oblicon digests 2 (partial edit)

8/13/2019 Oblicon Digests 2 (Partial 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 of

Zamboanga in favor of the plaintiff, holding that the right of action upon themortgage debt which was the basis of the claim presented against the plaintiffs

estate had already prescribed. The mortgage in question, which is to secure the

payment of the sum of P4,876.01, the debtor agreeing to pay the 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 the period for the payment

thereof to the will of the debtor. It appears also that it was the intention of the

instrument to give the debtor time within which to pay the obligation.

ISSUE: Whether or not the creditor may demand immediate performance of theobligation, given that there is no date stipulated by the parties as to when it should

become due and payable.

HELD: In such cases this court has held, on several occasions, that the obligation

is not due and payable until an action has been commenced by the mortgagee

against the mortgagor for the purpose of having the court fix the date on and after

which the instrument shall be payable and the date of maturity is fixed in

pursuance thereof. Such being the case, as action should have been brought for the

purpose of having the court set a date on which the instrument should become dueand payable. Until such action was prosecuted no suit could be instrument. It is,

therefore, clear that this action is premature. The instrument has been sued upon

before it is due. The action must accordingly be dismissed. Ordinarily when an

action of this sort is dismissed the plaintiff may at once begin his action for the

purpose of fixing a date upon which the instrument shall become due. From the


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undisputed facts in this case and from the facts and conditions that very probably

cannot be charged hereafter, it is our present opinion that such action is itself

prescribed. The judgment was affirmed, with cost against the appellant.

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, donates it

perpetually to the municipality of Tarlac, Province of Tarlac, under certain

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 of Tarlac. Plaintiff filed an action to recover

property since conditions for the donation of the parcel of land was not met by thedefendant municipality.

Issues:

Whether or not, plaintiff has the right of action to claim the parcel of land sold by

private defendant despite the fact that the parcel of land have been previously

donated to defendant municipality.

Held:

Plaintiff has no more right to action to claim the parcel of land. The parcel of land

was already donated by private defendant to defendant municipality before the said

sale took place. The private defendant can no longer sell what is not already theirs.

Moreover, there is no revocation of the donation since there is no consent from the

donee or there is no judicial decree.


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Another point is that the revocation of donation has already prescribed. The period

of class of action is ten years. The action for revocation of the donation for this

cause to arose on April 19, 1911, that is six months after the ratification of the

instrument of donation of October 18, 1910. The complaint in this action was

presented July 5, 1924, more than ten years after his cause accrued.

CONDITIONAL OBLIGATIONS

3) Javier v. CA, March 15, 1990

FACTS:

Leonardo Tiro is a holder of an ordinary timber license issued by the Bureau

of Forestry covering 2,535 hectares in the town of Medina, Misamis Oriental. On

February 15, 1966, he executed a Deed of Assignment in favour of Jose and

Estrella Javier, stating that he will assign, transfer and convey unto the spouses his

shares of stock in the Timberwealth Corporation in consideration of P120, 000:

P20, 000 of which will be paid by the spouses upon signing of the contract and the

balance shall be paid P10, 000 every shipment of export logs actually produced

from Timberwealths concession.

At the time the said agreement was executed, private respondent had a

pending application, dated October 21, 1965, for an additional forest concession

covering an area of 2,000 hectares southwest of the adjoining area of the

concession subject to the deed of assignment. Hence, another agreement was

entered into by the parties on February 28, 1966, stating that respondent shall

transfer, cede and convey whatever rights he may acquire to Timberwealth over the

forest concession then pending application in consideration of a sum of P30, 000 to

be paid by the Javier spouses, as both directors and stockholders of Timberwealth,which amount of money shall form part of their paid up capital stock in said

corporation, subject to the approval of the Board of Directors of the same.

On November 18, 1966, the Acting Director of Forestry wrote the private

respondent that his concession was renewed up to May 12, 1967 but since the land


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consisted of only 2,535 hectares, Tiro was given up to May 12 to form a

cooperative, partnership or corporation with other adjoining licensees so as to have

a total land area of not less than 20,000 hectares of contiguous and compact

territory and an annual cut of not less than 25,000 cubic meters, otherwise his

license will not be renewed, in pursuance of a presidential directive issued on May13, 1966.

Petitioners, acting as timber license holders, entered into a Forest

Consolidation Agreement on April 10, 1967 with other timber license holders like

Vicente de Lara, Jr., Salustiano Oca and Sanggaya Logging Company. Under that

agreement, they all agreed to pool together their resources and merge their

respective forest concessions into one working unit. This consolidation wasapproved on May 10, 1967. The working unit was subsequently incorporated as the

North Mindanao Timber Corporation, with the petitioners and other signatories of

the aforesaid Forest Consolidation Agreement as incorporators.

On July 16, 1968, private respondent filed a suit against the petitioner

spouses for failure to pay the balance due under the two deeds of agreement,

demanding them to pay the amount of P83, 138.15 with interest at 6% per annum

from April 10, 1967 until full payment, plus P12, 000 for attorneys fees and costs.

On September 23, 1968, the petitioners interposed, along with its admittance of

executing of the contracts, a special defense of nullity thereof since private

respondent failed to comply with his contractual obligations and, further, that the

conditions for the enforceability of the obligations of the parties failed to

materialize. As counterclaim, petitioners sought the return of P55, 586 which

private respondent had received from them pursuant to an alleged management

agreement, plus attorneys fees and costs.

On October 7, 1968, Tiro stated that what were transferred to the defendants

were his rights and interest in a logging concession described in the deed of

assignment; that the shares of stocks referred to in the complaint are terms used

therein merely to designate or identify those rights and interests in said logging

concession. The defendants actually made use of or enjoyed not the shares of

stocks but the logging concession itself; that since the proposed Timberwealth was


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owned solely by the defendants, the personalities of the former and the latter are

one and the same; and that the counterclaim of petitioners in the amount of P55,

586.39 is part of the sum of P69, 661.85 paid by the latter to the former in partial

satisfaction of the latters claim. Respondents claim was dismissed and he was

ordered to pay P33, 161.85 with legal interest at 6% per annum from the filing ofthe answer until complete payment.

Ten years later, on the 28th of March, petitioners filed a motion in the Court

of Appeals for extension of time to file a motion for reconsideration, for the reason

that they had to change counsel. They were given 15 days to file said motion for

reconsideration, provided that the subject motion was filed on time. On April 11,

1978, petitioners filed their motion for reconsideration with CA but it was deniedfor the petitioners merely tried to refute the rationale of the Court in deciding to

reverse the appealed judgment.

ISSUE:

Whether the deed of assignment dated February 15, 1966 and the agreement

of February 28, 1966 are null and void, the former for total absence of

consideration and the latter for non-fulfillment of the conditions stated therein.

RULING:

The true cause or consideration of said deed was the transfer of the forest

concession of private respondent to petitioners for P120, 000. This finding is

supported by the following considerations: (1) both parties, at the time of the

execution of the deed of assignment knew that Timberwealth Corporation stated

therein was non-existent; (2) in their subsequent agreement, private respondent

conveyed to petitioners his inchoate right over a forest concession covering an

additional area for his existing forest concession, which area he had applied for,

and his application was then pending in the Bureau of Forestry for approval; (3)

petitioners, after the execution of the deed of assignment, assumed the operation of

the logging concessions of private respondent; (4) the statement of advances to

respondent prepared by petitioners stated: P55, 186.39 advances to L.A. Tiro be

applied to succeeding shipments. Based on the agreement, we pay P10, 000 every


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after (sic) shipment. We had only 2 shipments; and (5) petitioners entered into a

Forest Consolidation Agreement with other holders of forest concessions on the

strength of the questioned deed of assignment.

The aforesaid contemporaneous and subsequent acts of petitioners andprivate respondent reveal that the cause stated in the questioned deed of

assignment is false. It is settled that the previous and simultaneous and subsequent

acts of the parties are properly cognizable indicia of their true intention. Where the

parties to a contract have given it a practical construction by their conduct as by

acts in partial performance, such construction may be considered by the court in

construing the contract, determining its meaning and ascertaining the mutual

intention of the parties at the time of the contracting. The parties practical

construction of their contract 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 the agreement.

The deed of assignment of February 15, 1966 is a relatively simulated

contract which states a false cause or consideration, or one where the parties

conceal their true agreement. A contract with a false consideration is not null and

void per se. Under Article 1436 of the Civil Code, a relatively simulated contract,

when it does not prejudice a third person and is not intended for any purposecontrary to law, morals, good customs, public order or public policy binds the

parties to their real agreement. Petitioners are liable to respondent for the sale and

transfer in their favour of the latters forest concessions. P20, 000 of the P120, 000

to be paid to Tiro was already paid upon signing of the contract and the balance

was to be paid at P10, 000 per shipment of logs from the concession. Since

petitioners forest concessions were consolidated with other license holders under

the Forest Consolidation Agreement, then the unpaid balance of P49, 338.15

became due and demandable.

As to the nullity of the February 28, 1966 agreement, the petitioners cannot

be held liable thereon. The efficacy of said deed of assignment is subject to the

condition that the application of private respondent for an additional area for forest

concession be approved by the Bureau of Forestry. Since Tiro did not obtain that

approval, said deeds produced no effect. When a contract is subject to a suspensive


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condition, its effectivity can take place only if and when the event which

constitutes the condition happens or is fulfilled. If the suspensive condition does

not take place, the parties would stand as if the conditional obligation had never

existed.

The said agreement is a bilateral contract which gave rise to reciprocal

obligations, meaning the obligation of private respondent to transfer his rights in

the forest concession over the additional area and for the petitioners to pay P30,

000. The demandability of the obligation of one party depends upon the fulfillment

of the obligation of the other. In this case, the failure of Leonardo Tiro to comply

with his obligation negates his right to demand performance from petitioners.

Delivery and payment in a contract of sale are so interrelated and intertwined witheach 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 or

expectancy is deemed subject to the condition that the thing will come into

existence. Since Tiro never acquired any right over the additional concession to be

approved by the Bureau, the agreement executed therefor, which had for its object

the transfer of said right to petitioners, never became effective or enforceable.

Decision of the Court of Appeals is modified, in which the agreement dated

February 28, 1966 is declared without force and effect and the amount of P30, 000

is hereby ordered to be deducted from the sum awarded 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 company

rendering local as well as long distance telephone service in Naga City while

private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is


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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 the

operation of its telephone service the electric light posts of private respondent inNaga City. In consideration therefor, petitioners agreed to install, free of charge,

ten telephone connections for the use by private respondent.

After the contract had been enforced for over ten years, private respondent filed in

1989 against petitioners for reformation of the contract with damages, 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 Electrification Administration (NEA) which

direct that the reasonable compensation for the use of the posts is P10.00 per post,

per month; that the telephone cables strung by them have become much heavier.

As second cause of action, private respondent alleged that starting with the year

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, private respondent complained

about the poor servicing by petitioners of the ten telephone units.

NATELCO, on the other hand, averred that the first cause of action should be

dismissed because it does not state a cause of action for reformation of contract

and it is barred by prescription for having been filed more than ten years after theexecution of the contract. As to the second cause of action, petitioners claimed that

private respondent had asked for telephone lines in areas outside Naga City for

which its posts were used by them. And with respect 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 between NATELCO 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 reformation of the

contract commenced from the time it became disadvantageous to CASURECO II;


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Whether or not the contract was subject to a potestative condition in favor of the

petitioners

HELD:

While the contract appeared to be fair to both parties when it was entered into bythem, it became too inequitous or disadvantageous to CASURECO and too one-

sided in favor of NATELCO.

Petitioners assert that Article 1267 of the New Civil Code is not applicable because

the contract does not involve the rendition of service or a personal prestation and it

is not for future service with future unusual change. However, Article 1267 speaks

of "service" which should be understood as referring to the "performance" of the

obligation. In the present case, the obligation of CASURECO consists in allowing

NATELCO to use its posts in Naga City, which is the service contemplated in said

article. Article 1267 states the doctrine of unforeseen events. It is based on the

discredited theory of rebus sic stantibus in public international law; under this

theory, the parties stipulate in the light of certain prevailing conditions, and once

these conditions cease to exist the contract also ceases to exist. Considering

practical needs and the demands of equity and good faith, the disappearance of the

basis of a contract gives rise to a right to relief in favor of the party prejudiced.

On the issue of prescription of private respondent's action for reformation ofcontract, what is reformed in the reformation of contracts is not the contract itself,

but the instrument embodying the contract. It follows that whether the contract is

disadvantageous or not is irrelevant to reformation and therefore, cannot be an

element in the determination of the period for prescription of the action to reform.

Article 1144 of the New Civil Code provides that an action upon a written contract

must be brought within ten years from the time the right of action accrues. Clearly,

the ten year period is to be reckoned from the time the right of action accrues

which is not necessarily the date of execution of the contract. As correctly ruled byrespondent court, private respondent's right of action arose "sometime during the

latter part of 1982 or in 1983 when according to Atty. Luis General, Jr., he was

asked by CASURECO IIs Board of Directors to study said contract as it already

appeared disadvantageous to private respondent. Private respondent's cause of

action to ask for reformation of said contract should thus be considered to have


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arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint

in this case was filed, therefore, ten years had not yet elapsed."

Regarding the last issue, the prestations of either party are not purely potestative

because petitioner's permission for free use of telephones is not made to dependpurely on their will, neither is private respondent's permission for free use of its

posts dependent purely on its will.

A potestative condition is a condition, the fulfillment of which depends upon the

sole will of the debtor, in which case, the conditional obligation is void. Based on

this definition, respondent court's finding that the provision in the contract which

states that That the term or period of this contract shall be as long as the party of

the first part (petitioner) has need for the electric light posts of the party of the

second part (private respondent) is a potestative condition, is correct. However, itmust have overlooked the other conditions in the same provision, particularly, it

being understood that this contract shall terminate when for any reason

whatsoever, the party of the second part (private respondent) is forced to stop,

abandoned its operation as a public service and it becomes necessary to remove the

electric light post which are casual conditions since they depend on chance,

hazard, or the will of a third person.

In sum, the contract is subject to mixed conditions, that is, they depend partly 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:


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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 contract was

supposed to span over two years from the execution of the contract and the salary

was said to be 600php per month during the first year and 700php per month

during the second year with an additional 60php per month for residence andutilities. Additionally, the contract stipulated that if, for any reason, the machinery

for the factory, fail to arrive in the city of Manila within a period of six months, the

contract may be cancelled by Tan Liuan and Co. It was additionally stated that

such cancellation were not to occur before the expiration of the six months.

The machinery never arrived in the city of Manila within the six months after the

signing of the contract. It would appear before the courts that Tan Liuan and Co.

found the oil business to no longer see large returns and cancelled the order of the

machinery. Taylor then instituted an action to recover the amount of 13,000php as

damages for the unfulfilled contract. The lower court found Tan Liuan and Co.

liable not liable for the period subsequent 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 for damages for

the breach of contract.

HELD:

Yes. The Supreme Court held that the lower court did not err in their

rejection damages sought by Taylor for the period subsequent to the expiration of

the first six months. However, it was seen that the trial judge failed to consider the

60php specified in the contract for residence and utilities, which Taylor is clearly

entitled to recover, in addition to the 300php awarded in the lower court. The

Supreme Court ordered Tan Liuan and Co. to pay Taylor the sum of 360phpinstead of 300php with interest and 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.


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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 the building ofSBTC in Davao City for the price of P1,760,000.00. In the contract, the building

must be finished within 200 working days which the respondent was able to

comply with. But there was a drastic increase in expenses which cost P300,000

more than the original price agreed upon. These additional expenses were made

known to the petitioner through their Vice President Fely Sebastian and

Supervising Architect Rudy de la Rama. Respondent made this demands for

payment of the increased cost as soon as possible. Furthermore the demands were

supported by receipts, invoices, payrolls and other documents proving theadditional expenses. SBTC affirmed Ferrers claim and was recommended to settle

an additional P200,000 only. Nevertheless, instead of paying the recommended

additional amount, denied ever authorizing payment of any amount beyond the

original contract price. Ferrer then filed a complaint for breach of contract with

damages. The trial court ruled in favor for Ferrer and on appeal the Court of

Appeals affirmed the trial courts decision. In the present petition for review,

Petitioner SBTC contends that the stipulated contract price will not automatically

make petitioners liable to pay for such increased cost, as any payment above thestipulated contract price has been made subject to the condition that the

"appropriate adjustment" will be made "upon mutual agreement of both parties". It

is contended that since there was no mutual agreement between the parties,

petitioners' obligation to pay amounts above the 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 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. Thus, to allow

petitioner bank to acquire the constructed building at a price far below its actual


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construction cost would undoubtedly 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 shall be void

if its fulfillment depends upon the sole will of the debtor. In the present case, themutual agreement, the absence of which petitioner bank relies upon to support its

non-liability for the increased construction cost, is in effect a condition dependent

on petitioner bank's sole will, since private respondent would naturally and

logically give consent to such an agreement which 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 the following

issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with

CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision, [1] which affirmed the

Decision [2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of

Lapu-Lapu City, Cebu in Civil Case No. 2365- reconsideration of August 8, 2000Decision.

Agapita Catungal owns a specific parcel of land in Cebu City. This said property is

allegedly the paraphernal property of Agapita. With her husbands consent both

spouses entered into contract to sell the same piece of land to the respondent

Rodriguez. The contract subsequently was upgraded into a Deed of Sale between

both of the parties. With negotiations for the sale, the spouses Catungal asked for

the advancement amounting to P5,000,000 for personal reasons. Respondent then

refused to pay the advancement stating that this was not part of their agreement.Furthermore, he claims that the spouses were planning on selling the same property

to interested third parties. With a letter signed by Atty. Jose Catungal, respondents

were then given an ultimatum whether or not they will buy the said property, and

was warned that should they fail to pay the advancement they will rescind the


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contract and will pursue other interested buyers instead because they needed the

down payment of P5, 000,000.

The respondent contended that the rescission of the deed of sale is unjustified

stating that they have no right to rescind.Issue:

Whether or not the provisions of the Contract of Deed of Sale constitutes a positive

condition.

Held:

A provision in a Conditional Deed of Sale stating that the vendee shall pay thebalance of the purchase price when he has successfully negotiated and secured a

road right of way is not a condition on the perfection of the contract nor on the

validity of the entire contract or its compliance as contemplated by Article 1308 of

the Civil Code such condition is not purely potestative such a condition is likewise

dependent on chance as there is no guarantee that the vendee and the third-party

landowners would commit an agreement regarding the road right of way, a type

mixed condition expressly allowed under Article1182 of the Civil Code. Where the

so-called potestative condition is imposed not on the birth of the obligation but onits fulfillment, only the condition is avoided, leaving unaffected the obligation

itself.

CASUAL CONDITION

8) Cruz v. Gasilian (Impossible Conditions)

Facts:

On September 5, 1941, Santos Ilagan, administrator,one of the children and heir of

Eulalio Ilagan Bisig executed an absolute deed of sale over two parcels of land for

P18,000 in favor of Severo Cruz and his wife. On September 18, Santos Ilagan


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submitted the deed of absolute sale to the court and likewise set the same date as

conveyance of approval of the deed. The other children, and heirs of Eulalio Ilagan

Bisig gave their approval and conformity to the said deed and signed on the

administrator's motion. The motion was set for hearing on September 22, but the

motion was not acted upon.

On December 18, 1943, the heirs of the deceased, except the administrator, filed a

written opposition to the sale. On June 30, 1944, Judge Quintin Paredes, Jr.,

sustained the opposition and held that the sale was inproper since the sale was

primarily intended for the payment of the mortgage debt, and thus the property

should be sold to the mortgagee. The opposition stated that, the price fixed in the

motion is not reasonable under the present condition and that the two parcels of

land command a better and higher price.

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 collecting interest.

To disallow estoppel against the appelles in the face of the lse circumstances 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 of Nueva

Ecija in an intestate proceeding disapproving the sale of two parcels of land by theadministrator to the present appellant and her husband, since deceased.

Issue:

Whether or not the sale of the two parcels of land to Sps. Cruz was valid and

proper given the grounds of opposition of the heirs of Eulalio Ilagan Bisig, except

the administrator.

Held:

At the case at bar, the court seemed to believe that the sale was conditional.

It should be noted that the disapproval, was caused by the heirs themselves, and

that, had no objection been offered by them there would been little likelihood of

the approval being withheld. The point is that a party to a contract may not be


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excused from performing his promise by the non-occurence of an event which he

himself prevented.

Wherefore, the order appealed from is reversed and the court below shall enter a

new order approving the sale and ordering the delivery of the lands in question tothe vendees or the successors in interest, with costs against the 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 it would

deliver molasses to the latter. Hawaiian-Philippine Co. was able to deliver 55,006

gallons of molasses before the breach of contract. SFC filed a complaint for breach

of contract against Hawaiian-Philippine Co. and asked P70,369.50. Hawaiian-

Philippine Co. answered that there was a delay in the payment from Song Fo & Co.

and that Hawaiian-Philippine Co. has the right to rescind the contract due to thatand claims it as a special defense. The judgment of the trial court condemned

Hawaiian-Philippine Co. to pay Song Fo & Co. a total of P35,317.93, with legal

interest from the date of the presentation of the complaint, and with costs.

ISSUE

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

300,000 gallons of molasses?

(2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with

Song Fo & Co.?


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(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, 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-Philippine Co. as

seen in the documents presented in court. The language used with reference to the

additional 100,000 gallons was not a definite promise.

(2) With reference to the second question, doubt has risen as to when Song Fo &

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 the right to

rescind the contract. It should be noted that the time of payment stipulated for in

the contract should be treated as of the presence of the contract. There was only a

slight breach of contract when the payment was delayed for 20 days after which

Hawaiian-Philippine Co. accepted the payment of the overdue accounts and

continued with the contract, waiving its 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 compelled to secure

molasses from other sources to which Supreme Court ruled that P3,000 should be

paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until

payment.

The second cause of action was based on the lost profits on account of the breachof contract. Supreme Court said that Song Fo & Co. is not entitled to recover

anything under the second cause of action because the testimony of Mr. Song Heng

will follow the same line of thought as that of the trial court which in unsustainable

and there was no means for the court to find out what items make up the P14,000

of alleged lost profits.


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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 rendered on

May 14, 1976, a decision rescinding the contract of lease over a 750 square meters

lot situated in Cebu City covered by TCT No. 30712 entered into between Filoil

Refinery Corporation and private respondents Jesus P. Garcia and Severina B.Garcia and ordering the petitioner to vacate the leased premises. It appears that the

petitioners violated the terms and conditions of the lease agreement in the sense

that the signatory Filoil Refinery Corporation subleased it to Filoil Marketing and

subsequently to petitioner Petrophil Corporation and that herein petitioners were

delayed several times in the payment of the monthly rentals.

Private respondents filed a Motion for Execution pending appeal which was

opposed by petitioners in their Motion for Reconsideration. Said Motion for

Reconsideration was denied by the lower court prompting petitioners to file a

Petition for certiorari and Review with the Court of Appeals. On September 29,

1980, the Court of Appeals rendered its decision denying the petition for certiorari

and review to annul and set aside the order of the lower court granting the Motion

for Execution pending appeal.

Private respondents filed a motion to dismiss the appeal of petitioners in the

original complaint on the ground of alleged abandonment by reason of the failure

of the petitioners to amend their record on appeal.On September 24, 1979, the lower court dismissed the appeal because it is believed

the Court of Appeals will not be in a position to know why the case was decided on

summary judgment, what exhibits have been admitted in evidence and why Filoil

Marketing Corporation had been ordered impleaded.


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Petitioners filed their Motion for Reconsideration which was denied by the lower

court Hence, the present petition for certiorari and mandamus.

Petitioners' contentions of the alleged failure however, it is a fact that petitioners

filed their record on appeal well within the reglementary period and that the lowercourt never issued an order declaring the Record on Appeal incomplete or

defective nor an order ordering petitioners to complete or correct the same. In

addition, that had the lower court approved outright the record on appeal, or had it

required petitioners to amend the same and petitioners complied, constraining it to

give its approval thereto, it would have lost its jurisdiction to order execution of the

decision pending appeal. 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 losesjurisdiction

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 to follow up or to

inquire about the approval of their record on appeal rather than an act of

abandonment of their appeal as theorized by private respondents.

ISSUE:

1. Whether or not rescinding the contract of lease between petitioners and

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 terminated lastSeptember 16, 1982 or almost 5 years ago by its own terms as provided for in the

Lease Contract. An examination of the lease contract reveals that there is no

express prohibition against the assignment of the leasehold right. Under the law,

when there is no express prohibition, the lessee may sublet the thing leased and all


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rights acquired by virtue of an obligation are transmissible, if there has been no

stipulation to the contrary.

2. Petitioners admit that on a few occasions, they were late in paying the

rentals which were due within the first 15 days of each month but their delay wasonly for a few days. Such breaches were not as substantial and fundamental as to

defeat the object of the parties in making the agreement because 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 subdivision owner,

whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable

over a span of 10 years on 120 monthly instalments with 10% interest per annum.

Saldana paid for eight consecutive years but did not make any further downpayments due to Legardas failure to make the necessary improvement on the said

lot which was promised by their representative, the said Mr. Cenon. Saldana

already paid a total of Php 3,582.06. The statement of account shows that Saldana

paid Php 1,682.28 of the principal and Php1,889.78 for the interest. It did not

distinguish which of the two said lots was paid. Petitioner, then, rescinded the

contract based on the stipulation of the contract that payments made by respondent

shall be considered as rentals and any improvements made shall be forfeited in

favour of the petitioner. The lower court ruled sustaining petitioners cancellationof contract. So respondent appealed and judgement was reversed in favour of the

responded ordering petitioners to deliver to plaintiff one of the two lots at the

choice of the defendant and execute the deed of conveyance. Hence this petition

ISSUE


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Was the cancellation of the sale of contract valid?

HELD

No, even though it was stipulated that failure to complete the payment would

result to the cancellation of the contract, it was still not valid. As clearly shown inthe statement of account, Saldana was able to pay one of the two said lots. Under

Article 1234 of the New Civil Code, if the obligation has been substantially

performed in good faith, the obligor may recover as though there had been a strict

and complete fulfilment, less damages suffered by the obligee. Hence, under the

authority of Article 1234 of the New Civil Code, Saladana is entitled to one of the

two lots of his 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 Davao

Corrugated Carton Corporation (DCCC) for the purchase of corrugated carton

boxes. This agreement was not reduced into writing. To start the production, SHI

deposited US$40,150.00 in DCCCs US Dollar Savings Account with Westmont

Bank, as full payment for the ordered boxes. However, SHI did not receive any

boxes from DCCC. SHI wrote a demand letter for reimbursement but DCCC

replied that the boxes had been completed in April and that SHI failed to pick them

up from the formers warehouse 30 days from completion, as agreed upon. DCCCmentioned that SHI even placed an additional order of 24,000 boxes, out of which,

14,000 had been manufactured without any advanced payment from SHI. DCCC

then 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.


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SHI filed a Complaint for sum of money and damages against DCCC. The

Complaint averred that the parties agreed that the boxes will be delivered within 30

days from payment but respondent failed to deliver the boxes within such time.

The RTC ruled that DCCC did not commit any breach of faith that would justify

rescission of the contract and the consequent reimbursement of the amount paid bySHI. The RTC said that DCCC was able to produce the ordered boxes but SHI

failed to obtain possession thereof because its ship did not arrive.

SHI filed a notice of appeal with the CA but it was denied for lack of merit because

SHI failed to discharge its burden of proving what it claimed to be the parties

agreement with respect to the delivery of the boxes and also, that even assuming

that the agreement was for respondent to deliver the boxes, DCCC would not be

liable for breach of contract as petitioner had not yet demanded from it the delivery

of the boxes. Petition moved for reconsideration but it was denied.

ISSUE

Whether or not DAVAO CORRUGATED CARTON CORPORATION

committed any breach of contract.

HELD

No. In reciprocal obligations, as in a contract of sale, the general rule is that the

fulfillment of the parties respective obligations should be simultaneous. Hence,

no demand is generally necessary because, once a party fulfills his obligation and

the other party does not fulfill his, the latter automatically incurs in delay. But

when different dates for performance of the obligations are fixed, the, the other

party would incur in delay only from the moment the other party demands

fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the

period for the fulfillment of the obligation is fixed, demand upon the obligee is still

necessary before the obligor can be considered in default and before a cause of

action for rescission will accrue. SHIs witness also testified that they made afollow-up of the boxes, but not a 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


23/67

(Time is of the essenceDemand not necessary1169)

Facts: Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged

in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity

engaged in trading, marketing, and selling of various industrial commodities. It is

also an importer and distributor of different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitioner with

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 formal quotation

It was stipulated in the contract that DELIVERY is within 2 months after receipt of

firm order. The TERMS is 25% upon delivery, balance payable in 5 bi-monthly

equal and Installment[s] not to exceed 90 days.

Petitioner thereafter issued to respondent Purchase Order. For the procurement of

one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas

Express. Instead of paying the 25% down payment for the first cylinder liner,

petitioner issued in favor of respondent ten postdated checks to be drawn againstthe former's account with Allied Banking Corporation. The checks were supposed

to represent the full payment of the aforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order dated 15 January 1990, for yet

another unit of cylinder liner. This purchase order stated the term of payment to be

"25% upon delivery, balance payable in 5 bi-monthly equal installment[s]. On 26

January 1990, respondent deposited petitioner's check that was postdated 18

January 1990, however, the same was dishonored by the drawee bank due to

insufficiency of funds. The remaining nine postdated checks were eventuallyreturned by respondent to petitioner.

However, the parties presented disparate accounts of what happened to the check

which was previously dishonored. Petitioner claimed that it replaced said check

with a good one, the proceeds of which were applied to its other obligation to


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respondent. For its part, respondent insisted that it returned said postdated check to

petitioner.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's

warehouse in North Harbor, Manila. The sales invoices evidencing the delivery ofthe cylinder liners both contain the notation "subject to verification" under which

the signature of Eric Go, petitioner's warehouseman, appeared.

Due to the failure of the parties to settle the matter, respondent filed an action for

sum of money and damages before the Regional Trial Court (RTC) of Makati City.

In its complaint, respondent (plaintiff below) alleged that despite its repeated oral

and written demands, petitioner obstinately refused to settle its obligations.

Respondent prayed that petitioner be ordered to pay for the value of the cylinder

liners plus accrued interest of P111,300 as of May 1991 and additional interest of14% per annum to be reckoned from June 1991 until the full payment of the

principal; attorney's fees; 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, petitioner filed an

Urgent Ex-Parte Motion to Discharge Writ of Attachment attaching thereto a

counter-bond as required by the Rules of Court. On even date, the trial 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 the essence

in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said

items was late as respondent committed to deliver said items "within two (2)

months after receipt of firm order" from petitioner. Petitioner likewise sought

counterclaims for moral damages, exemplary damages, attorney's fees plus

appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint with Preliminary

Attachment dated 25 October 1991. The amendment introduced dealt solely with

the number of postdated checks issued by petitioner as full payment for the first

cylinder liner it ordered from respondent. Whereas in the first amended complaint,

only nine postdated checks were involved.


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Issue: Whether or not respondent incurred delay in performing its obligation 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 intention to

rescind the contract of sale between them. Quite the contrary, respondents act of

proceeding with the opening of an irrevocable letter of credit on 23 February 1990

belies petitioners claim that it notified respondent of the cancellation of the

contract of sale. Truly, no prudent businessman would pursue such action

knowing that the contract of sale, for which the letter of credit was opened, wasalready 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 open policy,

was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the

insured, for brevity), by which private respondent Oriental Assurance Corporation

bound itself to indemnify the insured for any loss or damage, not exceeding

P61,000.00, caused by fire to its property consisting of stocks, materials and

supplies usual to a shirt factory, including furniture, fixtures, machinery and

equipment while contained in the ground, second and third floors of the building

situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one yearcommencing 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 Hundred Thousand Pesos


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(P800,000.00) and the goods described in the policy were held in trust by the

insured for the petitioner under thrust receipts

Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties

insured, with the knowledge and consent of private respondent to the effect that"loss if any under this policy is payable to the Pacific Banking Corporation".

On January 4, 1964, while the aforesaid policy was in full force and effect, a fire

broke out on the subject premises destroying the goods contained in its ground and

second floors

On January 24, 1964, counsel for the petitioner sent a letter of demand to private

respondent for indemnity due to the loss of property by fire under the endorsement

of said policy

On January 28, 1964, private respondent informed counsel for the petitioner that it

was not yet ready to accede to the latter's demand as the former is awaiting the

final report of the insurance adjuster, H.H. Bayne Adjustment Company

On March 25, 1964, the said insurance adjuster notified counsel for the petitioner

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 Condition No.11, and for which

reason, determination of the liability of private respondent could not be had

On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the

insurance adjuster to verify from the records of the Bureau of Customs the entries

of merchandise taken into the customs bonded warehouse razed by fire as a reliable

proof of loss ). For failure of the insurance company to pay the loss as demanded,

petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action

for a sum of money against the private respondent, Oriental Assurance

Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt

Manufacturing Co.

Issue: Whether or not the CAs decision in reversing the trial courts judgment to

order the respondent liable

Held: It is but fair and just that where the insured who is primarily entitled to

receive the proceeds of the policy has by its fraud and/or misrepresentation,


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forfeited said right, with more reason petitioner which is merely claiming as

indorsee of said insured, cannot be entitled to such proceeds.

Petitioner further stressed that fraud which was not pleaded as a defense in private

respondent's answer or motion to dismiss, should be deemed to have been waived.It will be noted that the fact of fraud was tried by express or at least implied

consent of the parties. Petitioner did not only object to the introduction of evidence

but on the contrary, presented the very evidence that proved its existence.

It appearing that insured has violated or failed to perform the conditions under No.

3 and 11 of the contract, and such violation or want of performance has not been

waived by the insurer, the insured cannot recover, much less the herein petitioner.

Courts are not permitted to make contracts for the parties; the function and duty of

the courts is simply to enforce and carry out the contracts actually made

Finally, the established rule in this jurisdiction that findings of fact of the Court of

Appeals when supported by substantial evidence, are not reviewable on appeal by

certiorari, deserves reiteration. Said findings of the appellate court are final and

cannot be disturbed by the Supreme Court except 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 meters inPulanglupa, Las Pinas City, Gil and Fernandina Galang (herein respondents)

loaned from Fortune Savings and Loan Association (FSLA) the amount of Php

173,800.00. In order to pay it, they mortgaged the property in favour of the Fortune

Savings and Loan Association and the National Home Mortgage Finance

Corporation (NHMFC) bought the lot from FSLA. Leticia Cannu, one of the


28/67

petitioners in this case, agreed to purchase the mortgaged property for Php

120,000.00 and to assume the balance of the mortgage obligations with the

NHMFC and the developer of the property. Several payments were made and there

was a remaining balance of Php 45,000.00. A deed of sale & assumption of

mortgage was executed between the Galang and Cannu spouses and the petitionersimmediately took possession and occupied the house and lot. Although there have

been requests by Adelina Timbang (the attorney-in-fact) and Fernandina Galang

for the payment of the balance, else the Cannu spouses would be forced to vacate

the property, the Cannus refused to do so. On May 21, 1993, Fernandina Galang

paid Php 233, 957.64 as the full payment of the remaining balance in the mortgage

loan with the NHMFC. The Cannus opposed the release of Transfer Certificate

Title Number T-8505 in favour of the Galangs insisting that the subject property

had already been sold to them. A Complaint for Specific Performance andDamages was filed praying that the Cannu spouses be declared as owners of the

house and lot involved subject to reimbursements of the amount made by the

Galang spouses in preterminating the mortgage loan with NHMFC.

ISSUES: Whether or not the petitioners breach of obligation was substantial;

whether or not there was no substantial compliance with the obligation to pay the

monthly amortization with the NHMFC; whether or not the action for rescission

was subsidiary

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

of obligation. Under Article 1191 of the Civil Code of the Philippines, the

resolution of a party to pay an obligation is founded on a breach of faith by the

other party which violates the reciprocal obligation. The petitioners had ample

amount of time to pay the amount, but despite the demands to pay such, they did

not comply with their obligation. Rescission may only occur on breaches which are

substantial in order to defeat the object of the parties in making the agreement.

Furthermore, Felipe and Leticia Cannu committed another breach in obligation on

the Deed of Sale with Assumption of Mortgage. The mortgage obligation with the

NHMFC was not formally assumed on account of the Cannus failure to submit the

requirements in order to be considered as successors-in-interest of the involved

house and lot in Pulanglupa. Article 1191, not Article 1381, is the applicable

provision in the case at bar since it is a retaliatory provision in a sense that the

action is not substantive and because it is the duty of the court to require the parties


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involved to surrender whatever they may have received from the other in the

resolution of the Deed of Sale with Assumption of Mortgage. It is unjust that a

party is bound to fulfil his part of the obligation when the other does not do his

part.

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 to petitioner Binalbagan Tech., Inc.The President of Binalbagan, Petitioner Nava, 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 of subdivision

lots, was sold to Raul Javelllana, through Angelina Puentavella, with the condition

that the vendee-promisee would not transfer his rights to said lots without the

express consent of Puentevella. If there would be cancellation of the contract by

reason of violtion of the terms, the payments made and improvements on the

property shall pertain to the promissor and shall be considered as rentals for the use

and occupation thereof.

Javellana failed to pay the instalments for his five years of occupation. Puentevellafiled an action against Javellana and Southern Negros Colleges (SNC) which was a

party defendant it being in possession thereof, for rescinding the contract to sell

and recovering the possession of lots and buildings, including the damages.

After trial, judgment was rendered in favour of Puentevella The deputy sheriffs

served the writ of execution on the SNC and delivered possession of involved


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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 the judgment.

The plaintiffs in the instant case on appeal filed their Third-Party Claim based onan alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez.

Puentevella thus Puentevella was prohibited to assert physical possession of

premises to counteract the fictitious claim of herein plaintiffs.

After an instant case for injunction and damages was filed, an exp-parte writ of

preliminary injunction was issued by Judge Abiera and which lead to another

issuance of a writ of preliminary injunction by CA. The final order enjoined Judge

Abiera or any other persons or persons in his behalf to refrain from further

enforcing the injunction, pending the finality of the decision of the CA in the lattercase. Thus, possession of Puentevella was restored. Nevertheless, the plaintiffs

filed a petition for review with the SC which issued a restraining order against the

sale of the properties claimed by the spouses-plaintiffs.

When the SC dissolved the CAs injunction, possession of the building and other

property was taken from petitioner Binalbagan and given to the third-party

claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to

another location. Later on, he was restored to the possession of the subdivision

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, for the price of the land

and accrued interest. Binalbagan failed to pay. Thus, Echaus filed an action for

recovery of title and damages through Civil Case 1345.

The trial court dismissed the complaint. The decision was appealed to CA which

reversed the decision and set aside and ordered Binabalgan Tech. Inc, to execute a

deed of conveyance or any other instrument, transferring and returning unto theappellants the ownership and titles of the subdivision lines.

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

erred in its decision.


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ISSUE: WON private respondents' cause of action in Civil Case No. 1354 is barred

by prescription.

HELD:

The prescriptive period within which to institute an action upon a written contract

is ten years. The cause of action of private respondent Echaus is based on the deed

of sale executed on May 11, 1967, as ownership of the subdivision lots was

transferred to petitioner. She filed Civil Case No. 1354 for recovery of title and

damages only on October 8, 1982. From 1967 to 1982, more than 15 years elapsed.

However, the period 1974 to 1982 should be deducted in computing the

prescriptive period for the reason that from 1974 to 1982, private respondent

Echaus was not in a legal position to initiate action against petitioner since as

aforestated, through no fault of hers, her warranty against eviction was breached.

Deducting eight years from the period, only seven years elapsed. Consequently, the

civil case was filed within the 10-year prescriptive period.

Specifically, the period of prescription was interrupted. From 1974 up to 1982, the

appellants themselves could not have restored unto the appellees the possession of

the subdivision lots precisely due to a preliminary injunction. The appellants could

not have prospered in any suit to compel performance or payment from the

appellees-buyers, because the appellants themselves were in no position to perform

their own corresponding obligation 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's obligations

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 party thereto is ready, willing and

able to comply with his own obligations thereunder. In a contract of sale, the

vendor is bound to transfer the ownership 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.


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

GR No. 185440

FACTS: In 1980 National Housing Authority (NHA) executed a Deed of Sale with

Mortgage over a Quezon City lot in favor of the spouses Alfaro. In due time, the

Quezon City Registry of Deeds issued a title in the name of the Alfaros. The deed

of sale provided, among others, that the Alfaros could sell the land within 5 years

from the date of its release from mortgage even without 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 the landsubsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a

common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet

and Vicelen Lalicon. Cecilia, who had the means, had a house built on the property

and paid for the amortizations. After full payment of the loan the NHA released the

mortgage. Six days later Victor transferred ownership of the land to his illegitimate

daughters.

About four and a half years after the release of the mortgage, Victor registered the

November 30, 1990 sale of the land in his favor, resulting in the cancellation of his

parents title. The register of deeds issued a title in Victors 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 the mortgagees, resulting in the

cancellation of his title and the issuance of title in Chuas name. A year later the

NHA instituted a case before the Quezon City RTC for the annulment of the

NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale of the land to

their son Victor, and the subsequent sale of the same to Chua, made in violation of

NHA rules and regulations.

RTC ruled that, although the Alfaros clearly violated the five-year prohibition, the

NHA could no longer rescind its sale to them since its right to do so had already

prescribed, applying Article 1389 of the New Civil Code. CA reversed the RTC

decision and found the NHA entitled to rescission.


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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 forbade the latter

from selling the land within five years from the date of the release of the mortgage

in their favor. But the Alfaros sold the property to Victor on November 30, 1990

even before the NHA could release the mortgage in their favor on March 21, 1991.

Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to

rescind the contract.

On the 2nd issue, petitioners claim that under Article 1389 of the Civil Code the

action to claim rescission must be commenced within four years from the time of

the commission of the cause for it. But an action for rescission can proceed from

either Article 1191 or Article 1381. It has been held that Article 1191 speaks of

rescission in reciprocal obligations within the context of Article 1124 of the Old

Civil Code which uses the term resolution. Resolution applies only to reciprocal

obligations such that a breach on the part of one party constitutes an implied

resolutory condition which entitles the other party to rescission. Resolution grants

the injured party the option to pursue, as principal actions, either a rescission or

specific performance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article 1291 of

the Old Civil Code, which is a subsidiary action, not based on a partys breach of

obligation. The four-year prescriptive period provided in Article 1389 applies to

rescissions under Article 1381. Here, the NHA sought annulment of the Alfaros

sale to Victor because they violated the five-year restriction against such sale

provided in their contract. Thus, the CA correctly ruled that such violation comes

under Article 1191 where the applicable prescriptive period is that provided inArticle 1144 which is 10 years from the time the right of action accrues. The

NHAs right of action accrued on February 18, 1992 when it learned of the

Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for

annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive

period.


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

Facts:

The petitioners Victorias Planters Association, Inc. and North Negros Planters

Association, Inc. are non-stock corporations and are composed of sugar cane

planters having been established as the representative entities of the numerous

sugar cane planters in the districts of Victorias, Manapla and Cadiz. The sugar cane

productions were milled by the respondent corporation. Petitioners are the ones in

charge of taking up with the respondent corporation problems which may come up.

At various dates, the sugarcane planters executed identical milling contracts setting

forth the terms and conditions which the sugar central North Negros Sugar Co.

Inc. would mill the sugar produced by the sugar cane planters. Because of the

Japanese occupation, the North Negros Sugar Co., Inc. did not reconstruct its

destroyed central and it had made arrangements with the respondent Victorias

Milling Co., Inc. for said respondent corporation to mill the sugarcane produced by

the planters of Manapla and Cadiz holding milling contracts with it. When the

planters-members of the North Negros Planters Association, Inc. considered that

the stipulated 30-year period of their milling contracts had already expired and

terminated and the planters-members of the Victorias Planters Association, Inc.

likewise considered the stipulated30-year period of their milling contracts as

having likewise expired and terminated. Respondent has refused to accept the fact

that the 30-year period has expired. They contend that the 30 years stipulated in the

contracts referred to 30 years of milling not 30 years in time. They contend that

as there was no milling during 4 years of the recent war and 2 years 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 Court affirmed.Wherefore,

the Court renders judgment in favor of the petitioners and against the respondent

and declares that the milling contracts executed between the sugar cane planters of

Victorias,Manapla and Cadiz, Negros Occidental, and the respondent corporation


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or its predecessors-in-interest, the North Negros Sugar Co., Inc., expired and

terminated upon the lapse of the therein stipulated 30-year period, and that

respondent corporation is not entitled to claim any extension.

The reason the planters failed to deliver the sugar cane wasthe war or a fortuitiousevent. The appellant ceased to run its mill dueto the same cause.Fortuitious event

relieves the obligor from fulfilling acontractual obligation. The fact that the

contracts make reference to"first milling" does not make the period of thirty years

one of thirtymilling years.The seventh paragraph of Annex "C", not found in the

earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in itsbrief,

where the parties stipulated that in the event of flood, typhoon,earthquake, or other

force majeure, war, insurrection, civil commotion,organized strike, etc., the

contract shall be deemed suspended duringsaid period, does not mean that the

happening of any of those eventsstops the running of the period agreed upon. It

only relieves theparties from the fulfillment of their respective obligations during

thattime.To require the planters to deliver the sugar cane which theyfailed to

deliver during the four years of the Japanese occupation andthe two years after

liberation when the mill was being rebuilt is todemand 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 be suspended)

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 Side Agreement of evendate. In these contracts, petitioner agreed to sell to respondent 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%


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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 to its business.Respondent then asked for the immediate cancellation of the contract and for a

refund of its previous payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, it filed with the RTC

Makati City, a complaint for specific performance against respondent, demanding

from the latter the payment of the remaining unpaid quarterly installments

inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting that

it (respondent) notified the latter of its inability to pay the remaining installments.

Respondent invoked the provisions of paragraphs 3 and 3.1 of the contract to sell

providing for the refund to it of the amounts paid, less interest and the sum of 25%

of all sums paid as liquidated damages.

The trial court rendered a Decision in favor of Ayala and holding that respondent

transgressed the law in obvious bad faith. It ordered the defendant ordered to pay

Ayala the unpaid balance, interest agreed upon, and penalties. Defendant is further

ordered to pay plaintiff for attorneys fees and the costs of suit. Upon full paymentof the aforementioned amounts by defendant, plaintiff shall, as it is hereby ordered,

execute the appropriate deed of absolute sale conveying and transferring full title

and ownership of the 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 price gave riseto a cause of action on the part of petitioner to demand full payment of the

purchase price; and

2. WON Ayala should refund respondent the amount the latter paid under the

contract to sell.


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

At the outset, it is significant to note that petitioner does not dispute that its

December 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 ofsale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property

shall transfer to the PURCHASER upon payment of the balance of the Purchase

Price and all expenses, penalties and other costs which shall be due 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 and to the Property to the PURCHASER

1. NO. Considering that the parties transaction is a contract to sell, can petitioner,

as seller, demand specific performance from respondent, as buyer?

Blacks Law Dictionary defined specific performance as (t)he remedy of

requiring exact performance of a contract in the specific form in which it was

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 the seller

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 deliver the title to the

property, rendered the contract to sell ineffective and without force 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 title from arising, in accordance

with Article 1184 of the Civil Code .

The parties stand as if the conditional obligation had never existed. Article 1191 of

the New Civil Code will not apply because it presupposes an obligation already

extant. There can be no rescission of an obligation that is still non-existing, the


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suspensive condition not having happened Thus, a cause of action for specific

performance does not arise.

Here, the provisions of the contract to sell categorically indicate that respondents

default in the payment of the purchase price is considered merely as an event, thehappening 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 of

Default under this contract: the PURCHASER fails to pay any installment on the

balance, for any reason not attributable to the SELLER, on the date it is due,

provided, however, that the SELLER shall have the right to charge the

PURCHASER a late penalty interest on the said unpaid interest at the rate of 2%

per month computed from the date the amount became due and payable until fullpayment 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, the SELLER

shall have the right to cancel this Contract without need of court declaration to that

effect by giving the PURCHASER a written notice of cancellation sent to the

address of the PURCHASER as specified herein by registered mail or personal

delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate

amount that the SELLER shall have received as of the cancellation of this

Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an

amount equivalent to twenty five percent (25%) of the total amount paid as

liquidated damages, and (iii) any unpaid charges and dues on the Property. Any

amount to be refunded to the PURCHASER shall be collected by the

PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of

such cancellation, the SELLER shall be free to dispose of the Property covered

hereby as if this Contract had not been executed. Notice to the PURCHASER sent

by registered mail or by personal delivery to its address stated in this Contract shallbe considered as sufficient compliance with all requirements of notice for purposes

of this Contract.14

Therefore, in the event of respondents default in payment, petitioner, under the

above provisions of the contract, has the right to retain an amount equivalent to


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25% of the total payments. As stated by the CA, petitioner having been informed

in writing by respondent of its intention not to proceed with the contract prior to

incurring delay in payment of succeeding installments, the provisions in the

contract relative to penalties and interest find 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 refundable amount due from

the time respondent made the extrajudicial demand upon it to refund payment

under the Contract to Sell, pursuant to our ruling in Eastern 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 sell the said

properties to the plaintiff, Jose Ponce de Leon, the total price of P26,300. Ponce de

Leon obtained a loan from Santiago Syjuco, Inc., in the amount of P200,000 in

Japanese Military Notes, payable within one year from May 5, 1948. It was alsoprovided in said promissory note that the promisor (Ponce de Leon) could not pay,

and the payee (Syjuco) could not demand, the payment of said note except within

the aforementioned period. To secure the payment of said obligation, Ponce de

Leon mortgaged in favor of Syjuco the parcels of land which he agreed to purchase

from the Bank. Ponce de Leon paid the Bank of the balance of the purchase price

amounting to P23,670 in Japanese Military notes and, on the same date, the Bank

executed the deed of absolute sale for the parcels of land. The deed of sale

executed by the Bank in favor of Ponce de Leon and the deed of mortgage

executed by Ponce de Leon in favor of Syjuco were registered in the Office of the

Register of Deeds of Negros Occidental and, as a consequence of such registration,

Transfer Certificate of Title Nos. 17175 and 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 the name of Ponce de Leon. The mortgage in favor of


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Syjuco was annotated on the back of said certificates. Ponce de Leon obtained

another loan from Syjuco for the amount of P16,000 in Japanese note with the

same tenor as the first loan. Ponce de Leon tendered to Syjuco not only the amount

of his debt but also with interests. Syjuco refused to accept the payment tendered

by 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 a complaint.

ISSUE: Whether or not the consignation made by the plaintiff valid in the light 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 that cogsignation may

be effective, the debtor must first comply with certain requirements prescribed by

law. The debtor must show (1) that there was a debt due; (2) that the consignationof the obligation had been made bacause the creditor to whom tender of payment

was made refused to accept it, or

oblicon digests 2 (partial edit)

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