Song Fo &Co. is based on the greater expense to which it was put in being compelledto secure molasses from other sources to which Supreme Court ruled thatP3,000 should be paid by Hawaiian-Philippine Co. with legal interest fromOctober 2, 1923 until payment.

The second cause of action was based on the lost profits on account of thebreach of contract. Supreme Court said that Song Fo & Co. i s not entitled torecover anything under the second cause of action because the testimony of


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Mr. Song Heng will follow the same line of thought as that of the trial courtwhich in unsustainable and there was no means for the court to find outwhat items make up the P14,000 of alleged lost profits.

10) Filoil Refinery Corp. v. Mendoza, June 15, 1987

(1191, Simple breach)

G.R. No. L-55526 (June 15, 1987)

FACTS

In a complaint filed by herein private respondents, the lower court renderedon May 14, 1976, a decision rescinding the contract of lease over a 750square meters lot situated in Cebu City covered by TCT No. 30712 enteredinto between Filoil Refinery Corporation and private respondents Jesus P.

Garcia and Severina B. Garcia and ordering the petitioner to vacate theleased premises. It appears that the petitioners violated the terms andconditions of the lease agreement in the sense that the signatory FiloilRefinery Corporation subleased it to Filoil Marketing and subsequently topetitioner Petrophil Corporation and that herein petitioners were delayedseveral times in the payment of the monthly rentals.

Private respondents filed a Motion for Execution pending appeal which wasopposed by petitioners in their Motion for Reconsideration. Said Motion forReconsideration was denied by the lower court prompting petitioners to filea Petition for certiorari and Review with the Court of Appeals. OnSeptember 29, 1980, the Court of Appeals rendered its decision denying thepetition for certiorari and review to annul and set aside the order of thelower court granting the Motion for Execution pending appeal.

Private respondents filed a motion to dismiss the appeal of petitioners in theoriginal complaint on the ground of alleged abandonment by reason of thefailure of the petitioners to amend their record on appeal.

On September 24, 1979, the lower court dismissed the appeal because it isbelieved the Court of Appeals will not be in a position to know why thecase was decided on summary judgment, what exhibits have been admitted

in evidence and why Filoil Marketing Corporation had been orderedimpleaded.

Petitioners filed their Motion for Reconsideration which was denied by thelower court Hence, the present petition for certiorari and mandamus.

Petitioners' contentions of the alleged failure however, it is a fact thatpetitioners filed their record on appeal well within the reglementary periodand that the lower court never issued an order declaring the Record onAppeal incomplete or defective nor an order ordering petitioners tocomplete or correct the same. In addition, that had the lower court approvedoutright the record on appeal, or had it required petitioners to amend thesame and petitioners complied, constraining it to give its approval thereto, itwould have lost its jurisdiction to order execution of the decision pendingappeal. Petitioners cited the ruling handed by Us in the case of De Leon vs.De Los Santos:

To invoke the rule that once an appeal has been perfected, the trial court

loses jurisdiction

over the case and cannot generally act anymore on any matter raised therein.It was more for these reasons that petitioners felt there was no need tofollow up or to inquire about the approval of their record on appeal ratherthan an act of abandonment of their appeal as theorized by private

respondents.

ISSUE:

1. Whether or not rescinding the contract of lease between petitionersand respondents is valid

2. Whether or not petitioners breach the simple contract

HELD:

WHEREFORE premises considered the petition is hereby DISMISSED,

with the petitioners ordered to VACATE the premises.

1. The contract of lease sought to be rescinded expired or terminatedlast September 16, 1982 or almost 5 years ago by its own terms as providedfor in the Lease Contract. An examination of the lease contract reveals thatthere is no express prohibition against the assignment of the leasehold right.


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Under the law, when there is no express prohibition, the lessee may subletthe thing leased and all rights acquired by virtue of an obligation aretransmissible, if there has been no stipulation to the contrary.

2. Petitioners admit that on a few occasions, they were late in payingthe rentals which were due within the first 15 days of each month but theirdelay was only for a few days. Such breaches were not as substantial andfundamental as to defeat the object of the parties in making the agreementbecause the law is not concerned with such trifles.

11) Legarda Hermaos v. Saldaa, January 28, 1974 (1191)

2 lots bought, 1 lot paid. Recession only applies to 1 not 2)

GR No L 26578 ( January 28, 1974)

FACTS

Saldana had entered into two written contracts with Legarda, a subdivisionowner, whereby Legarda agreed to sell to him two of his lots for 1,500 perlot, payable over a span of 10 years on 120 monthly instalments with 10%interest per annum. Saldana paid for eight consecutive years but did notmake any further down payments due to Legardas failure to make thenecessary improvement on the said lot which was promised by theirrepresentative, the said Mr. Cenon. Saldana already paid a total of Php3,582.06. The statement of account shows that Saldana paid Php 1,682.28 ofthe principal and Php1,889.78 for the interest. It did not distinguish whichof the two said lots was paid. Petitioner, then, rescinded the contract basedon the stipulation of the contract that payments made by respondent shall beconsidered as rentals and any improvements made shall be forfeited infavour of the petitioner. The lower court ruled sustaining petitionerscancellation of contract. So respondent appealed and judgement wasreversed in favour of the responded ordering petitioners to deliver toplaintiff one of the two lots at the choice of the defendant and execute the

deed of conveyance. Hence this petition

ISSUE

Was the cancellation of the sale of contract valid?

HELD

No, even though it was stipulated that failure to complete the paymentwould result to the cancellation of the contract, it was still not valid. Asclearly shown in the statement of account, Saldana was able to pay one ofthe two said lots. Under Article 1234 of the New Civil Code, if theobligation has been substantially performed in good faith, the obligor mayrecover as though there had been a strict and complete fulfilment, lessdamages suffered by the obligee. Hence, under the authority of Article1234 of the New Civil Code, Saladana is entitled to one of the two lots ofhis choice and the interest paid shall be forfeited in favour of the petitioners.

12) Solar Harvest, Inc. v. Davao Corrugated Cartoon Corp., 26 July

2010 (Art. 1191)

G.R. No. 176868

FACTS

In 1998, Solar Harvest, Inc. (SHI), entered into an agreement with DavaoCorrugated Carton Corporation (DCCC) for the purchase of corrugatedcarton boxes. This agreement was not reduced into writing. To start theproduction, SHI deposited US$40,150.00 in DCCCs US Dollar SavingsAccount with Westmont Bank, as full payment for the ordered boxes.However, SHI did not receive any boxes from DCCC. SHI wrote a demandletter for reimbursement but DCCC replied that the boxes had beencompleted in April and that SHI failed to pick them up from the formerswarehouse 30 days from completion, as agreed upon. DCCC mentioned that

SHI even placed an additional order of 24,000 boxes, out of which, 14,000had been manufactured without any advanced payment from SHI. DCCCthen demanded SHI to remove the boxes from the factory and to pay the

balance of US$15,400 for the additional boxes and P132,000 as storage fee.

SHI filed a Complaint for sum of money and damages against DCCC. TheComplaint averred that the parties agreed that the boxes will be deliveredwithin 30 days from payment but respondent failed to deliver the boxeswithin such time. The RTC ruled that DCCC did not commit any breach offaith that would justify rescission of the contract and the consequentreimbursement of the amount paid by SHI. The RTC said that DCCC was


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able to produce the ordered boxes but SHI failed to obtain possessionthereof because its ship did not arrive.

SHI filed a notice of appeal with the CA but it was denied for lack of meritbecause SHI failed to discharge its burden of proving what it claimed to bethe parties agreement with respect to the delivery of the boxes and also,that even assuming that the agreement was for respondent to deliver theboxes, DCCC would not be liable for breach of contract as petitioner hadnot yet demanded from it the delivery of the boxes. Petition moved for

reconsideration but it was denied.

ISSUE

Whether or not DAVAO CORRUGATED CARTON CORPORATIONcommitted any breach of contract.

HELD

No. In reciprocal obligations, as in a contract of sale, the general rule is thatthe fulfillment of the parties respective obligations should be simultaneous.Hence, no demand is generally necessary because, once a party fulfills hisobligation and the other party does not fulfill his, the latter automaticallyincurs in delay. But when different dates for performance of the obligationsare fixed, the, the other party would incur in delay only from the momentthe other party demands fulfillment of the formers obligation. Thus, evenin reciprocal obligations, if the period for the fulfillment of the obligation isfixed, demand upon the obligee is still necessary before the obligor can beconsidered in default and before a cause of action for rescission will accrue.SHIs witness also testified that they made a follow -up of the boxes, but nota demand. SHI failed to establish a cause of action for rescission. Petition is

dismissed.

13) Lorenzo Shipping Corp. v. BJ Marhel International, Inc., Nov. 19,

2004

(Time is of the essenceDemand not necessary1169)

Facts: Petitioner Lorenzo Shipping Corporation is a domestic corporationengaged in coastwise shipping. It used to own the cargo vessel M/VDadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a businessentity engaged in trading, marketing, and selling of various industrialcommodities. It is also an importer and distributor of different brands ofengines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitionerwith spare parts for the latters marine engines. Sometime in 1989,petitioner asked respondent for a quotation for various machine parts.Acceding to this request, respondent furnished petitioner with a formalquotation

It was stipulated in the contract that DELIVERY is within 2 months afterreceipt of firm order. The TERMS is 25% upon delivery, balance payable in5 bi-monthly equal and Installment[s] not to exceed 90 days.

Petitioner thereafter issued to respondent Purchase Order. For theprocurement of one set of cylinder liner, valued at P477,000, to be used forM/V Dadiangas Express. Instead of paying the 25% down payment for thefirst cylinder liner, petitioner issued in favor of respondent ten postdatedchecks to be drawn against the former's account with Allied BankingCorporation. The checks were supposed to represent the full payment of theaforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order dated 15 January 1990, foryet another unit of cylinder liner. This purchase order stated the term ofpayment to be "25% upon delivery, balance payable in 5 bi-monthly equal

installment[s]. On 26 January 1990, respondent deposited petitioner's checkthat was postdated 18 January 1990, however, the same was dishonored bythe drawee bank due to insufficiency of funds. The remaining nine

postdated checks were eventually returned by respondent to petitioner.

However, the parties presented disparate accounts of what happened to thecheck which was previously dishonored. Petitioner claimed that it replacedsaid check with a good one, the proceeds of which were applied to its otherobligation to respondent. For its part, respondent insisted that it returned

said postdated check to petitioner.


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On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner'swarehouse in North Harbor, Manila. The sales invoices evidencing thedelivery of the cylinder liners both contain the notation "subject toverification" under which the signature of Eric Go, petitioner's

warehouseman, appeared.

Due to the failure of the parties to settle the matter, respondent filed anaction for sum of money and damages before the Regional Trial Court(RTC) of Makati City. In its complaint, respondent (plaintiff below) allegedthat despite its repeated oral and written demands, petitioner obstinatelyrefused to settle its obligations. Respondent prayed that petitioner beordered to pay for the value of the cylinder liners plus accrued interest ofP111,300 as of May 1991 and additional interest of 14% per annum to bereckoned from June 1991 until the full payment of the principal; attorney'sfees; costs of suits; exemplary damages; actual damages; and compensatory

damages.

In an Order dated 25 July 1991, the court a quo granted respondent's prayer

for the issuance of a preliminary attachment. On 09 August 1991, petitionerfiled an Urgent Ex-Parte Motion to Discharge Writ of Attachment attachingthereto a counter-bond as required by the Rules of Court. On even date, thetrial court issued an Order lifting the levy on petitioner's properties and the

garnishment of its bank accounts.

Petitioner afterwards filed its Answer alleging therein that time was of theessence in the delivery of the cylinder liners and that the delivery on 20April 1990 of said items was late as respondent committed to deliver saiditems "within two (2) months after receipt of firm order" from petitioner.Petitioner likewise sought counterclaims for moral damages, exemplarydamages, attorney's fees plus appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint withPreliminary Attachment dated 25 October 1991. The amendment introduceddealt solely with the number of postdated checks issued by petitioner as fullpayment for the first cylinder liner it ordered from respondent. Whereas inthe first amended complaint, only nine postdated checks were involved.

Issue: Whether or not respondent incurred delay in performing itsobligation under the contract of sale and

Whether or not said contract was validly rescinded by petitioner.

Held: There is no showing that petitioner notified respondent of its intentionto rescind the contract of sale between them. Quite the contrary,respondents act of proceeding with the opening of an irrevocable letter ofcredit on 23 February 1990 belies petitioners claim that it notifiedrespondent of the cancellation of the contract of sale. Truly, no prudentbusinessman would pursue such action knowing that the contract o f sale, forwhich the letter of credit was opened, was already rescinded by the other

party.

WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is DENIED.

14) Pacific Banking Corp. v. CA, May 5, 1989 (Art.1169)

Facts: On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an openpolicy, was issued to the Paramount Shirt Manufacturing Co. (hereinafterreferred to as the insured, for brevity), by which private respondent OrientalAssurance Corporation bound itself to indemnify the insured for any loss ordamage, not exceeding P61,000.00, caused by fire to its property consistingof stocks, materials and supplies usual to a shirt factory, including furniture,fixtures, machinery and equipment while contained in the ground, secondand third floors of the building situated at number 256 Jaboneros St., SanNicolas, Manila, for a period of one year commencing from that date to

October 21, 1964.

The insured was at the time of the issuance of the policy and is up to this

time, a debtor of petitioner in the amount of not less than Eight HundredThousand Pesos (P800,000.00) and the goods described in the policy wereheld in trust by the insured for the petitioner under thrust receipts

Said policy was duly endorsed to petitioner as mortgagee/ trustor of theproperties insured, with the knowledge and consent of private respondent tothe effect that "loss if any under this policy is payable to the PacificBanking Corporation".


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On January 4, 1964, while the aforesaid policy was in full force and effect, afire broke out on the subject premises destroying the goods contained in itsground and second floors

On January 24, 1964, counsel for the petitioner sent a letter of demand toprivate respondent for indemnity due to the loss of property by fire underthe endorsement of said policy

On January 28, 1964, private respondent informed counsel for the petitionerthat it was not yet ready to accede to the latter's demand as the former isawaiting the final report of the insurance adjuster, H.H. Bayne AdjustmentCompany

On March 25, 1964, the said insurance adjuster notified counsel for thepetitioner that the insured under the policy had not filed any claim with it,nor submitted proof of loss which is a clear violation of Policy ConditionNo.11, and for which reason, determination of the liability of privaterespondent could not be had

On April 24, 1964, petitioner's counsel replied to aforesaid letter asking theinsurance adjuster to verify from the records of the Bureau of Customs theentries of merchandise taken into the customs bonded warehouse razed byfire as a reliable proof of loss ). For failure of the insurance company to paythe loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filedin the court a quo an action for a sum of money against the privaterespondent, Oriental Assurance Corporation, in the principal sum ofP61,000.00 issued in favor of Paramount Shirt Manufacturing Co.

Issue: Whether or not the CAs decision in reversing the trial courtsjudgment to order the respondent liable

Held: It is but fair and just that where the insured who is primarily entitledto receive the proceeds of the policy has by its fraud and/ormisrepresentation, forfeited said right, with more reason petitioner which ismerely claiming as indorsee of said insured, cannot be entitled to suchproceeds.

Petitioner further stressed that fraud which was not pleaded as a defense inprivate respondent's answer or motion to dismiss, should be deemed to havebeen waived.

It will be noted that the fact of fraud was tried by express or at least impliedconsent of the parties. Petitioner did not only object to the introduction ofevidence but on the contrary, presented the very evidence that proved itsexistence.

It appearing that insured has violated or failed to perform the conditionsunder No. 3 and 11 of the contract, and such violation or want ofperformance has not been waived by the insurer, the insured cannot recover,much less the herein petitioner. Courts are not permitted to make contractsfor the parties; the function and duty of the courts is simply to enforce andcarry out the contracts actually made

Finally, the established rule in this jurisdiction that findings of fact of theCourt of Appeals when supported by substantial evidence, are notreviewable on appeal by certiorari, deserves reiteration. Said findings of theappellate court are final and cannot be disturbed by the Supreme Courtexcept in certain cases.

PREMISES CONSIDERED, the petition is DISMISSED for lack of merit,and the decision appealed from is AFFIRMED. No costs.

15) Sps. Felipe & Leticia Conner v. Sps. Gil & Fernandina Galang

(May 25, 2005)

G.R. No. 139523

May 26, 2005

FACTS: In order to buy a house and lot with an area of 150 square metersin Pulanglupa, Las Pinas City, Gil and Fernandina Galang (hereinrespondents) loaned from Fortune Savings and Loan Association (FSLA)the amount of Php 173,800.00. In order to pay it, they mortgaged theproperty in favour of the Fortune Savings and Loan Association and theNational Home Mortgage Finance Corporation (NHMFC) bought the lotfrom FSLA. Leticia Cannu, one of the petitioners in this case, agreed topurchase the mortgaged property for Php 120,000.00 and to assume thebalance of the mortgage obligations with the NHMFC and the developer ofthe property. Several payments were made and there was a remainingbalance of Php 45,000.00. A deed of sale & assumption of mortgage wasexecuted between the Galang and Cannu spouses and the petitionersimmediately took possession and occupied the house and lot. Although


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there have been requests by Adelina Timbang (the attorney-in-fact) andFernandina Galang for the payment of the balance, else the Cannu spouseswould be forced to vacate the property, the Cannus refused to do so. OnMay 21, 1993, Fernandina Galang paid Php 233, 957.64 as the full paymentof the remaining balance in the mortgage loan with the NHMFC. TheCannus opposed the release of Transfer Certificate Title Number T-8505 infavour of the Galangs insisting that the subject property had already beensold to them. A Complaint for Specific Performance and Damages was filedpraying that the Cannu spouses be declared as owners of the house and lotinvolved subject to reimbursements of the amount made by the Galang

spouses in preterminating the mortgage loan with NHMFC.

ISSUES: Whether or not the petitioners breach of obligation wassubstantial; whether or not there was no substantial compliance with theobligation to pay the monthly amortization with the NHMFC; whether or

not the action for rescission was subsidiary

HELD: The failure of the Cannus to pay the Php 45,000.00 is a substantial

breach of obligation. Under Article 1191 of the Civil Code of thePhilippines, the resolution of a party to pay an obligation is founded on abreach of faith by the other party which violates the reciprocal obligation.The petitioners had ample amount of time to pay the amount, but despite thedemands to pay such, they did not comply with their obligation. Rescissionmay only occur on breaches which are substantial in order to defeat theobject of the parties in making the agreement. Furthermore, Felipe andLeticia Cannu committed another breach in obligation on the Deed of Salewith Assumption of Mortgage. The mortgage obligation with the NHMFCwas not formally assumed on account of the Cannus failure to submit therequirements in order to be considered as successors-in-interest of theinvolved house and lot in Pulanglupa. Article 1191, not Article 1381, is the

applicable provision in the case at bar since it is a retaliatory provision in asense that the action is not substantive and because it is the duty of the courtto require the parties involved to surrender whatever they may havereceived from the other in the resolution of the Deed of Sale withAssumption of Mortgage. It is unjust that a party is bound to fulfil his partof the obligation when the other does not do his part.

16) Binalbagan Tech, Inc. v. CA, March 10, 1993 (1191)

FACTS: On May 11, 1967, private respondents, through Angelina P.Echaus, the Judicial Administrator of the intestate estate of Luis B.Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two(42) subdivision lots of the Puentebella family, and transferred the lots topetitioner Binalbagan Tech., Inc. The President of Binalbagan, PetitionerNava, executed an Acknowledgment of Debt with Mortgage Agreement,

and mortgaged the lots in favour of the estate of Puentebella.

Upon the transfer, Balbagan took possession of the lots, including its

building and improvement, and operated a school on the property.

However, there was a pending civil case stationed beforehand.

The intestate estate of the late Luis Puentevella, who is the owner ofsubdivision lots, was sold to Raul Javelllana, through Angelina Puentavella,with the condition that the vendee-promisee would not transfer his rights tosaid lots without the express consent of Puentevella. If there would becancellation of the contract by reason of violtion of the terms, the payments

made and improvements on the property shall pertain to the promissor andshall be considered as rentals for the use and occupation thereof.

Javellana failed to pay the instalments for his five years of occupation.Puentevella filed an action against Javellana and Southern Negros Colleges(SNC) which was a party defendant it being in possession thereof, forrescinding the contract to sell and recovering the possession of lots andbuildings, including the damages.

After trial, judgment was rendered in favour of Puentevella The deputysheriffs served the writ of execution on the SNC and delivered possession ofinvolved properties to defendant Pentevellas representative, Manuel

Gentapan. Books and school equipment, supplies, library, apparatus, etc.were also delivered as depositary to satisfy the monetary portion of thejudgment.

The plaintiffs in the instant case on appeal filed their Third-Party Claimbased on an alleged Deed of Sale executed in their favor by spouses Joseand Lolita Lopez. Puentevella thus Puentevella was prohibited to assertphysical possession of premises to counteract the fictitious c laim of hereinplaintiffs.


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After an instant case for injunction and damages was filed, an exp-parte writof preliminary injunction was issued by Judge Abiera and which lead toanother issuance of a writ of preliminary injunction by CA. The final orderenjoined Judge Abiera or any other persons or persons in his behalf torefrain from further enforcing the injunction, pending the finality of thedecision of the CA in the latter case. Thus, possession of Puentevella wasrestored. Nevertheless, the plaintiffs filed a petition for review with the SCwhich issued a restraining order against the sale of the properties claimed bythe spouses-plaintiffs.

When the SC dissolved the CAs injunction, possession of the building andother property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred itsschool to another location. Later on, he was restored to the possession of thesubdivision lots. Petitioner was not in possession of the lots from 1974 to

1982.

Thus, private respondent Angelina Echaus demanded payment from

Binalbagan for the subdivision lots, a total amount due of P367,509.93, forthe price of the land and accrued interest. Binalbagan failed to pay. Thus,Echaus filed an action for recovery of title and damages through Civil Case1345.

The trial court dismissed the complaint. The decision was appealed to CAwhich reversed the decision and set aside and ordered Binabalgan Tech. Inc,to execute a deed of conveyance or any other instrument, transferring andreturning unto the appellants the ownership and titles of the subdivision

lines.

Thus, this petition for review on certiorari wherein petitioners averred that

CA erred in its decision.

ISSUE: WON private respondents' cause of action in Civil Case No. 1354 isbarred by prescription.

HELD:

The prescriptive period within which to institute an action upon a writtencontract is ten years. The cause of action of private respondent Echaus isbased on the deed of sale executed on May 11, 1967, as ownership of thesubdivision lots was transferred to petitioner. She filed Civil Case No. 1354for recovery of title and damages only on October 8, 1982. From 1967 to1982, more than 15 years elapsed. However, the period 1974 to 1982 shouldbe deducted in computing the prescriptive period for the reason that from1974 to 1982, private respondent Echaus was not in a legal position toinitiate action against petitioner since as aforestated, through no fault ofhers, her warranty against eviction was breached. Deducting eight yearsfrom the period, only seven years elapsed. Consequently, the civil case wasfiled within the 10-year prescriptive period.

Specifically, the period of prescription was interrupted. From 1974 up to1982, the appellants themselves could not have restored unto the appelleesthe possession of the subdivision lots precisely due to a preliminary

injunction. The appellants could not have prospered in any suit to compelperformance or payment from the appellees-buyers, because the appellantsthemselves were in no position to perform their own correspondingobligation to deliver to and maintain said buyers in possession of the lots

subject matter of the sale.

A party to a contract cannot demand performance of the other party'sobligations unless he is in a position to comply with his own obligations.Similarly, the right to rescind a contract can be demanded only if a partythereto is ready, willing and able to comply with his own obligationsthereunder. In a contract of sale, the vendor is bound to transfer theownership of and deliver, as well as warrant, the thing which is the object of

the sale; he warrants that the buyer shall, from the time ownership is passed,have and enjoy the legal and peaceful possession of the thing.

17) Vicelet & Vicelen Lalicon v. NHA, 13 July 2011

GR No. 185440

FACTS: In 1980 National Housing Authority (NHA) executed a Deed ofSale with Mortgage over a Quezon City lot in favor of the spouses Alfaro.


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In due time, the Quezon City Registry of Deeds issued a title in the name ofthe Alfaros. The deed of sale provided, among others, that the Alfaros couldsell the land within 5 years from the date of its release from mortgage evenwithout NHAs prior written consent. The mortgage and the restriction on

sale were annotated on the Alfaros title.

About nine years later or on November 30, 1990 while the mortgage on theland subsisted, the Alfaros sold the same to their son, Victor Alfaro, whohad taken in a common-law wife, Cecilia, with whom he had two daughters,petitioners Vicelet and Vicelen Lalicon. Cecilia, who had the means, had ahouse built on the property and paid for the amortizations. After fullpayment of the loan the NHA released the mortgage. Six days later Victortransferred ownership of the land to his illegitimate daughters.

About four and a half years after the release of the mortgage, Victorregistered the November 30, 1990 sale of the land in his favor, resulting inthe cancellation of his parents title. The register of deeds issued a title inVictors name. 2 months later Victor mortgaged the land to Chua, Sy, Ong,

and See. Subsequently, in 1997 Victor sold the property to Chua, one of themortgagees, resulting in the cancellation of his title and the issuance of titlein Chuas name. A year later the NHA instituted a case before the QuezonCity RTC for the annulment of the NHAs 1980 sale of the land to theAlfaros, the latters 1990 sale of the land to their son Victor, and thesubsequent sale of the same to Chua, made in violation of NHA rules and

regulations.

RTC ruled that, although the Alfaros clearly violated the five-yearprohibition, the NHA could no longer rescind its sale to them since its rightto do so had already prescribed, applying Article 1389 of the New CivilCode. CA reversed the RTC decision and found the NHA entitled to

rescission.

ISSUES:

1. Whether or not the Alfaros violated their contract with the NHA;

2. Whether or not the NHAs right to rescind has prescribed; and

HELD:

On the first issue, the contract between the NHA and the Alfaros forbadethe latter from selling the land within five years from the date of the releaseof the mortgage in their favor. But the Alfaros sold the property to Victor onNovember 30, 1990 even before the NHA could release the mortgage intheir favor on March 21, 1991. Clearly, the Alfaros violated the five-yearrestriction, thus entitling the NHA to rescind the contract.

On the 2nd issue, petitioners claim that under Article 1389 of the CivilCode the action to claim rescission must be commenced within four yearsfrom the time of the commission of the cause for it. But an action forrescission can proceed from either Article 1191 or Article 1381. It has beenheld that Article 1191 speaks of rescission in reciprocal obligations withinthe context of Article 1124 of the Old Civil Code which uses the termresolution. Resolution applies only to reciprocal obligations such that abreach on the part of one party constitutes an implied resolutory conditionwhich entitles the other party to rescission. Resolution grants the injuredparty the option to pursue, as principal actions, either a rescission or specificperformance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article1291 of the Old Civil Code, which is a subsidiary action, not based on apartys breach of obligation. The four-year prescriptive period provided inArticle 1389 applies to rescissions under Article 1381. Here, the NHAsought annulment of the Alfaros sale to Victor because they violated thefive-year restriction against such sale provided in their contract. Thus, theCA correctly ruled that such violation comes under Article 1191 where theapplicable prescriptive period is that provided in Article 1144 which is 10years from the time the right of action accrues. The NHAs right of actionaccrued on February 18, 1992 when it learned of the Alfaros forbidden saleof the property to Victor. Since the NHA filed its action for annulment ofsale on April 10, 1998, it did so well within the 10-year prescriptive period.

18) Ayala Life Insurance v. Ray Burton Devt, 23 January 2006

Facts: The petitioners Victorias Planters Association, Inc. and NorthNegros Planters Association, Inc. are non-stock corporations and arecomposed of sugar cane planters having been established as therepresentative entities of the numerous sugar cane planters in the districts ofVictorias, Manapla and Cadiz. The sugar cane productions were milled bythe respondent corporation. Petitioners are the ones in charge of taking upwith the respondent corporation problems which may come up. At variousdates, the sugarcane planters executed identical milling contracts setting


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forth the terms and conditions which the sugar central North Negros SugarCo. Inc. would mill the sugar produced by the sugar cane planters. Becauseof the Japanese occupation, the North Negros Sugar Co., Inc. did notreconstruct its destroyed central and it had made arrangements with therespondent Victorias Milling Co., Inc. for said respondent corporation tomill the sugarcane produced by the planters of Manapla and Cadiz holdingmilling contracts with it. When the planters-members of the North NegrosPlanters Association, Inc. considered that the stipulated 30-year period oftheir milling contracts had already expired and terminated and the planters-members of the Victorias Planters Association, Inc. likewise considered thestipulated30-year period of their milling contracts as having likewiseexpired and terminated. Respondent has refused to accept the fact that the30-year period has expired. They contend that the 30 years stipulated in thecontracts referred to 30 years of milling not 30 years in time. Theycontend that as there was no milling during 4 years of the recent war and 2years of reconstruction, 6 years of service still has to be rendered by

petitioners.

Issue: Whether or not respondent is correct.

Held:

The trial court rendered judgment, which the Supreme Courtaffirmed.Wherefore, the Court renders judgment in favor of the petitionersand against the respondent and declares that the milling contracts executedbetween the sugar cane planters of Victorias,Manapla and Cadiz, NegrosOccidental, and the respondent corporation or its predecessors-in-interest,the North Negros Sugar Co., Inc., expired and terminated upon the lapse ofthe therein stipulated 30-year period, and that respondent corporation is notentitled to claim any extension.

The reason the planters failed to deliver the sugar cane wasthe war or afortuitious event. The appellant ceased to run its mill dueto the samecause.Fortuitious event relieves the obligor from fulfilling acontractualobligation. The fact that the contracts make reference to"first milling" doesnot make the period of thirty years one of thirtymilling years.The seventhparagraph of Annex "C", not found in the earlier contracts (Annexes "A","B", and "B-1"), quoted by the appellant in itsbrief, where the partiesstipulated that in the event of flood, typhoon,earthquake, or other forcemajeure, war, insurrection, civil commotion,organized strike, etc., thecontract shall be deemed suspended duringsaid period, does not mean that

the happening of any of those eventsstops the running of the period agreedupon. It only relieves theparties from the fulfillment of their respectiveobligations during thattime.To require the planters to deliver the sugar canewhich theyfailed to deliver during the four years of the Japanese occupationandthe two years after liberation when the mill was being rebuilt istodemand from the obligors the fulfillment of an obligation which

wasimpossible of performance at the time it became due.

19) Victorias Planters v. VMC, 97 Phil 318

(Effect of an agreement that in case fortuitous event contract to besuspended)

GR No. 163075, January 23, 2006

FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp. entered

into a contract denominated as a Contract to Sell, with a SideAgreement of even date. In these contracts, petitioner agreed to sell torespondent a parcel of land situated at Muntinlupa City. The purchase price

of the land is payable as follows:

On contract date: 26%, inclusive of option money

Not later than 1-6-96: 4%

In consecutive quarterly installments for a period of 5 years: 70%

Respondent paid thirty (30%) down payment and the quarterly amortization.However in 1998, respondent notified petitioner in writing that it will no

longer continue to pay due to the adverse effects of the economic crisis toits business. Respondent then asked for the immediate cancellation of thecontract and for a refund of its previous payments as provided in thecontract.

Petitioner refused to cancel the contract to sell. Instead, it filed with theRTC Makati City, a complaint for specific performance against respondent,demanding from the latter the payment of the remaining unpaid quarterlyinstallments inclusive of interest and penalties.


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Respondent, in its answer, denied any further obligation to petitioner,asserting that it (respondent) notified the latter of its inability to pay theremaining installments. Respondent invoked the provisions of paragraphs 3and 3.1 of the contract to sell providing for the refund to it of the amountspaid, less interest and the sum of 25% of all sums paid as liquidateddamages.

The trial court rendered a Decision in favor of Ayala and holding thatrespondent transgressed the law in obvious bad faith. It ordered thedefendant ordered to pay Ayala the unpaid balance, interest agreed upon,and penalties. Defendant is further ordered to pay plaintiff for attorneysfees and the costs of suit. Upon full payment of the aforementioned amountsby defendant, plaintiff shall, as it is hereby ordered, execute the appropriatedeed of absolute sale conveying and transferring full title and ownership ofthe parcel of land subject of the sale to and in favor of defendant.

On appeal, the CA rendered a Decision reversing the trial courts Decision.Hence, the instant petition for review on certiorari.

ISSUE:

1. WON respondents non-payment of the balance of the purchase pricegave rise to a cause of action on the part of petitioner to demand fullpayment of the purchase price; and

2. WON Ayala should refund respondent the amount the latter paid underthe contract to sell.

HELD: The petition is denied. The CA decision is affirmed.

At the outset, it is significant to note that petitioner does not dispute that itsDecember 22, 1995 transaction with respondent is a contract to sell. Also,the questioned agreement clearly indicates that it is a contract to sell, not a

contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to theproperty shall transfer to the PURCHASER upon payment of the balance ofthe Purchase Price and all expenses, penalties and other costs which shall bedue and payable hereunder or which may have accrued thereto. Thereupon,the SELLER shall execute a Deed of Absolute Sale in favor of the

PURCHASER conveying all the SELLERS rights, title and interest in andto the Property to the PURCHASER

1. NO. Considering that the parties transaction is a contract to sell, canpetitioner, as seller, demand specific performance from respondent, asbuyer?

Blacks Law Dictionary defined specific performance as (t)he remedy ofrequiring exact performance of a contract in the specific form in which itwas made, or according to the precise terms agreed upon. The actual

accomplishment of a contract by a party bound to fulfill it.

Evidently, before the remedy of specific performance may be availed of,there must be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by theseller until the purchaser makes full payment of the agreed purchase price.The non-fulfillment by the respondent of his obligation to pay, which is a

suspensive condition to the obligation of the petitioners to sell and deliverthe title to the property, rendered the contract to sell ineffective and withoutforce and effect; failure of which is not really a breach, serious or otherwise,but an event that prevents the obligation of the petitioners to convey titlefrom arising, in accordance with Article 1184 of the Civil Code .

The parties stand as if the conditional obligation had never existed. Article1191 of the New Civil Code will not apply because it presupposes anobligation already extant. There can be no rescission of an obligation that isstill non-existing, the suspensive condition not having happened Thus, acause of action for specific performance does not arise.

Here, the provisions of the contract to sell categorically indicate thatrespondents default in the payment of the purchase price is consideredmerely as an event, the happening of which gives rise to the respective

obligations of the parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event ofDefault under this contract: the PURCHASER fails to pay any installmenton the balance, for any reason not attributable to the SELLER, on the date itis due, provided, however, that the SELLER shall have the right to chargethe PURCHASER a late penalty interest on the said unpaid interest at the


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rate of 2% per month computed from the date the amount became due andpayable until full payment thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter,if any such event shall then be continuing for a period of six (6) months, theSELLER shall have the right to cancel this Contract without need of court

declaration to that effect by giving the PURCHASER a written notice ofcancellation sent to the address of the PURCHASER as specified herein byregistered mail or personal delivery. Thereafter, the SELLER shall return tothe PURCHASER the aggregate amount that the SELLER shall havereceived as of the cancellation of this Contract, less: (i) penalties accrued asof the date of such cancellation, (ii) an amount equivalent to twenty fivepercent (25%) of the total amount paid as liquidated damages, and (iii) anyunpaid charges and dues on the Property. Any amount to be refunded to thePURCHASER shall be collected by the PURCHASER at the office of theSELLER. Upon notice to the PURCHASER of such cancellation, theSELLER shall be free to dispose of the Property covered hereby as if thisContract had not been executed. Notice to the PURCHASER sent by

registered mail or by personal delivery to its address stated in this Contractshall be considered as sufficient compliance with all requirements of noticefor purposes of this Contract.14

Therefore, in the event of respondents default in payment, petitioner, underthe above provisions of the contract, has the right to retain an amountequivalent to 25% of the total payments. As stated by the CA, petitionerhaving been informed in writing by respondent of its intention not toproceed with the contract prior to incurring delay in payment of succeedinginstallments, the provisions in the contract relative to penalties and interestfind no application.

2. YES. The CA is correct that with respect to the award of interest,petitioner is liable to pay interest of 12% per annum upon the net refundableamount due from the time respondent made the extrajudicial demand upon itto refund payment under the Contract to Sell, pursuant to our ruling inEastern Shipping Lines, Inc. v. Court of Appeals.

20) Ponce de Leon v. Sujuco (31 October 1951)

G.R. No. L-3316 October 31, 1951

FACTS: The appellee, Philippine National Bank, was the owner of two (2)parcels of land in Negros Occidental. The Bank executed a contract to sellthe said properties to the plaintiff, Jose Ponce de Leon, the total price ofP26,300. Ponce de Leon obtained a loan from Santiago Syjuco, Inc., in theamount of P200,000 in Japanese Military Notes, payable within one yearfrom May 5, 1948. It was also provided in said promissory note that thepromisor (Ponce de Leon) could not pay, and the payee (Syjuco) could notdemand, the payment of said note except within the aforementioned period.To secure the payment of said obligation, Ponce de Leon mortgaged infavor of Syjuco the parcels of land which he agreed to purchase from theBank. Ponce de Leon paid the Bank of the balance of the purchase priceamounting to P23,670 in Japanese Military notes and, on the same date, theBank executed the deed of absolute sale for the parcels of land. The deed ofsale executed by the Bank in favor of Ponce de Leon and the deed ofmortgage executed by Ponce de Leon in favor of Syjuco were registered inthe Office of the Register of Deeds of Negros Occidental and, as aconsequence of such registration, Transfer Certificate of Title Nos. 17175and 17176 in the name of the Bank were cancelled and Transfer Certificate

of Title No. 398 (P.R.) and No. 399 (P.R.), respectively, were issued in thename of Ponce de Leon. The mortgage in favor of Syjuco was annotated onthe back of said certificates. Ponce de Leon obtained another loan fromSyjuco for the amount of P16,000 in Japanese note with the same tenor asthe first loan. Ponce de Leon tendered to Syjuco not only the amount of hisdebt but also with interests. Syjuco refused to accept the payment tenderedby Ponce de Leon. In view of Syjucos refusal, Ponce de Leon deposited theamount of his debt with the Clerk of Court and consigned with it filed acomplaint.

ISSUE: Whether or not the consignation made by the plaintiff valid in thelight of the law and the stipulations agreed upon in the two promissory

notes signed by the plaintiff?

RULING: The Supreme Court ruled in the negative. In order thatcogsignation may be effective, the debtor must first comply with certainrequirements prescribed by law. The debtor must show (1) that there was adebt due; (2) that the consignation of the obligation had been made bacausethe creditor to whom tender of payment was made refused to accept it, orbecause he was absent for incapacitated, or because several persons claimedto be entitled to receive the amount due (Art. 1176, Civil Code); (3) thatprevious notice of the consignation have been given to the person interested


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in the performance of the obligation (Art. 1177, Civil Code); (4) that theamount due was placed at the disposal of the court (Art 1178, Civil Code);and (5) that after the consignation had been made the person interested wasnotified thereof (Art. 1178, Civil Code). In the instant case, while it isadmitted a debt existed, that the consignation was made because of therefusal of the creditor to accept it, and the filing of the complaint to compelits acceptance on the part of the creditor can be considered sufficient noticeof the consignation to the creditor, nevertheless, it appears that at least twoof the above requirements have not been complied with. Thus, it appearsthat plaintiff, before making the consignation with the clerk of the court,failed to give previous notice thereof to the person interested in theperformance of the obligation. It also appears that the obligation was no t yetdue and demandable when the money was consigned, because, as alreadystated, by the very express provisions of the document evidencing the same,the obligation was to be paid within one year after May 5, 1948, and theconsignation was made before this period matured. The failure of these tworequirements is enough ground to render the consignation ineffective. Andit cannot be contended that plaintiff is justified in accelerating the payment

of the obligation because he was willing to pay the interests due up to thedate of its maturity, because, under the law, in a monetary obligationcontracted with a period, the presumption is that the same is deemedconstituted in favor of both the creditor and the debtor unless from its tenoror from other circumstances it appears that the period has been establishedfor the benefit of either one of them (Art. 1127, Civil Code). Here no suchexception or circumstance exists.

21) Pacific Banking Corp. v. CA, May 5, 1989 (Art.1197 judicial

period)

Facts.

On April 15, 1955, herein private respondents Joseph and Eleanor Hartdiscovered an area consisting of 480 hectares of tidewater land in TambacGulf of. They organized Insular Farms Inc., obtained a lease from theDepartment of Agriculture for a period of 25 years, renewable for another25 years.

Subsequently Joseph Hart approached businessman John Clarkin, thenPresident of Pepsi-Cola Bottling Co. in Manila, for financial assistance.

On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum ofAgreement dividing a total of 1000 shares, 510 were issued to Clarkin and490 were issued to the Harts. Hart was appointed President and GeneralManager as a result of which he resigned as Acting Manager of the FirstNational City Bank at the Port Area, giving up salary of P 1,125.00 a monthand related fringe benefits.

Due to financial difficulties, Insular Farms Inc. borrowed P 250,000.00from Pacific Banking Corporation sometime in July of 1956.

On July 31, 1956 Insular Farms Inc. executed a Promissory Note of P250,000.00 to the bank payable in five equal annual installments, the firstinstallment payable on or before July 1957. Said note provided that upondefault in the payment of any installment when due, all other installmentsshall become due and payable. Eventually the company floundered butnevertheless petitioner pacific banking corporation did not demanded thesaid obligation but rather opted for more collateral in addition to theguaranty of Clarkin.

Hart and clarkin agreed that all shares of stocks be pledged to petitionerbank in lieu of additional collateral and to insure an extension of the periodto pay the July 1957 installment. Said pledge was executed on February 19,1958. Less than a month later they were given 48 hours to pay saidobligation by the petitioner. On march 7 1958 all the shares of the insularfarm were putted into auction to satisfy the obligation. On March 8, 1958,the private respondents commenced the case below by filing a complaint forreconveyance and damages with prayer for writ of preliminary injunctionbefore the Court of First Instance of Manila docketed as Civil Case No.35524. On the same date the Court granted the prayer for a writ of pre-preliminary injunction.

However, on March 19, 1958, the trial court, acting on the urgent petitionsfor dissolution of preliminary injunction filed by petitioners PBC and Babston March 11 and March 14,1958, respectively, lifted the writ of preliminary

injunction.


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The next day, or on March 20, 1958 respondents Hart received a noticefrom PBC signed by Babst that the shares of stocks of Insular Farms will besold at public auction on March 21,1958 at 8:00 A.M.

In the morning of March 21, 1958, PBC through its lawyer notary publicsold the 1,000 shares of stocks of Insular Farms to Pacific Farms for P

285,126.99. The latter then sold its shares of stocks to its own stockholders,who constituted themselves as stockholders of Insular Farms and thenresold back to Pacific Farms Inc. all of Insular Farms assets except for a

certificate of public convenience to operate an iceplant.

On September 28, 1959 Joseph Hart filed another case for I recovery of sumof money comprising his investments and earnings against Insular Farms,Inc. before the Court of First Instance of Manila, docketed as Civil Case No.41557. Lower court decision in favor of the plaintiff and against defendantInsular Farms, Inc., sentencing the latter to pay the former the sum of P25,333.30, representing unpaid salaries to plaintiff Joseph C. Hart; thefurther sum of P 86,366.91 representing loans made by plaintiffs to Insular

Farms, Inc. and attorney's fees equivalent to 10% of the amount dueplaintiffs. This is a petition for review of the decision of the Court ofAppeals in CA-G.R. Nos. 52573 and 52574 directing petitioners to pay torespondent Hart ONE HUNDRED THOUSAND (P 100,000.00) PESOSwith legal interest from February 19, 1958 until fully paid, plus FIFTEENTHOUSAND (P 15,000.00) PESOS attorneys fees, but subject to the rightof reimbursement of petitioner Pacific Banking Corporation (PBC) frompetitioner Babst, whatever amounts PBC should pay on account o f thejudgment.

Issue: WON the sale by Pacific Ban

oblicon digests 2 (new edit)

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