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PRESCRIPTION court, Regional Trial Court, Bulacan, to cover the balance of the total
cost of Lot 876-B.
On November 4, 1993, after petitioner Leao posted a cash bond of
FACTS: On November 13, 1985, Hermogenes Fernando, as vendor P50,000.00, the trial court issued a writ of preliminary injunction to
and Carmelita Leao, as vendee executed a contract to sell involving stay the enforcement of the decision of the municipal trial court.
a piece of land, Lot No. 876-B, with an area of 431 square meters,
located at Sto. Cristo, Baliuag, Bulacan.3 On February 21, 1995, respondent Fernando filed a motion for
reconsideration18 and the supplement thereto. The trial court
In the contract, Carmelita Leao bound herself to pay Hermogenes increased the amount of P103,090.70 to P183,687.00 and ordered
Fernando the sum of one hundred seven thousand and seven petitioner Leao ordered to pay attorney's fees.
hundred and fifty pesos (P107,750.00) as the total purchase price of
the lot. The manner of paying the total purchase price was as follows: According to the trial court, the transaction between the parties was
an absolute sale, making petitioner Leao the owner of the lot upon
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE actual and constructive delivery thereof. Respondent Fernando, the
(P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN seller, was divested of ownership and cannot recover the same
PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED unless the contract is rescinded pursuant to Article 1592 of the Civil
SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN Code which requires a judicial or notarial demand. Since there had
(10) years at a monthly amortization of P1,747.30 to begin from December 7, been no rescission, petitioner Leao, as the owner in possession of
1985 with interest at eighteen per cent (18%) per annum based on the property, cannot be evicted.
On the issue of delay, the trial court held:
The contract also provided for a grace period of one month within
which to make payments, together with the one corresponding to the
"While the said contract provides that the whole purchase price is payable
month of grace. Should the month of grace expire without the within a ten-year period, yet the same contract clearly specifies that the
installments for both months having been satisfied, an interest of purchase price shall be payable in monthly installments for which the
18% per annum will be charged on the unpaid installments. corresponding penalty shall be imposed in case of default. The plaintiff
certainly cannot ignore the binding effect of such stipulation by merely
Should a period of ninety (90) days elapse from the expiration of the asserting that the ten-year period for payment of the whole purchase price
grace period without the overdue and unpaid installments having has not yet lapsed. In other words, the plaintiff has clearly defaulted in the
been paid with the corresponding interests up to that date, payment of the amortizations due under the contract as recited in the
respondent Fernando, as vendor, was authorized to declare the statement of account (Exhibit "2") and she should be liable for the payment
of interest and penalties in accordance with the stipulations in the contract
contract cancelled and to dispose of the parcel of land, as if the
pertaining thereto.
contract had not been entered into. The payments made, together
with all the improvements made on the premises, shall be considered The trial court disregarded petitioner Leaos claim that she made a
as rents paid for the use and occupation of the premises and as downpayment of P10,000.00, at the time of the execution of the
liquidated damages. contract.
After the execution of the contract, Carmelita Leao made several The trial court relied on the statement of account22 and the summary
payments in lump sum. Thereafter, she constructed a house on the prepared by respondent Fernando to determine petitioner Leao's
lot valued at P800,000.00. The last payment that she made was on liability for the payment of interests and penalties.
April 1, 1989.
The trial court held that the consignation made by petitioner Leao in
On September 16, 1991, the trial court rendered a decision in an the amount of P18,000.00 did not produce any legal effect as the
ejectment case earlier filed by respondent Fernando ordering same was not done in accordance with Articles 1176, 1177 and 1178
petitioner Leao to vacate the premises and to pay P250.00 per of the Civil Code.
month by way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the premises, In time, petitioner Leao appealed the decision to the Court of
attorney's fees and costs of the suit. On August 24, 1993, the trial Appeals.24 On January 22, 1997, Court of Appeals promulgated a
court issued a writ of execution which was duly served on petitioner decision affirming that of the Regional Trial Court in toto.25 On
Leao. February 11, 1997, petitioner Leao filed a motion for
reconsideration.26 On April 18, 1997, the Court of Appeals denied
On September 27, 1993, petitioner Leao filed with the Regional Trial the motion.
Court of Malolos, Bulacan a complaint for specific performance with
preliminary injunction. Petitioner Leao assailed the validity of the ISSUE: Whether petitioner was in delay in the payment of the
judgment of the municipal trial court for being violative of her right to monthly amortizations.
due process and for being contrary to the avowed intentions of
Republic Act No. 6552 regarding protection to buyers of lots on
installments. Petitioner Leao deposited P18,000.00 with the clerk of

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HELD: Contrary to the findings of the trial court, the transaction Should petitioner Leao wish to reinstate the contract, she would
between the parties was a conditional sale not an absolute sale. The have to update her accounts with respondent Fernando in
intention of the parties was to reserve the ownership of the land in accordance with the statement of account39 which amount was
the seller until the buyer has paid the total purchase price. P183,687.00.40

First, the contract to sell makes the sale, cession and conveyance On the issue of whether petitioner Leao was in delay in paying
"subject to conditions" set forth in the contract to sell. the amortizations, we rule that while the contract provided that
the total purchase price was payable within a ten-year period,
Second, what was transferred was the possession of the property, the same contract specified that the purchase price shall be
not ownership. The possession is even limited by the following: (1) paid in monthly installments for which the corresponding
that the vendee may continue therewith "as long as the VENDEE penalty shall be imposed in case of default. Petitioner Leao
complies with all the terms and conditions mentioned, and (2) that cannot ignore the provision on the payment of monthly
the buyer may not sell, cede, assign, transfer or mortgage or in any installments by claiming that the ten-year period within which to
way encumber any right, interest or equity that she may have or pay has not elapsed.
acquire in and to the said parcel of land nor to lease or to sublease it
or give possession to another person without the written consent of Article 1169 of the Civil Code provides that in reciprocal
the seller. obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what
Finally, the ownership of the lot was not transferred to Carmelita is incumbent upon him. From the moment one of the parties
Leao. As the land is covered by a torrens title, the act of registration fulfills his obligation, delay by the other begins.
of the deed of sale was the operative act that could transfer
ownership over the lot.31 There is not even a deed that could be In the case at bar, respondent Fernando performed his part of
registered since the contract provides that the seller will execute the obligation by allowing petitioner Leao to continue in
such a deed "upon complete payment by the VENDEE of the total possession and use of the property. Clearly, when petitioner
purchase price of the property" with the stipulated interest. Leao did not pay the monthly amortizations in accordance with
the terms of the contract, she was in delay and liable for
In a contract to sell real property on installments, the full payment of damages. However, we agree with the trial court that the default
the purchase price is a positive suspensive condition, the failure of committed by petitioner Leao in respect of the obligation could be
which is not considered a breach, casual or serious, but simply an compensated by the interest and surcharges imposed upon her
event that prevented the obligation of the vendor to convey title from under the contract in question.
acquiring any obligatory force.33 The transfer of ownership and title
would occur after full payment of the price.34 It is a cardinal rule in the interpretation of contracts that if the terms of
a contract are clear and leave no doubt upon the intention of the
In the case at bar, petitioner Leao's non-payment of the installments contracting parties, the literal meaning of its stipulation shall control.
after April 1, 1989, prevented the obligation of respondent Fernando Thus, as there is no ambiguity in the language of the contract, there
to convey the property from arising. In fact, it brought into effect the is no room for construction, only compliance.
provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil
Code is inapplicable to the case at bar.35 However, any attempt to FACTS: On June 1, 1984, Luis Bacus leased to private respondent
cancel the contract to sell would have to comply with the provisions Faustino Duray a parcel of agricultural land in Bulacao, Talisay,
of Republic Act No. 6552, the "Realty Installment Buyer Protection Cebu. It had an area of 3,002 square meters, covered by Transfer
Act." Certificate of Title No. 48866. The lease was for six years, ending
May 31, 1990. The contract contained an option to buy clause. Under
R.A. No. 6552 recognizes in conditional sales of all kinds of real said option, the lessee had the exclusive and irrevocable right to buy
estate (industrial, commercial, residential) the right of the seller to 2,000 square meters of the property within five years from a year
cancel the contract upon non-payment of an installment by the buyer, after the effectivity of the contract, at P200 per square meter. That
which is simply an event that prevents the obligation of the vendor to rate shall be proportionately adjusted depending on the peso rate
convey title from acquiring binding force.36 The law also provides for against the US dollar, which at the time of the execution of the
the rights of the buyer in case of cancellation. contract was fourteen pesos.

The decision in the ejectment case37 operated as the notice of Close to the expiration of the contract, Luis Bacus died on October
cancellation required by Sec. 3(b). As petitioner Leao was not given 10, 1989. Thereafter, on March 15, 1990, the Duray spouses
then cash surrender value of the payments that she made, there was informed Roque Bacus, one of the heirs of Luis Bacus, that they
still no actual cancellation of the contract. Consequently, petitioner were willing and ready to purchase the property under the option to
Leao may still reinstate the contract by updating the account during buy clause. They requested Roque Bacus to prepare the necessary
the grace period and before actual cancellation.38 documents, such as a Special Power of Attorney authorizing him to
enter into a contract of sale,[ on behalf of his sisters who were then
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arrangements were being made by the bank to release P700,000 as
On March 30, 1990, due to the refusal of petitioners to sell the a loan to private respondents cannot be considered as legal tender
property, Faustino Durays adverse claim was annotated by the that may substitute for delivery of payment to petitioners nor was it a
Register of Deeds of Cebu, at the back of TCT No. 63269, covering consignation.
the segregated 2,000 square meter portion of the lot.
Obligations under an option to buy are reciprocal obligations. The
Subsequently, on April 5, 1990, Duray filed a complaint for specific performance of one obligation is conditioned on the simultaneous
performance against the heirs of Luis Bacus with the Lupon fulfillment of the other obligation. In other words, in an option to buy,
Tagapamayapa of Barangay Bulacao, asking that he be allowed to the payment of the purchase price by the creditor is contingent upon
purchase the lot specifically referred to in the lease contract with the execution and delivery of a deed of sale by the debtor. In this
option to buy. At the hearing, Duray presented a certification from the case, when private respondents opted to buy the property, their
manager of Standard Chartered Bank, Cebu City, addressed to Luis obligation was to advise petitioners of their decision and their
Bacus, stating that at the request of Mr. Lawrence Glauber, a bank readiness to pay the price. They were not yet obliged to make
client, arrangements were being made to allow Faustino Duray to actual payment. Only upon petitioners actual execution and
borrow funds of approximately P700,000 to enable him to meet his delivery of the deed of sale were they required to pay. As earlier
obligations under the contract with Luis Bacus. stated, the latter was contingent upon the former. In Nietes vs.
Court of Appeals, 46 SCRA 654 (1972), we held that notice of the
Having failed to reach an agreement before the Lupon, on April 27, creditors decision to exercise his option to buy need not be coupled
1990, private respondents filed a complaint for specific performance with actual payment of the price, so long as this is delivered to the
with damages against petitioners before the Regional Trial Court, owner of the property upon performance of his part of the agreement.
praying that the latter, (a) execute a deed of sale over the subject Consequently, since the obligation was not yet due, consignation in
property in favor of private respondents; (b) receive the payment of court of the purchase price was not yet required.
the purchase price; and (c) pay the damages.
Consignation is the act of depositing the thing due with the court or
On the other hand, petitioners alleged that before Luis Bacus death, judicial authorities whenever the creditor cannot accept or refuses to
private respondents conveyed to them the formers lack of interest to accept payment and it generally requires a prior tender of payment.
exercise their option because of insufficiency of funds, but they were In instances, where no debt is due and owing, consignation is not
surprised to learn of private respondents demand. In turn, they proper. Therefore, petitioners contention that private respondents
requested private respondents to pay the purchase price in full but failed to comply with their obligation under the option to buy because
the latter refused. They further alleged that private respondents did they failed to actually deliver the purchase price or consign it in court
not deposit the money as required by the Lupon and instead before the contract expired and before they execute a deed, has no
presented a bank certification which cannot be deemed legal tender. leg to stand on.

On October 30, 1990, private respondents manifested in court that Corollary, private respondents did not incur in delay when they
they caused the issuance of a cashiers check in the amount of did not yet deliver payment nor make a consignation before the
P650,000[6] payable to petitioners at anytime upon demand. expiration of the contract. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to
On August 3, 1991, the Regional Trial Court ruled in favor of private comply in a proper manner with what is incumbent upon him.
respondents. Only from the moment one of the parties fulfills his obligation,
does delay by the other begin.
Unsatisfied, petitioners appealed to the respondent Court of Appeals
which denied the appeal on November 29, 1996, on the ground that In this case, private respondents, as early as March 15, 1990,
the private respondents exercised their option to buy the leased communicated to petitioners their intention to buy the property
property before the expiration of the contract of lease. and they were at that time undertaking to meet their obligation
before the expiration of the contract on May 31, 1990. However,
ISSUE: a) When private respondents opted to buy the property petitioners refused to execute the deed of sale and it was their
covered by the lease contract with option to buy, were they already demand to private respondents to first deliver the money before
required to deliver the money or consign it in court before petitioner they would execute the same which prompted private
executes a deed of transfer? respondents to institute a case for specific performance in the
Lupong Tagapamayapa and then in the RTC. On October 30,
b) Did private respondents incur in delay when they did not 1990, after the case had been submitted for decision but before
deliver the purchase price or consign it in court on or before the the trial court rendered its decision, private respondents issued
expiration of the contract? a cashiers check in petitioners favor purportedly to bolster their
claim that they were ready to pay the purchase price. The trial
HELD: On the first issue, petitioners contend that private court considered this in private respondents favor and we
respondents failed to comply with their obligation because there was believe that it rightly did so, because at the time the check was
neither actual delivery to them nor consignation in court or with the issued, petitioners had not yet executed a deed of sale nor
Municipal, City or Provincial Treasurer of the purchase price before expressed readiness to do so. Accordingly, as there was no
the contract expired. Private respondents bank certificate stating that compliance yet with what was incumbent upon petitioners under
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the option to buy, private respondents had not incurred in delay
when the cashiers check was issued even after the contract In its Answer, Megaworld attributed the delay to the 1997 Asian
expired. financial crisis which was beyond its control; and argued that default
had not set in, Tanseco not having made any judicial or extrajudicial
MEGAWORLD vs TANSECO demand for delivery before receipt of the notice of turnover.

FACTS: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. By Decision of May 28, 2003, the HLURB Arbiter dismissed
(Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into Tansecos complaint for lack of cause of action, finding that
a Contract to Buy and Sell a 224 square-meter (more or less) Megaworld had effected delivery by the notice of turnover before
condominium unit at a pre-selling project, "The Salcedo Park," Tanseco made a demand. Tanseco was thereupon ordered to pay
located along Senator Gil Puyat Avenue, Makati City. Megaworld the balance of the purchase price, plus moral damages,
exemplary damages, and attorneys fees.
The purchase price was P16,802,037.32, to be paid as follows: (1)
30% less the reservation fee of P100,000, or P4,940,611.19, by On appeal by Tanseco, the HLURB Board of Commissioners, by
postdated check payable on July 14, 1995; (2) P9,241,120.50 Decision of November 28, 2003, sustained the HLURB Arbiters
through 30 equal monthly installments of P308,037.35 from August Decision on the ground of laches for failure to demand rescission
14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 when the right thereto accrued. It deleted the award of damages,
on October 31, 1998, the stipulated delivery date of the unit; provided however. Tansecos Motion for Reconsideration having been denied,
that if the construction is completed earlier, Tanseco would pay the she appealed to the Office of the President which dismissed the
balance within seven days from receipt of a notice of turnover. appeal by Decision of April 28, 2006 for failure to show that the
findings of the HLURB were tainted with grave abuse of discretion.
Section 4 of the Contract to Buy and Sell provided for the Her Motion for Reconsideration having been denied by Resolution
construction schedule as follows: dated August 30, 2006, Tanseco filed a Petition for Review under
Rule 43 with the Court of Appeals.
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s
herein purchased shall be completed and delivered not later than October 31, 1998 By Decision of September 28, 2007,13 the appellate court granted
with additional grace period of six (6) months within which to complete the Project and
the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil Tansecos petition.
disturbances, strikes or other labor disturbances, government and economic controls
making it, among others, impossible or difficult to obtain the necessary materials, acts The appellate court held that under Article 1169 of the Civil Code, no
of third person, or any other cause or conditions beyond the control of the SELLER. In judicial or extrajudicial demand is needed to put the obligor in default
this event, the completion and delivery of the unit are deemed extended accordingly
without liability on the part of the SELLER. The foregoing notwithstanding, the if the contract, as in the herein parties contract, states the date when
SELLER reserves the right to withdraw from this transaction and refund to the BUYER the obligation should be performed; that time was of the essence
without interest the amounts received from him under this contract if for any reason not because Tanseco relied on Megaworlds promise of timely delivery
attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, when she agreed to part with her money; that the delay should be
rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons
beyond its control, the Project may not be completed or it can only be completed at a reckoned from October 31, 1998, there being no force majeure to
financial loss to the SELLER. In any event, all construction on or of the Project shall warrant the application of the April 30, 1999 alternative date; and that
remain the property of the SELLER. (Underscoring supplied) specific performance could not be ordered in lieu of rescission as the
right to choose the remedy belongs to the aggrieved party.
Tanseco paid all installments due up to January, 1998, leaving
unpaid the balance of P2,520,305.63 pending delivery of the unit.2 The appellate court awarded Tanseco exemplary damages on a
Megaworld, however, failed to deliver the unit within the stipulated finding of bad faith on the part of Megaworld in forcing her to accept
period on October 31, 1998 or April 30, 1999, the last day of the six- its long-delayed delivery; and attorneys fees, she having been
month grace period. compelled to sue to protect her rights.

A few days shy of three years later, Megaworld, by notice dated April Its Motion for Reconsideration having been denied by Resolution of
23, 2002 (notice of turnover), informed Tanseco that the unit was January 8, 2008, Megaworld filed the present Petition for Review on
ready for inspection preparatory to delivery.3 Tanseco replied Certiorari, echoing its position before the HLURB, adding that
through counsel, by letter of May 6, 2002, that in view of Megaworlds Tanseco had not shown any basis for the award of damages and
failure to deliver the unit on time, she was demanding the return of attorneys fees.
P14,281,731.70 representing the total installment payment she had
made, with interest at 12% per annum from April 30, 1999, the Tanseco, on the other hand, maintained her position too, and citing
expiration of the six-month grace period. Tanseco pointed out that Megaworlds bad faith which became evident when it insisted on
none of the excepted causes of delay existed. making the delivery despite the long delay, insisted that she
deserved the award of damages and attorneys fees.
Her demand having been unheeded, Tanseco filed on June 5, 2002
with the Housing and Land Use Regulatory Boards (HLURB) ISSUE: Whether or not Megaworld is in delay.
Expanded National Capital Region Field Office a complaint against
Megaworld for rescission of contract, refund of payment, and HELD: Article 1169 of the Civil Code provides:

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Art. 1169. Those obliged to deliver or to do something incur in delay from the time the While the appellate court correctly awarded P14,281,731.70 then, the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
interest rate should, however, be 6% per annum accruing from the
However, the demand by the creditor shall not be necessary in order that delay may date of demand on May 6, 2002, and then 12% per annum from the
exist: time this judgment becomes final and executory, conformably with
Eastern Shipping Lines, Inc. v. Court of Appeals.
(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the Finally, since Article 1191 of the Civil Code does not apply to a
designation of the time when the thing is to be delivered or the service is to be contract to buy and sell, the suspensive condition of full payment of
rendered was a controlling motive for the establishment of the contract; or the purchase price not having occurred to trigger the obligation to
convey title, cancellation, not rescission, of the contract is thus the
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform. correct remedy in the premises.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is GENERAL MILLING vs RAMOS
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
(Underscoring supplied) FACTS: On August 24, 1989, General Milling Corporation (GMC)
entered into a Growers Contract with spouses Librado and Remedios
The Contract to Buy and Sell of the parties contains reciprocal Ramos (Spouses Ramos). Under the contract, GMC was to supply
obligations, i.e., to complete and deliver the condominium unit on broiler chickens for the spouses to raise on their land in Barangay
October 31, 1998 or six months thereafter on the part of Megaworld, Banaybanay, Lipa City, Batangas. To guarantee full compliance, the
and to pay the balance of the purchase price at or about the time of Growers Contract was accompanied by a Deed of Real Estate
delivery on the part of Tanseco. Compliance by Megaworld with its Mortgage over a piece of real property upon which their conjugal
obligation is determinative of compliance by Tanseco with her home was built. The spouses further agreed to put up a surety bond
obligation to pay the balance of the purchase price. Megaworld at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The
having failed to comply with its obligation under the contract, it is Deed of Real Estate Mortgage extended to Spouses Ramos a
liable therefor. maximum credit line of PhP 215,000 payable within an indefinite
period with an interest of twelve percent (12%) per annum.
That Megaworlds sending of a notice of turnover preceded
Tansecos demand for refund does not abate her cause. For demand The Deed of Real Estate Mortgage contained the following provision:
would have been useless, Megaworld admittedly having failed in its
obligation to deliver the unit on the agreed date. WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full
and faithful compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a
First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and
Article 1174 of the Civil Code provides: the improvements existing thereon, situated in the Barrio/s of Banaybanay,
Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the
declared by stipulation, or when the nature of the obligation requires the assumption of Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P
risk, no person shall be responsible for those events which could not be foreseen, or 215,000.00), Philippine Currency, which the maximum credit line payable within a x x x
which, though foreseen, were inevitable. day term and to secure the payment of the same plus interest of twelve percent (12%)
per annum.
The Court cannot generalize the 1997 Asian financial crisis to be
unforeseeable and beyond the control of a business corporation. A Spouses Ramos eventually were unable to settle their account with
real estate enterprise engaged in the pre-selling of condominium GMC. They alleged that they suffered business losses because of
units is concededly a master in projections on commodities and the negligence of GMC and its violation of the Growers Contract.
currency movements, as well as business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is On March 31, 1997, the counsel for GMC notified Spouses Ramos
an everyday occurrence, hence, not an instance of caso fortuito. that GMC would institute foreclosure proceedings on their mortgaged
Megaworlds excuse for its delay does not thus lie. property.

As for Megaworlds argument that Tansecos claim is considered On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of
barred by laches on account of her belated demand, it does not lie Mortgage. On June 10, 1997, the property subject of the foreclosure
too. Laches is a creation of equity and its application is controlled by was subsequently sold by public auction to GMC after the required
equitable considerations. It bears noting that Tanseco religiously paid posting and publication. It was foreclosed for PhP 935,882,075, an
all the installments due up to January, 1998, whereas Megaworld amount representing the losses on chicks and feeds exclusive of
reneged on its obligation to deliver within the stipulated period. A interest at 12% per annum and attorneys fees. To complicate
circumspect weighing of equitable considerations thus tilts the scale matters, on October 27, 1997, GMC informed the spouses that its
of justice in favor of Tanseco. Agribusiness Division had closed its business and poultry operations.

Tanseco is, as thus prayed for, entitled to be reimbursed the total On March 3, 2000, Spouses Ramos filed a Complaint for Annulment
amount she paid Megaworld. and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with
Damages. They contended that the extrajudicial foreclosure sale on
June 10, 1997 was null and void, since there was no compliance with
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the requirements of posting and publication of notices under Act No. According to the CA, GMC did not make a demand on Spouses
3135, as amended, or An Act to Regulate the Sale of Property under Ramos but merely requested them to go to GMCs office to discuss
Special Powers Inserted in or Annexed to Real Estate Mortgages. the settlement of their account. In spite of the lack of demand made
They likewise claimed that there was no sheriffs affidavit to prove on the spouses, however, GMC proceeded with the foreclosure
compliance with the requirements on posting and publication of proceedings. Neither was there any provision in the Deed of Real
notices. It was further alleged that the Deed of Real Estate Mortgage Estate Mortgage allowing GMC to extrajudicially foreclose the
had no fixed term. A prayer for moral and exemplary damages and mortgage without need of demand.
attorneys fees was also included in the complaint. Librado Ramos
alleged that, when the property was foreclosed, GMC did not notify Indeed, Article 1169 of the Civil Code on delay requires the following:
him at all of the foreclosure.
Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.
In its Answer, GMC argued that it repeatedly reminded Spouses
However, the demand by the creditor shall not be necessary in order that delay may
Ramos of their liabilities under the Growers Contract. It argued that it exist:
was compelled to foreclose the mortgage because of Spouses
Ramos failure to pay their obligation. GMC insisted that it had (1) When the obligation or the law expressly so declares; x x x
observed all the requirements of posting and publication of notices
under Act No. 3135. As the contract in the instant case carries no such provision on
demand not being necessary for delay to exist, We agree with
Holding in favor of Spouses Ramos, the trial court ruled that the the appellate court that GMC should have first made a demand
Deed of Real Estate Mortgage was valid even if its term was not on the spouses before proceeding to foreclose the real estate
fixed. Since the duration of the term was made to depend exclusively mortgage.
upon the will of the debtors-spouses, the trial court cited
jurisprudence and said that the obligation is not due and payable until Development Bank of the Philippines v. Licuanan finds application to
an action is commenced by the mortgagee against the mortgagor for the instant case:
the purpose of having the court fix the date on and after which the
instrument is payable and the date of maturity is fixed in pursuance The issue of whether demand was made before the foreclosure was effected
thereto. is essential. If demand was made and duly received by the respondents and
the latter still did not pay, then they were already in default and foreclosure
was proper. However, if demand was not made, then the loans had not yet
The trial court held that the action of GMC in moving for the become due and demandable. This meant that respondents had not
foreclosure of the spouses properties was premature, because the defaulted in their payments and the foreclosure by petitioner was premature.
latters obligation under their contract was not yet due. Foreclosure is valid only when the debtor is in default in the payment of
his obligation.
The CA sustained the decision of the trial court but anchored its
ruling on a different ground. Contrary to the findings of the trial court, In turn, whether or not demand was made is a question of fact. This
the CA ruled that the requirements of posting and publication of petition filed under Rule 45 of the Rules of Court shall raise only
notices under Act No. 3135 were complied with. The CA, however, questions of law. For a question to be one of law, it must not involve
still found that GMCs action against Spouses Ramos was premature, an examination of the probative value of the evidence presented by
as they were not in default when the action was filed on May 7, 1997. the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances.
ISSUE: WHETHER OR NOT PETITIONER GMC MADE NO Once it is clear that the issue invites a review of the evidence
DEMAND TO RESPONDENT SPOUSES FOR THE FULL presented, the question posed is one of fact. It need not be reiterated
PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE that this Court is not a trier of facts. We will defer to the factual
LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO findings of the trial court, because petitioner GMC has not shown any
RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL circumstances making this case an exception to the rule.
HELD: GMC asserts error on the part of the CA in finding that no FACTS: The claim arose from an accident that occurred on October
demand was made on Spouses Ramos to pay their obligation. On 24, 1999, when the mini bus owned and operated by Cruz and driven
the contrary, it claims that its March 31, 1997 letter is akin to a by one Arturo Davin collided with the Toyota Corolla car of Gruspe;
demand. Gruspes car was a total wreck. The next day, on October 25, 1999,
Cruz, along with Leonardo Q. Ibias went to Gruspes office,
We disagree. apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspes
There are three requisites necessary for a finding of default. First, the damaged car in 20 days, or until November 15, 1999, of the same
obligation is demandable and liquidated; second, the debtor delays model and of at least the same quality; or, alternatively, they would
performance; and third, the creditor judicially or extrajudicially pay the cost of Gruspes car amounting to P350,000.00, with interest
requires the debtors performance. at 12% per month for any delayed payment after November 15,
1999, until fully paid. When Cruz and Leonardo failed to comply with
6 Property of : Bea Reyes
Digests by: VIADA2015
their undertaking, Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before the RTC. HELD: The Court finds the petition partly meritorious and accordingly
modifies the judgment of the CA.
In their answer, Cruz and Leonardo denied Gruspes allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of Contracts are obligatory no matter what their forms may be,
Undertaking and forced them to affix their signatures thereon, without whenever the essential requisites for their validity are present. In
explaining and informing them of its contents; Cruz affixed his determining whether a document is an affidavit or a contract, the
signature so that his mini bus could be released as it was his only Court looks beyond the title of the document, since the denomination
means of income; Leonardo, a barangay official, accompanied Cruz or title given by the parties in their document is not conclusive of the
to Gruspes office for the release of the mini bus, but was also nature of its contents. In the construction or interpretation of an
deceived into signing the Joint Affidavit of Undertaking. instrument, the intention of the parties is primordial and is to be
pursued. If the terms of the document are clear and leave no doubt
Leonardo died during the pendency of the case and was substituted on the intention of the contracting parties, the literal meaning of its
by his widow, Esperanza. Meanwhile, Gruspe sold the wrecked car stipulations shall control. If the words appear to be contrary to the
for P130,000.00. parties evident intention, the latter shall prevail over the former.

In a decision dated September 27, 2004, the RTC ruled in favor of A simple reading of the terms of the Joint Affidavit of Undertaking
Gruspe and ordered Cruz and Leonardo to pay P220,000.00,6 plus readily discloses that it contains stipulations characteristic of a
15% per annum from November 15, 1999 until fully paid, and the contract. As quoted in the CA decision, the Joint Affidavit of
cost of suit. Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from
On appeal, the CA affirmed the RTC decision, but reduced the October 25, 1999 or up to November 15, 1999, of the same model
interest rate to 12% per annum pursuant to the Joint Affidavit of and of at least the same quality. In the event that they cannot replace
Undertaking. It declared that despite its title, the Joint Affidavit of the car within the same period, they would pay the cost of Gruspes
Undertaking is a contract, as it has all the essential elements of car in the total amount of P350,000.00, with interest at 12% per
consent, object certain, and consideration required under Article month for any delayed payment after November 15, 1999, until fully
1318 of the Civil Code. The CA further said that Cruz and Leonardo paid. These, as read by the CA, are very simple terms that both Cruz
failed to present evidence to support their contention of vitiated and Leonardo could easily understand.
consent. By signing the Joint Affidavit of Undertaking, they voluntarily
assumed the obligation forvthe damage they caused to Gruspes car; There is also no merit to the argument of vitiated consent. An
Leonardo, who was not a party to the incident, could have refused to allegation of vitiated consent must be proven by preponderance of
sign the affidavit, but he did not. evidence; Cruz and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to be onerous and
In their appeal by certiorari with the Court, Cruz and Esperanza lopsided, this does not necessarily prove the alleged vitiation of
assail the CA ruling, contending that the Joint Affidavit of Undertaking consent.
is not a contract that can be the basis of an obligation to pay a sum
of money in favor of Gruspe. They consider an affidavit as different They, in fact, admitted the genuineness and due execution of the
from a contract: an affidavits purpose is simply to attest to facts that Joint Affidavit and Undertaking when they said that they signed the
are within his knowledge, while a contract requires that there be a same to secure possession of their vehicle. If they truly believed that
meeting of the minds between the two contracting parties. the vehicle had been illegally impounded, they could have refused to
sign the Joint Affidavit of Undertaking and filed a complaint, but they
Even if the Joint Affidavit of Undertaking was considered as a did not. That the release of their mini bus was conditioned on their
contract, Cruz and Esperanza claim that it is invalid because Cruz signing the Joint Affidavit of Undertaking does not, by itself, indicate
and Leonardos consent thereto was vitiated; the contract was that their consent was forced they may have given it grudgingly, but
prepared by Gruspe who is a lawyer, and its contents were never it is not indicative of a vitiated consent that is a ground for the
explained to them. annulment of a contract.

Moreover, Cruz and Leonardo were simply forced to affix their Thus, on the issue of the validity and enforceability of the Joint
signatures, otherwise, the mini van would not be released. Also, they Affidavit of Undertaking, the CA did not commit any legal error that
claim that prior to the filing of the complaint for sum of money, merits the reversal of the assailed decision.
Gruspe did not make any demand upon them. Hence, pursuant to
Article 1169 of the Civil Code, they could not be considered in Nevertheless, the CA glossed over the issue of demand which is
default. Without this demand, Cruz and Esperanza contend that material in the computation of interest on the amount due. The RTC
Gruspe could not yet take any action. ordered Cruz and Leonardo to pay Gruspe P350,000.00 as cost of
the car xxx plus fifteen percent (15%) per annum from November 15,
ISSUE: (a) Whether or not the Joint Affidavit of Undertaking can be 1999 until fully paid[.] The 15% interest (later modified by the CA to
considered as a contract be 12%) was computed from November 15, 1999 the date
(b) Whether or not there was judicial or extrajuducial demand by stipulated in the Joint Affidavit of Undertaking for the payment of the
Gruspe value of Gruspes car. In the absence of a finding by the lower courts
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Digests by: VIADA2015
that Gruspe made a demand prior to the filing of the complaint, the
interest cannot be computed from November 15, 1999 because until
a demand has been made, Cruz and Leonardo could not be said to
be in default. In order that the debtor may be in default[,] it is
necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially. Default generally begins
from the moment the creditor demands the performance of the
obligation. In this case, demand could be considered to have been
made upon the filing of the complaint on November 19, 1999, and it
is only from this date that the interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note

that it imposed interest rate on a per annum basis, instead of the per
month basis that was stated in the Joint Affidavit of Undertaking
without explaining its reason for doing so. Neither party, however,
questioned the change.

Nonetheless, the Court affirms the change in the interest rate from
12% per month to 12% per annum, as we find the interest rate
agreed upon in the Joint Affidavit of Undertaking excessive.

8 Property of : Bea Reyes