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1.

Conditional Obligation

A. HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT


PLAN VS. SPOUSES BEINVENIDO AND EDITHA BROQUEZA (G.R. NO.
178610, 17 NOVEMBER 2010).
DOCTRINE: PURE OBLIGATION IS IMMEDIATELY DEMANDABLE.

FACTS:
XYZ WAS AN EMPLOYEE OF ABC INC. XYZ OBTAINED CAR LOAN. LATER, XYZ
WAS TERMINATED BY ABC INC. ABC INC DEMANDED PAYMENT OF THE BALANCE
OF THE CAR LOAN. XYZ SAID THE LOAN IS NOT YET MATURE BECAUSE IT IS TO
BE PAID BY INSTALLMENT. ABC INC. FILED COLLECTION CASE AT MTC. MTC
RULED XYZ MUST PAY IMMEDIATELY THE BALANCE BECAUSE SHE CAN NO
LONGER AVAIL OF THE INSTALLMENT-PAYMENT BENEFIT FOR EMPLOYEES OF
ABC INC. ON APPEAL RTC AFFIRMED MTC DECISION. HOWEVER, C.A. REVERSED
RTC DECISION ON THE GROUND THAT THE LOANS HAVE NOT YET MATURED AND
THUS ABC INC HAS NO CAUSE OF ACTION.
ISSUE:
WHETHER THE BALANCE OF THE LOAN IS IMMEDIATELY DEMANDABLE.
RULING:
THE OBLIGATION TO PAY THE CAR LOAN IS A PURE OBLIGATION BECAUSE THE
PROMISSORY NOTE DOES NOT SPECIFY A PERIOD. WHEN XYZ CEASED BEING
AN EMPLOYEE OF ABC INC, SHE CAN NO LONGER AVAIL OF THE BENEFIT OF
PAYMENT BY INSTALLMENT. THEREFORE, ABC INC CAN DEMAND IMMEDIATE
PMENT.
B. Virgilio R. Romero v CA & Enriqueta Chua Vda. Ongsiong

FACTS:
Romero was engaged in the business of production, manufacture and exportation
of perlite filter aids, permalite insulation and processed perlite ore. In 1988,
petitioner and his foreign partners decided to put up a central warehouse in Metro
Manila on a land area of approximately 2,000 square meters. Alfonso Flores and
his wife, accompanied by a broker, offered a parcel of land measuring 1,952
square meters. Located in Barangay San Dionisio, Paraaque owned by private

respondent, Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and,
except for the presence of squatters in the area, he found the place suitable for a
central warehouse. Later, the Flores spouses called on petitioner with a proposal
that should he advance the amount of P50,000.00 which could be used in taking
up an ejectment case against the squatters, private respondent would agree to
sell the property for only P800.00 per square meter. Petitioner expressed his
concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional
Sale," was executed between petitioner and private respondent. 6.
Chua filed an ejectment complaint against Melchor Musa and 29 other squatter
families. Judgment was rendered in favour of Chua.
07 April 1989
Chua sent a letter to Romero saying that she wants to return the P50,000.00
since she could not get rid of the squatters.
Romeros counsel refused and proposed that Romero has taken it upon himself to
eject the squatters and that the expenses shall be chargeable to the purchase of
the land.
The court issued a 45-day grace period for the ejection of the squatters.
19 June 1989
Chuas camp advised Romeros camp that the Deed of Conditional Sale had been
rendered null and void because of his clients failure to comply with the 60-day
period of ejecting the squatters.
CAUSE OF ACTION:
Chua filed a case to compel Romero to receive the P50,000.00.
ISSUE
Whether or not the vendor may demand the rescission of a contract for the sale
of a parcel of land for a cause traceable to his own failure to have the squatters
on the subject property evicted within the contractually-stipulated period?
HELD:
No.
RATIO
: 1. A sale is at once perfected when a person (the seller) obligates himself, for a
price certain, to deliver and to transfer ownership of a specified thing or right to
another (the buyer) over which the latter agrees. The object of the sale is the
1,952-square meter lot in San Dionisio, Paraaque, Rizal. The purchase price was
fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution
of the document of sale and the balance of P1,511,600.00 payable "45 days after
the removal of all squatters from the above described property."

2.When the contract is perfected, the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
a.
Chua is obligated to evict the squatters on the property.
b.
The ejectment of the squatters is a condition the operative act of which sets
into motion the period of compliance by petitioner of his own obligation, i/e to pay
the balance of the purchase price.
c.
Chuas failure "to remove the squatters from the property" within the
stipulated period gives Romero the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil
Code. This option clearly belongs to petitioner and not to private respondent.
3. Mixed Condition
a. The condition is not of a potestative nature which is dependent solely on the
will of the debtor" that is be void in accordance with Article 1182 of the Civil Code
but a
"mixed condition "dependent not on the will of the vendor alone but also of third
persons like the squatters and government agencies and personnel concerned.
We must hasten to add, however, that where the so-called"potestative condition"
is imposed not on the birth of the obligation but on its fulfillment, only the
condition is avoided, leaving unaffected the obligation itself.
4.Waiving of the condition
According to the Code, the obligee may choose to proceed with the agreement or
waive the performance of the condition.
A.In the case at bar, Romero has clearly waived the performance of the obligation
by saying that he will be ejecting the squatters.
5. Rescission of the contract by Chua
a. In any case, private respondent's action for rescission is not warranted because
she is not the injured party. The right of resolution of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the other
party that violates the reciprocity between them. It is private respondent who has
failed in her obligation under the contract.
C. SECURITY BANK & TRUST CO. V. C.A. & YSMAELFERRER G.R. No.
117009 October 11, 1995
FACTS
Private respondent Ysmael C. Ferrer was contracted by herein petitioners SBTC
and Rosito C. Manhit to construct the building of SBTC in Davao City for the price

of P1.7M. The contract provided that Ferrer would finish the construction in200
working days. Respondent Ferrer was able to complete the construction of the
building within the contracted period but he was compelled by a drastic increase
in the cost of construction materials to incur additional expenses of about P300k.
The additional expenses were made known to SBTC and Supervising Architect
Rudy de la Rama early on. Respondent Ferrer made timely demands for payment
of the increased cost. Said demands were supported by receipts, invoices,
payrolls and other documents proving the additional expenses.
SBTC and a representative of an architectural firm consulted by SBTC, verified
Ferrer's claims for additional cost .A recommendation was then made to settle
Ferrer's claim but only for P200k. SBTC, instead of paying the recommended
additional amount, denied ever authorizing payment of any amount beyond the
original contract price. SBTC likewise denied any liability for the additional cost
based on Article IX of the building contract. Ferrer then filed a complaint for
breach of contract with damages. RTC ruled for Ferrer and ordered SBTC and
Rosito C. Manhit to pay damages.
ISSUE
: WON SBTC IS LIABLE FOR THE ADDITIONAL EXPENSES?
HELD
: YES. In the present case, petitioners' arguments to support absence of liability
for the cost of construction beyond the original contract price are not persuasive.
Under Article IX of the construction contract, petitioners would make the
appropriate adjustment to the contract price in case the cost of the project
increases through no fault of the contractor (private respondent).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, the mutual 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. Further, it cannot be
denied that petitioner bank derived benefits when private respondent completed
the construction even at an increased cost. Hence, to allow petitioner bank to
acquire the constructed building at a price far below its actual construction cost
would undoubtedly constitute unjust enrichment for the bank to the prejudice of
private respondent. Such unjust enrichment, as previously discussed, is not
allowed by law.
D. SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners,

vs. KALAYAAN DEVELOPMENT & INDUSTRIAL CORPORATION,


Respondent.
G.R. No. 163244

June 22, 2009

Ponente: Peralta, J.
Facts: Kalayaan Development & Industrial Corporation discovered that Spouses
Jose and Gloria Valenzuela had occupied and built a house on a parcel of land it
owned, and demanded that they vacate said property. Upon negotiation,
however, petitioners and Kalayaan entered a Contract to Sell wherein the
petitioners would purchase 236 square meters of the subject property for
P1,416,000 in twelve equal monthly installments. The contract further stated that
upon failure to pay any of said installments, petitioners would be liable for
liquidated penalty at 3% a month compounded monthly until fully paid. Kalayaan
would also execute the deed of absolute sale only upon full payment.
Petitioners were only able to pay monthly installments amounting to a total of
P208, 000.00. They then requested Kalayaan to issue a deed of sale for 118
square meters of the lot where their house stood, arguing that since they had
paid half the purchase price, or a total of P708,000.00 representing 118 square
meters of the property. Kalayaan, on the other hand, sent two demand letters
asking petitioners to pay their outstanding obligation including agreed penalties.
Gloria Valenzuelas sister, Juliet Giron, assumed the remaining balance for the
118 square meters of the subject property at P10,000.00 per month to Kalayaan,
which the latter accepted for and in behalf of Gloria. Thereafter, Kalayaan
demanded that petitioners pay their outstanding obligation, but were unheeded.
Kalyaan then filed a Complaint fot the Rescission of Contract and Damages
against petitioners. The RTC of Caloocan rendered a Decision in favor of
Kalayaan, rescinding the contract between the parties and ordering petitioners to
vacate the premises.
Petitioners sought recourse from the CA. They aver that the CA failed to see that
the original contract between petitioners and Kalayaan was altered, changed,
modified and restricted as a consequence of the change in the person of the
principal debtor (Sps. Valenzuela to Juliet). When Kalayaan agreed to a monthly
amortization of P10,000.00 per month the original contract was changed, and
that the same recognized Juliets capacity to pay and her designation as the new
debtor. Nevertheless, the CA affirmed the RTC ruling.
Issue: If the original contract was novated and the principal obligation to pay for
the remaining half of the subject property was transferred from petitioners to
Juliet.

Held: No. Novation is never presumed. Novation is the extinguishment of an


obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor. Parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. In
absence of an express agreement, novation takes place only when the old and
new obligations are incompatible on every point.
These are the indispensable requisites of novation:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, none of the aforementioned requisites are present, as
Kalayaan never agreed to the creation of a new contract between them or Juliet.
Kalayaans acceptance of the late payments made by Juliet is, at best, an act of
tolerance on part of Kalayaan that could not have modified the contract.
The non-fulfillment by petitioners of their obligation to pay, which is a suspensive
condition for the obligation of Kalayaan to sell and deliver the title to the
property, rendered the Contract to Sell ineffective and without force and effect.
The parties stand as if the conditional obligation had never existed; Kalayaan
cannot be compelled to transfer ownership of the property to petitioners.
E. AYALA INC VS. RAY BURTON CORP
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 even
date. 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%
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
payment of 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 rise
to 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.
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
of sale. 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
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,
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 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 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, 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 shall
be 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
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.
NOTES:
1. The real nature of a contract may be determined from the express terms of the
written agreement and from the contemporaneous and subsequent acts of the
contracting parties. In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued.5 If the terms of the
contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.6 If the words appear
to be contrary to the evident intention of the parties, the latter shall prevail over

the former.7 The denomination or title given by the parties in their contract is not
conclusive of the nature of its contents.
2. Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the
said case, a contract to sell and a contract of sale were clearly and thoroughly
distinguished from each other.

CONTRACT TO SELL
the ownership is reserved in the seller and is not to pass until the full
payment of the purchase price is made
-

full payment is a positive suspensive condition.

- the title remains in the vendor if the vendee does not comply with the
condition precedent of making payment at the time specified in the contract

CONTRACT OF SALE
-

the title passes to the buyer upon the delivery of the thing sold

non-payment of the price is a negative resolutory condition

vendor has lost and cannot recover the ownership of the property until and unless
the contract of sale is itself resolved and set aside

F. Romulo Coronel vs Court of Appeals , Conception Alcaraz


FACTS:
This case is about a sale of land in Roosevelt Avenue, Quezon City by the vendor
Romulo Coronel to the vendees Conception Alcaraz and her daughter Ramona
Patricia Alcaraz with the following conditions:
The Coronels will immediately transfer the certificate of title in their name upon
receipt of the downpayment which is 50,000.
Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and then Ramona shall
immediately pay the Coronels the whole balance of 1,190,000.

On January 15, 1985, Conception paid the downpayment of 50,000 and then on
February 6, 1985, the property was now registered under the name of Coronels.
By Feb. 18, 1985, the Coronels sold the property to Catalina B. Mabanag for
1,580,000 after she made a 300,000 downpayment. This is the reason why the
Coronels cancelled and rescind the contract with the Alcaraz by depositing back
the 50,000 to Ramonas bank account.

On Feb. 22, Conception filed a complaint for specific performance against the
Coronels. On April, the Coronels executed a deed of absolute sale over the
subject property to Catalina after which on June Catalina was issued a new title
over the subject property.

ISSUE:
Whether or not the Receipt of Down payment embodied a perfected contract of
sale or just a mere contract to sell?

HELD:
CONTRACT OF SALE- contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing and the other to pay a price certain
in money or its equivalent.
CONTRACT TO SELL- the prospective seller explicitly reserves the transfer of the
title to the prospective buyer, meaning the seller does not yet agree or consent to
transfer the ownership of the property until the happening of a contingent event
like full payment of price.

SUPREME COURT RULING:


When the Receipt of Down Payment document was prepared and
signed by Romulo Coronel, the parties had agreed to a conditional contract of sale
the consummation of the contract is subject only to the successful transfer of the
certificate of Title.

According to Supreme Court, the receipt of down payment document manifests a


clear intent of the Coronels to transfer the title to the buyer, but since the title is
still in the name effect the transfer even though the buyers are able and willing to
immediately pay the purchase price. The agreement as well could not have been
a contract to sell because the seller or the Coronels made no express reservation
of ownership or the title of the land.
On Feb. 6, 1985, the Contract of Sale between the Coronels and the Alcaraz
became obligatory.
G. PEOPLE vs. HOLY TRINITY REALTY DEVELOPMENT CORP.GR 172410

H. Heirs of Moreno vs. MACTAN


GR- 156273

October 15, 2003

FACTS:
1.

MORENO: successors of 2 parcels of land

1.

MACTAN wanted to acquire land:


i.

Government assured landowners that they

could repurchase their lands once Lahug Airport was closed or its operations
transferred to Mactan Airport
ii.

Moreno refused offer.


iii.

Civil Aeronautics Administration as the

successor agency of the National Airport Corporation filed a complaint with the
Court of First Instance of Cebu, for the expropriation of land.
iv.

Trial court promulgated public use upon

payment of just compensation.


v.

MORENO were paid; no appeal.

vi.

Certificates of title were issued.

2.

LAHUG AIRPORT CEASED OPERATIONS, lands not utilized.

1.

Moreno plead for repurchase of land.


i.

Filed complaint for reconveyance and

damages.
ii.

Averred that they have been convinced not

to oppose since they could repurchase.


iii.
3.

MCIAA did not object.

ENCHUAN FILED FOR MOTION OF TRANSFER

1.

Acquired through deeds of assignment the rights of land.

2.

DPWH claimed it leased in good faith from MCIAA to Regional Equipment

Services and Region 7 Office.


4.

TRIAL COURT GRANTED RIGHT TO REPURCHASE but subject to the alleged

property rights of Richard E. Enchuan and the leasehold of DPWH.


5.

CA reversed: rights gained by MCIAA were indicative of ownership in fee

simple
ISSUE:
Do they have right to repurchase? Or right to reversion?
HELD:
PETITION GRANTED. CA DECISION REVERSED AND SET ASIDE.
1. Return or repurchase of the condemned properties of petitioners could be readily
justified as the manifest legal effect or consequence of the trial courts underlying
presumption that Lahug Airport will continue to be in operation when it granted
the complaint for eminent domain and the airport discontinued its activities.
2. ARTICLE 1454: If an absolute conveyance of property is made in order to secure
the performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by the
grantor when it becomes due, he may demand the reconveyance of the property
to him.
a.

In the case at bar, government obliged itself to use of land for the expansion

of Lahug Airport
i.

Failure to keep its bargain: can be compelled to reconvey,

otherwise, petitioners would be denied the use of their properties upon a state of
affairs that was not conceived nor contemplated when the expropriation was
authorized.
3.

ARTICLE 1189: If the thing is improved by its nature, or by time, the


improvement shall inure to the benefit of the creditor.
a.

CREDITOR: person who stands to receive something as a result of the

process of restitution.

i.

Petitioners must pay MCIAA the necessary expenses in

sustaining the properties and services


ii.

Government may keep whatever income or fruits it may have

obtained from the parcels of land.


iii.

Petitioners need not account for the interests that the amounts

they received as just compensation may have earned in the meantime.

I. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY v. BENJAMIN


TUDTUD, et al.
571 SCRA 165 (2008), SECOND DIVISION (Carpio Morales, J.)
The former owner reacquires the property expropriated if the expropriation of the
same was subject to condition that when that purpose is ended or abandoned, it
shall be returned to the owner.
FACTS:

The

National

Airports

Corporation

(NAC)

filed

complaint

for

expropriation in order to expand the Cebu Lahug Airport. It sought to acquire, by


negotiated sale or expropriation, several lots adjoining the then existing airport
which included the parcels of land owned by the predecessors-in-interest of
respondents Benjamin Tudtud et al. NAC assured the owners that they would
reacquire the land if it is no longer needed by the airport. The Court of First
Instance of Cebu granted the expropriation.
No structures related to the operation of the Cebu Lahug Airport were constructed
on

the

land expropriated. Respondent Lydia

Adlawan (Lydia), acting as

attorney-in-fact of the original owners, sent a letter to the general manager of the
petitioner Mactan Cebu International Airport Authority (MCIAA), the new owner of
the lot and demanded to repurchase the lot at the same price paid at the time of
the taking, without interest.
Lydia filed a complaint before the Regional Trial Court (RTC) of Cebu City for
reconveyance and damages against the MCIAA. The RTC of Cebu rendered
judgment in favor of Tudtud et al. MCIAA appealed to the Court of Appeals but it
affirmed the RTC decision. MCIAA then filed a Motion for Reconsideration but was
denied.

ISSUE: Whether or not Tudtud et al. are entitled for the reconveyance of the land
expropriated
HELD: Tudtud et al.s witness respondent Justiniano Borga declared that the
original owners did not oppose the expropriation of the lot upon the assurance of
the NAC that they would reacquire it if it is no longer needed by the airport. The
rights and duties between the MCIAA and Tudtud et al are governed by Article
1190 of the Civil Code which provides: When the conditions have for their
purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received.
In case of the loss, deterioration, or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in the preceding article [Article
1189] shall be applied to the party who is bound to return.
While the MCIAA is obliged to reconvey Lot No. 988 to Tudtud et al., they must
return

to the MCIAA what they received as just compensation for the

expropriation of Lot No. 988, plus legal interest to be computed from default,
which in this case runs from the time the MCIAA complies with its obligation to
the respondents. Tudtud et al., must likewise pay the MCIAA the necessary
expenses it may have incurred in sustaining Lot No. 988 and the monetary value
of its services in managing it to the extent that Tudtud et al., were benefited
thereby. Following Article 1187 of the Civil Code, the MCIAA may keep whatever
income or fruits it may have obtained from Lot No. 988, and Tudtud et al., need
not account for the interests that the amounts they received as just compensation
may have earned in the meantime.
J. Ong vs. Bognalbal
FACTS:
Ernesto Bogalbal, an architect-contractor doing business under the
name and style of E.B. Bogalbal Construction, entered into an
Owner-Contractor Agreement with Victoria Ong, a businesswoman, for
the construction of a proposed boutique owned by the latter to be known as
Les Galeries de Paris located at the 3rd Floor of the Shangri-La Plaza,
Epifanio Delos Santos Avenue corner Shaw Boulevard, Mandaluyong City.
The agreement provides that in consideration of the sum of two
hundred thousand pesos (P200,000.00), the contractor agrees to furnish
labor, tools and equipment to complete the work on the boutique as per
specification within forty-five (45) days excluding Sundays from the date of
delivery of the construction materials. Payment by the owner shall be made

by progress billing to be collected every two (2) weeks based on the


accomplishment of work value submitted by the contractor to the owner as
certified for payment by the architect assigned on site.
It is with respect to progress billing no. 4 that the present
controversy arose. When [respondent Bogalbal] submitted the fourth
progress billing on March 31, 1995 for the period covering March 4 to 18,
1995, in the sum of P30,950.00 equivalent to 15.47% of the total job
refused to pay the same.
Petitioner Ong claims, as a defense against payment of the fourth
progress billing, that the only reason why the fourth billing was not paid
was because [respondent Bogalbal] himself agreed and committed to
collect the fourth progress billing after he completed the Kenzo flooring.
Petitioner Ong claims that, because of this promise, her obligation to pay
respondent Bogalbal has not yet become due and demandable.
The Court of Appeals rejected this argument, ruling that respondent
Bogalbals stoppage of work on the project prior to its completion cannot
justify petitioner Ongs refusal to pay the fourth progress billing and the
value of respondent Bogalbals accomplished work on the Kenzo flooring.
On the contrary, according to the Court of Appeals, respondent Bogalbal
was justified to refuse to continue the project due to petitioner Ongs failure
to pay the fourth progress billing.
ISSUE:
Whether or not there was a novation?
HELD:
The Court of Appeals is in error. If the parties indeed had a verbal
agreement that collection of said billing will be held on abeyance until after
respondent Bogalbal finished the work on the Kenzo flooring, there would
have been a novation of petitioner Ongs obligation to pay the price covered
by the fourth billing by changing the principal conditions therefor. This falls
under the first type of novation under Article 1291 of the Civil Code which
provides:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
While the subject of novation is, in the Civil Code, included in Book
IV, Title I, Chapter 4, which refers to extinguishment of obligations, the
effect of novation may be partial or total. There is partial novation when
there is only a modification or change in some principal conditions of the
obligation. It is total, when the obligation is completely extinguished. Also,
the term principal conditions in Article 1291 should be construed to include

a change in the period to comply with the obligation. Such a change in the
period would only be a partial novation, since the period merely affects the
performance, not the creation of the obligation.
Novation is never presumed. Unless it is clearly shown either by
express agreement of the parties or by acts of equivalent import, this
defense will never be allowed.
The evidence preponderates in favor of respondent Bogalbal that
there had been no novation of the contract. At best, what was proven was
a grudging accommodation on the part of respondent Bogalbal to continue
working on the project despite petitioner Ongs failure to pay the fourth
progress billing. Respondent Bogalbals fourth partial billing demand
letters dated 21 April 1995 and 15 May 1995, both of which were served
upon petitioner Ong after the alleged 20 April 1995 meeting, is inconsistent
with the theory that the meeting had produced a novation of the petitioner
Ongs obligation to pay the subject billing.
More importantly, assuming that there was indeed a novation of the
obligation of petitioner Ong to pay the fourth billing so as to include as
additional condition the completion of the Kenzo flooring, such new
condition would, nevertheless, be deemed fulfilled. This is pursuant to
Article 1186 of the Civil Code, which provides that the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment. Ongs
obligation has become a pure obligation.
K. Vda. De Misticavs. Naguiat G.R. No. 137909. December 11, 2003
FACTS:
Eulalio Mistica is the owner of a parcel of land located at Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to respondent Naguiat.
Consequently, Mistica entered into a contract to sell with respondent over a
portion of lot containing an area of 200 sq. mtrs.
The agreement was reduced to writing in a document entitled
Kasulatan sa Pagbibilihan
P 20k as the total purchase:
P 2k upon signing;
P 18k to be paid within 10yrs;
In case non payment, vendee shall pay an interest of 12% per
annum.
Pursuant to said agreement, respondent gave a downpayment of P2K
& made another partial payment of P1K & thereafter failed to make any
payments. Eulalio Mistica died sometime in Oct. 1986.
Petitioner claims that she is entitled to rescind the Contract under
Article 1191 of the Civil Code, because respondents committed a
substantial breach when they did not pay the balance of the purchase price
within the ten-year period.

ISSUE:
1. WON the Kasulatan was a contract to sell? NO
2. WON petitioner is entitled to rescind the contract? NO
3. WON the contract is in the nature of a potestative obligation? NO
HELD:
1. The Kasulatan was clearly a Contract of Sale. A deed of sale is
considered absolute in nature when there is neither a stipulation in the
deed that title to the property sold is reserved to the seller until the full
payment of the price; nor a stipulation giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a
fixed period.
2. In a contract of sale, the remedy of an unpaid seller is either
specific performance or rescission. Under Article 1191 of the Civil Code, the
right to rescind an obligation is predicated on the violation of the reciprocity
between parties, brought about by a breach of faith by one of them.
Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation.
In the present case, the failure of respondents to pay the balance of
the purchase price within ten years from the execution of the Deed did not
amount to a substantial breach. In the Kasulatan, it was stipulated that
payment could be made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest. The stipulations of
the contract constitute the law between the parties; thus, courts have no
alternative but to enforce them as agreed upon and written.
Petitioner never made any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by respondents during
her husbands funeral, thus showing that she was not exactly blameless for
the lapse of the ten-year period. Had she accepted the tender, payment
would have been made well within the agreed period.
3. The Kasulatan does not allow the it to be converted to a
potestative obligation. First, nowhere is it stated in the Deed that payment
of the purchase price is dependent upon whether respondents want to pay
it or not. Second, the fact that they already made partial payment thereof
only shows that the parties intended to be bound by the Kasulatan.
L. Tayag v. Court of Appeals G.R. No. 96053 March 3, 1993
FACTS:
Siblings Juan Galicia Sr. and Celerina Labuguin entered into a
contract to sell a parcel of land in Nueva Ecija to a certain Albrigido Leyva:
o 3K upon agreement
o 10K ten days after the agreement

o 10K representing vendors indebtedness to Phil Veterans Bank


o 27K payable within one year from execution of contract.
Leyva only paid parts of the obligation.
But even after the grace period for payment made in the contract
and while litigation of such case, the petitioners still allowed Leyva to make
payments.
With regards to the obligation payable to the Phil Veterans bank by
the vendee, as they deemed that it was not paid in full, such obligation
they completed by adding extra amount to fulfill such obligation. This was
fatal in their case as this is Leyvas argument that they constructively
fulfilled the obligation which is rightfully due to him. (Trivia: It was
Celerina, Juans sister, that paid the bank to complete such obligation).
Petitioners claim that they are only OBLIGEES with regards to the
contract, so the principle of constructive fulfillment cannot be invoked
against them.
Petitioners, being both creditor and debtor to private respondent, in
accepting piecemeal payment even after the grace period, are barred to
take action through estoppel.
ISSUES:
1. WON there was constructive fulfillment in the part of the
petitioners that shall make rise the obligation to deliver to Leyva the deed
of sale? YES
2. WON they are still entitled to rescind the contract? NO, barred by
estoppel.
HELD:
1. In a contract of purchase, both parties are mutually obligors and
also obligees, and any of the contracting parties may, upon non-fulfillment
by the other privy of his part of the prestation, rescind the contract or seek
fulfillment (Article 1191, Civil Code).
In short, it is puerile for petitioners to say that they are the only
obligees under the contract since they are also bound as obligors to respect
the stipulation in permitting private respondent to assume the loan with the
Philippine Veterans Bank which petitioners impeded when they paid the
balance of said loan. As vendors, they are supposed to execute the final
deed of sale upon full payment of the balance as determined hereafter.
2. Petitioners accepted Leyvas delayed payments not only beyond
the grace periods but also during the pendency of the case for specific
performance. Indeed, the right to rescind is not absolute and will not be
granted where there has been substantial compliance by partial payments.
By and large, petitioners actuation is susceptible of but one construction
that they are now estopped from reneging from their commitment on
account of acceptance of benefits arising from overdue accounts of private
respondent.

1.1.

Article 1182
a. Catungal v. Rodriquez
FACTS:
Agapita T. Catungal (Agapita) owned a parcel of land in her name
situated in the Barrio of Talamban, Cebu City. The said property was
allegedly the exclusive paraphernal property of Agapita. Agapita, with the
consent of her husband Jose, entered into a Contract to Sell with
respondent Rodriguez. Subsequently, the Contract to Sell was purportedly
"upgraded" into a Conditional Deed of Sale. It was agreed that
P25,000,000.00 shall be payable in installments after after the VENDEE
have (sic)'successfully negotiated, secured and provided a Road Right of
Way either by widening the existing Road Right of Way or by securing a
new Road Right of Way. If however said Road Right of Way could not be
negotiated, the VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options and should the
situation ultimately prove futile, he shall take steps to rescind or cancel the
herein Conditional Deed of Sale. the spouses Catungal requested an
advance of P5,000,000.00 on the purchase price for personal reasons.
Shortly after his refusal to pay the advance, he purportedly learned that
the Catungals were offering the property for sale to third parties. Jose
Catungal demanded that the former make up his mind about buying the
land or exercising his "option" to buy the property. Should Rodriguez fail to
exercise his option to buy the land, the Catungals warned that they would
consider the contract cancelled and that they were free to look for other
buyers. Jose cancelled the contract. Rodriquez filed for a restraining order a
writ of preliminary injunction. The Catungals alleged that there was
contractual breach and bad faith on the part of Rodriguez. Rodriguez
alleged that the Catungals were guilty of several misrepresentations which
purportedly induced Rodriguez to buy the property at the price of
P25,000,000.00. RTC ruled in favor of Rodriguez. Hence this petition.
ISSUE:
WON the provisions of the conditional deed of sale constitute a
postative condition
HELD:
No. paragraph 1(b) of the Conditional Deed of Sale, stating that
respondent shall pay the balance 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 in Article 1308. It is a condition imposed
only on respondent's obligation to pay the remainder of the purchase price.
In our view and applying Article 1182, such a condition is not purely

potestative as petitioners contend. It is not dependent on the sole will of


the debtor but also on the will of third persons who own the adjacent land
and from whom the road right of way shall be negotiated. Ina manner of
speaking, such a condition is likewise dependent on chance as there is no
guarantee that respondent and the third party-landowners would come to
an agreement regarding the road right of way. This type of mixed condition
is expressly allowed under Article 1182 of the Civil Code. Furthermore, In
sum, Rodriguez's option to rescind the contract is not purely potestative
but rather also subject to the same mixed condition as his obligation to pay
the balance of the purchase price i.e., the negotiation of a road right of
way. In the event the condition is fulfilled (or the negotiation is successful),
Rodriguez must pay the balance of the purchase price. In the event the
condition is not fulfilled (or the negotiation fails), Rodriguez has the choice
either (a) to not proceed with the sale and demand return of his down
payment or (b) considering that the condition was imposed for his benefit,
to waive the condition and still pay the purchase price despite the lack of
road access. This is the most just interpretation of the parties' contract that
gives effect to all its provisions.
b. Perez v. Court of Appeals
FACTS:
Primitivo Perez had been insured with the BF Lifeman Insurance
Corporation since 1980 for P20,000.00. In October 1987, an agent of
Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply
for additional insurance coverage of P50,000.00, to avail of the ongoing
promotional discount of P400.00 if the premium were paid annually.
Primitivo B. Perez accomplished an application form for the additional
insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog.
The receipt issued by Lalog indicated the amount received was a "deposit."
Unfortunately, Lalog lost the application form accomplished by Perez and so
on October 28, 1987, he asked the latter to fill up another application form.
On November 1, 1987, Perez was made to undergo the required medical
examination, which he passed.
Lalog forwarded the application for
additional insurance of Perez, together with all its supporting papers, to the
office of BF Lifeman Insurance Corporation in Quezon which office was
supposed to forward the papers to the Manila office. On November 25,
1987, Perez died while he was riding a banca which capsized during a
storm. At the time of his death, his application papers for the additional
insurance were still with the Quezon office. Lalog testified that when he
went to follow up the papers, he found them still in the Quezon office and
so he personally brought the papers to the Manila office of BF Lifeman
Insurance Corporation. It was only on November 27, 1987 that said papers
were received in Manila. Without knowing that Perez died on November 25,

1987, BF Lifeman Insurance Corporation approved the application and


issued the corresponding policy for the P50,000.00 on December 2, 1987
Virginia went to Manila to claim the benefits under the insurance
policies of the deceased. She was paid P40,000.00 under the first insurance
policy for P20,000.00 (double indemnity in case of accident) but the
insurance company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount to P150,000.00 in
view of a triple indemnity rider on the insurance policy. In its letter of
January 29, 1988 to Virginia A. Perez, the insurance company maintained
that the insurance for P50,000.00 had not been perfected at the time of the
death of Primitivo Perez. Consequently, the insurance company refunded
the amount of P2,075.00 which Virginia Perez had paid. Lifeman filed for
the rescission and the declaration of nullity. Perez, on the other hand,
averred that the deceased had fulfilled all his prestations under the contract
and all the elements of a valid contract are present.
RTC ruled in favor of Perez. CA reversed.
ISSUE:
Whether or not there was a perfected additional insurance contract.
HELD:
The contract was not perfected. Insurance is a contract whereby, for
a stipulated consideration, one party undertakes to compensate the other
for loss on a specified subject by specified perils. A contract, on the other
hand, is a meeting of the minds between two persons whereby one binds
himself, with respect to the other to give something or to render some
service.
Consent must be manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. When
Primitivo filed an application for insurance, paid P2,075.00 and submitted
the results of his medical examination, his application was subject to the
acceptance of private respondent BF Lifeman Insurance Corporation. The
perfection of the contract of insurance between the deceased and
respondent corporation was further conditioned upon compliance with the
following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued
on this application and that the said policy shall not take effect until the
premium has been paid and the policy delivered to and accepted by me/us
in person while I/We, am/are in good health."
The assent of private respondent BF Lifeman Insurance Corporation
therefore was not given when it merely received the application form and
all the requisite supporting papers of the applicant. Its assent was given

when it issues a corresponding policy to the applicant. Under the


abovementioned provision, it is only when the applicant pays the premium
and receives and accepts the policy while he is in good health that the
contract of insurance is deemed to have been perfected.
It is not disputed, however, that when Primitivo died on November
25, 1987, his application papers for additional insurance coverage were still
with the branch office of respondent corporation in Gumaca and it was only
two days later, or on November 27, 1987, when Lalog personally delivered
the application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the
applicant at the time was already dead.
c. Romero v. Court of Appeals
FACTS:
Private respondent Chua vda. De Ongsiong offered a parcel of lot to
petitioner Romero. Private respondentasked petitioner that he advance the
amount of P50,000.00 which could be used in taking up an ejectment
caseagainst the squatters, private respondent would agree to sell the
property for only P800.00 per squaremeter. Thereafter, a deed of
conditional sale was contracted.
One of the conditions stipulated is that the petitionercan only pay the
balance of the purchase price after the removal of the squatters in said
property, then the deed ofabsolute sale will be contracted.Thereafter,
private respondent sought to return P50,000 for the reason that she
couldnt get rid of the squatters. A complaint was filed in the trial court for
the rescission of the conditional sale contract but was dismissed.On appeal,
CA reversed the decision and rendered the contract null and void.
ISSUE:
May the vendor demand the rescission of a contract for the sale of a
parcel of land for a cause traceable to his own failure to have the squatters
on the subject property evicted within the contractually-stipulated period?
HELD:
No. The decision of CA is reversed and set aside.
In determining the real character of the contract, the title given to it
by the parties is not as much significant as its substance. For example, a
deed of sale, although denominated as a deed of conditional sale, may be
treated as absolute in nature, if title to the property sold is not reserved in
the vendor or if the vendor is not granted the right to unilaterally rescind
the contract predicated on the fulfillment or non-fulfillment, as the case

may be, of the prescribed condition. A perfected contract of sale may either
be absolute or conditional depending on whether the agreement is devoid
of, or subject to, any condition imposed on the passing of title of the thing
to be conveyed or on the obligation of a party thereto. When ownership is
retained until the fulfillment of a positive condition the breach of the
condition will simply prevent the duty to convey title from acquiring an
obligatory force. If the condition is imposed on an obligation of a party
which is not complied with, the other party may either refuse to proceed or
waive said condition (Art. 1545, Civil Code). Where, of course, the
condition is imposed upon the perfection of the contract itself, the failure of
such condition would prevent the juridical relation itself from coming into
existence.
From the moment the contract is perfected, the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping
with good faith, usage and law. Under the agreement, private respondent is
obligated to evict the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets into motion the
period of compliance by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Private respondent's failure "to remove the
squatters from the property" within the stipulated period gives petitioner
the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to private respondent.
1.2.

Article 1186
a. De Leon vs. Benita T. Ong
GR No. 170405, Feb. 2, 2010 Absolute and Conditional Sales

FACTS:
On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels
of land to Benita T. Ong (respondent). The said properties were mortgaged
to a financial institution; Real Savings & Loan Association Inc. (RSLAI). The
parties then executed a notarized deed of absolute sale with assumption of
mortgage. As indicated in the deed of mortgage, the parties stipulated that
the petitioner (de leon) shall execute a deed of assumption of mortgage in
favor of Ong (respondent) after full payment of the P415,000. They also
agreed that the respondent (Ong) shall assume the mortgage. The
respondent then subsequently gave petitioner P415,000 as partial
payment. On the other hand, de leon handed the keys to Ong and de leon
wrote a letter to inform RSLAI that the mortgage will be assumed by Ong.
Thereafter, the respondent took repairs and made improvements in the
properties. Subsequently, respondent learned that the same properties

were sold to a certain Viloria after March 10, 1993 and changed the locks,
rendering the keys given to her useless. Respondent proceeded to RSLAI
but she was informed that the mortgage has been fully paid and that the
titles have been given to the said person. Respondent then filed a
complaint for specific performance and declaration of nullity of the second
sale and damages. The petitioner contended that respondent does not have
a cause of action against him because the sale was subject to a condition
which requires the approval of RSLAI of the mortgage. Petitioner reiterated
that they only entered into a contract to sell. The RTC dismissed the case.
On appeal, the CA upheld the sale to respondent and nullified the sale to
Viloria. Petitioner moved for reconsideration to the SC.
ISSUE:
Whether the parties entered into a contract of sale or a contract to
sell?
HELD:
In a contract of sale, the seller conveys ownership of the property to
the buyer upon the perfection of the contract. The non-payment of the
price is a negative resolutory condition. Contract to sell is subject to a
positive suspensive condition. The buyer does not acquire ownership of the
property until he fully pays the purchase price.
In the present case, the deed executed by the parties did not show
that the owner intends to reserve ownership of the properties. The terms
and conditions affected only the manner of
payment and not the
immediate transfer of ownership. It was clear that the owner intended a
sale because he unqualifiedly delivered and transferred ownership of the
properties to the respondent.
b. Lim vs. Development Bank of the Philippines
FACTS:
On November 24, 1969, petitioners Carlos, Consolacion, and Carlito,
all surnamed Lim, obtained a loan of P40,000.00 (Lim Account) from
respondent Development Bank of the Philippines (DBP) to finance their
cattle raising business. On the same day, they executed a Promissory Note
undertaking to pay the annual amortization with an interest rate of 9% per
annum and penalty charge of 11% per annum.
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and
Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez,
Juan S. Chua, and Trinidad D.Chua obtained another loan from DBP in the
amount of P960,000.00 (Diamond L Ranch Account). They also executed a
Promissory Note, promising to pay the loan annually from August 22, 1973

until August 22, 1982 with an interest rate of 12% per annum and a
penalty charge of 1/3% per month on the overdue amortization.
To secure the loans, petitioners executed a Mortgage in favor of DBP
over several titled real properties. Due to violent confrontations between
government troops and Muslim rebels in Mindanao from 1972 to 1977,
petitioners were forced to abandon their cattle ranch. As a result, their
business collapsed and they failed to pay the loan amortizations.
In 1978, petitioners made a partial payment in the amount of
P902,800.00, leaving an outstanding loan balance of P610,498.30, inclusive
of charges and unpaid interest, as of September 30, 1978.
In 1989, petitioners, represented by Edmundo Lim (Edmundo),
requested from DBP Statements of Account for the "Lim Account" and the
"Diamond L Ranch Account."Edmundo proposed the settlement of the
accounts through dacion en pago, with the balance to be paid in equal
quarterly payments over five years but in a reply-letter DBP rejected the
proposal and informed Edmundo that unless the accounts are fully settled
as soon as possible, the bank will pursue foreclosure proceedings.
Several requests and extentions for payment were made by
Edmundo but no compliance was ever made. On December 19, 1993,
Edmundo received the draft of the Restructuring Agreement but
subsequently, the bank cancelled the Restructuring Agreement due to his
failure to comply with the conditions within a reasonable time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking
that he pay the outstanding amount of P6,404,412.92, as of November 16,
1993, exclusive of interest and penalty charges.
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction
sale of the mortgaged properties for the satisfaction of petitioners total
obligations in the amount of P5,902,476.34.DBP was the highest bidder in
the amount of P3,310,176.55.
On July 13, 1994, the Ex- Officio Sheriff issued the Sheriffs
Certificate of Extra-Judicial Sale in favor of DBP covering 11 parcels of land.
In a letter dated September 16, 1994, DBP informed Edmundo that their
right of redemption over the foreclosed properties would expire on July 28,
1995.
On July 28, 1995, petitioners filed before the RTC of General Santos
City, a Complaint against DBP for Annulment of Foreclosure and Damages
with Prayer for Issuance of a Writ of Preliminary Injunction and/or
Temporary Restraining Order.
Petitioners alleged that DBPs acts and omissions prevented them from
fulfilling their obligation; thus, they prayed that they be discharged from
their obligation and that the foreclosure of the mortgaged properties be
declared void. They likewise prayed for actual damages for loss of business

opportunities, moral and exemplary damages, attorneys fees, and


expenses of litigation.
On the same date, the RTC issued a Temporary Restraining Order
directing DBP to cease and desist from consolidating the titles over
petitioners foreclosed properties and from disposing the same.
In an Order dated August 18, 1995, the RTC granted the Writ of
Preliminary Injunction and directed petitioners to post a bond in the
amount of P3,000,000.00.
ISSUE:
1. Whether the obligation of the petitioner is fully discharged and
extinguished.
2. Whether the foreclosure proceedings are null and void.
3. Whether respondent is liable for damages.
HELD:
1. The obligation was not extinguished or discharged.
The Promissory Notes subject of the instant case became due and
demandable as early as1972 and 1976. The only reason the mortgaged
properties were not foreclosed in 1977 was because of the restraining order
from the court. In 1978, petitioners made a partial payment
ofP902,800.00. No subsequent payments were made. It was only in 1989
that petitioners tried to negotiate the settlement of their loan obligations.
And although DBP could have foreclosed the mortgaged properties, it
instead agreed to restructure the loan. In fact, from 1989 to 1994, DBP
gave several extensions for petitioners to settle their loans, but they never
did, thus, prompting DBP to cancel the Restructuring Agreement.
Article 1186 enunciates the doctrine of constructive fulfillment of
suspensive conditions, which applies when the following three (3) requisites
concur, viz: (1) The condition issuspensive; (2) The obligor actually
prevents the fulfillment of the condition; and (3) He acts voluntarily.
Suspensive condition is one the happening of which gives rise to the
obligation. It will be irrational for any Bank to provide a suspensive
condition in the Promissory Note or the Restructuring Agreement that will
allow the debtor-promissor to be freed from the duty to pay the loan
without paying it.
Besides, petitioners have no one to blame but themselves for the
cancellation of the Restructuring Agreement. It is significant to point out
that when the Regional Credit Committee reconsidered petitioners proposal
to restructure the loan, it imposed additional conditions. In fact, when
DBPs General Santos Branch forwarded the Restructuring Agreement to
the Legal Services Department of DBP in Makati, petitioners were required
to pay the amount ofP1,300,672.75, plus a daily interest of P632.15
starting November 16, 1993 up to the date of actual payment of the said

amount. This, petitioners failed to do. DBP therefore had reason to cancel
the Restructuring Agreement.
Moreover, since the Restructuring Agreement was cancelled, it could
not have novated or extinguished petitioners loan obligation. And in the
absence of a perfected Restructuring Agreement, there was no impediment
for DBP to exercise its right to foreclose the mortgaged properties.
2. The foreclosure sale is not valid.
While DBP had a right to foreclose the mortgage, we are constrained
to nullify the foreclosure sale due to the banks failure to send a notice of
foreclosure to petitioners. We have consistently held that unless the parties
stipulate, "personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary because Section 3 of Act 3135 only requires
the posting of the notice of sale in three public places and the publication of
that notice in a newspaper of general circulation.
However, no notice of the extrajudicial foreclosure was sent by DBP
to petitioners about the foreclosure sale scheduled on July 11, 1994. The
letters dated January 28, 1994 and March11, 1994 advising petitioners to
immediately pay their obligation to avoid the impending foreclosure of their
mortgaged properties are not the notices required in paragraph 11 of the
Mortgage. The failure of DBP to comply with their contractual agreement
with petitioners, i.e.,to send notice, is a breach sufficient to invalidate the
foreclosure sale.
The Act only requires (1) the posting of notices of sale in three public
places, and (2) the publication of the same in a newspaper of general
circulation. Personal notice to the mortgagor is not necessary.
Nevertheless, the parties to the mortgage contract are not precluded from
exacting additional requirements.
As to the imposition of additional interest and penalties not stipulated
in the Promissory Notes, this should not be allowed. Article 1956 of the
Civil Code specifically states that "no interest shall be due unless it has
been expressly stipulated in writing." Thus, the payment of interest and
penalties in loans is allowed only if the parties agreed to it and reduced the
is agreement in writing.
In this case, petitioners never agreed to pay additional interest and
penalties. Hence, we agree with the RTC that these are illegal, and thus,
void. Quoted below are the findings of the RTC on the matter, to wit:
Consequently, this case should be remanded to the RTC for the
proper determination of petitioners total loan obligation based on the
interest and penalties stipulated in the Promissory Notes.
3. Finally, as to petitioners claim for damages, we find the same
devoid of merit. DBP did not act in bad faith or in a wanton, reckless, or

oppressive manner in cancelling the Restructuring Agreement. As we have


said, DBP had reason to cancel the Restructuring Agreement because
petitioners failed to pay the amount required by it when it reconsidered
petitioners request to restructure the loan.
Likewise, DBPs failure to send a notice of the foreclosure sale to
petitioners and its imposition of additional interest and penalties do not
constitute bad faith. There is no showing that these contractual breaches
were done in bad faith or in a wanton, reckless, or oppressive manner.
1.3.

Article 1187
a. Coronel vs. Court of Appeals 263 SCRA 15

FACTS:
Romulo Coronel executed a document entitled Receipt of
Downpayment in favor of Ramona Patricia Alcaraz for P50,000
downpayment of the amount of P1.24M as purchase pricefor an inherited
house and lot, without reservation to withhold the transfer of such property
untilfull payment. The purpose of such downpayment was for the heirs to
transfer the title to their name. Upon the registration of the property to
name of the heirs, the Coronels sold the same property to Catalina B.
Mabanag for P1.58M. The Coronels rescinded the contract with Alcaraz by
depositing the downpayment amount in a bank account in favor of Alcaraz.
Alcaraz filed acomplaint for specific performance, which the trial and the
appellate court ruled in her favor.
ISSUE:
Whether the receipt of downpayment serves a contract to sell or a
conditional contractof sale.
HELD:
The agreement is a contract of sale as there was no express
reservation of ownership or title to the subject parcel of land. Petitioners
did not merely promise to sell the property to private respondent upon the
fulfillment of the suspensive condition but on the contrary, havingalready
agreed to sell the subject property, they undertook to have the certificate
of title changedto their names and immediately thereafter, to execute the
written deed of absolute sale. Thesuspensive condition was fulfilled on 6
February 1985 and thus, the conditional contract of sale between the
parties became obligatory, the only act required for the consummation
thereof beingthe delivery of the property by means of the execution of the
deed of absolute sale in a publicinstrument, which petitioners unequivocally
committed themselves to do as evidenced by theReceipt of Down
Payment.
b. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY VS
BENJAMIN TUDTUD

c. MACTAN CEBU INTERNATIONAL AIRPORT & AIR


TRANSPORTATION OFFICE VS BERNARDO LOZADA
FACTS: Subject of this case is a lot (Lot No. 88) located in Lahug, Cebu City. Its
original owner was Anastacio Deiparine when the same was subject to
expropriation proceedings, initiated by Republic, represented by the then Civil
Aeronautics Administration (CAA), for the expansion and improvement of the
Lahug Airport. During the pendency of the expropriation proceedings, respondent
Bernardo L. Lozada, Sr. acquired Lot No. 88 from Deiparine. The trial court ruled
for the Republic and ordered the latter to pay Lozada the fair market value of the
lot. However, the projected improvement and expansion plan of the old Lahug
Airport, however, was not pursued. The plaintiff-respondents initiated a complaint
for the recovery of possession and reconveyance of ownership the subject lot. On
the other hand, the petitioners asked for the immediate dismissal of the
complaint. They specifically denied that the Government had made assurances to
reconvey Lot No. 88 to respondents in the event that the property would no
longer be needed for airport operations. Petitioners instead asserted that the
judgment of condemnation was unconditional, and respondents were, therefore,
not entitled to recover the expropriated property notwithstanding non-use or
abandonment thereof. The lower court ruled for herein plaintiff-respondents,
which decision was affirmed by the Court of Appeals. In this petition, the
petitioners argued that the judgment in Civil Case No. R-1881 was absolute and
unconditional, giving title in fee simple to the Republic.
ISSUE: Whether or not a constructive trust was constituted in this case, and as
such, the respondents herein are entitled to the restitution of the expropriated
property which was not used for a public purpose.
HELD: YES. Art. 1454 of the Civil Code provides: If an absolute conveyance of
property is made in order to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is established. If the
fulfillment of the obligation is offered by the grantor when it becomes due, he
may demand the reconveyance of the property to him.
Constructive trusts are fictions of equity which are bound by no unyielding
formula when they are used by courts as devices to remedy any situation in which
the holder of legal title may not in good conscience retain the beneficial interest.
In constructive trusts, the arrangement is temporary and passive in which the
trustees sole duty is to transfer the title and possession over the property to the
plaintiff-beneficiary. Of course, the wronged party seeking the aid of a court of
equity in establishing a constructive trust must himself do equity. Accordingly,
the court will exercise its discretion in deciding what acts are required of the

plaintiff-beneficiary as conditions precedent to obtaining such decree and has the


obligation to reimburse the trustee the consideration received from the latter just
as the plaintiff-beneficiary would if he proceeded on the theory of rescission. In
the good judgment of the court, the trustee may also be paid the necessary
expenses he may have incurred in sustaining the property, his fixed costs for
improvements thereon, and the monetary value of his services in managing the
property to the extent that plaintiff-beneficiary will secure a benefit from his acts.
The rights and obligations between the constructive trustee and the beneficiary,
in this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are
echoed in Art. 1190 of the Civil Code, When the conditions have for their purpose
the extinguishment of an obligation to give, the parties, upon the fulfillment of
said conditions, shall return to each other what they have received x x x In case
of the loss, deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be applied to the
party who is bound to return x x x.
1.4.

Article 1191

A. Solar Harvest, Inc. Vs. Davao Corrugated Carton Corporation GR No.


176858, July 26,:
FACTS:
In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into an
unwritten agreement. SolarHarvest placed orders for customized boxes for its
business of exporting bananas at USD 1.10 each. Petitioner made afull payment
of USD 40,150.00. By Jan. 3, 2001 petitioner had not received any of the ordered
boxes. On Feb. 19, 2001Davao Corrugated replied that as early as April 3, 1998,
order/boxes are completed and Solar Harvest failed to pick themup from their
warehouse within 30 days from completion as agreed upon. Respondent
mentioned that petitioner evenplaced additional order of 24,000.00 boxes, out of
which, 14,000 had already been manufactured without any advancepayment from
Solar Harvest. Davao Corrugated then demanded that Solar Harvest remove
boxes from their warehouse,pay balance of USD 15,400.00 for the additional
boxes and P132,000 as storage fee. On August 17, 2001 Solar harvestfiled
complaint against Davao Corrugated for sum of money and damages claiming
that the agreement was for thedelivery of the boxes, which Davao Corrugated did
not do. They further alleged that whenever repeated follow-up wasmade to Davao
Corrugated, they would only see sample boxes and get promise of delivery. Due
to Davao Corrugatedsfailure to deliver, Solar Harvest had to cancel the order and
demanded payment and/or refund which Davao Corrugatedrefused to pay. Davao
Corrugated counterclaimed that they had already completed production of the
36,500 boxes plusan additional 14,000 boxes (which was part of the additional

24,000 order that is unpaid). The agreement was for SolarHarvest to pick up the
boxes, which they did not do. They even averred that on Oct. 8, 1998 Solar
Harvestsrepresentative Bobby Que even went to the warehouse to inspect and
saw that indeed boxes were ready for pick up. OnFeb. 20, 1999, Que visited the
factory again and said that they ought to sell the boxes to recoup some of the
costs of the14,000 additional orders because their transaction to ship the bananas
did not materialize. Solar Harvest denies thatthey made the additional order. On
March 20, 2004 the RTC ruled in favor of Davao Corrugated.
ISSUE:
Whether or not Davao Corrugated was responsible for breach of contract as Solar
Harvest had not yet demandedfrom it the delivery of the boxes?
HELD:
NO. The CA held that it was unthinkable that for around 2 years petitioner merely
followed up and did notdemand the delivery of the boxes. Even assuming that the
agreement is for delivery by Davao Corrugated, respondentwould not be liable for
breach of contract as petitioner had not yet demanded from it the delivery of the
boxes. There isno error in the decision of the RTC. Furthermore, the claim for
reimbursement is actually one for rescission or resolutionof contract under Article
1191 of the Civ. Code. The right to rescind contracts arises once the party
defaults in theperformance of his obligation. Article 1191 should be taken in
conjunction with Article 1169: Those obliged to deliver orto do something in delay
from the time the obligee judicially or extrajudicially demands form them the
fulfilment of theirobligation. However the demand from creditor shall not be
necessary in order that delay may exist.:1.
When the obligation or the law expressly so declares, or2.
When from the nature and the circumstance of the obligation it appears that the
designation of the timewhen the thing is to be delivered or the service is to be
rendered was a controlling motive for theestablishment of the contract; OR3.
When the demand would be useless, as when the obligor has rendered it beyond
his power to perform. In reciprocal obligations, the general rule is that the
fulfilment of the partiess respective obligations should besimultaneous. No
demand is necessary because once a party fulfills his obligation and the other
party fails to do his, thelatter automatically incurs delay. When dates are set, the
default for each obligation is determined by the rules given inthe 1
st
paragraph of the article. Thus even in reciprocal obligations, if the period for the
fulfilment of the obligation isfixed, demand from the obligee is still necessary
before the obligor can be considered in default and before a cause of action for

rescission will accrue. In the case of Solar Harvest, merely following up the order
was not the same asdemanding for the boxes. The SC held that Solar Harvests
petition is denied and
that Davao Corrugated did not commitbreach of contract
and may remove the boxes from their premises after petitioner is given a period
of time to removethem from their warehouse as they deem proper (Court gave
30day period to comply with this)
B. UFC VS. CA
C. CANNU vs. GALANG

G.R. No. 139523 May 26, 2005

Facts:
Respondent spouses Gil and Fernandina Galang agreed to sell their house and lot
subject to mortgage with the National Home Mortgage Finance Corp (NHMFC).
Petitioner Leticia Cannu agreed to buy the property for 120K & to assume the
mortgage obligations with the NHMFC. A deed of sale & assumption of mortgage
was executed & petitioners immediately took possession & occupied the house &
lot.
Despite requests from Adelina R. Timbang (attorney-in-fact) and Fernandina
Galang to pay the balance of P45,000.00 or in the alternative to vacate the
property in question, petitioners refused to do so.
Because the Cannus failed to fully comply with their obligations, respondent
Fernandina Galang, on 21 May 1993, paid P233K as full payment of her remaining
mortgage loan with NHMFC.
8 yrs had already elapsed and petitioners have not yet complied with the
obligation.
The RTC ordered the deed of sale with Assumption of Mortgage as rescinded as
well as ordered mutual restitution.

Issue:
1. WON the breach of obligation is substantial? YES
2. WON respondent waived their right of rescission? NO
3. WON rescission is subsidiary? NO

Held:
1. We consider this breach to be substantial. Cannu failed to comply with her
obligation to pay the monthly amortizations due on the mortgage. Also, the
tender made by Cannu only after the filing of this case cannot be
considered as an effective mode of payment.

Resolution of a party to an obligation under Article 1191 is predicated on a


breach of faith by the other party that violates the reciprocity between
them. In the case at bar, Cannus failure to pay the remaining balance of
45K to be substantial. To give petitioners additional time to comply with
their obligation will be putting premium on their blatant non-compliance of
their obligation. They had all the time to do what was required of them
(i.e., pay the P45,000.00 balance and to properly assume the mortgage
loan with the NHMFC), but still they failed to comply. Despite demands for
them to pay the balance, no payments were made.
Rescission will not be permitted for a slight or casual breach of the
contract. Rescission may be had only for such breaches that are substantial
and fundamental as to defeat the object of the parties in making the
agreement.
2. The fact that Galang accepted payments in installments does not constitute
waiver on their part to exercise their right to rescind the Deed of Sale with
Assumption of Mortgage. Galang accepted the installment payments as an
accommodation to petitioners since they kept on promising they would pay.
However, after the lapse of considerable time (18 months from last
payment) and the purchase price was not yet fully paid, Galang exercised
their right of rescission when they paid the outstanding balance of the
mortgage loan with NHMFC. It was only after petitioners stopped paying
that respondents-spouses moved to exercise their right of rescission.
3.
The provision that applies in the case at bar is Article 1191. The subsidiary
character of the action for rescission applies to contracts enumerated in Articles
138148 of the Civil Code.
The rescission in this case is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action. The rescission in
1191 is a principal action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his.
D. UP VS. DE LOS ANGELES
University of the Philippines v. De Los AngelesG.R. No. L-28602 September 29,
1970
Facts:
On November 2, 1960, UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a period starting from the
date of the agreement to 31 December 1965, extendible for a further period of

five (5) years by mutual agreement, to cut, collect and remove timber from the
Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that
ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had
incurred an unpaid account of P219,362.94, which, despite repeated demands, it
had failed to pay; that after it had received notice that UP would rescind or
terminate the logging agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December
1964, which was approved by the president of UP, which expressly states that,
upon default by the debtor ALUMCO, the creditor (UP) has the right and the
power to consider the Logging Agreement as rescinded without the necessity of
any judicial suit. ALUMCO continued its logging operations, but again incurred an
unpaid account. On July 19, 1965, petitioner UP informed respondent ALUMCO
that it had, as of that date, considered as rescinded and of no further legal effect
the logging agreement that they had entered in 1960. UP filed a complaint
against ALUMCO for the collection or payment of the herein before stated sums of
money and it prayed for and obtained an order for preliminary attachment and
preliminary injunction restraining ALUMCO from continuing its logging operations
in the Land Grant. Respondent ALUMCO contended that it is only after a final
court decree declaring the contract rescinded for violation of its terms that U.P.
could disregard ALUMCO's rights under the contract and treat the agreement as
breached and of no force or effect.
Issue:
Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and
may disregard the same before any judicial pronouncement to that effect.
Held:
UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and
Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the
creditor (UP)has "the right and the power to consider, the Logging Agreement as
rescinded without the necessity of any judicial suit." In connection with Article
1191 of the Civil Code, the Court stated in Froilan vs. Pan Oriental Shipping Co
that there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation
thereof, even without court intervention. In other words, it is not always
necessary for the injured party to resort to court for rescission of the contract. It
must be understood that the act of party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made
known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified, it
is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to damages;

in the contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced
E. Gil vs. Garcia
F. Visayan Sawmill Company Inc vs. CA
g. TAYAG vs. CA and LEYVA G.R. No. 96053 March 3, 1993
Facts:
Siblings Juan Galicia Sr. and Celerina Labuguin entered into a contract to sell a
parcel of land in Nueva Ecija to a certain Albrigido Leyva:
o 3K upon agreement
o 10K ten days after the agreement
o 10K representing vendors indebtedness to Phil Veterans Bank
o 27K payable within one year from execution of contract.
Leyva only paid parts of the obligation.
But even after the grace period for payment made in the contract and while
litigation of such case, the petitioners still allowed Leyva to make payments.
With regards to the obligation payable to the Phil Veterans bank by the vendee,
as they deemed that it was not paid in full, such obligation they completed by
adding extra amount to fulfill such obligation. This was fatal in their case as this is
Leyvas argument that they constructively fulfilled the obligation which is
rightfully due to him. (Trivia: It was Celerina, Juans sister, that paid the bank to
complete such obligation).
Petitioners claim that they are only OBLIGEES with regards to the contract, so
the principle of constructive fulfillment cannot be invoked against them.
Petitioners, being both creditor and debtor to private respondent, in accepting
piecemeal payment even after the grace period, are barred to take action through
estoppel.

Issue:
1. WON there was constructive fulfillment in the part of the petitioners that shall
make rise the obligation to deliver to Leyva the deed of sale? YES
2. WON they are still entitled to rescind the contract? NO, barred by estoppel.

Held:
1. In a contract of purchase, both parties are mutually obligors and also
obligees, and any of the contracting parties may, upon non-fulfillment by
the other privy of his part of the prestation, rescind the contract or seek
fulfillment (Article 1191, Civil Code).

In short, it is puerile for petitioners to say that they are the only obligees
under the contract since they are also bound as obligors to respect the
stipulation in permitting private respondent to assume the loan with the
Philippine Veterans Bank which petitioners impeded when they paid the
balance of said loan. As vendors, they are supposed to execute the final
deed of sale upon full payment of the balance as determined hereafter.
2. Petitioners accepted Leyvas delayed payments not only beyond the grace
periods but also during the pendency of the case for specific performance.
Indeed, the right to rescind is not absolute and will not be granted where
there has been substantial compliance by partial payments. By and large,
petitioners actuation is susceptible of but one construction that they are
now estopped from reneging from their commitment on account of
acceptance of benefits arising from overdue accounts of private
respondent.
h. Binalbagan Tech Inc. vs. CA
i. Deiparine vs. CA
j. Prudence Realty and Development Corp. vs. CA
k. Genaro Reyes Construction Inc. vs. CA
l. Areola vs. CA
Facts:
Prudential Guarantee cancelled Areolas personal accident insurance on the grounds
that the latter failed topay his premiums 7 monthsafterissuingthepolicy.Areolawas
supposed to pay the total amount of P1,609.65 which included the premium of
P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. The
statement of account hadastipulationnotconsideringitareceipt.Italsoremindedthe
customer to ask for a receipt after payment. There was also a stipulation calling for a
demand for a provisional receipt after payment to an agent. A provisional receipt was
sent to petitioner telling him that the provisional receipt would be confirmed by an
official one. The company then cancelled the policy for nonpayment of premiums.
After being surprised, Areola confronted a company agent and demanded an official
receipt. The latter toldhim thatitwasamistake,butnevergavehimanofficialreceipt.
Areola sent a letterdemandingthathebereinstatedorhewouldfilefordamagesifhis
demand was not met. The companythentoldhimthathispaymentswerentinfullyet.
The company replied to Areolaby telling him that there was reasonto believethatno

payment has been madesince no official receipt was issued. The company then told
him that they would still hold him under the policy. The company thenconfirmed that
hepaidthepremiumandthattheywouldextendthepolicybyoneyear.
Thereby, the company offeredtoreinstatesamepolicyithadpreviouslycancelledand
even proposedtoextenditslifetimeonfindingthatthecancellationwaserroneousand
that the premiums were paidin full by petitionerinsured but were not remittedby the
company'sbranchmanager,Mr.Malapit.
However, they were too late for Areola already filed an action forbreachofcontractin
thetrialcourt.
The companys defense lay in rectifying its omission hence, there was no breachof
contract.
The court ruled in favorof Areola andaskedPrudentialto pay250,000pesosinmoral
and exemplary damages. The court held that the company was in bad faith in
cancelling the policy. Had the insured met an accident at that time, he wouldnt be
coveredbythepolicy.
This ruling was challenged on appealbyrespondentinsurancecompany,denying bad
faith in unilaterally cancelling the policy. The AC absolved Prudential on the grounds
that it wasnotmotivatedbynegligence,maliceorbadfaithincancellingsubjectpolicy.
Rather, the cancellation of the insurance policy was based on what the existing
records showed. The court even added that the errant managerwho didnt remit the
profitswasforcedtoresign.AreolathenfiledforapetitionintheSupremeCourt.
Issue:
Didthesubsequentactofreinstatingthewrongfullycancelledinsurancepolicyby
respondentinsurancecompany,inanefforttorectifysucherror,obliteratewhatever
liabilityfordamagesitmayhavetobear,thusabsolvingit?
Held:
No.Petitiongranted.

Due to the agreementto enter into a contract ofinsurancewherePrudentialpromised


to extend protection to petitionerinsured against the risk insured, there wasa debtor
creditor relationship between the two parties. Under Article 1191, the injured party is
given a choice between fulfillment or rescission of the obligation in case one of the
obligors fails to comply withwhatisincumbentuponhim.However,saidarticleentitles
theinjuredpartytopaymentofdamages,regardlessofwhetherhedemandsfulfillment
orrescissionoftheobligation.
The damageswould be nominal becausethe insurancecompanytookstepstorectify
the contract . There was also no actual or substantial damage inflicted. Nominal

damages are "recoverable where a legal right is technically violated and must be
vindicated against aninvasionthathasproducednoactualpresentlossofanykind,or
wheretherehasbeenabreachofcontractandnosubstantialinjuryoractualdamages
whatsoeverhavebeenorcanbeshown.
m. DieselConstructionCo.Inc.vs.UPSIPropertyHoldingsInc.
Facts:
OnAugust26,1995,Diesel,ascontractor,andUPSI,asOwner,enteredintoa
ConstructionAgreementfortheinteriorarchitecturalconstructionworksforthe14thto
the16thfloorsoftheUPSIBuilding3Meditel/CondotelProjectlocatedonGen.Luna
St.,Ermita,Manila.UndertheAgreement,asamended,Diesel,forPHP12,739,099,
agreedtoundertaketheProject,payablebyprogressbilling.Asstipulated,Diesel
posted,throughFGUInsurancecorp.(FGU),aperformancebondinfavorofUPSI.
TheAgreementcontainedprovisionsandcontractprovisionsoncontractworksand
Projectcompleting,extensionsofcontractperiod,change/extraworkorders,delays
anddamagesfornegativeslippage.UndertheAgreement,theProjectProsecution
properwastorunforaperiodof90daysfromAugust2,1999toNovember8,1999.
TheylateragreedtomovethecommencementdatetoAugust21,1999andthe
completionwasmovedtoNovember20,1999.Alsothisincludesthesectionobliging
thecontractor,incaseofunjustifiabledelay,topaytheownerliquidateddamagesin
theamountequivalenttoonefifth(1/5)ofone(1)percentofthetotalProjectcostfor
eachcalendardayofdelay.
DuringthecourseofProjectimplantation,changeorderswereeffectiveandextensive
sought.Dieselrequestedforextensionowingtothefollowingcausesordelaying
factors:(1)manualhaulingofmaterialsfromthe14thto16thfloors(2)delayedsupply
ofmarble(3)variouschangeordersand(4)delayedintheinstallationofshower
assembly.UPSIdisapprovedthedesiredextensionsonthebasisoftheforegoing
causes,thusputtingDieselindefaultforagivencontractofwork.Furthermore,for
everydefaultsituation,UPSIassessedDieselforliquidateddamagesintheformof
deductionsfromDieselsprogresspayments,asstipulatedintheAgreement.On
March16,2000,DieselsentaletternoticetoUPSIstatingthattheProjecthasbeen
completedasofthedate.UPSI,however,disregardedthenotice,andrefusedto
acceptdeliveryofthecontractedpremises,claimingthatDieselabandonedtheProject
unfinishedDieselthenfiledacomplaintcompellingtopaytheunpaidbalanceofUPSI
ofthecontractprice,plusdamagesandattorneysfees.UPSIdeniedliability.
ISSUE:
WhetherornotDieselcanbeentitledtofullpaymentofthecontractamount.
HELD:
Asevidenced,byUPSIsProgressReportNo.19fortheperiodendingMarch22,
2000,Dieselsscopeofwork,asofthatdate,wasalready97.56%complete.Such
levelofworkaccomplishmentwould,byanynaturalnorm,beconsideredas
substantialtowarrantfullpaymentofthecontractamount,lessactualdamages
sufferedbyUPSI.Article1234oftheCivilCodesaysasmuch,Iftheobligationhad

substantiallyperformedingoodfaith,theobligormayrecoverasthoughtherehad
beenandcompletefulfillment,lessdamagessufferedbytheobligee.
n. SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA,
Petitioners, vs. KALAYAAN DEVELOPMENT & INDUSTRIAL
CORPORATION, Respondent.
G.R. No. 163244

June 22, 2009

Ponente: Peralta, J.
Facts: Kalayaan Development & Industrial Corporation discovered that Spouses
Jose and Gloria Valenzuela had occupied and built a house on a parcel of land it
owned, and demanded that they vacate said property. Upon negotiation,
however, petitioners and Kalayaan entered aContract to Sell wherein the
petitioners would purchase 236 square meters of the subject property for
P1,416,000 in twelve equal monthly installments. The contract further stated that
upon failure to pay any of said installments, petitioners would be liable for
liquidated penalty at 3% a month compounded monthly until fully paid. Kalayaan
would also execute the deed of absolute sale only upon full payment.
Petitioners were only able to pay monthly installments amounting to a total of
P208, 000.00. They then requested Kalayaan to issue a deed of sale for 118
square meters of the lot where their house stood, arguing that since they had
paid half the purchase price, or a total of P708,000.00 representing 118 square
meters of the property. Kalayaan, on the other hand, sent two demand letters
asking petitioners to pay their outstanding obligation including agreed penalties.
Gloria Valenzuelas sister, Juliet Giron, assumed the remaining balance for the
118 square meters of the subject property at P10,000.00 per month to Kalayaan,
which the latter accepted for and in behalf of Gloria. Thereafter, Kalayaan
demanded that petitioners pay their outstanding obligation, but were unheeded.
Kalyaan then filed a Complaint fot the Rescission of Contract and Damages
against petitioners. The RTC of Caloocan rendered a Decision in favor of
Kalayaan, rescinding the contract between the parties and ordering petitioners to
vacate the premises.
Petitioners sought recourse from the CA. They aver that the CA failed to see that
the original contract between petitioners and Kalayaan was altered, changed,
modified and restricted as a consequence of the change in the person of the
principal debtor (Sps. Valenzuela to Juliet). When Kalayaan agreed to a monthly
amortization of P10,000.00 per month the original contract was changed, and
that the same recognized Juliets capacity to pay and her designation as the new
debtor. Nevertheless, the CA affirmed the RTC ruling.
Issue: If the original contract was novated and the principal obligation to pay for
the remaining half of the subject property was transferred from petitioners to
Juliet.

Held: No. Novation is never presumed. Novation is the extinguishment of an


obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor. Parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. In
absence of an express agreement, novation takes place only when the old and
new obligations are incompatible on every point.
These are the indispensable requisites of novation:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, none of the aforementioned requisites are present, as
Kalayaan never agreed to the creation of a new contract between them or Juliet.
Kalayaans acceptance of the late payments made by Juliet is, at best, an act of
tolerance on part of Kalayaan that could not have modified the contract.
The non-fulfillment by petitioners of their obligation to pay, which is a suspensive
condition for the obligation of Kalayaan to sell and deliver the title to the
property, rendered the Contract to Sell ineffective and without force and effect.
The parties stand as if the conditional obligation had never existed; Kalayaan
cannot be compelled to transfer ownership of the property to petitioners.

2.

Obligation with a Period


b. Daniel Vasquez vs. Ayala
Facts: Daniel Vasquez owns Conduit Development, Inc. In1981, Vasquez enters into a
Memorandum of Agreement (MOA) with Ayala Corporation whereinAyala bought
ConduitfromVasquez.AyalacommittedtodevelopConduitslandsincluding4parcels
of land adjacent to Vasquez retained land. Beit noted that these parcels of land were
inthe3rdphaseofAyalasdevelopmentplan.Paragraph5.15oftheMOAprovides:
5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) afirst option to
purchase four developed lots next to the Retained Area at the prevailingmarket
priceatthetimeofthepurchase.

In 1990, Ayala wasabletodevelopthesaidlots.(Thiswasaftersomeslump,andsome


litigation between Conduits former contractor (GP construction) and GPs
subcontractor (Lancer Builders).) Ayala then offered to sell the 4 parcels of land to
Vasquez at P6.5k/sq. m. whichwasthemarketpricein1990.Vasquezrefusedthe offer.

Vasquez contended that the purchase price should be P460/sq. m. which was the
market price in 1981 (time of purchase). Ayala then lowered the purchase price to
P5k/sq. m. but Vasquez refused again. Instead he made a counter offer to buythelots
atP2k/sq.m.Thistime,Ayalarefused.
ISSUE: Whether or not Paragraph 5.15 of the MOAisanoptioncontractorrightoffirst
refusal.
HELD: No. The said paragraph is a mere right of firstrefusal. Although the paragraph
has a definite object, i.e., the sale of the 4 lots, the period within which they will be
offered for sale to Vasquez and,necessarily,thepriceforwhichthesubjectlotswillbe
sold are not specified. The phrase at the prevailing market price at the time of the
purchase connotes that there is no definite period within which Ayala is bound to
reserve the subject lots for Vasquez to exercise his privilege to purchase. Neither is
there a fixed ordeterminablepriceatwhichthesubjectlotswillbeofferedforsale.The
price is considered certain if it may be determined with reference to another thing
certain or if the determination thereof is left to the judgment of a specifiedpersonor
persons.
Further, paragraph 5.15 was inserted into the MOA to give Vasquez the first crack to
buy the subject lots at the price which Ayalawould be willing to accept when it offers
thesubjectlotsforsale.Itisnotsupportedbyanindependentconsideration.
c. LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION vs. HUANG CHAO CHUN AND YANG TUNG FA, G.R. No.
142378, March 7, 2002
--d. PAUL SCHENKER vs. WILLIAM F. GEMPERLE
G.R. No. L-16449.
August 31, 1962
--e. ENRIQUE C. ABAD ET AL. vs. GOLDLOOP PROPERTIES, INC. G.R. No.
168108, April 13, 2007
--f. THE SECRETARY OF EDUCATION and DR. BENITO TUMAMAO vs. HEIRS
OF RUFINO DULAY, SR. ET AL., G.R. No. 164748, January 27, 2006
FACTS:
On August 3, 1981, the spouses Rufino Dulay, Sr. and Ignacia Vicente Dulay
executed a deed of donation over a 10,000-square-meter portion of their property
in favor of the Ministry of Education and Culture.
The property was subdivided. On April 13, 1983, a Transfer Certificate of Title was
issued in the name of the Ministry of Education and Culture, represented by
Laurencio C. Ramel, the Superintendent of Schools of Isabela. However, the
property was not used for school purposes and remained idle.

Sometime in 1988, the DECS, through its Secretary, started construction of the
Rizal National High School building on a parcel of land it acquired from Alejandro
Feliciano. The school site was about 2 kilometers away from the land donated by
the spouses Dulay.
In a letter to the DECS Secretary dated August 19, 1994, the spouses Dulay
requested that the property be returned to them considering that the land was
never used since 1981, or a period of more than 13 years. On August 28, 1994,
the Barangay Council of Rizal, Santiago City issued Resolution No. 397
recognizing the right of the donors to redeem the subject parcel of land because
of the DECS failure to utilize it for the intended purpose. It further resolved that
the Rizal National High School no longer needed the donated land "considering its
distance from the main campus and [the] failure to utilize the property for a long
period of time."
On August 31, 1997, the heirs of Dulay, Sr., herein respondents, filed a complaint
for the revocation of the deed of donation and cancellation of the title, alleging
that (1) there was a condition in the deed of donation: that the DECS, as donee,
utilize the subject property for school purposes, that is, the construction of a
building to house the Rizal National High School, (2) the DECS did not fulfill the
condition and that the land remained idle up to the present, and (3) the donation
inter vivos was inofficious, since the late Rufino Dulay, Sr. donated more than
what he could give by will.
Petitioners, through the Office of the Solicitor General (OSG), interposed the
following defenses: (a) the DECS complied with said condition because the land
was being used by the school as its technology and home economics laboratory;
(b) the donation was not inofficious for the donors were the owners of five other
parcels of land, all located at Rizal, Santiago City; (c) the DECS acquired the
disputed property by virtue of purchase made on December 8, 1997 by the
barangay of Rizal, Santiago City in the amount of P18,000.00 as certified by its
former Barangay Captain, Jesus San Juan;11 and (d) the action of the
respondents had prescribed. The OSG also claimed that students planted a
portion of the land with rice, mahogany seedlings, and fruit-bearing trees; the
produce would then be sold and the proceeds used for the construction of a
school building on the subject property.
ISSUE:
(1) Whether or nor the DECS had complied with the condition imposed on the the
deed of donation.
(2) Whether the respondents' right to seek the revocation of the deed of donation
is already barred by prescription and laches.

HELD:
The contention of petitioners has no merit.
As gleaned from the CA decision, petitioners failed to prove that the donated
property was used for school purposes as indicated in the deed of donation:
We find it difficult to sustain that the defendant-appellants have complied with the
condition of donation. It is not amiss to state that other than the bare allegation
of the defendant-appellants, there is nothing in the records that could concretely
prove that the condition of donation has been complied with by the
defendant-appellants. In the same breadth, the planting of palay on the land
donated can hardly be considered and could not have been the "school purposes"
referred to and intended by the donors when they had donated the land in
question. Also, the posture of the defendant-appellants that the land donated is
being used as technology and home economics laboratory of the Rizal National
High School is far from being the truth considering that not only is the said school
located two kilometers away from the land donated but also there was not even a
single classroom built on the land donated that would reasonably indicate that,
indeed, classes have been conducted therein. These observations, together with
the unrebutted ocular inspection report made by the trial court which revealed
that the land donated remains idle and without any improvement thereon for
more than a decade since the time of the donation, give Us no other alternative
but to conclude that the defendant-appellants have, indeed, failed to comply with
what is incumbent upon them in the deed of donation.
The right to seek the revocation of donation had not yet prescribed when
respondents filed their complaint
Anent the second issue, we reject the contention of the OSG that respondents
cause of action is already barred by prescription under Article 764 of the New Civil
Code, or four years from the non-compliance with the condition in the deed of
donation. Since such failure to comply with the condition of utilizing the property
for school purposes became manifest sometime in 1988 when the DECS utilized
another property for the construction of the school building, the four-year
prescriptive period did not commence on such date. Petitioner was given more
than enough time to comply with the condition, and it cannot be allowed to use
this fact to its advantage. It must be stressed that the donation is onerous
because the DECS, as donee, was burdened with the obligation to utilize the land
donated for school purposes. Under Article 733 of the New Civil Code, a donation
with an onerous cause is essentially a contract and is thus governed by the rules
on contract.

g. FERNANDO A. GAITE vs. ISABELO FONACIER ET AL., G.R. No. L-11827,


July 31, 1961
Facts: Defendant-appellant Fonacier was the owner/holder of 11 iron lode
mineral claims, known as the Dawahan Group, situated in Camrines Norte.
By Deed of Assignment, Respondent constituted and appointed plaintiff-appellee
Gaite as attorney-in-fact to enter into contract for the exploration and
development of the said mining claims on. On March 1954, petitioner executed a
general assignment conveying the claims into the Larap Iron Mines, which owned
solely and belonging to him. Thereafter, he underwent development and the
exploitation for the mining claims which he estimates to be approximately 24
metric tons of iron ore.
However, Fonacier decide to revoke the authority given to Gaite, whereas
respondent assented subject to certain conditions. Consequently a revocation of
Power of Attorney and Contract was executed transferring P20k plus royalties
from the mining claims, all rights and interest on the road and other
developments done, as well as , the right to use of the business name, goodwill,
records, documents related to the mines. Furthermore, included in the transfer
was the rights and interest over the 24K+ tons of iron ore that had been
extracted. Lastly the balance of P65K was to be paid for covering the first
shipment of iron ores.
To secure the payment of P65k, respondent executed a surety bond with himself
as principal, the Larap Mines and Smelting Co. and its stockholder as sureties.
Yet, this was refused by petitioner. Appelle further required another bond
underwritten by a bonding company to secure the payment of the balance. Hence
a second bond was produced with Far Eastern Surety as an additional surety,
provided the liability of Far Eastern would only prosper when there had been an
actual sale of the iron ores of not less than the agreed amount of P65k,
moreover, its liability was to automatically expire on December 1955.
On December 1955, the second bond had expired and no sale amounting to the
stipulation as prior agreed nor had the balance been paid to petitioner by
respondent. Thus such failure, prompted petitioner to file a complaint in the CFI
of Manila for the payment of the balance and other damages.
The Trial Court ruled in favor of plaintiff ordering defendant to pay the balance of
P65k with interest. Afterwards an appeal was affected by the respondent where
several motions were presented for resolution: a motion for contempt; two
motions to dismiss the appeal for becoming moot and academic; motion for a new
trial, filed by appellee Gaite. The motion for contempt was held unmeritorious,
while the rest of the motions were held unnecessary to resolve

Issue: Whether or not the Lower Court erred in holding the obligation of
appellant Fonacier to pay appelle Gaite the balance of P65k, as one with a period
or term and not one with a suspensive condition; and that the term expired on
December 1955
Held: No error was found, affirming the decision of the lower court. Gaite acted
within his rights in demanding payment and instituting this action one year from
and after the contract was executed, either because the appellant debtors had
impaired the securities originally given and thereby forfeited any further time
within which to pay; or because the term of payment was originally of no more
than one year, and the balance of P65k, became due and payable thereafter.
The Lower Court was legally correct in holding the shipment or sale of the iron ore
is not a condition or suspensive to the payment of the balance of P65k, but was
only a suspensive period or term. What characterizes a conditional obligation is
the fact that its efficacy or obligatory force as distinguished from its
demandability, is subordinated to the happening of a future and uncertain event;
so that if the suspensive condition does not take place, the parties would stand as
if the conditional obligation had never existed.
The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract
where the transferor, Gaite, would assume the risk of not being paid at all; and
that the previous sale or shipment of the ore was not a suspensive condition for
the payment of the balance of the agreed price, but was intended merely to fix
the future date of the payment.
While as to the right of Fonacier to insist that Gaite should wait for the sale or
shipment of the ore before receiving payment; or, in other words, whether or not
they are entitled to take full advantage of the period granted them for making the
payment. The appellant had indeed have forfeited the right to compel Gaite to
wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern Surety
Company or else replace it with an equivalent guarantee. The expiration of the
bonding company's undertaking on December 8, 1955 substantially reduced the
security of the vendor's rights as creditor for the unpaid P65,000.00, a security
that Gaite considered essential and upon which he had insisted when he executed
the deed of sale of the ore to Fonacier (first bond).
Under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:
ART. 1198. The debtor shall lose every right to make use of the period: (2)
When he does not furnish to the creditor the guaranties or securities which he has
promised. (3) When by his own acts he has impaired said guaranties or securities

after their establishment, and when through fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its
expiration plainly impaired the securities given to the creditor (appellee Gaite),
unless immediately renewed or replaced.
Nevertheless, there is no merit in appellants' argument that Gaite's acceptance of
the surety company's bond with full knowledge that on its face it would
automatically expire within one year was a waiver of its renewal after the
expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally
explained only if the appellants had agreed to sell the ore and pay Gaite before
the surety company's bond expired on December 8, 1955. But in the latter case
the defendants-appellants' obligation to pay became absolute after one year from
the transfer of the ore to Fonacier by virtue of the deed, first bond.
h. JOSE A. V. CORPUS vs. HON. FEDERICO C. ALIKPALA, as Presiding
Judge of Branch XXII, Court of First Instance of Manila and ACME
MANUFACTURING, 00., INC., respondents., G.R. No. L-23707, January 17,
1968
--3.
Obligation with Several Objects
a. CLARA TAMBUNTING DE LEGARDA, ET AL vs. VICTORIA DESBARATS
MIAILHE, G.R. No. L-3435, April 28, 1951
--b. MARTINA QUIZANA vs. GAUDENCIO REDUGERIO and JOSEFA
POSTRADO, G.R. No. L-6220, May 7, 1954
--4.
Joint and Solidary Obligations
a. Republic Glass Corporation vs. Cua, 435 SCRA 480 [2004]
--b. LaFarge Cement Phils., Inc. vs. Continental Cement Corp., 443 SCRA
552
--C. Cerna v. Court of Appeals, 220 SCRA 517 (1993)
FACTS:
-Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan
agreement which was evidenced by apromissory note. worded as follows:-On the
same date, Delgado executed a chattel mortgage over a Willy's jeep owned by
him. And acting as theattorney-in-fact, Manolo P. Cerna, he also mortgage a
"Taunus' car owned by the latter.

-The period lapsed without Delgado paying the loan. This prompted Leviste to a
file a collection suit against Delgadoand Cerna as solidary debtors.-Cerna filed a
Motion to Dismiss on the ground of lack of cause of action against Cerna and the
death of Delgado. Anent the latter, Cerna claimed that the claim should be filed in
the proceedings for the settlement of Delgado'sestate as the action did not
survive Delgado's death. Moreover, he also stated that since Leviste already
opted tocollect on the note, he could no longer foreclose the mortgage.
CA and TC:
-Denied the Motion to Dismiss.
ISSUES:
-Whether or not a third party, who is not a debtor under the note but mortgaged
his property to secure the paymentof the loan of another is solidarily liable with
the principal debtor.Whether or not a mortgagee who opted to collect may still
foreclose the mortgage.
HELD:
- There is also no legal provision nor jurisprudence in our jurisdiction which
makes a third person who secures thefulfillment of another's obligation by
mortgaging his own property to be solidarily bound with the principal obligor.
Achattel mortgage may be "an accessory contract" to a contract of loan, but that
fact alone does not make a third-party mortgagor solidarily bound with the
principal debtor in fulfilling the principal obligation that is, to pay the loan.The
signatory to the principal contract loan remains to be primarily bound. It is
only upon the default of thelatter that the creditor may have been recourse on
the mortgagors by foreclosing the mortgaged properties in lieu of an action for
the recovery of the amount of the loan. And the liability of the third-party
mortgagors extends only tothe property mortgaged. Should there be any
deficiency, the creditors has recourse on the principal debtor.- The Special Power
of Attorney did not make petitioner a mortgagor. All it did was to authorized
Delgado tomortgage certain properties belonging to petitioner -Hence, Leviste,
having chosen to file the collection suit, could not now run after petitioner for the
satisfaction of thedebt. This is even more true in this case because of the death of
the principal debtor, Delgado. Leviste was pursuinga money claim against a
deceased person.
d. Sesbreno vs. Court of Appeals
Facts:
On 9 February 1981, Raul Sesbreo made a moneymarket placement in the
amount of P300,000.00 with thePhilippine Underwriters Finance Corporation
(Philfinance),Cebu Branch; the placement, with a term of 32 days, wouldmature

on 13 March 1981. Philfinance, also on 9 February1981, issued the following


documents to Sesbreno: (a) theCertificate of Confirmation of Sale, "without
recourse," 20496of 1 Delta Motors Corporation Promissory Note (DMC PN)
2731for a term of 32 days at 17.0 % per annum; (b) the Certificateof Securities
Delivery Receipt 16587 indicating the sale ofDMC PN 2731 to Sesbreno, with the
notation that the saidsecurity was in custodianship of Pilipinas Bank, as
perDenominated Custodian Receipt (DCR) 10805 dated 9February 1981; and (c)
post-dated checks payable on 13March 1981 (i.e., the maturity date of
Sesbreno'sinvestment), with Sesbreno as payee, Philfinance as drawer,and
Insular Bank of Asia and America as drawee, in the totalamount of P304,533.33.
On 13 March 1981, Sesbreno soughtto encash the post-dated checks issued by
Philfinance.However, the checks were dishonored for having been drawnagainst
insufficient funds. On 26 March 1981, Philfinancedelivered to Sesbreno the DCR
10805 issued by Pilipinas Bank(Pilipinas). On 2 April 1981, Sesbreno approached
Ms.Elizabeth de Villa of Pilipinas, Makati Branch, and handed toher a demand
letter informing the bank that his placementwith Philfinance in the amount
reflected in the DCR 10805had remained unpaid and outstanding, and that he in
effectwas asking for the physical delivery of the underlyingpromissory note.
Sesbreno then examined the original of theDMC PN 2731 and found: that the
security had been issued on10 April 1980; that it would mature on 6 April 1981;
that ithad a face value of P2,300,833.33, with Philfinance as"payee" and Delta
Motors Corporation (Delta) as "maker;" andthat on face of the promissory note
was stamped "NON-NEGOTIABLE." Pilipinas did not deliver the Note, nor
anycertificate of participation in respect thereof, to Sesbreno.Sesbreno later made
similar demand letters, dated 3 July1981 and 3 August 1981, again asking
Pilipinas for physicaldelivery of the original of DMC PN 2731. Pilipinas
allegedlyreferred all of Sesbreno's demand letters to Philfinance forwritten
instructions, as had been supposedly agreed upon in a"Securities Custodianship
Agreement" between Pilipinas andPhilfinance. Philfinance never did provide the
appropriateinstructions; Pilipinas never released DMC PN 2731, nor anyother
instrument in respect thereof, to petitioner. Sesbrenoalso made a written demand
on 14 July 1981 upon Delta forthe partial satisfaction of DMC PN 2731, explaining
thatPhilfinance, as payee thereof, had assigned to him said Noteto the extent of
P307,933.33. Delta, however, denied anyliability to Sesbreno on the promissory
note, and explained inturn that it had previously agreed with Philfinance to
offsetits DMC PN 2731 (along with DMC PN 2730) against PhilfinancePN 143-A
issued in favor of Delta. In the meantime,Philfinance, on 18 June 1981, was
placed under the jointmanagement of the Securities and Exchange
Commission(SEC) and the Central Bank. Pilipinas delivered to the SECDMC PN
2731, which to date apparently remains in thecustody of the SEC. As Sesbreno
had failed to collect hisinvestment and interest thereon, he filed on 28
September1982 an action for damages with the Regional Trial Court(RTC) of Cebu
City, Branch 21, against Delta and Pilipinas.The trial court, in a decision dated 5

August 1987, dismissedthe complaint and counterclaims for lack of merit and
forlack of cause of action, with costs against Sesbreno. Sesbrenoappealed to the
Court of Appeals (CA GR CV 15195). In aDecision dated 21 March 1989, the Court
of Appeals deniedthe appeal. Sesbreno moved for reconsideration of the
aboveDecision, without success. Sesbreno filed the Petition forReview on
Certiorari.
Issue:
Whether the marking non-negotiable in DMC PN 2731prohibited Philfinance
from assigning or transferring the sameto Sesbreno.
Held:
The negotiation of a negotiable instrument must bedistinguished from the
assignment or transfer of aninstrument whether that be negotiable or
non-negotiable.Only an instrument qualifying as a negotiable instrumentunder the
relevant statute may be negotiated either byindorsement thereof coupled with
delivery, or by deliveryalone where the negotiable instrument is in bearer form.
Anegotiable instrument may, however, instead of beingnegotiated, also be
assigned or transferred. The legalconsequences of negotiation as distinguished
from assignmentof a negotiable instrument are, of course, different. A
non-negotiable instrument may, obviously, not be negotiated; butit may be
assigned or transferred, absent an expressprohibition against assignment or
transfer written in the faceof the instrument: "The words 'not negotiable,'
stamped onthe face of the bill of lading, did not destroy its assignability,but the
sole effect was to exempt the bill from the statutoryprovisions relative thereto,
and a bill, though not negotiable,may be transferred by assignment; the assignee
takingsubject to the equities between the original parties." Herein,DMC PN No.
2731, while marked "non-negotiable," was not atthe same time stamped
"non-transferrable" or "non-assignable." It contained no stipulation which
prohibitedPhilfinance from assigning or transferring, in whole or in part,that Note.
Further, there is nothing in the letter ofagreement dated 10 April 1980 between
Delta and Philfinancewhich can be reasonably construed as a prohibition
uponPhilfinance assigning or transferring all or part of DMC PN2731, before the
maturity thereof. It is scarcely necessary toadd that, even had this "Letter of
Agreement" set forth anexplicit prohibition of transfer upon Philfinance, such
aprohibition cannot be invoked against an assignee ortransferee of the Note who
parted with valuableconsideration in good faith and without notice of
suchprohibition. It is not disputed that Sesbreno was such anassignee or
transferee.
[The issue whether Delta is liable for the value of the promissory to Sesbreno was
resolved through Articles 1279 and 1636 of the New Civil Code as to
compensation, and
Article 1285 of the same as to the assignment of
creditor'srights. The Court held that since Sesbreno failed to notify Delta of the

assignment of the creditor's (Philfinance) rightsat any time before the maturity
date of DMC PN 2731, and because the record is bare of any indication that
Philfinancehad itself notified Delta of the assignment to Sesbreno, theCourt was
compelled to uphold the defense of compensationraised by Delta. The Court,
however, held that Philfinanceremained liable to Sesbreno under the terms of
theassignment made by Philfinance to Sesbreno. As to the issueof Pilipinas
liability to Sesbreno, on the other hand, theCourt held that Pilipinas must respond
to Sesbreno for damages sustained by him arising out of its breach of duty.By
failing to deliver the Note to Sesbreno as depositor-beneficiary of the thing
deposited -- when Pilipinas purported to require and await the instructions of
Philfinance, in obvious contravention of its undertakingunder the DCR to effect
physical delivery of the Note uponreceipt of "written instructions" from Sesbreo
-- Pilipinas
e. METRO MANILA TRANSIT CORPORATION VS. THE COURT OF APPEALS
GR NO. 141089; AUGUST 1, 2002
Facts:
Bases on the testimony of an eyewitness, FlorentinaSabalburo, together with here
companions and were on there way toBaclaran to buy some foodstuff, however
while standing in an island,and waiting for the traffic lights to change and at the
moment itsignaled , go an MMTC bus was moving at a fast speed, hit
Florentina,which caused her unconsciousness which she never regained.Private
respondent filed a complaint for damages against MMTC andits driver , Ajoc for
the reckless driving , in gross violation oftraffic rules and regulations , with out
due regard for the safety ofothers , thus causing the untimely death of the
victim.Petitioner denied the allegation of the private respondent andinsisted that
the accident was solely due to the victims own negligence.The trial court favored
the version of the private respondent,thus petitioner appealed to the court of
appeals and the court ofappeals affirmed the decision of the lower court hence
this petition,and further assailed that the accident happened 8 hours
beforeChristmas, and that the victim disregarded her safety because in was
inhere mind which was preoccupied by the holyday festivities. Thus Ajoccannot be
liable for the damages as to he cannot see what was in themind of the pedestrian.
Issue:
Whether or not the Art.2179 as an exception to Article 2176 ofthe civil code is
applicable in the instant case.
Held:
As the court a quo noted , Ajocs claim that he failed to see thevictim and her
companions proves his recklessness and lack of cautionin driving his vehicle.
Finding of the fact of the trial court ,especially when affirmed by the Court of

Appeals ,a re binding andconclusive on the Supreme Court. More so as in this


case, wherepetitioners have not adequately show that courts below overlooked
ordisregarded certain facts or circumstances of such import as wouldhave altered
the outcome of the case. Contrary to petitionersinsistence, the applicable law in
this case is Art 2176 of the newcivil code and not Art. 2179.
f. Tiu vs. Court of Appeals
FACTS: George Tiu is the registered owner of 2 condominium units.He and
Rosalina Tiu (his mother), negotiated a loan of P300k with Juan Go who then
asked for a mortgage of the aforesaidCondo Units as security for the payment
therefor and additionalthereto, a pledge of jewelries and checks from Rosalina.
Go then prepared a document denominated as "Deed of Sale of a Condomimium
with Right to Repurchase " and another as "Contract of Lease," the former was
prepared in favor of Juanito Lim and Lim Lee Show Fong, while the latter was
prepared in favor of George Tiu.
Later, George Tiu sought reformation of the contract,alleging that he merely
agreed to mortgage the properties, insigning the Deed of Sale of a Condominium
Unit with Right toRepurchase. He also alleged that the Deed, in law, was
anequitable mortgage at the same time.
ISSUE: WON GEORGE & ROSLINDA TIU ARE SOLIDARILYLIABLE?
HELD: NO. We shall also not disturb the ruling of the Court of Appeals that
George and Joaquin Tiu are not solidary liable withRosalina Tiu on the
amount of P1,060,000.00, for apt and correctare the findings of the appellate
court on this point: The variousreceipts clearly show that the appellant George
Tiu never signed thereceipts nor received any money from appellant Go while
appellant Joaquin Tiu signed and received the money for an in behalf of
Rosalina. Consequently, they are not liable solidarily for the saidamounts even if
the money were used for tobacco business. Andeven if they admitted that they
received the money, both are notliable in solidum because there was no express
provision in saidreceipts that appellants George and Joaquin Tiu should be liable
insolidum. There is solidary obligation only when the obligation expressly so
states or when the law or nature of the obligation requires solidarity (Article
1207, NCC).
And there is no truth to the allegation that appellants Georgeand Joaquin Tiu
admitted that they are jointly and solidarilyliable for said amount. What they
admitted was that theyreceived said money. Be it noted that appellants Tiu, in
theirreply and answer to the counterclaim of appellant Go, admittedthat only
appellant Rosalina Tiu received the monies. Assumingarguendo that they

admitted their solidary liability, still they are notliable. As aptly held by the lower
court: At any rate, the doctrinelaid down on the case of Un Fak Leang vs.
Nigurra falls squarely onthe point wherein the Supreme Court ruled that an
admission of twodebtors in their brief that their liability in the contract is asolidary
one does not convert the joint character of theirobligation as appearing in their
contract, for what determinesthe nature of the obligation is the tenor of their
contract itself,not the admission of the parties.
g. Solidbank Corporation vs. Mindanao Ferroalloy Corporation
Doctrine: It is axiomatic that solidary liability cannot be lightly inferred. Under
Article 1207 of the Civil Code, "thereis a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligationrequires
solidarity."
Facts: Private respondents herein secured a loan to the petitioner bank under the
name of the respondent corporation.In the course of the corporations operation, it
was not able to pay its obligation to the petitioner and has to stop itsoperation.
Petitioner bank filed an action against the corporation together with its principal
officers for the collection of the loan they acquired. The RTC ruled in favor of the
bank petitioner and ordering the respondent corporation to paythe amount of loan
plus interest. On appeal, the CA held the decision of the RTC and ruled also that
the privaterespondents were not solidary liable to the petitioner.
Issue: Whether or not principal officers can be held personally liable upon signing
the contract of loan under the nameof the corporation?
Ruling: Basic is the principle that a corporation is vested by law with a personality
separate and distinct from that of each person composing or representing it.
Equally fundamental is the general rule that corporate officers cannot be
heldpersonally liable for the consequences of their acts, for as long as these are
for and on behalf of the corporation, withinthe scope of their authority and in
good faith. The separate corporate personality is a shield against the
personalliability of corporate officers, whose acts are properly attributed to the
corporation. Moreover, it is axiomatic thatsolidary liability cannot be lightly
inferred. Since solidary liability is not clearly expressed in the Promissory Note
andis not required by law or the nature of the obligation in this case, no
conclusion of solidary liability can be made.Furthermore, nothing supports the
alleged joint liability of the individual petitioners because, as correctly pointed
outby the two lower courts, the evidence shows that there is only one debtor: the
corporation.
h. International Finance Corporation vs. Imperial Textile Mills, Inc.

Facts:
On Dec. 17, 1974, Philippine Polyamide Industrial Corporation (PPIC) made aloan
agreement with International Finance Corporation (IFC) in the amount of
$7,000,000.00 payable in 16 semi-annual installments beginning June 1, 1977 to
Dec. 1,1984 with an interest rate of 10% per annum. On the same date, a
GauranteeAgreement was executed with Imperial Textile Mills, Inc.(ITM), Grand
TextileManufacturing Corp (Grandtex) and IFC as parties thereto. ITM and
Grandtex agreed toguarantee PPICs obligations under the loan agreement. PPIC
paid the first 3 installmentsand asked for a rescheduling of the next installments
but despite the reschedule, PPICdefaulted. On April 1, 1985, IFC served a written
notice of default to PPIC demandingthe latter to pay the outstanding principal and
all the accrued interests. Despite the notice,PPIC failed to pay.IFC then applied for
the extrajudicial foreclosure of mortgages on the real estate, properties, etc.
owned by PPIC located at Calamba, Laguna. The sheriff then issued anotice of
extrajudicial sale and IFC and DBP were the only bidders. IFCs bid
wasP99,269,100 which was equivalent to $5,250,000. The outstanding loan
however amounted to $8,083,967 thus leaving a balance of $2,833,967. PPIC
failed to pay theremaining balance. Consequently, IFC demanded ITM and
Grandtex, as guarantors of PPIC, to pay the outstanding balance but no payment
was made. On May 20, 1988, IFCfiled a complaint against PPIC and ITM for the
payment of the outstanding balance plusinterests and attorneys fees. The trial
court held PPIC liable for the payment of theoutstanding loan plus interest but the
trial court relieved ITM of its obligation asguarantor, dismissing IFCs complaint
against ITM. The CA reversed the decision of thetrial court in so far as the latter
exonerated ITM from any obligation to IFC. Accdg. to theCA, ITM bound itself
under the Guarantee Agreement to pay PPICs obligation upondefault. ITMs
liability as guarantor would arise only if and when PPIC could not pay andsince
PPICs inability to comply with the obligation is not sufficiently established,
ITMcould not be made to assume the liability. CA denied reconsideration, hence
the petition.
Issue:
Whether ITM is a surety, and thus solidarily liable with PPIC for the payment of
the loan.
Held:
While referring to ITM as a guarantor, the Agreement specifically stated that
thecorporation was jointly and severally liable. To put emphasis on the nature of
thatliability, the Contract further stated that ITM was a primary obligor, not a
mere surety.Those stipulations meant only one thing: that at bottom, and to all
legal intents and purposes, it was a surety. Therefore, ITM bound itself to be
solidarily liable with PPICfor the latters obligations under the Loan Agreement

with IFC. ITM thereby broughtitself to the level of PPIC and could not be deemed
merely secondarily liable. ITMsliability commenced only when it guaranteed
PPICs obligation. It became a surety whenit bound itself solidarily with the
principal obligor. Thus, Art. 2047 applies, by guaranty,a person, called the
guarantor binds himself to the creditor to fulfill the obligation of the principal in
case the latter should fail to do so.xxx and Art. 1216, the creditor may proceed
against any one of the solidary debtors. Contracts have the force of law
between the parties who are free to stipulate any matter not contrary to law,
morals, etc.so the Court cannot give a different meaning to the plain language of
the GuaranteeAgreement. Wherefore, the petition was granted and the assailed
decision and resolution modified in the sense that ITM is declared a surety to PPIC
and ITM is ordered to payIFC the same amounts adjudged against PPIC in the
assailed decision.
5.

Divisible and Indivisible Obligations

a. Nazareno vs. CA
Petitioners and respondent Romeo Nazareno are three of the five children of
spouses Maximino and Aurea Nazareno, who during their marriage had acquired
properties. After the death of Maximino, Sr., Romeo filed for intestate
proceedingsand he was thereafter appointed administrator of his fathers estate.
Romeo discovereda deed of sale selling petitioner Natividad six lots including
Lot-3b occupied byRomeo but which was sold to petitioner Maximino, Jr.
Maximino, Jr. filed an actionfor recovery of possession which was favored by the
court. Romeo in turn filed anannulment of the sales on the ground of lack of
consideration in that the transfer wasmerely to avoid inheritance tax and that
Natividad was only to hold the said lots intrust for her siblings. Petitioners on the
other hand filed a third party complaintagainst Romeo and his wife Eliza seeking
the annulment of the transfer to Romeo of Lot 3 which is granted by the trial
court except as to Lots 3, 13-b, 13 and 14 whichhad passed on to third persons.
Issue:
Whether a decision ruling against an administrator of an estate who is acting inhis
own interest may bind the estate.
Held:
The estate of a deceased person is a juridical entity that has a personality of
itsown. Though Romeo represented at one time the estate of Maximino, Sr., the
latter has a separate and distinct personality from the former. Hence, the
judgment in CA-GR CV No. 12932 regarding the ownership of Maximino, Jr. over
Lot 3-B bindsRomeo and Eliza only, and not the estate of Maximino, Sr., which
also has a right torecover properties which were wrongfully disposed.

b. Spouses Gonzales vs. GSIS


(No available digest online.)
c. Blossom & Company, Inc. vs. Manila Gas Corporation
Facts
Blossom & Co. (plaintiff) and Manila Gas Corporations (defendant) entered intoa
contract. The contract provided for the delivery to the plaintiff from month
tomonth of specified amounts of water gas tar. 1 ton of gas was priced at Php65.
Itwas agreed that the price would prevail only so long as the raw materials
(coaland crude oil) used by the defendants in the manufacture of gas should cost
thesame price as that prevailing at the time of the contract. In the event of
anincrease or decrease in the cost of raw materials, there would be a
correspondingincrease or decrease in the price of tar. The contract was later
amended to extend the period for ten years. Inconsideration of the modification,
the plaintiff agreed to purchase from thedefendant a certain piece of land lying
adjacent to its plant. The defendant soldand conveyed the land to the plaintiff
which in turn executed a mortgage tosecure the payment of the balance of the
purchase price. Around 4 years from the execution of the contract, plaintiff filed
an actionagainst the defendant to obtain specific performance and recovery of
damages.Plaintiff alleged that the defendant breached the contract by ceasing to
deliverany coal and water gas tar solely because of the increase in price of tar
productsand its desire to secure better prices than what the plaintiff paid. CFI
Manila ruled in favor of the plaintiff. The court granted the recovery fordamages
but refused to order the defendants to resume delivery but left it withits remedy
for damages against the defendants for any subsequent breach of contract.
Later, plaintiff filed another action for damages on the ground that thedefendant
breached the contract once more after refusal to perform its obligationunder the
same contract.
Issue
Whether or not the plaintiff is barred from filing the second action for damages
Ruling
Yes, the plaintiff is barred from filing the second action for damages.
Doctrine

Divisible contracts (as a general rule)


- A contract to do several things at several times is divisible. A judgementfor a
single breach of a continuing contract is not a bar to a suit for asubsequent
breach.
Entire contract (case at bar)
- When the contract is indivisible and the breach is total, there can only beone
action in which the plaintiff must recover all damages. The recovery of a
judgement for damages by reason of a breach is a bar to another actionon the
same contract and on account of the continuous breach.
d. J. M. Tuason & Co., Inc. vs. Collector of Internal Revenue
(No available digest online.)
6. Obligations with a penal claue
a. Filinvest Land Inc. vs. CA
FACTS: Petitioner awarded to respondent Pacific Equipment Corp
(Pecorp) development of its residential subdivisions, a contract
amounting to P12,470,000.00. Pecorp posted two surety bonds to
guarantee faithful compliance. Both agreed that liquidated damages of
P15,000/day shall be paid by Pecorp in case of delay. Petitioner claimed
that Pecorp failed to complete the works (94.53%) and claims for
damages. Pecorp on the other hand contended that their work stopped
due to failure of petitioner to pay for certain completed portion. RTC
assigned a commissioner to evaluate the claims and counter-claims. The
total amount due to Pecorp was computed to be P1,881,867.66.
Petitioner claimed that liquidated damages amounted to P3,990,000.00
Both claims and counter-claims were dismissed. Court of Appeals
affirmed the ruling of RTC.
ISSUE: Whether or not the penalty (liquidated damages) of P15,000.00
per day of delay shall be binding upon mutual agreement of parties.
RULING: NO. As a general rule, courts are not at liberty to ignore the
freedom of the parties to agree on such terms and conditions as they see
fit as long as they are not contrary to law, morals, good customs, public
order or public policy. The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may also
be reduced by the courts if it is iniquitous or unconscionable (Art.1229,
NCC). A penalty interest of P15,000.00 per day of delay as liquidated
damages or P3,990,000.00 (representing 32% penalty of the

P12,470,000.00 contract price) is unconscionable considering that the


construction was already not far from completion.
b. Florentino vs. Supervalue Inc.
Facts: Petitioner rents a stall inside SM mall from Supervalue Inc. Petitioner
commits several breaches of the contract it entered into with SM, among them
violating the requirement to be open on certain days of the year and also for
introducing a new product (mini- embutido) without the consent of Supervalue.
Supervalue decides not to renew the lease contract after its expiration.
Supervalue also retains the deposit of Florentino in the amount of 192,000.
Florentino files a case to recover the deposit, as well as the value of the
improvements made upon the property. RTC awards, CA reverses. In the lease
contract, 3 months deposit of rentals was provided as a penalty to ensure full
compliance with each and every term, provision and covenant, which would be
subject to forfeiture in case of breach and which was not advance rental.
ISSUE: Was the award of the CA proper?
Held: Although the penal clause is valid and unequivocal, still the amount is
unconscionable. The SC exercises its discretion under article1229 and reduces the
penalty to 50% of the value of 192,000.