Central Philippine University vs. Court of Appeals G.R. No.

period was intended, the court may fix the duration thereof
112230. July 17, 1995
FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in
favor of CPU together with the following conditions:
a) The land should be utilized by CPU exclusively for the
establishment & use of medical college;
b) The said college shall not sell transfer or convey to any 3rd
party;
c) The said land shall be called “Ramon Lopez Campus” and
any income from that land shall be put in the fund to be known
as “Ramon Lopez Campus Fund”.
However, on May 31, 1989, PR, who are the heirs of Don
Ramon filed an action for annulment of donation,
reconveyance & damages against CPU for not complying with
the conditions. The heirs also argued that CPU had negotiated
with the NHA to exchange the donated property with another
land owned by the latter.
because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for
compliance therewith & such period has arrived. However, this
general rule cannot be applied in this case considering the
different set of circumstances existing more than a reasonable
period of 50yrs has already been allowed to petitioner to avail
of the opportunity to comply but unfortunately, it failed to do so.
Hence, there is no need to fix a period when such procedure
would be a mere technicality & formality & would serve no
purpose than to delay or load to unnecessary and expensive
multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with
what is incumbent upon him, the obligee may seek rescission
before the court unless there is just cause authorizing the fixing
of a period. In the absence of any just cause for the court to
determine the period of compliance there is no more obstacle
for the court to decree recission.

Petitioner alleged that the right of private respondents to file

the action had prescribed.

ISSUE:
1) WON petitioner failed to comply the resolutely conditions
annotated at the back of petitioner’s certificate of title without a
fixed period when to comply with such conditions? YES
2) WON there is a need to fix the period for compliance of the
condition? NO

HELD:

1)Under Art. 1181, on conditional obligations, the acquisition of

rights as well the extinguishment or loss of those already
acquired shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the
land a school is such a resolutory one. The donation had to be
valid before the fulfillment of the condition. If there was no
fulfillment with the condition such as what obtains in the instant
case, the donation may be revoked & all rights which the
donee may have acquired shall be deemed lost &
extinguished.

More than a reasonable period of fifty (50) years has already

been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed to
do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to
delay or lead to an unnecessary and expensive multiplication
of suits.

Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the
instant action, petitioner has failed to comply with its obligation
as donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of
reconveyance.

2)Under Art. 1197, when the obligation does not fix a period
but from its nature & circumstance it can be inferred that the
Catungal vs Rodriguez
Facts:
Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963)
situated in the Barrio of Talamban, Cebu City. Agapita, with the consent
of her husband Jose, entered into a Contract to Sell [6] with respondent
Rodriguez which subsequently purportedly “upgraded” into a
Conditional Deed of Sale.Both the Contract to Sell and the Conditional
Deed of Sale were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the
present dispute are quoted below:
1.price 25 Million pesos
2. downpayment 500 Thousand
3. balance shall be paid after the VENDEE have successfully
negotiated, secured and provided a 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.
He likewise alleged that he actively negotiated for the road right of way
as stipulated in the contract.[9]
On August 31, 1990 the spouses Catungal requested an advance
of P5,000,000.00 on the purchase price for personal
reasons. Rodriquez allegedly refused on the ground that the amount
was substantial and was not due under the terms of their
agreement. The Catungal’s rescinded the contract.
Rodirguez filed a complaint against the Catungal’s for arbitrarily
rescinding the contract. In a Decision dated May 30, 1992, the trial court
ruled in favor of Rodriguez, finding that: (a) under the contract it was
complainant (Rodriguez) that had the option to rescind the sale; (b)
Rodriguez’s obligation to pay the balance of the purchase price arises
only upon successful negotiation of the road right of way; (c) he proved
his diligent efforts to negotiate the road right of way; (d) the spouses
Catungal were guilty of misrepresentation which defeated Rodriguez’s
efforts to acquire the road right of way; and (e) the Catungals’ rescission
of the contract had no basis and was in bad faith.
During the pendency of the case with the Court of Appeals,
Agapita Catungal passed away and thus, her husband, Jose, filed on
February 17, 1999 a motion for Agapita’s substitution by her surviving
children.[46]
The Catungals alleged that the conditional deed of sale was void ab initio
because it violates the mutuality of contract in view of Article 1308
ncc. Petitioners rely on Article 1308 of the Civil Code to support
their conclusion regarding the claimed nullity of the aforementioned
provisions. Article 1308 states that “[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will of
one of them.”
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. If it
depends upon chance or upon the will of a third person, the obligation
shall take effect in conformity with the provisions of this Code.
Issue: W/N Conditional Deed of Sale violate the principle of mutuality of
contracts under Article 1308 of the Civil Code?
.
Held: No. In the past, this Court has distinguished between a condition
imposed on the perfection of a contract and a condition imposed merely
on the performance of an obligation. While failure to comply with the
first condition results in the failure of a contract, failure to comply with
the second merely gives the other party the option to either refuse to
proceed with the sale or to waive the condition. This principle is evident
in Article 1545 of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which is not performed,
such party may refuse to proceed with the contract or he may waive
performance of the condition x x x.
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.
The condition is a mixed condition which is allowed by Article 1182.
"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.
With respect to petitioners’ argument that paragraph 5 of the Conditional
Deed of Sale likewise rendered the said contract void, we find no merit
to this theory.
Reading paragraph 5 in its entirety will show that Rodriguez’s option to
rescind the contract is not absolute as it undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of
way. .
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 downpayment 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.
In any event, even if we assume for the sake of argument that the grant
to Rodriguez of an option to rescind, in the manner provided for in the
contract, is tantamount to a potestative condition, not being a condition
affecting the perfection of the contract, only the said condition would be
considered void and the rest of the contract will remain valid.
WHEREFORE, the Decision dated August 8, 2000 and
the Resolution dated January 30, 2001 of the Court of Appeals in CA-
G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565
are AFFIRMED with the following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period of
thirty (30) days from the finality of this Decision to negotiate a road right
of way. In the event no road right of way is secured by respondent at the
end of said period, the parties shall reassess and discuss other options
as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for
this purpose, they are given a period of thirty (30) days to agree on a
course of action. Should the discussions of the parties prove futile after
the said thirty (30)-day period, immediately upon the expiration of said
period for discussion, Rodriguez may (a) exercise his option to rescind
the contract, subject to the return of his downpayment, in accordance
with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of
Sale or (b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC Decision dated May
30, 1992.
Case of SECURITY BANK & TRUST COMPANY and ROSITO C.
MANHIT vs COURT OF APPEALS and YSMAEL C. FERRER
G.R.No. 117009 11October1995
This case is with regard to Art 1182 of the NCC- Potestative Condition-
Stipulation dependent upon the sole will of the debtor

FACTS OF THE CASE:

SBTC and Manhit contracted Ferrer to construct in 200 days a building

in consideration of 1,760,000.00. Ferrer was able to finish the
construction of the building within the prescribed time, but incurred
additional expenses of about 300,000.00 on top of the original cost due
to drastic increases in construction materials. Ferrer made timely
demands for payment of the increased cost, and 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 the claim for 200,000.00 but SBTC did not pay the amount,
and instead denied any liability for the additional cost. Ferrer then filed
a claim for breach of contract with damages in the RTC, which ruled in
favor of Ferrer, Court of Appeals affirmed the decision.

ISSUES OF THE CASE:

Is SBTC liable for the increase in cost of the construction due to drastic
increases in cost of material?

- Yes, since under Art 1182 of the NCC, a conditional obligation shall
be void if its fulfillment depends upon the sole will of the debtor. Under
Art IX of the building contract it allows for the adjustment of the
contract price upon mutual agreement of the parties.
- It is the absence of this mutual agreement that the bank is using to
support its contention that it is not liable for the increased cost, and in
effect this is an obligation dependent on SBTC’s sole will, since its
consent is required for the recovery of the increased cost to be
allowed.
- This in effect allows SBTC to acquire the constructed building at a
price that is far below its actual construction cost, and this constitutes
unjust enrichment for SBTC at the expense of Ferrer. This is not
allowed by law by virtue of Art 22 of NCC.

HELD:

WHEREFORE, with the above modification in respect of the amount of

attorney's fees, the appealed decision of the Court of Appeals in CA
G.R. CV No. 40450 is AFFIRMED.

Obligations and Contracts Terms:

Conditional Obligation- a condition wherein the execution of which is

suspended by a condition which has not been accomplished, and
subject to which it has been contracted.

Potestative Obligation- a condition whose fulfillment was completely

within the power of the obligated party

Taylor vs Uy Tieng piao G.R. No. L-16109 October 2, 1922

FACTS
Ø Taylor contracted his services to Tan Liuan & Co as superintendent of
an oil factory which the latter contemplated establishing
Ø The contract extended over 2 years and the salary was P600/month
during the first year and P700/month during the second with electric,
light and water for domestic consumption or in lieu thereof, P60/month
Ø At this time, the machinery for contemplated factory had not been
acquired, though ten expellers had been ordered from the US
Ø It was understood that should the machinery to be installed fail, for
any reason, to arrive in Manila within the period of 6 months, the
contract may be cancelled by the party of the second part at its option,
such cancellation not to occur before the expiration of such 6 months

Ø The machinery did not arrive in Manila within the 6 months; the
reason does not appear, but a preponderance of evidence show that
the defendants seeing that oil business no longer promised large
returns, either cancelled the order for machinery from choice or were
unable to supply the capital necessary to finance the project.
Ø Defendants communicated to Taylor that they had decided to rescind
the contract.
Ø Taylor instituted this action to recover damages in the amount of
P13k, covering salary and perks due and to become due
ISSUE
WON in a contract for the prestation of service, it is lawful for the
parties to insert a provision giving the employer the power to cancel
the contract in contingency which may be dominated by himself
HELD
Ø YES. One of the consequences of the stipulation was that the
employers were left in a position where they could dominate the
contingency, and the result was about the same as if they had been
given an unqualified option to dispense with the services of Taylor at
the end of 6 months. But this circumstance does not make the
stipulation illegal.
Ø A condition at once facultative and resolutory may be valid even
though the condition is made to depend upon the will of the obligor.
Ø If it were apparent, or could be demonstrated that the defendants
were under positive obligation to cause the machinery to arrive
in Manila, they would of course be liable, in the absence of affirmative
proof showing that the non-arrival of the machinery was due to some
cause not having its origin in their own act or will.
Ø The contract, however, expresses no such positive obligation, and its
existence cannot be implied in the face of the stipulation, defining the
conditions under which the defendants can cancel the contract.
Ø CFI no error in rejecting Taylor’s claim in so far as damages are
sought for the period subsequent to the expiration of 6 months, but in
assessing the damages due for the six-month period, the trial judge
overlooked the item of P60 (commutation of house rent) This amount
Taylor is entitled to recover in addition to P300 awarded by CFI.

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M.

MAGGAY, VS. THE COURT OF APPEALS AND CAMARINES SUR II
ELECTRIC COOPERATIVE, INC. (CASURECO II)
1994 February 24
230 SCRA 351
FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone conditions cease to exist the contract also ceases to exist. Considering
company rendering local as well as long distance service in Naga City practical needs and the demands of equity and good faith, the
while private respondent Camarines Sur II Electric Cooperative, Inc. disappearance of the basis of a contract gives rise to a right to relief in
(CASURECO II) is a private corporation established for the purpose of favor of the party prejudiced.
operating an electric power service in the same city.
The allegations in private respondent's complaint and the evidence it
On November 1, 1977, the parties entered into a contract for the use by has presented sufficiently made out a cause of action under Article 1267.
petitioners in the operation of its telephone service the electric light posts The Court, therefore, release the parties from their correlative
of private respondent in Naga City. In consideration therefor, petitioners obligations under the contract. However, the disposition of the present
agreed to install, free of charge, ten (10) telephone connections for the controversy does not end here. The Court has to take into account the
use by private respondent. After the contract had been enforced for over possible consequences of merely releasing the parties therefrom:
ten (10) years, private respondent filed with the Regional Trial Court petitioners will remove the telephone wires/cables in the posts of private
against petitioners for reformation of the contract with damages, on the respondent, resulting in disruption of their essential service to the public;
ground that it is too one-sided in favor of petitioners; that it is not in while private respondent, in consonance with the contract will return all
conformity with the guidelines of the National Electrification the telephone units to petitioners, causing prejudice to its business.
Administration (NEA); that after eleven (11) years of petitioners' use of
the posts, the telephone cables strung by them thereon have become The Court shall not allow such eventuality. Rather, the Court requires,
much heavier with the increase in the volume of their subscribers; that a as ordered by the trial court: 1) petitioners to pay private respondent for
post now costs as much as P2,630.00; so that justice and equity demand the use of its posts in Naga City and in the towns of Milaor, Canaman,
that the contract be reformed to abolish the inequities thereon. Magarao and Pili, Camarines Sur and in other places where petitioners
use private respondent's posts, the sum of ten (P10.00) pesos per post,
As second cause of action, private respondent alleged that starting with per month, beginning January, 1989; and 2)private respondent to pay
the year 1981, petitioners have used 319 posts outside Naga City, petitioner the monthly dues of all its telephones at the same rate being
without any contract with it; that at the rate of P10.00 per post, petitioners paid by the public beginning January, 1989. The peculiar circumstances
should pay private respondent for the use thereof the total amount of of the present case, as distinguished further from the Occeña case,
P267,960.00 from 1981 up to the filing of its complaint; and that necessitates exercise of a equity jurisdiction. By way of emphasis, the
petitioners had refused to pay private respondent said amount despite Court reiterates the rationalization of respondent court that:
demands. And as third cause of action, private respondent complained
about the poor servicing by petitioners. ". . . In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt
The trial court ruled, as regards private respondent’s first cause of the basic and essential services being rendered by both parties herein
action, that the contract should be reformed by ordering petitioners to to the public and to avoid unjust enrichment by appellant at the expense
pay private respondent compensation for the use of their posts in Naga of plaintiff . . . "
City, while private respondent should also be ordered to pay the monthly
bills for the use of the telephones also in Naga City. And taking into Decision affirmed.
consideration the guidelines of the NEA on the rental of posts by
telephone companies and the increase in the costs of such posts, the
trial court opined that a monthly rental of P10.00 for each post of private
respondent used by petitioners is reasonable, which rental it should pay
from the filing of the complaint in this case on January 2, 1989. And in
like manner, private respondent should pay petitioners from the same
date its monthly bills for the use and transfers of its telephones in Naga
City at the same rate that the public are paying.
On private respondent's second cause of action, the trial court found that
the contract does not mention anything about the use by petitioners of
private respondent's posts outside Naga City. Therefore, the trial court
held that for reason of equity, the contract should be reformed by
including therein the provision that for the use of private respondent's
posts outside Naga City, petitioners should pay a monthly rental of
P10.00 per post, the payment to start on the date this case was filed, or
on January 2, 1989, and private respondent should also pay petitioners
the monthly dues on its telephone connections located outside Naga
City beginning January, 1989. And with respect to private respondent's
third cause of action, the trial court found the claim not sufficiently
proved.
The Court of Appeals affirmed the decision of the trial court, but based
on different grounds to wit: (1) that Article 1267 of the New Civil Code is
applicable and (2) that the contract was subject to a potestative condition
which rendered said condition void.
ISSUE: Whether or not the principle of Rebus Sic Stantibus is applicable
in the case at bar.
RULING: No. Article 1267 speaks of "service" which has become so
difficult. Taking into consideration the rationale behind this provision, the
term "service" should be understood as referring to the "performance" of
the obligation.
international hotel corp vs joaquin digest
In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a bare reading of this article
reveals that it is not a requirement thereunder that the contract be for
future service with future unusual change. According to Senator Arturo
M. Tolentino, Article 1267 states in our law the doctrine of unforseen
events. This is said to be based on the discredited theory of rebus sic
stantibus in public international law; under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these
SPOUSES SOCRATES SY AND CELY SY v. ANDOK'S
LITSON CORPORATION

FACTS: Petitioner Cely Sy (Sy) entered into a 5-year lease

contract with Andok's Litson Corporation (Andok's). Andok's
immediately paid its four (4) months of advance deposit and a
security deposit equivalent to four (4) months of rental.
However, while in the process of applying for electrical
connection on the improvements to be constructed on Sys
 land, Andok's discovered that Sy has an unpaid MERALCO bill
amounting to P400,000.00. Andok's further complained that
construction for the improvement it intended for the leased
premises could not proceed because another tenant,
Mediapool, Inc. incurred delay in the construction of a billboard
structure also within the leased premises.

Andoks first informed Sy about the delay in the construction of

the billboard structure on a portion of its leased property. Three
more letters of the same tenor were sent to Sy but the
demands fell on deaf ears. Thus, Andok's filed a complaint for
rescission before the RTC. The RTC ruled in favor of Andoks.
On appeal, the CA affirmed the RTCs ruling.

ISSUE:
Is rescission proper in this case?

HELD: Article 1191 of the Civil Code provides that the power
to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon
him. A lease contract is a reciprocal contract.By signing the
lease agreement, the lessor grants possession over his/her
property to the lessee for a period of time in exchange for
rental payment. The aggrieved party is given the option to the
aggrieved party to ask for: (1) the rescission of the contract; (2)
rescission and indemnification for damages; or (3) only
indemnification for damages, allowing the contract to remain in
force.

While Andok's had complied with all its obligations as a lessee,

the lessor failed to render the premises fit for the use intended
and to maintain the lessee in the peaceful and adequate
enjoyment of the lease.

DENIED

Villamar vs. Mangaoil

GR No. 188661, April 11, 2012

Facts:
Estelita villamar a registered owner of 3.6080 hectares of parcel of
land, decided to sell it Balbino Mangaoil with the certain
conditions; The price of the land is ONE HUNDRED AND
EIGHTY THOUSAND (180,000.00) PESOS per hectare but
 only the 3.5000 hec. shall be paid and the rest shall be given
free, so that the total purchase or selling price shall be
[P]630,000.00 only. The respondent paid the amount of
185,000 as a down payment for the land title to be given to him
. After some time, Mangaoil decided to back out from the
agreement because the area is not yet fully cleared by
incumbrances as these are tenants who are not willing to
vacate the land without giving them back the amount that they
mortgage the lad.
Mangaoil demanded a refund for his 185,000, reiterating his
demand on another date but the same as unheeded. The
respondent filed a complaint in the RTC and the latter ordered
the rescission of the agreement and the deed of absolute sale
in accordance of Art. 1458 and Art. 1191 of the Civil Code. The
petitioner filed before the CA an appeal to challenge the
foregoing. She ascribed error on the part of the RTC when the
latter ruled that the agreement and deed of sale executed by
and between the parties can be rescinded as she failed to
deliver to the respondent both the subject property and the
certificate of title covering the same. On February 20, 2009, the
CA rendered the now assailed decision dismissing the
petitioners appeal.
The Petitioner filed an instant petition in the supreme court. The
petitioner contends that in her case, she had already complied
with her obligations under the agreement and the law when
she had caused the release of TCT No. T-92958-A from the
Rural Bank of Cauayan, paid individual mortgagees Romeo
Lacaden and Florante Parangan, and executed an absolute
deed of sale in the respondent’s favor.

Issue:
Whether or not the failure of petitioner-seller to deliver the
certificate of title over the property to respondent-buyer is a
breach of obligation in a contract of sale of real property that
would warrant rescission of the contract?
Held:
The RTC and CA both found the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of
the subject property and the certificate of title covering the
same.
The petition was denied for failure to deliver to the respondent the
possession of the subject property due to the continued
presence and occupation of one Parangan and Lacaden. The
Court directed the rescission of the agreement and absolute
deed of sale entered by Estelita Villamar and Balbino Mangaoil
and return of the down payment made for the purchase of the
subject property. And an interest of 12% per annum on the
sum of 185,000 to be returned to Balbino Mangaoil.

NEWTON JISON v. CA, GR No. L-45349, 1988-08-15

Facts:
The instant petition for review of the decision of the Court of Appeals...
issue of the validity of the rescission of a contract to sell a subdivision
lot due to the failure of the lot buyer to pay monthly installments on
their due dates and the forfeiture of the... amounts already paid.
Petitioners... entered into a Contract to Sell with private respondent,
Robert O. Phillips & Sons. Inc.,... whereby the latter agreed to sell to
the former a lot... for the agreed price... of P55,000.00, with interest at
8% per annum, payable on an installment basis.
Pursuant to the contract, petitioners paid private respondents a down cancellation of the contract the possession of the lot reverts to private
payment of P11,000.00... a monthly installment of P533.85. respondent who is free to resell it to another party.
due to the failure of petitioners to build a house as provided in the The Court's decision to reduce the amount forfeited finds support in the
contract, the stipulated penalty of P5.00 per square meter was Civil Code. As stated in paragraph 3 of the contract, in case the
imposed to the effect that the monthly amortization was increased to contract is cancelled, the amount already paid shall be forfeited in
P707.24. favor of the vendor as liquidated damages. The Code provides that...
liquidated damages, whether intended as an indemnity or a penalty,
January 1, 1966, February 1, 1966 and March 1, 1966, petitioners shall be equitably reduced if they are iniquitous or unconscionable [Art.
failed to pay the monthly installments due on said dates although 2227.]
petitioners subsequently paid the amounts due and these were
accepted by private respondent. Further, in obligation with a penal clause, the judge shall equitably
reduce the penalty when the principal obligation has been partly or
petitioners failed to pay... private respondent sent a letter (Ex... to irregularly complied with by the debtor
petitioners calling their attention to the fact that their account was four
months overdue. Private respondent is ordered to refund to petitioners the excess of
P23,656.32 within thirty (30) days from the date of finality of this
This... letter was followed up by another letter... where private judgment.
respondent reminded petitioner of the automatic rescission clause of
the contract.
Petitioners eventually paid on March 1, 1967.
Petitioners again failed to pay the monthly installments
Thus, in a letter... private respondent returned petitioners' check and
informed them that the contract was cancelled... petitioners failed to
pay the monthly installment due, thereby making their account
delinquent for three months.
petitioners tendered payment for all the installments already due but
the tender was refused.
Thus, petitioners... countered by filing a complaint for specific
performance
Court of First Instance... and consigning the monthly... installments due
with the court.
endered judgment in favor of private respondent, dismissing the
complaint and declaring the contract cancelled and all payments
already made by... petitioner forfeited;
Not satisfied with the decision of the trial court, petitioners appealed to
the Court of Appeals.
Court of Appeals... ffirmed the former's decision.
Thus, the instant petition for review.
Issues:
principal issue in this case is the legality of the rescission of the
contract and the forfeiture of the payments already made by
petitioners.
Ruling:
In this case, private respondent has denied that rescission is justified
and has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioner was warranted.
We hold that resolution by petitioners of the contract was ineffective
and inoperative against private respondent for lack of notice of
resolution,... There is no denying that in the instant case the resolution
or rescission of the Contract to Sell was valid.
Neither can it be said that the cancellation of the contract was
ineffective for failure of private respondents to give petitioners notice
thereof as petitioners were... informed by private respondent that the
contract was cancelled
While the resolution of the contract and the forfeiture of the amounts
already paid are valid and binding upon petitioners, the Court is FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK
convinced that the forfeiture of the amount of P47,312.64, although it INC., Petitioners, vs.
includes the accumulated fines for petitioners' failure to construct... a
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO,
house as required by the contract, is clearly iniquitous considering that
Respondents.
the contract price is only P55,000.00. The forfeiture of fifty percent
(50%) of the amount already paid, orP23,656.32, appears to be a fair G.R. No. 185798 January 13, 2014
settlement.
In arriving at this amount the Court gives weight... to the fact that
although petitioners have been delinquent in paying their amortizations PONENTE: Perez
several times to the prejudice of private respondent, with the FACTS:
 Petitioner Fil-Estate Properties, Inc. is the owner and
developer of the Central Park Place Tower while co-petitioner Fil-Estate
Network, Inc. is its authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-
square meter condominium unit for a pre-selling contract price of
P5,174,000.00. On 29 August 1997, respondents executed and signed
a Reservation ApplicationAgreement wherein they deposited
P200,000.00 as reservation fee. As agreed upon, respondents paid the
full downpayment of P1,552,200.00 and had been paying the
P63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of P2,198,949.96 to petitioners,
respondents through two (2) successive letters, demanded a full refund
of their payment with interest. When their demands went unheeded,
respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board
(HLURB). Respondents prayed for reimbursement/refund of
P2,198,949.96 representing the total amortization payments,
P200,000.00 as and by way of moral damages, attorney’s fees and other
litigation expenses.
On 13 June 2002, the HLURB in favor of herein respondents.
The Arbiter considered petitioners’ failure to develop the condominium
project as a substantial breach of their obligation which entitles
respondents to seek for rescission with payment of damages.
The Arbiter also stated that mere economic hardship is not an excuse
for contractual and legal delay.
ISSUES:
1. Whether or not the Asian financial crisis constitute a fortuitous event
which would justify delay by petitioners in the performance of their
contractual obligation;
2. Assuming that petitioners are liable, whether or not 12% interest
was correctly imposed on the judgment award
HELD:
FIRST ISSUE: NO
The Supreme Court held that the Asian financial crisis is not a
fortuitous event that would excuse petitioners from performing their
contractual obligation.
The Court ruled that “we cannot generalize that the Asian
financial crisis in 1997 was unforeseeable and beyond the control of a
business corporation. It is unfortunate that petitioner apparently met with
considerable difficulty e.g. increase cost of materials and labor, even
before the scheduled commencement of its real estate project as early
as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections
on commodities and currency movements and business risks. The
fluctuating movement of the Philippine peso in the foreign exchange
market is an everyday occurrence, and fluctuations in currency
exchange rates happen everyday, thus, not an instance of caso fortuito.”
SECOND ISSUE: NO
The Court held that 6% is the proper legal interest rate.
The resulting modification of the award of legal interest is,
also, in line with our recent ruling in Nacar v. Gallery Frames, embodying
the amendment introduced by the Bangko Sentral ng Pilipinas Monetary
Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
FALLO: Lalicon v National Housing Authority (Obligations and Contracts)
WHEREFORE, the petition is PARTLY GRANTED. The Lalicon v National Housing Authority GR No. 185440 July 13, 2011
appealed Decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount RESCISSION & PRESCRIPTION
due computed from the time of respondents’ demand for refund on 8
October 1998. FACTS:

(1) On November 25, 1980 the National Housing Authority (NHA)

executed a Deed of Sale with Mortgage over a Quezon City lot in favor
of the spouses Isidro and Flaviana Alfaro (the Alfaros). The deed of
sale provided, among others, that the Alfaros could sell the land within
five years from the date of its release from mortgage without NHA's
prior written consent. Thus:
 x x x. 5. Except by hereditary succession, the lot herein sold and
conveyed, or any part thereof, cannot be alienated, transferred or
encumbered within five (5) years from the date of release of herein
mortgage without the prior written consent and authority from the
VENDOR-MORTGAGEE (NHA). x x x
The mortgage and the restriction on sale were annotated on the
Alfaros' title on April 14, 1981.
(2) About nine years later or on November 30, 1990, while the
mortgage on the land subsisted, the Alfaros sold the same to their son,
Victor Alfaro.
(3) After full payment of the loan or on March 21, 1991 the NHA
released the mortgage.
(4) Six days later or on March 27 Victor transferred ownership of the
land to his illegitimate daughters. (5) On December 14, 1995 Victor
mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and
Ida See.
(6) Subsequently, on February 14, 1997 Victor sold the property to
Chua, one of the mortgagees.
RTC: 1990 sale of the land to their son Victor, and the subsequent
sale of the same to Chua, made in violation of NHA rules and
regulations. It ruled that, although the Alfaros clearly violated the five-
year prohibition, the NHA could no longer rescind its sale to them since
its right to do so had already prescribed, applying Article 1389 of the
New Civil Code. The NHA and the Lalicons, who intervened, filed their
respective appeals to the Court of Appeals (CA).
CA: CA reversed the RTC decision and found the NHA entitled to
rescission. The CA declared TCT 277321 in the name of the Alfaros
and all subsequent titles and deeds of sale null and void. It ordered
Chua to reconvey the subject land to the NHA but the latter must pay
the Lalicons the full amount of their amortization, plus interest, and the
value of the improvements they constructed on the property.
ISSUE: Whether or not the subsequent sales constituted breach in the
obligation and may give rise to rescission
APPLICABLE LAW/S:
• Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
• This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles 1385
AYALA INC VS. RAY BURTON CORP GR No. 163075 January 23, 2006
and 1388 and the Mortgage Law. (1124)
FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp. entered
• Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the value
of the things which are the object thereof;
On contract date: 26%, inclusive of option money. Not later than 1-6-96: 4%
(2) Those agreed upon in representation of absentees, if the latter
In consecutive quarterly installments for a period of 5 years: 70%
suffer the lesion stated in the preceding number;
Respondent paid thirty (30%) down payment and the quarterly amortization.
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
HELD: (1) Lalicons' request for exemption from the five-year
restriction was not granted. Resale without NHA's consent is a
substantial breach.
The five-year restriction against resale, counted from the release of the
property from the NHA mortgage, measures out the desired hold that
the government felt it needed to ensure that its objective of providing
cheap housing for the homeless is not defeated by wily
entrepreneurs. The restriction clause is more of a condition on the
sale of the property to the Alfaros rather than a condition on the
mortgage constituted on it. The Lalicons claim that the NHA
unreasonably ignored their letters that asked for consent to the resale
of the subject property. They also claim that their failure to get NHA's
prior written consent was not such a substantial breach that warranted
rescission. But the NHA had no obligation to grant the Lalicons'
request for exemption from the five-year restriction as to warrant their
proceeding with the sale when such consent was not immediately
forthcoming. And the resale without the NHA's consent is a substantial
breach. The essence of the government's socialized housing program
is to preserve the beneficiary's ownerships for a reasonable length of
time, here at least within five years from the time he acquired it free
from any encumbrance.
(2) Action has not prescribed.
NHA sought annulment of the Alfaros' sale to Victor because they
violated the five-year restriction against such sale provided in their
contract. Thus, the CA correctly ruled that such violation comes under
Article 1191 where the applicable prescriptive period is that provided in
Article 1144 which is 10 years from the time the right of action
accrues. The NHA's right of action accrued on February 18, 1992
when it learned of the Alfaros' forbidden sale of the property to
Victor. Since the NHA filed its action for annulment of sale on April 10,
1998, it did so well within the 10-year prescriptive period.
(3) Lalicons and Chua were not buyers in good faith.
Since the five-year prohibition against alienation without the NHA's
written consent was annotated on the property's title, the Lalicons very
well knew that the Alfaros' sale of the property to their father, Victor,
even before the release of the mortgage violated that prohibition.
(4) Lastly, since mutual restitution is required in cases involving
rescission under Article 1191, the NHA must return the full amount of
the amortizations it received for the property, plus the value of the
improvements introduced on the same, with 6% interest per annum
from the time of the finality of this judgment.
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:
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
attorney’s 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 court’s Decision.
Hence, the instant petition for review on certiorari.
ISSUE:
1. WON respondent’s 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
SELLER’S 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?
Black’s 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
respondent’s 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 respondent’s 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.
FILINVEST LAND, INC., petitioner,
vs. THE HONORABLE COURT OF APPEALS, PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY and
PACIFIC EQUIPMENT CORPORATION, respondents.
[G.R. No. 138980. September 20, 2005]
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.