Not to do, NCC 1168 When the obligation consists in not doing, and the obligor does what

has been
forbidden him, it shall also be undone at his expense. (1099a)

Nakpil v. Manila Towers Development Corp., 502 SCRA 470 (2006)

DOCTRINE: Art. 1168. When the obligation consists in not doing, and the obligor (debtor) does what
has been forbidden him, it shall also be undone at his expense.
FACTS:
● Atty. Bonifacio Nakpil was one of the 200 Filipino-Chinese tenants of Cheong Kiao Ang in his
building located in Ongpin St., Sta. Cruz, Manila and used the unit as his law office. The
Filipino-Chinese tenants formed an association named House International Building Tenants
Association, Inc (HIBTAI).

● The property was mortgaged to GSIS as a security for the loan acquired by Cheong Kiao Ang
earlier. When Cheong Kiao Ang failed to pay the loan, GSIS foreclosed the property and was
auctioned off. The winning bidder was GSIS who sold the property to Centertown Marketing
Corporation which assigned the rights to the sister company Manila Tower Development
Corporation (MTDC).

● The HIBTAI protested, claiming that the members of the association had the priority to buy
the property. The tenants then refused to pay their rentals and instead remitted them to HIBTAI.

● The City Engineer sent a letter to MTDC, which requests them to correct the defects of the
building. The City Engineer warned that the life of the tenants would be endangered if these won’t
be corrected.

● Before MTDC could make the necessary repairs, HIBTAI filed a complaint v. GSIS for injunction
and damages – it was dismissed

● HIBTAI filed another complaint for annulment of contract and damages (The association
argued under Presidential Decree No 1517, the tenants had the priority right to purchase the
property. ) - likewise dismissed

● HIBTAI appealed the decision – also dismissed

● HIBTAI assailed the decision before the SC - dismissed

● 8 years later, a new request from Atty. Samuel S. Samuela - MTDC, the building administrator,
was made for an immediate ocular inspection of the building City Building Official granted
the request and scheduled an ocular inspection. The City Building Official granted the request
and scheduled an ocular inspection. Notices were sent to the tenants and a representative of
HIBTAI.
I. STRUCTURAL ASPECT (Sec. 3.1 Rule VII-
IRR)
1. Cracks on the exterior interior walls
are prominent which manifest
earthquake movement and decrease in
seismic resistance. Damages to beams
and columns are feasible.
7. All sanitary/plumbing fixtures on
vacated 9th, 10th & 11th floors, due to
lack of proper maintenance has los[t]
their trap seals, this allowed the escape
of toxicating sewer gas from the system.
IV. ARCHITECTURAL ASPECT (Sec. 3.6 Rule
VII-IRR).

II. ELECTRICAL ASPECT (Sec. 3.3 Rule VII-
IRR)
2. Wiring system are already old,
obsolete and not properly maintained;
3. Some junction boxes are not properly
covered thus exposing the wiring
connections;
4. Usage of dangling extension cords
and octopus wiring connections were
likewise observed.
III. SANITARY/PLUMBING ASPECT (Sec. 3.5
Rule VII-IRR)
8. Steel frames and roofings at deck are
rusted/corroded and inadequately
maintained;
9. Broken window glass panes and
rusted steel casement;
10. Inadequate light and ventilation
resulting from illegal constructions at the
required open space areas;
11. Illegal use of 14th floor as sauna
bath parlor which is non-conforming to
City Ordinance.
OTHERS

5. Defective sanitary/plumbing 12. Non-compliance with the provisions

installations;
6. Poor drainage system that caused the
stagnation of waste water within the
back part (Ground Floor) of the building;
of BP 344, the Law to Enhance Mobility
of Disabled Persons;
13. Illegal construction at the estero
easement area and at the required open
spaces in violations of Section 3.8 Rule
VII-IRR.8 (Underscoring supplied)

● The City Building Official recommended that the windows be repaired and that the illegally
appended structures be removed, some services (SAUNA BATH) to be discontinued, the electrical
wiring system and fixtures be replaced, and the structural integrity was to be questionable.

● The City Building Official recommended wrote to the administrator (Atty. Samuela – MTDC)
which ordered him to make the tenants vacate the building and undertake the necessary
repairs and rehabilitation of the building. Otherwise they will be sanctioned in accordance to PD
1096 as well as other existing ordinances and laws. MTDC did not respond to the letter.
● On late January of 1996, the City Building Official issued a Closure Order to the MTDC. This
included an order to make the tenants to vacate the building within fifteen days from notice
and to commence its repairs.

● At the time Atty. Nakpil was overseas for medical treatment and upon his return, he
discovered his room was destroyed, the walls were hammered down, and his electricity was
cut off

● Atty. Nakpil came home and filed a complaint against MTDC, seeking for actual, moral, and
exemplary damages and other fees that may incur as well as other reliefs.
● Atty. Nakpil alleged that because of the demolition team as well as the people accompanying
them were the reason why his room was destroyed.
● Atty. Nakpil states that MTDC violated his right as a lessee to the possession of the premises,
unlawfully depriving him of said possession without any lawful authority or court order RTC
dismissed the complaint and ruled in favor of MTDC

● Atty. Nakpil failed to prove that MTDC had anything to do with the demolition/repairs and the
loss of his personal property

● It was done by the Employees Of The City Engineer Of Manila not the MTDC

● Nakpil appealed to the CA which reversed the decision of the RTC

● The CA held that MTDC was remiss in its duty as lessor under Article 1654, that is, to make the
necessary repairs on the building. This led to the demolition of the leased premises, thereby
disturbing the peaceful and adequate enjoyment of the lessee. Thus, the failure of MTDC to fulfill
such obligation entitled Atty. Nakpil to damages.
RESPONDENT - MTDC ARGUMENT
MTDC in a separate civil action avers that it cannot be made liable for actual, moral and exemplary
damages because it had not been remiss in its duty to make the necessary repairs; it was
prohibited from taking possession of the property by the tenants who had filed several suits against it.

MTDC alleged that it acquired the building from the GSIS in 1981, and it was the HIBTAI that had
been managing the affairs of the said building and collected the rentals from the tenants. It
pointed out that in CA-G.R. No. 04393, the CA ruled that the HIBTAI had no right to collect the rentals.
Moreover, HIBTAI did not use the rentals to make the necessary repairs but used it instead to
pay its accounts and obligations.
By the actions of HBTAI, the tenants (as part of the association) of the subject building prevented
MTDC from performing its duty to maintain them in their peaceful possession and enjoyment of the
property. Moreover, Atty. Nakpil failed to prove that it had anything to do with the
demolition/repairs and the loss of his personal property.

ISSUES:

W/N Nakpil is entitiled to damages?

HELD: NO.

 Supreme Court do not agree with the ruling of the CA that the MTDC committed a breach of
its lease contract with Nakpil when it failed to comply with its obligation as lessor (creditor-MTDC),
and that the MTDC is liable for nominal damages.
 Breach of contract is the failure without legal reason to comply with the terms of a contract.
It is also defined as the failure, without legal excuse, to perform any promise which forms the
whole or part of the contract.
 There is no factual and legal basis for any award for damages to MTDC
 The duty to maintain the lessee (debtor-Atty. Nakpil) in the peaceful and adequate enjoyment
of the lease for the duration of the contract is MERELY A WARRANTY that the lessee shall not
be disturbed in his legal, and not physical, possession.
 In the early case of Goldstein v. Roces, the court pointed out that the obligation to maintain the
lessee in the peaceful and adequate enjoyment of the leased property seeks to protect the lessee
not only from acts of third persons but also from the acts of the lessor, thus:
- The lessor must see that the enjoyment is not interrupted or disturbed, either by others'
acts [save in the case provided for in the article 1560 (now Article 1664)], or by his own. By his
own acts, because, being the person principally obligated by the contract, he would openly
violate it if, in going back on his agreement, he should attempt to render ineffective in practice
the right in the thing he had granted to the lessee; and by others' acts, because he must
guarantee the right he created, for he is obliged to give warranty in the manner we have set forth
in our commentary on article 1553, and, in this sense, it is incumbent upon him to protect the
lessee in the latter's peaceful enjoyment.
 When the act of trespass is done by third persons, it must be distinguished whether it is
trespass in fact or in law because the lessor is not liable for a trespass in fact or a mere act
of trespass by a third person.
 In the Goldstein case, trespass in fact was distinguished from legal trespass, thus: if the act of
trespass is not accompanied or preceded by anything which reveals a juridic intention on
the part of the trespasser, in such wise that the lessee can only distinguish the material fact,
 stripped of all legal form or reasons, we understand it to be trespass in fact only (de mero
hecho).
 Further, the obligation under Article 1654(3) arises only when acts, termed as legal trespass
(perturbacion de derecho), disturb, dispute, object to, or place difficulties in the way of the
lessee's peaceful enjoyment of the premises that in some manner cast doubt upon the right
of the lessor by virtue of which the lessor himself executed the lease.
 What is evident in the present case is that the disturbance on the leased premises on July 19, 1996
was actually done by the employees under the City Engineer of Manila and the City Building Official
on orders of the City Mayor without the participation of the MTDC.
DISPOSITION Petition Denied. Reversed the CA decision

Performance of the Obligation

Irregularity in the Performance

Delay (Mora-there must be demand; Exception NCC 1169)

Cetus Dev. Corp. v. CA, 176 SCRA 72 (1989)

Doctrine: CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARTICLE 1169 OF THE CIVIL CODE;
APPLICABLE IN CASE AT BAR. — It is very clear that in the case at bar, no cause of action for
ejectment has accrued. There was no failure yet on the part of private respondents (Ederlina Navalta,
Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, Flora Nagbuya) to pay rents for three
consecutive months.

As the terms of the individual verbal leases which were on a month-to-month basis were not alleged
and proved, the
GENERAL RULE on NECESSITY OF DEMAND applies, to wit: there is default in the fulfillment of an
obligation when the creditor demands payment at the maturity of the obligation or at anytime
thereafter.
This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver or to do
something incur in delay from the time the obligee (creditor) judicially or extrajudicially demands
from them the fulfillment of their obligation."
Petitioner (Cetus Development, Inc.) has not shown that its case falls on any of the following
EXCEPTIONS (under Art. 1169) where demand is not required:
(a) when the obligation or the law so declares;
(b) when from the nature and circumstances of the obligation it can be inferred that time is of the
essence of the contract; and
(c) when demand would be useless, as when the obligor has rendered it beyond his power to perform.

- The demand required in Article 1169 of the Civil Code may be in ANY FORM, provided that it
can be proved.
- The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects
of default do not arise.
- This demand is different from the demand required under Section 2, Rule 70, which is merely a
jurisdictional requirement before an existing cause of action may be pursued.
Petitioner: Cetus Development, Inc.
Respondents: Court of Appeals, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas,
Victoria Sudario, Flora Nagbuya
Facts:
● Private respondents (Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria
Sudario, Flora Nagbuya) are lessees of the premises located in Quiapo, Manila, originally
owned by Susana Realty
● Lessee respondents Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria
Sudario, Flora Nagbuya issued individual verbal leases on a month-to-month basis, the
payments of which were paid by the lessees to a collector of the Susana Realty who went to the
premises monthly
● Susana Realty sold the leased premises to the petitioner (Cetus Development, Inc.)
● Private respondents (Navalta et.al) continued to pay their monthly rentals to a collector sent
by the petitioner (Cetus Development, Inc.)
● Private respondents (Navalta et.al) failed to pay their MONTHLY INDIVIDUAL RENTALS, as no
collector came
● Petitioner (Cetus Development, Inc.) sent a letter to the Private respondents (Navalta et.al)
DEMANDING that they vacate the subject premises and to pay the back rentals for July,
August, and September, within 15 days from the receipt of the letter
● Private respondents (Navalta et.al) IMMEDIATELY PAID their respective arrears in rent which
were accepted by the Petitioner (Cetus Development, Inc.) “subject to the unilateral condition
that the acceptance was without prejudice to the filing of an ejectment suit”
● For failure of Private respondents (Navalta et.al) TO VACATE THE PREMISES AS DEMANDED
IN THE LETTER.
● The Petitioner (Cetus Development, Inc.) filed complaints for ejectment against the r Private
respondents (Navalta et.al) with the MTC
● Private respondents (Navalta et.al) defense:
○ Their non-payment was due to the failure of the petitioner (Cetus Development, Inc
to send a collector
○ They were at a loss as to where to pay the rentals
○ One of the respondents called the office of the petitioner (Cetus Development, Inc), who
promised to send a collector, but never did
● MTC dismissed the case (ruled in favor of the respondents)
 ○ The acceptance of the back rental by the Petitioner (Cetus Development, Inc) before
the filing of the complaint removes its cause of action in an unlawful detainer case, even
if the acceptance was without prejudice
● RTC and CA affirmed the decision
Issue: W/N exists a cause of action when the complaints for unlawful detainer were filed considering
that the fact upon demand by petitioner from private respondents for payment of their back rentals, the
latter immediately tendered payment which was accepted by petitioner
Held: NO.

 For the purpose of bringing an ejectment suit, TWO REQUISITES MUST CONCUR, namely:
(1) there must be failure to pay rent or comply with the conditions of the lease and
(2) there must be demand both to pay or to comply and vacate with in the period specified in Section
2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings.

 In the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the
part of private respondents (Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas,
Victoria Sudario, Flora Nagbuya) to pay rents for three consecutive months.

 AS THE TERMS OF THE INDIVIDUAL VERBAL LEASES which were on a month-to-month basis
were not alleged and proved, the

 GENERAL RULE on NECESSITY OF DEMAND applies, to wit: there is default in the fulfillment of
an obligation when the creditor demands payment at the maturity of the obligation or at anytime
thereafter.

 This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver or to
do something incur in delay from the time the obligee (creditor) judicially or extrajudicially
demands from them the fulfillment of their obligation."

 Petitioner (Cetus Development, Inc.) has not shown that its case falls on any of the following
EXCEPTIONS (under Art. 1169) where demand is not required:
(a) when the obligation or the law so declares;
(b) when from the nature and circumstances of the obligation it can be inferred that time is of the
essence of the contract; and
(c) when demand would be useless, as when the obligor has rendered it beyond his power to
perform.
NOTE:
The demand required in Article 1169 of the Civil Code may be in ANY FORM, provided that it
can be proved.
The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects
of default do not arise.
This demand is different from the demand required under Section 2, Rule 70, which is merely a
jurisdictional requirement before an existing cause of action may be pursued.
 The facts on record FAIL TO SHOW PROOF that Petitioner (Cetus Development, Inc.)
demanded the payment of the rentals when the obligation matured.

 Moreover, that NO COLLECTOR WAS SENT by Petitioner (Cetus Development, Inc.), although
While it is true that a lessor (Cetus) is not obligated to send a collector, it has been duly
established that it has been customary for Private respondents (Navalta et.al) to pay the rentals
through a collector.
 The Private respondents (Navalta et.al) CANNOT BE HELD GUILTY OF MORA SOLVENDI
(delay on the performance of the debtor) or delay in the payment of rentals.

 It could not be said that the respondents were in default in the payment of their rentals as the
delay in paying the same was not imputable to them, since they were living at the same place.
RATHER, IT WAS ATTRIBUTABLE TO THE PETITIONER’S OMISSION OR NEGLECT TO
COLLECT. Art. 1257 of the New Civil Code provides that where no agreement has been designated
for the payment of the rentals, the place of payment is at the domicile of the defendants.

 It bears emphasis that in this case, there was no unjustified on the part of petitioner or non-
acceptance without reason that would constitute mora accipiendi and warrant consignation.

 There was simply lack of DEMAND for payment of the rentals.

ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the
decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.
Santos Ventura Hocorna Foundation v. Santos, GR 153004, Nov. 4, 2004 /
Foundation v. Santos (mora solvendi)

PARTIES:
● Petitioners: Santos Ventura Hocorma Foundation
● Respondents: Ernesto V. Santos and Riverland Inc

FACTS:

● The petition is a review on certiorari for the decision and resolution of the Court of
Appeals which reversed the decision of the RTC of Makati.

● Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. were the plaintiff and
defendant, respectively, in several civil cases filed in different courts in the Philippines.

● The parties executed a Compromise Agreement which allowed them to amicably end all the
pending litigations.

● Santos Ventura Hocorma Foundation, Inc in the agreement shall pay Santos P1.5 Million
upon the signing of the agreement and the balance will be paid in 2 years from the execution of
the agreement. So that Santos will move to dismiss and withdraw all appeals filed in Civil
Cases. The agreement also stipulates that failure to comply with any of the terms and
conditions by the parties, the agreement will be ipso facto and ipso jure automatically entitle
the aggrieved party to writ of execution for the enforcement of the agreement.

● Santos moved for the dismissal of the civil cases and also the lifting of the notices of lis
pendens on the real properties being litigated. Santos Ventura Hocorma Foundation, Inc
paid Santos 1.5 million as per the agreed amount.

● Santos Ventura Hocorma Foundation, Inc sold two real properties to Development Exchange
Livelihood Corporation.

● Santos in discovering the sale, SENT A LETTER to Santos Ventura Hocorma Foundation,
Inc demanding the payment of the remaining 13 Million which was ignored.

● The RTC issued a decision, approving the agreement.

● Santos SENT ANOTHER LETTER to the Santos Ventura Hocorma Foundation, Inc inquiring
about the balance but no response came from the latter Foundation.

● Santos applied for a writ of execution for the agreement with the RTC of Makati. The RTC
granted the writ, the Sheriff levied on the real properties of the foundation which were on lis
pendens.
 ● The Santos Ventura Hocorma Foundation, Inc then filed motions to block the enforcement
of the writ.

● The real properties located in Mabalacat, Pampanga as well as the one located in Bacolod City
were auctioned. The highest and winning bidder on both occasions was Riverland, Inc.
Certificates of Sale were issued for both properties provided with the right of redemption
within one year from the date of registration of the properties.

● Santos and Riverland filed a complaint for Declaratory Relief and Damages alleging there
was a delay on the part of the Santos Ventura Hocorma Foundation, Inc for the payment
of 13 Million. They allege that under the Compromise Agreement, the obligation became
due on October 26, 1992 but payment of the 12 million was effect only on November 22,
1994.

● Santos and Riverland prayed that the Santos Ventura Hocorma Foundation, Inc pay legal
interest on the obligation, penalty, attorney’s fees and costs of litigation. They also prayed that
there be no legal redemption for the lands and the sales be declared final.

● The Santos Ventura Hocorma Foundation, Inc countered the petitioners stating that they have
NO CAUSE OF ACTION AGAINST IT SINCE IT HAD FULLY PAID ITS OBLIGATION TO THE
Santos and Riverland. They also state that the delay in payment of the balance was due to its
valid exercise of its interest.

● The RTC dismissed the petition of Santos and the Foundation and ordered them to pay for
attorney’s fees and exemplary damages. The respondents appealed to the Court of Appeals and
the CA reversed the decision.

ISSUE:

W/N Santos Ventura Hocorma Foundation, Inc incurred in delay based on the compromise
agreement and thereby liable for legal interest?

HELD: YES.

 Santos Ventura Hocorma Foundation, Inc is liable for legal interest as penalty on account of
delay.
 The Compromise Agreement was entered into on October 26, 1990.
 It was Judicially Approved on September 30, 1991.
 Applying existing jurisprudence, THE COMPROMISE AGREEMENT AS A CONSENSUAL
CONTRACT became binding between the parties upon its execution and NOT upon its court
approval. Hence, the two-year period should have begun on October 26, 1990.
 In this case at bar, THERE WAS NON-FULFILLMENT OF THE OBLIGATION WITH RESPECT
TO TIME. The requisites of mora(delay) were all met:

○ that the obligation be demandable and already liquidated — the two-year period already
lapsed and the amount of payment was already determined;
○ that the debtor delays performance — Santos Ventura Hocorma Foundation, Inc PAID
THE BALANCE BEYOND THE TWO-YEAR PERIOD;
○ that the creditor requires the performance judicially or extra-judicially — A DEMAND
LETTER WAS SENT in accordance with the extra-judicial demand as contemplated by law.

 When the debtor (Santos Ventura Hocorma Foundation, Inc) knows the amount and period
when he is to pay, interest as damages is generally allowed as a matter of right.
 The legal interest for loan as forbearance of money is 12% per annum to be computed from the time
the demand was made under the provisions of Article 1169 of the Civil Code.
 The petition is Denied and the decision of the CA is affirmed.

Vasquez v. Ayala Corp (repeated case @ mora solvendi)

PARTIES:

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners

AYALA CORPORATION, respondent.

FACTS:

 Spouses Vasquez entered into a Memorandum of Agreement (MOA) with Ayala Corporation for
their share of stocks in Conduit Development.
 The main assets of Conduit is the 49.9 hectare of land (divided into Village 1, 2 and 3 of the Don
Vicente Village) being developed by Conduit. The development was undertaken by G.P.
Construction and Development.
 The MOA was signed on April 23, 1981.
 The Closing of the agreement was to happen 4 weeks after the signing.
 According to the MOA
1. Ayala intends to complete its development plan 3 years after the date of the agreement.
 2. Ayala agreed to give the petitioners (Spouses Vasquez) a first option to purchase the
developed lots at the prevailing market price at the time of the purchase.
 After the execution of the MOA,
1. Ayala suspended the work on Village 1. Ayala then received a letter from Lancer General
Builder, informing that they were claiming the amount of P1,509,558.80 as the
subcontractor of GP.
2. G.P. Construction and Development. not being able to reach an amicable settlement with
Lancer General Builder, sued GP Construction, Conduit and Ayala.
3. G.P. Construction and Development then filed a cross-claim against Ayala. Both Lance
and GP tried to enjoin Ayala for the development of the property.
4. The suit was only terminated on February 19, 1987 (6 years after signing of MOA), after
Ayala paid both GP and Lancer.
 The Vasquez spouses, believing that Ayala was obligated to sell them the lots 3 years after
the agreement, sent reminder letters of the approaching so-called deadline. Also, Engr. Turla
(an authorized agent of the Vasquez) sent a letter to Ayala stating that they expected “the
development of Phase 1 to be completed by Feb 19, 1990, 3 years after the legal problems with
the previous contractor was settled.”
 By early 1990 (9 years after MOA), Ayala was able to finish the developments and offered the
lots to the Vasquez at the PREVAILING PRICE IN 1990.
 The Vasquez rejected the offer and insisted to pay the 1984 price (the original date of the
supposed 3 year develop period given by Ayala after the agreement)
ARGUMENTS of AYALA:
 Ayala argues that the MOA only gives the petitioners a first right of refusal and cannot
demand Ayala to sell the property at the 1984 price.
 Moreover, Ayala Corporation further contends that NO DEMAND WAS MADE ON IT FOR THE
PERFORMANCE OF ITS ALLEGED OBLIGATION.
1. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer
suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested
Ayala Corporation to keep petitioners posted on the status of the case.
2. The second letter dated March 4, 1984 was merely an inquiry as to the date when the
development of Phase 1 will be completed.
3. More importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed
petitioners' expectation that Phase 1 will be completed by February 19, 1990 (according to
the CA petitioners in fact waived the three (3)-year period)
 ARGUMENTS OF PETITIONER:
1. Spouses Vasquez assert that demand was made on Ayala Corporation to comply with their
obligation under the MOA. Apart from their reminder letters dated January 24, February 18 and
March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical
demand for Ayala Corporation to comply with the provisions of the MOA.

ISSUE:

W/N there was default or delay in the fulfillment of obligation of Ayala Corporation?

HELD:

 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 or extrajudicially.

 Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed
shall be demandable only when that day comes.
 However, no such day certain was fixed in the MOA of the parties.
 Petitioners Spouses Vasquez, therefore, cannot demand performance after the three (3) year
period fixed by the MOA for the development of the first phase of the property since this is not
the same period contemplated for the development of the subject lots.
 Since the MOA does not specify a period for the development of the subject lots, petitioners
Spouses Vasquez SHOULD HAVE institute a petition to fix the period in accordance with Article
1197 of the Civil Code.
 As no date was specified and no petition was filed by petitioners, their complaint for specific
performance was premature, THE OBLIGATION NOT BEING DEMANDABLE AT THAT POINT.
 Accordingly, Ayala Corporation CANNOT LIKEWISE BE SAID TO HAVE DELAYED
PERFORMANCE of the obligation.
 EVEN ASSUMING that the MOA imposes an obligation on Ayala Corporation to develop the
subject lots within three (3) years from date thereof, Ayala Corporation could still not be held
to have been in delay SINCE NO DEMAND WAS MADE BY PETITIONERS FOR THE
PERFORMANCE OF ITS OBLIGATION.
 As for the letters sent by the petitioner spouses the Court ruled that: the letters were mere
reminders and not categorical demands to perform.
1. Letter by Engr: Petitioners waived the three (3)-year period as evidenced by their agent,
Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period
should be counted from the termination of the case filed by Lancer. The letter expresses not only
petitioners' acknowledgement that the delay in the development of Phase I was due to the legal
problems with GP Construction, but also their acquiescence to the completion of the
development of Phase I at the much later date of February 19, 1990.
2. Letter of Petitioners Children: letters of petitioners' children, Juan Miguel and Victoria
Vazquez, dated January 23, 1984 and February 18, 1984 can also not be considered
categorical demands on Ayala Corporation to develop the first phase of the property within
the three (3)-year period much less to offer the subject lots for sale to petitioners.
3. Letter of Daniel Vazquez: dated March 5, 1984 does not make out a categorical demand
for Ayala Corporation to offer the subject lots for sale on or before

 At best, petitioners' letters can only be construed as mere reminders which cannot be
considered demands for performance because it must appear that the tolerance or benevolence
of the creditor must have ended

SSS v Moonwalk, G.R. No. 73345, April 7, 1993

PARTIES:
Petitioners: Social Security System
Respondents: Moonwalk Development Housing Corporation, Rosita Alberto, JMA House Inc.,
Milagros Sanchez Santiago.

DOCTRINE: Obligations; Requisites in order that debtor may be in default; Necessity of demand. –
To be in default “x x x is different from mere delay in grammatical sense, because it involves the
beginning of a special condition or status which has its own peculiar effects or results.”
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 or extrajudicially.
Default generally begins from the moment the creditor demands the performance of the
obligation.
FACTS:
1. Petitioner Social Security System filed a complaint in the RTC Rizal against the respondent
Moonwalk Development and Housing Corporation.
2. The Petitioner Social Security System alleged that it had committed an error in failing to
compute the 12% interest due on delayed payments on the loan of the respondent Moonwalk
Development

a. resulting in a chain of errors in the application of payments made by Moonwalk and, in an

unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in not
reflecting in its statement or account an unpaid balance on the said penalties for delayed
payments in the amount of P7,517,178.21
b. Also in not reflecting in its statement of account an unpaid balance on the said penalties
for delayed payments.

3. The respondent Moonwalk Development answered denying the claims and asserting that the
petitioner Petitioner Social Security System had the opportunity to ascertain the truth but it
failed to do so.
RTC:
● RTC dismissed the complaint on the ground that the obligation was already
EXTINGUISHED by the payment of the respondent Moonwalk Development of its
indebtedness to the Petitioner Social Security System and by the petitioner’s cancellation
of the real estate mortgages executed in its favor by the defendant.
● The Motion for Reconsideration filed by the petitioner was dismissed by the trial court.
CA:
● The CA held that the respondent’s obligation was extinguished and affirmed the decision of the
trial court.

ISSUE:
(1) Whether or not the interest penalty is still demandable even after the extinguishment of the
principal obligation?
(2) Whether or not respondent Moonwalk Development and Housing Corporation incurred
mora or delay in the performance of its obligation.

RULING:
(1) NO. Obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS
and by the latter’s act of cancelling the real estate mortgages executed in its favor by defendant
moonwalk.
What is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for
failure to pay on time the amortization. What is sought to be enforced therefore is a penal clause of the
contract entered into between the parties.

Penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special presentation in case
the obligation is not fulfilled or is irregularly or inadequately fulfilled. Accessory obligation is dependent
for its existence on the existence of a principal obligation. In the present case, the principal obligation
is the loan between the parties. The accessory obligation of a penal clause is to enforce the main
obligation of payment of the loan. If therefore the principal obligation does not exist the penalty being
accessory cannot exist.

The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If
therefore the principal obligation does not exist the penalty being accessory cannot exist. A penalty is
demandable in case of non-performance or late performance of the main obligation. In other words in
order that the penalty may arise there must be a breach of the obligation either by total or partial
non fulfillment or there is non-fulfillment in point of time which is called mora or delay.

(2) NO. Under the Civil Code, delay begins from the time the obligee (creditor) judicially or extrajudicially
demands from the obligor the performance of the obligation. (Article 1169 of the Civil Code)

Article 1169 of the Civil Code provides for three (3) instances when demand in not necessary to
render the obligation in default:

(1) When the obligation or the law expressly so declares;

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service to be
rendered was a controlling motive for the establishment of the contract;
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
● The case at bar does not fall within any of the established exceptions. Hence, petitioner
SSS is not excused from making a demand.
● It is true that respondent has long been delinquent in meeting its monthly arrears and in paying
the full amount of the loan itself as the obligation matured sometime in January, 1977 But mere
delinquency in payment does not necessarily mean delay in the legal concept.
 ● Default generally begins from the moment the creditor demands the performance of the
obligation.
● In the present case, the petitioner SSS never demanded from the respondents Moonwalk
the payment of its monthly amortizations.
● It was clear that respondent was never in default because petitioner never compelled
performance.
● The petition was DISMISSED and the decision of the Intermediate Appellate Court was
AFFIRMED.

Rivera vs. Spouses Chua, G.R. No. 184458, January 14, 2015

PARTIES:
Petitioners: Rodrigo Rivera
Respondents: Sps. Salvador Chua and Violeta Chua

FACTS:
 The parties were friends and kumpadres for a long time already. Petitioner Rivera obtained a loan
from the respondents Spouses Chua evidenced by a Promissory Note. The relevant parts of
the note are the following:
a. FOR VALUE RECEIVED, I, RODRIGO RIVERA (petitioner) promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA (respondents), the sum of One Hundred
Twenty Thousand Philippine Currency (120,000.00) on December 31, 1995
b. It is agreed and understood that failure on my part to pay the amount of (120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.
 Three years from the date of payment stipulated in the promissory note, Petitioner Rivera,
issued and delivered to Spouses Chua two (2) checks drawn against his account at Philippine
Commercial International Bank (PCIB) but upon presentment for payment, the two checks were
dishonored for the reason “account closed.”
 As of 31 May 1999, the amount due to the Spouses Chua was pegged at P366,000.00 covering
the principal of P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31
May 1999.
 The Spouses Chua alleged that they have REPEATEDLY DEMANDED payment from
Petitioner Rivera to no avail.
 Because of Petitioner Rivera unjustified refusal to pay, the Spouses Chua were constrained to
file a suit before the MeTC, Branch 30, Manila.
 Petitioner Rivera countered, among others, that the subject Promissory Note was FORGED
and that here was NO DEMAND FOR PAYMENT OF THE AMOUNT of -120,000.00 prior to the
encashment of PCIB Check No. 0132224.
 Respondents Spouses Chua presented documentary and oral evidence of NBI Senior Document
Examiner Antonio Magbojos who concluded that the questioned signature appearing in the
Promissory Note and the Rivera’s specimen signatures on other documents written by one
and the same person.
 The MeTC ruled against Petitioner Rivera
1. requiring him to pay the spouses Chua P120,000.00 plus stipulated interest at the rate of 5%
per month from 1 January 1996, and legal interest at the rate of 12% percent per annum from
11 June 1999 and was affirmed by the RTC of Manila.
 CA: The Court of Appeals further affirmed the decision upon appeal of the two inferior courts but
with modification of lowering the stipulated interest to 12% per annum. Hence, a petition at the
Supreme Court.
 Both parties appealed before the SC.
 Respondent Spouses Chua’s petition for review on certiorari was denied for failure to show any
reversible on the CA ruling concerning the correct rate of interest on Rivera’s indebtedness under
the Promissory Note.
 Petitioner Rivera continued to deny that he executed the Promissory Note and alleged that
the Spouses Chua “never demanded payment for the loan nor interest thereof (sic) from
[Rivera] for almost four (4) years from the time of the alleged default in payment.

ISSUES:
Whether or not a demand from spouses Chua is required to make Rivera liable?
RULINGS:
NO, a demand from spouses Chua is not needed to make Rivera liable.

Even if Rivera’s Promissory Note is not a negotiable instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.

The Promissory Note WITH NO DOUBT contains the date when the obligation falls due and
becomes demandable — 31 December 1995. As of 1 January 1996, Rivera had already incurred
in delay when he failed to pay the amount of P120,000.00 due to the Spouses Chua on 31
December 1995 under the Promissory Note.
  Article 1169 of the Civil Code explicitly provides that the demand by the creditor shall not
be necessary in order that delay may exist when the obligation or the law expressly so
declare.
 There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (written expressly in the PN)
(2) where the law so provides;
(3) when the period is the controlling motive or the principal inducement for the creation of the
obligation; and
(4) where demand would be useless. In the first two paragraphs, it is not sufficient that the law
or obligation fixes a date for performance; it must further state expressly that after the period
lapses, default will commence.

The clause in the Promissory Note containing the stipulation of interest (letter B in the above facts)
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default”
until the entire obligation is fully paid for. The parties evidently agreed that the maturity of the
obligation at a date certain, 31 December 1995, will give rise to the obligation to pay interest.

NOTE: Whether or not the Promissory Note executed as evidence of loan falls under Negiotiable
Instruments Law?
NO, the Promissory Note executed as evidence of loan does not fall under Negotiable Instruments Law.
The instrument is still governed by the Civil Code as to interpretation of their obligations. The Supreme
Court held that the Instrument was not able to meet the requisites laid down by Section 1 of the
Negotiable Instruments Law as the instrument was made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
1. Must be in writing and signed by the maker or drawer
2. Must contain an unconditional promise or order to pay a sum certain in money
3. Must be payable on demand or at a fixed determinable future time
4. Must be payable to order or bearer
5. Must indicate to whom instrument is addressed to a drawee with reasonable certainty

Maybank Philippines, Inc. v Spouses Tarrosa,

PARTIES:
● Petitioners: Maybank Philippines, Inc (Formerly PNB-REPUBLIC BANK)
● Respondents: Spouses Oscar and Nenita Tarrosa
FACTS:
● Spouses Tarrosa obtained from the petitioner, Maybank, a loan in the amount of P91,000.00.

● The loan was secured by a real estate mortgage over a 500-square meter parcel of land situated
in San Carlos City, Negros Occidental.

● After the loan was paid Spouses Tarrosa obtained another loan from the petitioner, Maybank
in the amount of P60,000.00 which will be payable in March 1984. The spouses weren’t able to
settle the loan upon maturity.

● In April 1998, Spouses Tarrosa received a FINAL DEMAND LATER dated March 4, 1998 from
Maybank requiring them to settle their outstanding loan in the aggregate amount of
P564,579.91.

● Spouses Tarrosa offered to pay a lesser amount but Maybank refused.

● The petitioner, Maybank commenced an extrajudicial proceeding before the Office of Ex-
Officio Provincial Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva.). The property was sold
in a public auction held on July 28, 1998.

● On September 1998, Spouses Tarrosa filed a complaint for declaration of nullity and invalidity
of the foreclosure of real estate and of public auction sale proceedings and damages with
prayer for preliminary injunction against Maybank, PPI, Sheriff Villanuaeva and the Register of
Deeds of San Carlos City, Negros Occidental.

1. Spouses Tarrosa contended that the second loan was a clean or unsecured loan.
2. Spouses Tarrosa also stated that after receiving the final demand letter, they tried to pay
the second loan, including the agreed interests and charges, but Maybank unjustly refused
their offers of payments.
3. Lastly, Spouses Tarrosa contend that Maybank’s right to foreclose had prescribed or is
barred by laches.

● The petitioner, Maybank and PPI COUNTERED that:

1. The second loan was secured by the same real estate mortgage under a continuing
security provision therein.
2. Another argument of Maybank was that the loan became past due, Tarrosa promised to pay
and negotiated for a restructuring of their loan but failed to pay.
3. Lastly, Tarrosa’s acknowledged and admitted their indebtedness converts the defense of
prescription.
● The RTC ruled:

1. that the second loan was subject to the continuing security provision in the real estate
mortgage.
2. Further it ruled that Maybank’s right to foreclose RECKONED from the time the mortgage
indebtedness became due and payable on March 11, 1984 had already prescribed,
considering lack of any timely judicial action, written extrajudicial demand or written
acknowledgement by the debtor of his debt that could interrupt the prescriptive period.
3. RTC declared the extrajudicial foreclosure as null and void, ordering Maybank to pay
Tarrosa moral and exemplary damages as well as attorney’s fees and litigation expenses.
Maybank filed a motion for reconsideration, but it was denied.

● The CA affirmed the decision of the RTC,

1. Stating Maybank’s right to foreclose the mortgage over the property has already barred
by prescription.
2. CA held that the prescriptive period should be RECKONED from March 11, 1984 when the
second loan had become past due and remained unpaid since demand was not a
condition for the accrual of the latter’s right to foreclose under paragraph 5 of the real
estate mortgage.
3. CA observed that Maybank failed to present evidence of any timely written extrajudicial
demand or written acknowledgment by the debtors of their debt that could have effectively
interrupted the running of the prescriptive period.

ISSUE:

● W/N CA committed reversible error in finding that Maybank’s right to foreclose the real
estate mortgage over the property was barred by prescription.

HELD:

● An action to enforce a right arising from a mortgage should be enforced within ten (10)
years from the time the right of action accrues.

● However, the court also states that mere delinquency in payment does not necessarily
mean delay in the legal concept.

● To be in default IS DIFFERENT from mere delay in the grammatical sense, because it

involves the beginning of a special condition or status which has its own peculiar effects
or results.
 ● IN ORDER FOR THE DEBTOR TO BE IN DEFAULT,

1. It is necessary that the obligation be demandable and already liquidated,

2. the debtor delays performance and lastly,
3. the creditor requires the performance judicially or extrajudicially unless demand is not
necessary.
 It must be emphasized that IT IS ONLY WHEN DEMAND TO PAY IS UNNECESSARY or
WHEN REQUIRED, thus when demand is made and subsequently refused by the
mortgagor (debtor) only then can the debtor be be considered in default.
 The mortgagee (creditor) obtains the right to file an action to collect the debt or foreclose the
mortgage.

● Under Article 1169 of the Civil Code, considering that it DID NOT EXPRESSLY (first
exception) declare that demand shall not be necessary in order that the mortgagor (Debtor) may
be in default; or that default shall commence upon mere failure to pay on the maturity of
the loan.

● The Supreme Court states the CA erred in construing the above provisions as one through
which the parties had dispensed with demand as a condition for the accrual of Maybanks’
right to foreclose the real estate mortgage over the property.

● Maybank’s right to foreclose the real estate mortgage accrued ONLY AFTER THE LAPSE
OF THE PERIOD INDICATED IN ITS FINAL DEMAND LETTER TO THE TARROSAS.

● Since

1. THE EXISTENCE OF THE LOAN HAD BEEN ADMITTED and

2. THE DEFAULT ON THE PART OF THE DEBTORS HAD BEEN DULY ESTABLISHED and
3. THE FORECLOSURE PROCEEDINGS HAD BEEN INITIATED WITHIN THE
PRESCRIPTIVE PERIOD, the court finds no reason to nullify the extrajudicial foreclosure of
the property.

The Supreme Court granted the petition, reversing the decision of the CA as well as the
complaint is dismissed.

Kinds of delay

i. morasolvendi, NCC 1169

Art. 1169 Those obligated to deliver or to do something incur in delay from the time the oblige judicially
or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:

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 designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
3. When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is 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 beings. (1100a)

Abella v Gonzaga, 55 Phil 447 (1931)

Ponente: Villamor, J.

Parties:
Plaintiff-appellee: Cirilo Abella
Defendant-appellant: Mariano Gonzaga

Facts:
● Petitioner Cirilo Abella demands the specific performance of the contract, which the parties
call a “Special Contract of Lease” entered into with the defendant Mariano Gonzaga,
pertinent provisions of which are as follows:

○ First. defendant Mariano Gonzaga, as land-owner, does hereby lease the following-
described parcel of land situate within the jurisdiction of San Felipe Neri Petitioner
Cirilo Abella to use with all the active and passive easements thereof, to wit: etc. The
surveyed parcel contains an area of one hectare, seventy-eight ares, and fifty- eight
centares.

○ Second. This lease shall run for five years: from March 5, 1921 to March 5, 1926.

○ Third. The rent shall be one thousand one hundred fourteen pesos and 34/100
(P1,114.34) per annum payable in advance at the house of the undersigned on the
5th of March every year.

○ Fourth. In consideration of the sum of one thousand three hundred ninety- two
pesos and 92/100 (P1,392.92) which the tenant has now paid, and of his promise to
pay the rent of the remaining nineteen quarters at the periods fixed in the preceding
clause, the owner (Mariano Gonzaga) undertakes at the termination of this contract
to transfer free of charge to the tenant the full ownership of the leased property,
provided the tenant has made the aforesaid payments. (<- important stipulation)
 ○ Sixth. Failure to comply with any stipulation herein shall deprive the tenant of any
right he may have under this contract, and he shall lose all the amounts paid: but
the owner shall not collect from him the pending rent, but may only eject him from
the land.

● The defendant Mariano Gonzaga contends that the Petitioner Cirilo Abella’s right to compel
him to make the transfer of the land was conditional. (the transfer of land was vested after
the last payment of the lease)

● The said condition was allegedly violated by the Petitioner Cirilo Abella, who made the last
payment over a year after the obligation had become due. defendant Mariano Gonzaga
also contends that the contract is a lease (not a conveyance).

● It was found that the land that is the subject of the petition was still subject to the mortgage given
by the defendant Mariano Gonzaga TO HIS OWN CREDITORS.

● CFI/RTC ruled in favor of the Petitioner Cirilo Abella and

1. ordered the defendant Mariano Gonzaga to execute the deed of transfer of the land
after redeeming it through the payment of the amount of the mortgage to the
Mandaluyong Estate (defendant’s creditor) or
2. to pay the Petitioner Cirilo Abella for the sum required to redeem the land if the
defendant should fail to pay Mandaluyong Estate the amount of mortgage.

Issue:

Whether or not the contract is a contract of lease?

Ruling:

NO. The contract in question is clearly a SALE ON INSTALLMENTS.

The defendant Mariano Gonzaga led no claim for alleged rental of the land subsequent to the
year 1927, when the Petitioner Cirilo Abella paid the last installment.

Although in the contract, the usual words "lease," "lessee," and "lessor" were employed, that is no
obstacle to holding, as we do hereby hold, THAT SAID CONTRACT WAS A SALE ON
INSTALLMENTS, for such was the evident intention of the parties in entering into said contract.

 Some of the yearly payments by were Petitioner Cirilo Abella DELAYED SOMEWHAT, but
the defendant Mariano Gonzaga admitted the payment, and also according to said
 receipts, he and the plaintiff Cirilo Abella have agreed to pay ten per cent interest upon
the arrearage, and this statement was admitted by the court below. (PART WITH DELAY)

In this contract of lease, the defendant Mariano Gonzaga, it will be observed, considered himself
the owner of the land, and in this capacity, he entered into the contract;

- therefore, he cannot now be heard to say that he was not the owner of said land, after
inducing the plaintiff Cirilo Abella to believe that he was. (When a person who is not the
owner of a piece of land conveys it to another, and thereafter acquires title to it, such
subsequent ownership gives effect to the conveyance.)

Since the plaintiff Cirilo Abella HAS FULFILLED HIS OBLIGATIONS UNDER THAT CONTRACT
OF SALE called "Special Contract of Lease," we are of the opinion that he may compel the defendant
Mariano Gonzaga to execute the proper deed of transfer of the full ownership of the property in
question.

But as it appears from paragraph V of the agreed statement of facts that the property in question is at
present subject to a mortgage given by said defendant Mariano Gonzaga to the owners of the
Mandaluyong Estate, Whitaker and Ortigas (creditors of defendant Mariano Gonzaga), said
defendant Mariano Gonzaga must first free the land of this encumbrance, and then execute the proper
deed of conveyance of the property to the plaintiff Cirilo Abella.

Foundation v Santos, G.R. No. 153004, Nov. 4, 2004

Vasquez v Ayala Corp., G.R. No. 149734, Nov. 19, 2004

Agner v BPI, G.R. No. 182963, June 3, 2013

Parties:
Petitioners: Spouses Deo and Maricon Agner
Respondent: BPI Family Savings Bank, Inc.

Facts:

● On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a
Promissory Note with Chattel Mortgage in favor of Citimotors, Inc.

● The contract provides, among others, that For receiving the LOAN amount of Php834,768.00,
petitioners spouses Agner shall:

1. Pay Php17,391.00 every 15th day of each succeeding month until fully paid;
2. the loan is secured by a 2001 Mitsubishi Adventure Super Sport; and
 3. an interest of 6% per month shall be imposed for failure to pay each installment on or before
the stated due date.
 Citimotors Inc. ASSIGNED ALL ITS RIGHTS, TITLE AND INTERESTS in the Promissory Note
with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31, 2002,
likewise assigned the same to respondent BPI Family Savings Bank, Inc.

● Petitioners spouses Agner’s failure to pay four successive installments from May 15, 2002 to
August 15, 2002, respondent BPI Family Savings Bank, through counsel, sent the spouses A
DEMAND LETTER dated August 29, 2002, declaring the entire obligation as due and
demandable and requiring to pay Php576,664.04, or surrender the mortgaged vehicle
immediately upon receiving the letter.

● As the demand was left unheeded by Petitioners spouses Agner, respondent BPI Family
Savings Bank filed an action for Replevin and Damages before the Court (RTC).

● RTC ruled in favor of the respondent and ordered Petitioners spouses Agner to jointly and
severally (solidarily) pay the amount of Php576,664.04 plus interest at the rate of 72% per annum
from August 20, 2002 until fully paid, and the costs of suit.

● CA affirmed the lower court's decision and, subsequently, denied the motion for reconsideration;
hence, this petition.

● PETITIONERS ARGUE:

1. Respondent BPI Family Savings Bank has no cause of action, because the Deed of
Assignment executed in its favor did not specifically mention ABN AMRO's (other bank assigned
with rights and interests over PN) account receivable from petitioners;
2. Petitioners spouses Agner cannot be considered to have DEFAULTED IN PAYMENT for
lack of competent proof that they received the demand letter;
3. Respondent BPI Family Savings Bank’s remedy of resorting to both actions of replevin and
collection of sum of money is contrary to the provision of Article 1484

Issue:

W/N Petitioners spouses Agner can be considered to have defaulted in payment for lack of competent
proof that they received the demand letter?
Ruling:

YES. Records bear that BOTH VERBAL and WRITTEN DEMANDS were in fact made by
Respondent BPI Family Savings Bank’s prior to the institution of the case against Petitioners
spouses Agner.

There is really NO NEED for it because Petitioners spouses Agner legally waived the necessity of
notice or demand in the Promissory Note with Chattel Mortgage, which they voluntarily and
knowingly signed in favor of respondent's predecessor-in-interest. Said contract expressly stipulates:

In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay
under this note and/or any other obligation which I/We or any of us may now or in the future owe
to the holder of this note or to any other party whether as principal or guarantor . . . then
the entire sum outstanding under this note shall, without prior notice or demand, immediately
become due and payable.

Also, Petitioners spouses Agner’s representation that they have not received a demand letter is
completely holds no water, as the mere act of sending it would suffice according to The
Promissory Note with Chattel Mortgage, which provides:

All correspondence relative to this mortgage, including demand letters, summonses,

subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the
MORTGAGOR (debtor) at the address indicated on this promissory note with chattel mortgage
or at the address that may hereafter be given in writing by the MORTGAGOR (debtor) to the
MORTGAGEE (creditor) or his/its assignee. The mere act of sending any correspondence
by mail or by personal delivery to the said address shall be valid and effective notice to
the MORTGAGOR (debtor) for all legal purposes and the fact that any communication is not
actually received by the MORTGAGOR (Debtor) or that it has been returned unclaimed to the
MORTGAGEE (creditor) or that no person was found at the address given, or that the address
is fictitious or cannot be located SHALL NOT EXCUSE OR RELIEVE THE MORTGAGOR
(debtor) FROM THE EFFECTS OF SUCH NOTICE.

The Court CANNOT YIELD to Petitioners spouses Agner’s denial in receiving respondent's demand
letter. To note, their postal address evidently remained unchanged from the time they executed the
Promissory Note with Chattel Mortgage up to time the case was filed against them. Thus, the
presumption that "a letter duly directed and mailed was received in the regular course of the
mail" stands in the absence of satisfactory proof to the contrary.
WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the Decision
and Resolution of the Court of Appeals (modification: reduction of interest for being excessive).

ii. moraaccipiendi

Vda. deVillaruel v Manila Motor Co., 104 Phil 926 (1958)

Parties:
Plaintiffs-appellees: Claudina vda. De Villaruel, et al.
Defendants-appellants: Manila Motor Co, Inc. and Arturo Colmenares

Facts:
● The plaintiffs Villaruel leased premises to the respondents for a period of 5 years, which was
renewable for another period of 5 years. The period of lease started to run on October 31, 1940.
● From June 1, 1942 until October 31, 1945, troops occupied the premises as a consequence of
the ongoing war. Thereafter, when the troops gave up occupancy of the premises, the
defendants exercised their right to renew their lease.
● The plaintiffs agreed to renew the lease, but they also demanded that the defendants pay the
rent due while the premises were occupied by the troops during the war. The defendants refused
this.
● The defendants, however, continued to offer to pay their monthly rental, which the plaintiffs would
not accept unless the defendants agreed to the condition that the acceptance of payment was
without prejudice to their right to rescind the contract of lease and to collect the rental due during
the period wherein the premises were occupied by the troops.
● Unable to reach an amicable settlement, an action was commenced with the Court of First
Instance. During the pendency of the case, a fire completely razed the building.
● The Court of First Instance ruled in favor of the plaintiffs; hence, this action with the Supreme
Court.
○ The ouster of the lessee company by the Japanese occupation forces from 1942 until
liberation, while operating to deprive the lessee of the enjoyment of the thing leased, was,
nevertheless, a mere act of trespass ("perturbacion de mero hecho") that, under the
Spanish Civil Code of 1889 (in force here until 1950), did not exempt the lessee from the
duty to pay rent.

Issue:
1. Whether or not the defendants should be held liable for the rentals of the premises leased
corresponding to the lapse of time that they were occupied by the troops
2. Whether or not defendants were placed in default by its refusal to comply with the demand to
pay such rents, thereby making them liable to reimburse the value of the building

Held:
1. NO
2. NO

Rationale:
1. In evicting the lessee, Manila Motor Co., Inc. from the leased buildings and occupying the same
as quarters for troops, the Japanese authorities acted pursuant to a right recognized by
international and domestic law. Its act of dispossession, therefore, did not constitute
perturbacion de hecho but a perturbacion de derecho for which the lessors Villaruel (and not the
appellants lessees) were liable (Art. 1560, su pra) and for the consequences of which said
lessors must respond, since the result of the disturbance was the deprivation of the lessee of
 the peaceful use and enjoyment of the property leased. Wherefore, the latter's corresponding
obligation to pay rentals ceased during such deprivation.
2. The lessors accepted payment of current rentals from October 1945 to June 1946. It was only
in July 1946 that they insisted upon collecting also the 1942-1945 rents and refused to accept
further payments tendered by the lessee unless their right to collect the occupation rental was
recognized or reserved. After refusing the rents from July to November 1946, unless the lessee
recognized their right to occupation rentals, the appellees (lessors) demanded rescission of the
contract and a rental of P1,740 monthly in lieu of the stipulated P350 per month. (Exhibit "C").
This attitude of the lessors was doubly wrongful: first, because as already shown, the
dispossession by the Japanese army exempted the lessee from his obligation to pay rent for the
period of its ouster; and second, because even if the lessee had been liable for that rent, its
collection in 1946 was barred by the moratorium order, Executive Order No. 32, that remained
in force until replaced by Rep. Act 342 in 1948. To apply the current rentals to the occupation
obligations would amount to enforcing them contrary to the moratorium decreed by the
government.
Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was
unwarranted in law. Hence, their refusal to accept the current rentals without qualification placed them
in default (mora creditoris accipiendi) with the result that thereafter, they had to bear all supervening
risks of accidental injury or destruction of the leased premises.

Tengco v CA, G.R. No. 49852, October 19, 1989

PARTIES:
Petitioner: EMILIA TENGCO
Respondent: COURT OF APPEALS and BENJAMIN CIFRA JR.

FACTS:
On 16 September 1976, the herein private respondent, Benjamin Cifra, Jr., claiming to be the owner of
the premises at No. 164 Int Gov. Pascual St., Navotas, Metro Manila, which he had leased to the herein
petitioner, Emilia Tengco, filed an action for unlawful detainer with the Municipal Court of Navotas,
Metro Manila to evict the petitioner, Emilia Tengco, from the said premises for her alleged failure to
comply with the terms and conditions of the lease contract by failing and refusing to pay the stipulated
rentals despite repeated demands (P376.00). After trial judgment was rendered against the petitioner.
MTC ruled in favor of Benjamin.

From this judgment, the herein petitioner appealed to the Court of First Instance of Rizal and CA. The
latter courts affirmed the decision.

Hence, the present recourse.

The petitioner contends that (1) the private respondent Benjamin Cifra, Jr. is not the owner of the leased
premises; (2) the lessor was guilty of mora accipiendi; (3) the petitioner's version of the facts is more
credible than private respondent's; (4) laches had deprived the lessor of the right to eject her; and (5)
the private respondent failed to establish a cause of action against the petitioner.

Her failure to pay rentals on the premises was due to the refusal of the collector to accept her tender
of payment

The circumstances surrounding the alleged refusal of the lessor to accept the proffered rentals are as
follows:
Sometime in 1942, petitioner entered in to a verbal lease agreement with Litgarda Cifra. The rentals
were collected from her residence by the lessor’s collector.
In 1974, the lessor’s collector stopped going to the petitioner’s residence to collect her rentals. Since
no demand for payment was made upon her, the petitioner decided to keep the money until the collector
comes again to demand and collect payment.
In 1976, a sister of the private respondent, claiming to be the owner of the property offered the same
for sale.
In 1977, petitioner received another letter, this time from the private respondent, demanding the
surrender of the possession of the premises, also claiming to be the owner of the property.

Upon receipt of the letter, petitioner went to the residence of the collector to whom she had been paying
her rentals and there tendered payment but this was refused without any justification.

ISSUE: WoN the private respondent was guilty of mora accipiendi

HELD:
Under the circumstances, the refusal to accept the proffered rentals is not without justification. The
ownership of the property had been transferred to the private respondent and the person to whom the
payment was offered had no authority to accept payment. The petitioner cannot claim ignorance of the
transfer of ownership of the property because, by her own account, Aurora Recto and the private
respondent, at various times, had informed her of their respective claims to ownership of the property
occupied by the petitioner.
The petitioner should have tendered payment of the rentals to the private respondent and if that was
not possible, she should have consigned such rentals in court.If indeed her offer to settle her obligation
was refused by private respondent, she should have resorted to the judicial deposit of the amount due
in order to release her from responsibility.

iii. compensatiomorae

Central Bank v CA, 139 SCRA 46 (1985)

FACTS:
● On April 28, 1965, Island Savings Bank approved the loan application of Sulpicio M.
Tolentino for P80,000.00 who executed a real estate mortgage over his property as a
security. The amount is payable in 3 years with an annual interest of 12%. Tolentino is
required to use the loan proceeds for capital to develop his other property.
● On May 22, 1965, only P17,000.00 was released to Tolentino because there was not enough
funds to provide for the remaining P63,000. They signed a promissory note for P17,000, payable
in 3 years.
● In August of 1965, Central Bank found that Island Savings Bank is suffering from liquidity
problems, issuing a board resolution barring them from issuing new loan investments except
extensions or renewals of already approved and existing loans but this is still subject to the
approval of the Superintendent of Banks.
● On June 1968, the Monetary Board barred Islands Savings Bank from doing any business in the
Philippines after discovering that they are unable to put up the required capital to restore its
solvency.
● On August 1, 1968, in view of non-payment of the loan covered by the promissory note applied
for an extra-judicial foreclosure of hte real estate mortgage covering the land of Tolentino. The
Sheriff scheduled the auction for January 22, 1969.
● On January 20, Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since
 ISland Savings Bank failed to deliver the P63,000 balance of the P80,000 loan, he is entitled to
specific performance by ordering ISland Savings Bank to deliver the P63,000 with interest of
12% per annum from April 28, 1965 and if said balance cannot be delivered, to rescind the real
estate mortgage.
● On January 21, the trial court, upon the filing of a P5,000 surety bond, issued a temporary
restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the
mortgage.
● On January 29, the trial court admitted the answer in intervention praying for the dismissal of the
petition of Tolentino and the setting aside of the restraining order, filed by the Central Bank and
by the Acting Superintendent of Banks.
● On February 15 1972, the trial court after trial on the merits rendered its decision, finding
unmeritorious the petition of Tolentino and then ordering him to pay the bank the amount of
P17,000 with interest and charges. They also lifted the restraining order.
● On February 11, 1977, the Court of Appeals modified the decision, affirming the dismissal of the
case for specific performance. But it ruled that the Bank cannot foreclose the real estate
mortgage nor collect the P17,000 loan.

ISSUE:
● Whether or not Tolentino can sue Island Savings Bank for specific performance?

HELD:
● No.
● When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000 loan agreement
on April 28, 1965, they undertook reciprocal obligation. In reciprocal obligations, the obligation
or promise of each party is the consideration for that of the other, and when one party has
performed or is ready and willing to perform his part of the contract, the other party who has not
performed or is not ready and willing to perform incurs in delay. The promise of Sulpicio M
Tolentino to pay was the consideration for the obligation of the Bank to furnish the P80,000 loan.
When Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness
to pay the loan. From such date, the obligation of the bank is furnish the loan accrued. The
bank’s delay in furnishing the entire loan started on April 28, 1965 and lasted for a period of 3
years or when the bank was closed down.
● SInce Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from doing further
business by the Monetary Board, the Court cannot grant specific performance in favor of
Tolentino.
● In the case rescission, the court ruled, however, that rescission is only for the P63,000.00
balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial
release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note
to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under
the promissory note made him a party in default, hence not entitled to rescission (Article 1191
of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved
party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.
● Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
 Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Ruling:
● WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977
IS HEREBY MODIFIED, AND
○ SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST
22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST
22, 1985 UNTIL PAID;
○ IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
○ THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR
OF SULPICIO M. TOLENTINO.

Demand in Reciprocal Obligations

Leano v. CA, 369 SCRA 36

PARTIES:
Petitioners: Carmelita Leano
Respondents: CA and Hermogenes Fernando

PONENTE: Pardo, J.

NATURE: The case is a petition for review on certiorari of the decision[1] of the Court of Appeals
affirming that of the Regional Trial Court, Malolos, Branch 7[2] ordering petitioner Leao to pay
respondent Hermogenes Fernando the sum of P183,687.70 corresponding to her outstanding
obligations under the contract to sell, with interest and surcharges due thereon, attorneys fees and
costs.

FACTS:
● Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell
involving a piece of land. In the contract, Leaño bond herself to pay Fernando the sum of
P107,750 as the total purchase price. P10,775 shall be paid at the signing of the contract;
P96,975 shall be paid within 10 yrs. at a monthly amortization of P1,747.30 to begin from Dec.
7, 1985 with interest of 18% per annum; 18% per annum shall be charged if the month of grace
period expires w/out the installments; should the 90 days elapse from the expiration of the grace
period, Respondent was authorized to declare the contract cancelled & to dispose of the land.
● Carmelita Leaño made several payments in lump sum. Thereafter she constructed a house
(P800K). Last payment she made was on April 1989.
● Trial Court rendered decision in an ejectment case filed by Fernando.
● Leaño filed with the RTC for specific performance with preliminary injunction and assailing that
for being violative of her right to due process being contrary to R.A 6552 regarding protection to
buyers of lots on installments. According to Trial Court, transaction was an absolute sale, making
Leaño the owner upon actual & constructive delivery thereof. Fernando divested of ownership &
cannot recover the same unless rescinded under Art. 1592.
● CA affirmed RTC’s decision in toto. Leano then filed a MOR but was denied.

ISSUE:
 1. WON the transaction was an absolute sale or conditional sale? Conditional Sale
2. WON was there a proper cancellation of the contract to sell? NO
3. WON petitioner was in delay? YES
HELD:

1) It was a conditional sale because the intention of the parties was to reserve the ownership
of the land in the seller until the buyer has paid the total purchase price. Consideration: (a)
Contract was subject to condition. (b) What was transferred was the possession & not ownership.
(c) It was covered by Torrens title. Act of Registration was the operative act that could transfer
ownership. What was transferred was the possession of the property, not ownership.
2) In a contract to sell real property on installments, the full payment of the purchase price is a
positive suspensive condition, the failure of which is not considered a breach, casual or serious,
but simply an event that prevented the obligation of the vendor to convey title from acquiring any
obligatory force. The transfer of ownership and title would occur after full payment of the price.
No proper cancellation as Leaño was not given the cash surrender value. She may still
reinstate the contract by updating the account during grace period & before actual
cancellation.
Sec. 3 of RA 6552. “If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent of the total payments
made and, after five years of installments, an additional five percent every year but not to exceed
ninety percent of the total payment made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.”

3) Leaño was in delay because under Art. 1169, provides that Reciprocal Obligation; Neither
party incurs in delay if the other does not comply or is 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. Fernando performed his part by allowing Leaño to
continue in possession & use of the property. Clearly, when Leaño did not pay the
monthly amortization, she was in delay and liable for damages.

Contract of sale Contract to Sell

the title passes to the buyer upon delivery the ownership is reserved in the seller and
of the thing sold is not to pass until full payment of the
purchase price

non-payment of the price is a negative full payment is a positive suspensive

resolutory condition condition
 the vendor loses and cannot recover the the title remains in the vendor if the
ownership of the thing sold until and vendee does not comply with the
unless the contract of sale is rescinded or condition precedent of making full
set aside payment as specified in the contract

Irregularity in the Performance Attributable to Debtor, NCC 1170: Those who in the performance
of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages. (1101)

a. Fraud (dolo), NCC 1170, 1171, cf. NCC 1338

1. NCC 1170: (cited above)
2. NCC 1171: Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
3. NCC 1338: There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract, which, without them, he would not have agreed
to. (1269)

Woodhouse v Halili, 93 Phil 526 (1953)

Ponente: Labrador, J.

Parties:
Plaintiff-appellant: Charles Woodhouse
Defendant-appellant: Fortunato Halili

Facts:
● The plaintiff entered into a written agreement, Exhibit A, with the defendant, the most important
provisions of which are:
○ That they shall organize a partnership for the bottling and distribution of Mission soft
drinks
○ That the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership
○ That the plaintiff was to receive 30% of the net profits of the business
● Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, U. S. A., manufacturers of the bases and ingredients of the beverages
bearing its name, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a million dollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the right to bottle
and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given "a thirty days' option
on exclusive bottling and distribution rights for the Philippines"
● Plaintiff and defendant went to the United States, and on December 10, 1947, a franchise
agreement was entered into between the Mission Dry Corporation and Fortunato F. Halili and/or
Charles F. Woodhouse, granting defendant the exclusive right, license, and authority to produce,
bottle, distribute, and sell Mission beverages in the Philippines.
● Plaintiff demanded that the partnership papers be executed, as the defendant refused to give
further allowances to plaintiff.
● The defendant alleges that his consent to the partnership contract was secured by the
representation of the plaintiff that he was the owner, or was about to become owner of an
 exclusive bottling franchise, which representation was false, and that plaintiff did not secure the
franchise, but was given to defendant himself; that defendant did not fail to carry out his
undertakings, bus that it was plaintiff who failed; that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so.
● The Court of First Instance rendered judgment ordering defendant to render an accounting of
the profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15
per cent thereof. It held that the execution of the contract of partnership could not be enforced
upon the parties, but it also held that the defense of fraud was not proved. Against this judgment
both parties have appealed.

Issue:
Whether or not the plaintiff had falsely represented that he had an exclusive franchise to bottle Mission
beverages

Ruling:
YES. From the evidence, that plaintiff did actually represent to defendant that he was the holder of the
exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for
the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be
able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed
about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed
to deny that defendant was induced by that belief.

This Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante),
not merely the incidental (dolo incidente), inducement to the making of the contract. (Article 1270,
Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative of
the fact that the principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle
and distribute for the defendant or for the partnership.

The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the
same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive
franchise, or the option thereto, at the time the contract was perfected. But while he had already lost
his option thereto (when the contract was entered into), the principal obligation that he assumed or
undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission
Dry Corporation. We declare, therefore, that if he was guilty of a false representation, this was not the
causal consideration, or the principal inducement, that led plaintiff to enter into the partnership
agreement.

While the representation that plaintiff had the exclusive franchise did not vitiate defendant's consent to
the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in
other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant,
he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other party's
consent to a big share in the profits, an incidental matter in the agreement.

The defendant may not be declared null and void, but the defendant may not be compelled against his
will to carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the
defendant has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to
do an act he has promised to do, or not to do it, as he pleases.
Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business.
Against this amount of damages, we must set off the damage defendant suffered by plaintiff's
misrepresentation that he had the exclusive franchise, by which misrepresentation he obtained a very
high percentage of share in the profits. We can do no better than follow the appraisal that the parties
themselves had adopted.

Plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.

Geraldez v CA, 230 SCRA 329 (1994)

PARTIES:

PONENTE:

FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against
respondent Kenstar Travel Corp.

Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for
$2,990.00 which she paid the total equivalent amount of P190,000.00 charged by private respondent
for her and her sister, Dolores. At the tour, petitioner claimed that what was alleged in the brochure was
not what they experienced. There was no European tour manager as stated in the brochure, the hotels
where they stayed in which were advertised as first class were not, the UGC leather factory which was
specifically included as a highlight of the tour was not visited and The Filipino tour guide provided by
Kenstar was a first timer thus inexperienced. The Quezon City RTC rendered a decision ordering
respondent Kenstar to pay moral, nominal, and exemplary damages totalling P1,000,000 and P50,000
attorney’s fees. On appeal, respondent Court of Appeals deleted the award for moral and exemplary
damages and reduced the nominal damages and attorney’s fees to P30,000 and P10,000 respectively.

ISSUES: (1) Whether or not Kenstar acted in bad faith or with gross negligence in discharging its
obligations in the contract?
(2)Whether or not the Court of Appeals erred in removing the moral and exemplary damages

HELD: (1) Yes, Kenstar acted in bad faith and with gross negligence in discharging its
obligation.

Kenstar’s choice of the tour guide is a manifest disregard of its specific assurances to the
tour group, and which deliberate omission is contrary to the rules of good faith and fair play. Providing
the Volare 3 group with an inexperienced first timer as a tour guide, Kenstar manifested indifference to
the satisfaction, convenience and peace of mind to its clients. The election of the tour guide was a
deliberate and conscious choice on the part of Kenstar in order to afford her on-the job-training making
the tour group her unknowing guinea pigs, furthermore the inability to visit the UGC leather factory is
reflective of the ineptness and neglect of the tour guide. The failure of Kenstar to provide a European
Tour Manager although it specifically advertised and promised to do so is also a contractual breach.
Kenstar expressly stated in its advertisement that a European Tour Manager would be present.
Kenstar’s contention that the European Tour Manager does not refer to a natural person but a juridical
personality does not hold because a corporate entity could not possibly accompany the tour group.
Lastly Kenstar committed grave misrepresentation when it assured in its tour package that the hotels
provided would provide complete amenities and would be conveniently located along the way for the
daily itineraries. Testimonies by petitioner and private respondent show that the hotels were unsanitary
and sometimes did not even provide towels and soap. Further testimonies claim that the hotels were
also located in locations far from the city making it difficult to go to. The fact that Kenstar could only
book them in such hotels because of budget constraints is not the fault of the tour group. Kenstar should
not have promised such accommodations if they couldn’t afford it. Kenstar should have increased the
price to ensure accommodations.

(2) Yes, the Court of Appeals erred in removing the moral and exemplary damages.
Moral damages may be awarded in breaches of contract where the obligor acted
fraudulently or in bad faith. Kenstar can be faulted with fraud in the inducement which is employed by
a party in securing the consent of the other. This fraud or dolo which is present or employed at the time
of birth or perfection of the contract may either be dolo causante or dolo incidente. The first, or causal
fraud referred to in Article 1338 are those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not have entered into the contract, Dolo
incidente, or incidental fraud which is referred to in Article 1344, are those which are not serious in
character and without which the other party would still have entered into the contract. In either case,
whether Kenstar has committed dolo causante or dolo incidente, it is liable for damages both moral and
exemplary.

Metropolitan v. Prosperity, G.R. No. 154390, March 17, 2014

PARTIES:

FACTS:
● Metropolitan Fabrics, Incorporated, a family corporation, owned a 5.8 hectare industrial
compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City
● Pursuant to a P2 million, 10-year 14% per annum loan agreement with Manphil Investment
Corporation (Manphil) the said lot was subdivided into 11 lots, with Manphil retaining four lots as
mortgage security. The other seven lots were released to MFI.
● In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the
cost of its boiler machine, to prevent its repossession by the seller.
● PCRI, also a family-owned corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang ("Domingo") its president, and his son Caleb, vice-president.
● Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26%
per annum and a term of between five and ten years
● Even before the signing of the mortgage and loan documents, PCRI released the P3.5 million
loan to MFI. It found that the blank loan forms, consisting of the real estate mortgage contract,
promissory note, comprehensive surety agreement and disclosure statement, which Domingo
himself handed to Enrique, "had no entries specifying the rate of interest and schedules of
amortization."
● The court a quo also accepted Vicky's account that it was in order to return the trust of Domingo
and Caleb and their gesture of the early release of the loan that Enrique and Vicky entrusted to
them their seven (7) titles, with an aggregate area of 3.3665 hectares. She testified that they left
it to defendants to choose from among the 7 titles those which would be sufficient to secure the
P3.5 million. Vicky further stated that it was agreed that once PCRI had chosen the lots to be
covered by the mortgage, the defendants would return the remaining titles to the plaintiffs.
Plaintiffs also secured an additional loan of about P199,000.00 to pay for real estate taxes and
other expenses.
● In September 1984, the first amortization check bounced for insufficient fund due to MFI's
continuing business losses. It was then that the appellees allegedly learned that PCRI had filled
 up the 24 blank checks with dates and amounts that reflected a 35% interest rate per annum,
instead of just 24%, and a two-year repayment period, instead of 10 years.
● Plaintiffs thereafter repeatedly asked the defendants to return the rest of the titles in excess of
the required collateral to which defendants allegedly routinely responded that their committee
was still studying the matter. Vicky even added that Caleb assured Vicky that PCRI would also
lower the rate of interest to conform to prevailing commercial rate. Meanwhile, due to losses
plaintiffs' business operations stopped.
● Vicky also testified that talks were held in earnest in 1985 between Domingo and Enrique as well
as between Vicky and Caleb concerning the possible offsetting of the loan by ceding some of
their properties to PCRI.
● PCRI’s account statement dated February 12, 1986 showed that MFI’s total loan obligation
amounted to P4,167,472.71 (Exh. “G”).
● The March 25, 1986 statement from PCRI, however, showed that all seven (7) titles were placed
as collateral for their P3.5 million loan. MFI maintained that per their appraisal report, four of the
properties were already worth P6.5 million while the three other lots were valued around P4.6
million.
● Vicky also claimed that Domingo and Caleb tried to appease the plaintiffs by assuring them that
they would return the rest of the titles anytime they would need them, and that they could use
them to secure another loan from them or from another financing company.
● They would also reconsider the 35% interest rate, but when the discussion shifted to the
offsetting of the properties to pay the loan, the defendants’ standard answer was that they were
still awaiting the feedback of their committee
● On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986,
announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of
P10.5 million.
● Vicky insisted that prior to the auction notice, they never received any statement or demand
letter from the defendants to pay P10.5 million, nor did the defendants inform them of the
intended foreclosure.
● MFI protested the foreclosure, and the auction was reset to October 6, 1986, then to October
16, 1986, and finally October 27, 1986 after they assured PCRI that they had found a serious
buyer for three of the lots. In the meeting held on October 15, 1986 at defendants’ office, the
buyer, Winston Wang of Asia Cotton and his lawyer, Atty. Ismael Andres were present. It was
agreed to release the mortgage over TCT Nos. 317705, 317706, and 317707 upon payment of
P3.5 million.
● On January 19, 1987, Winston Wang confronted Vicky about their sale agreement and PCRI’s
refusal to accept their P3 million payment, because according to Caleb, the three lots had been
foreclosed. Vicky was shocked, because the agreed 60–day period to pay the P3 million was to
lapse on January 13, 1987 yet. Caleb himself put the particulars of the P500,000.00 payment in
the cash voucher as partial settlement of the loan.
● At the auction sale on October 27, 1986, PCRI was the sole bidder for P6.5 million. Vicky
however also admitted that discussions continued on the agreement to release three lots for
P3.5 million. The reduction of interest rate and charges and the condonation of the attorney’s
fees of P300,000.00 for the foreclosure proceedings were also sought. Present in these
conferences were Enrique and Vicky, Domingo and Caleb, Winston Wang and his lawyer, Atty.
Ismael Andres.
● Upon defendants’ continued failure to honor their agreement, Atty. Ismael Andres threatened to
sue PCRI in a letter dated February 17, 1987 if they would not accept the P3 million payment of
his client. Atty. Andres also sent them similar letters dated May 15, August 5 and 7, 1987, and
after several more discussions, the defendants finally agreed to accept the P3 million from
Winston Wang, but under these conditions: a) MFI must pay the P300,000.00 attorney’s fees
paid for the foreclosure proceedings and the P190,000.00 for real estate taxes; b) PCRI shall
issue the certificate of redemption over the three lots; c) plaintiffs shall execute a Memorandum
 of Undertaking concerning their right of way over the other properties, the lots being redeemed
being situated along Tandang Sora Street.
● Vicky also testified that although Wang would pay directly to Caleb, the plaintiffs pursued the
transaction because of PCRI’s promised to release the four (4) other remaining properties after
the payment of P3.5 million loan principal as well as the interest in arrears computed at P3
million, or a total of P6.5 (TSN, January 10, 1996, p. 11).
● MFI paid to PCRI P490,000.00 as agreed, and likewise complied with the required
documentation. Winston Wang also paid the balance of P3 million for the three lots he was
buying. The discussion then turned to how the plaintiffs’ P3 million interest arrearages would be
settled, which they agreed to be payable over a period of one year, from October 26, 1987 to
October 26, 1988.
● In October, 1988, however, plaintiffs were able to raise only P2 million. After a meeting at
defendants’ office, the period to pay was extended to October 26, 1989, but subject to 18%
interest per annum, which Caleb however allegedly refused to put in writing. Plaintiffs were later
able to raise P3 million plus P540,000.00 representing the 18% interest per annum. On October
26, 1989, Vicky and Enrique tendered the same to Caleb at his office. Caleb however became
furious, and now insisted that the interest due since 1984 was already P7 million computed at
35% per annum.
● On January 16, 1990 and again on March 5, 1990, PCRI sent the plaintiffs a letter demanding
that they vacate the four remaining lots.
● Caleb was also now asking for P10.5 million. On March 19, 1990, Caleb executed an affidavit of
non–redemption of TCT Nos. 317699, 317702, 317703 and 317704. On June 7, 1990, S.G. del
Rosario, PCRI’s vice–president, wrote Vicky reiterating their demand to vacate the premises and
remove pieces of machinery, equipment and persons therein, which MFI eventually heeded.
● In arguing that the 35% interest rate imposed by PCRI was exorbitant and without their consent,
the plaintiffs cited the promissory note and amortization schedule in their loan agreement with
Manphil dated April 6, 1983 and with IBAA on April 21, 1983 which both showed a rate of interest
of only 14% and a ten–year term with two years grace period.
● The RTC ruled in favor of the Metropolitan while the Court of Appeals reversed their decision
stating that it has prescribed. They should have filed a case before September 5, 1988 or on
October 25, 1989 from notice. They state that the inaction of the petitioner’s action were against
human experience.
○ We conclude that due to estoppel and prescription of the action to annul the mortgage
contract, the complaint for annulment of title and reconveyance should be dismissed. On
the other hand, we find no basis to award to defendants-appellants P1,000,000 in moral
damages and P500,000 in attorney’s fees, even as we must dismiss their counterclaim
for deficiency judgment of P107,876,171.82 for being unconscionably excessive,
unreasonable and iniquitous.
○ WHEREFORE, premises considered, the appealed judgment is REVERSED and SET
ASIDE and a new one is entered DISMISSING the complaint below as well as the
defendants-appellants’ counterclaim for deficiency judgment of P107,876,171.82, moral
damages of P1,000,000 and P500,000 in attorney’s fees. No costs.

ISSUE:
● WHETHER OR NOT THERE IS FRAUD IN THE TRANSACTION BETWEEN METROPOLITAN
FABRICS, ENRIQUE ANG, PROSPERITY, AND ANG?

HELD:
● NO
● It is settled that the appellate court will not disturb the factual findings of the lower court unless
there is a showing that the trial court overlooked, misunderstood or misapplied some fact or
circumstance of weight and substance that would have affected the result of the case. Indeed,
 the trial court’s findings are always presumed correct. Nonetheless, the CA is not precluded from
making its own determination and appreciation of facts if it considers the conclusions arrived at
by the trial court not borne out by the evidence, or if substantial facts bearing upon the result of
the case were overlooked, misunderstood or misapplied. As an appellate court, the CA is not
necessarily bound by the conclusions of the trial court, but holds the exclusive authority to review
the assessment of the credibility of witnesses and the weighing of conflicting evidence.
● In view of the conflicting findings and appreciation of facts by the RTC and the CA, we have to
revisit the evidence of the parties.
● Petitioners insist that respondents committed fraud when the officers of Metropolitan were made
to sign the deed of real estate mortgage in blank.
● According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties,
through insidious words or machinations, induces the other to enter into the contract that, without
the inducement, he would not have agreed to.
● Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal
fraud is defined as “a deception employed by one party prior to or simultaneous to the contract
in order to secure the consent of the other.
● Fraud cannot be presumed but must be proved by clear and convincing evidence. Whoever
alleges fraud affecting a transaction must substantiate his allegation, because a person is always
presumed to take ordinary care of his concerns, and private transactions are similarly presumed
to have
● been fair and regular. To be remembered is that mere allegation is definitely not evidence;
hence, it must be proved by sufficient evidence.
● Did petitioners clearly and convincingly establish their allegation of fraud in the execution of the
deed of real estate mortgage?
● The contested deed of real estate mortgage was a public document by virtue of its being
acknowledged before notary public Atty. Noemi Ferrer. As a notarized document, the deed
carried the evidentiary weight conferred upon it with respect to its due execution, and had in its
favor the presumption of regularity. Hence, it was admissible in evidence without further proof of
its authenticity, and was entitled to full faith and credit upon its face. To rebut its authenticity and
genuineness, the contrary evidence must be clear, convincing and more than merely
preponderant; otherwise, the deed should be upheld.
● Petitioners undeniably failed to adduce clear and convincing evidence against the genuineness
and authenticity of the deed. Instead, their actuations even demonstrated that their transaction
with respondents had been regular and at arms–length, thereby belying the intervention of fraud.
● To start with, the evidence adduced by Vicky Ang, the lone witness for petitioners, tried to cast
doubt on the contents and due execution of the deed of real estate mortgage by pointing to
certain irregularities. But she could not be effective for the purpose because she had not been
among the signatories of the deed. The signatories were her late father Enrique Ang, her mother
Natividad Africa, and her brother Edmundo Ang, none of whom came forward to testify against
the deed, or otherwise to assail the genuineness and due execution of the deed by any other
means. They would have been in the better position than Vicky Ang to substantiate the allegation
of fraud if that was the case. Their silence reflected the inanity of the allegation of fraud by Vicky
Ang.
● It does seem that the three signatories did not join Vicky Ang in impugning the authenticity and
genuineness of the deed of real estate mortgage. As Vicky Ang admitted during her cross–
examination, she had no evidence to show that the signatories ever assailed the deed,
● Secondly, petitioners freely and voluntarily surrendered to respondents the seven transfer
certificates of title (TCTs) of their lots. Such surrender of the TCTs evinced their intention to offer
the lots as collateral for
 ● the performance of their obligations contracted with respondents. They thereby confirmed the
genuineness and due execution of the deed of real estate mortgage. Surely, they would not have
surrendered the TCTs had their intention been otherwise.
● Thirdly, another circumstance belying the commission of fraud by respondents was petitioners’
pleading with respondents for the resetting of foreclosure sale of the properties after receiving
the notice of the impending sale. As a result, the sale was reset thrice. Had the mortgage and
its foreclosure been unreasonable or fraudulent, petitioners should have instead resolutely
contested respondents’ move to foreclose.
● Fourthly, even after their properties were eventually sold as the consequence of the foreclosure,
petitioners negotiated with respondents on the partial redemption of three of the seven lots. They
also took the trouble of finding a buyer (Mr. Winston Wang of Asia Cotton) of some of the lots.
Had the mortgage been fraudulent, they could have instead instituted a complaint to nullify the
real estate mortgage and the foreclosure sale.
● Lastly, Vicky Ang’s own letters to respondents had an apologetic tenor, and was seeking
leniency from them. Such tenor and tone of her communications were antithetical to her
allegation of having been the victim of their fraudulent acts.
● These circumstances tended to indicate that fraud was not attendant during the transactions
between the parties. Verily, as between the duly executed real estate mortgage and the
unsubstantiated allegations of fraud, the Court affords greater weight to the former.

International Corporate bank v. Gueco, 351 SCRA 716

PARTIES:
Petitioner: THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)
Respondents: SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO

FACTS:
Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank to purchase
a motor vehicle (car). In consideration thereof, respondent spouses executed a promissory note in
consideration, which were payable in monthly installment and chattel mortgage over the car. The
respondents defaulted in payment of installments. A civil case was filed by the petitioner which resulted
later into negotiations in lowering the remaining unpaid balance from P184,000.00 to P150,000.00,
detaining the car until payment thereof. Respondent delivered a manager’s check of P150,000.00 in
favor of the bank but the car was not released because of his refusal to sign the Joint Motion to Dismiss.

The bank insisted that the JMD is a standard operating procedure to effect a compromise and to
preclude future filing of claims or suits for damages. Respondent initiated civil action for damages
against the bank for fraud for failing to inform them regarding JMD during the meeting & for not releasing
the car if they do not sign the said motion before MTC but the case was dismissed for lack of merit. On
appeal to RTC, the decision of MTC was reversed ordering herein petitioners to indemnify the
respondents. The Court of Appeals likewise affirmed the decision of the RTC.

ISSUE:
WoN the respondents are entitled to indemnification for damages.

HELD:

NO. In finding the petitioner liable for damages, both the Regional Trial Court and the Court of Appeals
ruled that there was sufficiently proven fraud on the part of the petitioner which became the basis of
the award of damages.
Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission. The fraud referred to in Article 1170 of the Civil Code is
the deliberate and intentional evasion of the normal fulfillment of obligation. The court fails to see how
the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could
constitute as fraud.

The joint motion to dismiss cannot in any way have prejudiced Dr. Gueco. The motion to dismiss was
in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court
would be dismissed with prejudice. The joint motion to dismiss was but a natural consequence of the
compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the
dismissal of the case.

Petitioner’s act of requiring respondents to sign the Joint Motion to Dismiss can not be said to be a
deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. The
law presumes good faith. In fact, the act of petitioner bank in lowering the debt of respondent from
P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case.

The decision of the Court of Appeals affirming the decision of the RTC was set aside. Respondents
were ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender
or cancellation of the manager’s check in the latter’s possession, after which, petitioner is to return the
subject motor vehicle in good working condition.

Effects of Fraud

i. Specific Performance, NCC 1233

(1) Specific/determinate thing, NCC 1244, 1170, 1165 (1), 1177

(2) Generic thing, NCC 1246
(3) Preserve, NCC 1163
(4) Deliver all its accessions, NCC 1166, 1164
(5) Interest, NCC 1176

Marquez v. Elisan Credit, G.R. No. 194642, April 06, 2015

PARTIES:
Petitioner: Nunelon R. Marquez
Respondents: Elisan Credit Corporation

PONENTE:

FACTS:
● The petitioner obtained two loans from the respondent. There are no issues regarding the first
loan.
o A chattel mortgage was attached to the first loan, whose contract stated that among
others, that the motor vehicle shall stand as a security for the first loan and "all other
obligations of every kind already incurred or which may hereafter be incurred."
● The second loan for P55,000.00, was evidenced by a promissory note and a cash voucher both
dated June 15, 1992.
 o The promissory note provided that it is payable in weekly installments and subject to
twenty-six percent (26%) annual interest. In case of non-payment, the petitioner
agreed to pay ten percent (10%) monthly penalty based on the total amount unpaid
and another twenty-five percent (25%) of such amount for attorney's fees exclusive of
costs, and judicial and extrajudicial expenses.
● When the second loan matured, the petitioner had only paid P29,960.00, leaving a balance of
P25,040.00
● Due to liquidity problems, the petitioner asked the respondent if he could pay in daily installments
(daily payments) until the second loan is paid. The respondent granted the petitioner's request.
Thus, as of September 1994 or 21 months after the second loan's maturity, the petitioner had
already paid a total of P56,440.00, an amount greater than the principal.
● Despite the receipt of more than the amount of the principal, the respondent filed a complaint for
judicial foreclosure of the chattel mortgage because the petitioner allegedly failed to settle the
balance of the second loan despite demand. The respondent further alleged that pursuant to the
terms of the promissory note, the petitioner's failure to fully pay upon maturity triggered the
imposition of the ten percent (10%) monthly penalty and twenty-five percent (25%) attorney's
fees.
● The respondent applied for the issuance of a writ of replevin. The MTC issued the writ and by
virtue of which, the motor vehicle covered by the chattel mortgage was seized from the petitioner
and delivered to the respondent.
● MTC ruled in favor of the petitioner and held that the second loan was fully extinguished as of
September 1994.
o When an obligee accepts the performance or payment of an obligation, knowing its
incompleteness or irregularity and without expressing any protest or objection, the
obligation is deemed fully complied with.
● RTC initially affirmed the ruling but reversed it upon the respondent’s motion for reconsideration.
o Citing Article 1253 of the Civil Code, it held that "if the debt produces interest, payment
of the principal shall not be deemed to have been made until the interests have been
covered." It also sustained the contention of the respondent that the chattel mortgage
was revived when the petitioner executed the promissory note covering the second
loan.
● CA affirmed the RTC’s ruling.

ISSUE:
1. Whether or not the respondent acted lawfully when it credited the daily payments against the
interest instead of the principal
2. Whether or not the chattel mortgage covered the second loan

HELD:
1. YES. The rule under Article 1253 that payments shall first be applied to the interest and not to
the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the payment of
interest is expressly stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment
of the interest despite the presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.

Under this analysis, we rule that the respondent properly credited the daily payments to the
interest and not to the principal because: (1) the debt produces interest, i.e., the promissory note
securing the second loan provided for payment of interest; (2) a portion of the second loan
remained unpaid upon maturity; and (3) the respondent did not waive the payment of interest.
 The interest for default arises because of non- performance by the debtor, and to allow him to
apply payment to the capital without first satisfying such interest, would be to place him in a
better position than a debtor who has not incurred in delay. The delay should worsen, not
improve, the position of a debtor.

In the present case, it was not proven that the respondent accepted the payment of the principal.
The silence of the receipts on whether the daily payments were credited against the unpaid
balance of the principal or the accrued interest does not mean that the respondent waived the
payment of interest. There is no presumption of waiver of interest without any evidence showing
that the respondent accepted the daily installments as payments for the principal.

2. NO. In due time, the debtor settled the loan covered by the chattel mortgage. Should the
obligation be duly paid, then the contract is automatically extinguished proceeding from the
accessory character of the agreement. Once the obligation is complied with, then the contract of
security becomes, ipso facto, null and void.

WHEREFORE, in view of the foregoing findings and legal premises, we PARTIALLY GRANT the
petition (partial grant is due to reduction of interest, penalty, and Attorney’s Fees).

(6) Deliver all its accessories, NCC 1166

(7) Analogous circumstances

Surviving Heirs versus Lindo, et al., G.R. No. 208232, March 10, 2014

PARTIES:
Petitioners: Surviving heirs of Alfredo Bautista. Namely: Epifania and Zoey Bautista.
Respondents: Several vendees.

PONENTE: Velasco, JR., J.

Facts:

Alfredo R. Bautista (Bautista), petitioner’s predecessor, inherited in 1983 a free-patent land located in
Davao Oriental and covered by OCT No. (1572) P-6144.A few years later, he subdivided the property
and sold it to several vendees, herein respondents, via a notarized deed of absolute sale dated May
30, 1991. Two months later, OCT No.(1572) P-6144 was canceled and Transfer Certificates of Title
(TCTs) were issued in favor of the vendees.

On August 1994, Bautista filed a complaint for repurchase against respondents before the RTC,
anchoring his cause of action on Section 119 of Commonwealth Act No. (CA) 141, otherwise known as
the “Public Land Act,” which reads:

“SECTION 119. Every conveyance of land acquired under the free patent or homestead provisions,
when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period
of five years from the date of the conveyance.”

During the pendency of the action, Bautista died and was substituted by petitioner, Efipania.
Respondents, Sps. Lindo entered into a compromise agreement with petitioners, whereby they agree
to cede to Epifania 3,230 sq.m..portion of the property as well as to waive, abandon, surrender, and
withdraw all claims and counterclaims against each other. RTC approve the compromise agreement
on January 2011.
Other respondents, filed a Motion to Dismissed on February 2013 alleging lack of jurisdiction of the
RTC on the ground that the complaint failed to state the value of the property sought to be recovered
and alleges that the total value of the properties in issue is only P16,500 pesos. RTC ruled in favor of
the respondent dismissing the case.

Issue 1:
Whether or not the RTC erred in granting the motion for the dismissal of the case on the ground of lack
of jurisdiction over the subject matter.

Ratio:
Yes. Jurisdiction of courts is granted by the Constitution and pertinent laws. Jurisdiction of RTCs, as
may be relevant to the instant petition, is provided in Sec. 19 of BP 129.

Issue 2:
Whether the action filed by petitioners is one involving title to or possession of real property or any
interest therein or one incapable of pecuniary estimation.

Ratio:
The Court rules that the complaint to redeem a land subject of a free patent is a civil action incapable
of pecuniary estimation.

It is a well-settled rule that jurisdiction of the court is determined by the allegations in the complaint and
the character of the relief sought. In this regard, the Court, in Russell v. Vestil, wrote that "in determining
whether an action is one the subject matter of which is not capable of pecuniary estimation this Court
has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation,
and whether jurisdiction is in the municipal courts or in the RTCs would depend on the amount of the
claim." But where the basic issue is something other than the right to recover a sum of money, where
the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the litigation may not be estimated in terms of
money, and, hence, are incapable of pecuniary estimation.

Decision:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The April 25, 2013 and
July 3, 2013 Orders of the Regional Trial Court in Civil Case No. (1798)-021 are hereby REVERSED
and SET ASIDE.
The Regional Trial Court, Branch 32 in Lupon, Davao Oriental is ORDERED to proceed with dispatch
in resolving Civil Case No. (1798)-021.
No pronouncement as to costs.

ii. Substituted performance, NCC 1165(2), 1167

iii. Rescission, NCC 1191-1192, 1786, 1788, 1484-1486, RA 6552

Boysaw v Interphil Promotions, 148 SCRA 364 (1987)

PARTIES:
PLAINTIFFS-APPELLANTS - Solomon Boysaw, Alfredo Yulo Jr.
DEFENDANTS-APPELLEES- Interphil Promotions, Inc., Lope Sarreal, sr., and Manuel Nieto Jr.

PONENTE: J. Fernando
FACTS:

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a
boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would
be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30]
days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to
the date of the boxing contest, engage in any other such contest without the written consent of Interphil
Promotions, Inc.

On May 3, 1961, a supplemental agreement on certain details not covered by the principal contract
was entered into by Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash" Elorde to a
similar agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on September
30, 1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las
Vegas, Nevada, U.S.A.
On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay, assigned to
J. Amado Araneta the managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the Philippines
on July 31, 1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over
Boysaw that he earlier acquired from Ketchum and Ruskay. The next day, September 2, 1961, Boysaw
wrote Lope Sarreal, Sr. informing him of his arrival and presence in the Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing
contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter to the Games
and Amusement Board [GAB] expressing concern over reports that there had been a switch of
managers in the case of Boysaw, of which he had not been formally notified, and requesting that
Boysaw be called to an inquiry to clarify the situation.

The Games and Amusement Board after a series of conferences of both parties scheduled the Elorde-
Boysaw fight on November 4, 1961. Yulo refused to accept the charge in the fight date even after
Sarreal offered to advance the fight date to October 28, 1961. However, he changed his mind and
decided to accept the fight date on November 4, 1961. While an Elorde-Boysaw fight was eventually
staged, the fight contemplated in the May 1, 1961 boxing contract never materialized.

As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latter’s refusal to honor
their commitments under the boxing contract of May 1, 1961.

ISSUE: Whether or not the offending party in a reciprocal obligation may compel the other party for
specific performance?

HELD: No. Evidence established that the contract was violated by Boysaw when, without the approval
or consent of Interphil, he fought a boxing match in Las Vegas. Another violation was the assignment
and transfer of the managerial rights over Boysaw without the knowledge or consent of Interphil.
While the contract imposed no penalty for such violation, this does not grant any of the parties the
unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that actionable
injury inheres in every contractual breach.

Article 1170 of the Civil Code provides that “those who in the performance of their obligations are guilty
of fraud, negligence or delay, and those who in any manner contravene the terms thereof, are liable for
damages.”

Article 1191 of the Civil Code states 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.

The contract in question gave rise to reciprocal obligations. Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the
other.

The power to rescind is given to the injured party. Where the plaintiff is the party who did not perform
the undertaking which he was bound by the terms of the agreement to perform, he is not entitled to
insist upon the performance of the contract by the defendant, or recover damages by reason of his own
breach.

Under the law, when a contract is unlawfully novated by an applicable and unilateral substitution of the
obligor by another, the aggrieved creditor is not bound to deal with the substitute. However, from the
evidence, it is clear that the Interphil, instead of availing themselves of the options given to them by law
of rescission or refusal to recognize the substitute obligor, really wanted to postpone the fight date
owing to an injury that Elorde sustained in a recent bout. That Interphil had justification to renegotiate
the original contract, particularly the fight date is undeniable from the facts. Under the circumstances,
Interphil's desire to postpone the fight date could neither be unlawful nor unreasonable.

U.P. v De los Angeles, 35 SCRA 365 (1970)

PARTIES:
● Petitioners: University of the Philippines
● Respondents: Walfrido De Los Angeles, in his capacity as Judge of the Court of First
Instance in Quezon City.

PONENTE: Reyes J.B.L., J

FACTS:
● There were three orders issued that sought to be annulled in the petition. The first pertains to
UP awarding logging rights over its Land Grant in Lubayat areas in Laguna and Quezon. The
second is about UP being adjudged in contempt of court, and directing Sta. Clare Lumber
Company, Inc to refrain from exercising logging rights or conducting logging operations on the
concession. The last order is the denied reconsideration of the order of contempt.
● The land grant was given to UP to be operated and developed for the purpose of additional
income for its operations.
● On the 2nd of November 1960, UP and ALUMCO entered into an logging agreement. In the
agreement, the latter was granted exclusive authority from the date of the agreement to the 31st
of December 1965.
 ● As of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite
repeated demands, it had failed to pay;
● • After it had received notice that UP would rescind or terminate the logging agreement,
ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of
Payments," dated 9 December 1964, which was approved by the president of UP, and which
stipulated the following:
○ "3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not
sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said payments have been applied shall be
paid by the DEBTOR in full no later than June 30, 1965;
○ "5. In the event that the DEBTOR fails to comply with any of its promises or undertakings
in this document, the DEBTOR agrees without reservation that the CREDITOR shall have
the right and the power to consider the Logging Agreement dated December 2, 1960 as
rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled
as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated
damages;
● ALUMCO continued its logging operations, but again incurred an unpaid account, for the period
from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged.
● On 19 July 1965, petitioner UP informed respondent ALUMCO that it had, considered as
rescinded and of no further legal effect the logging agreement that they had entered in 1960;
● On 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil
Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment;
it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and
preliminary injunction restraining ALUMCO from continuing its logging operations in the Land
Grant.
● Before the issuance of the aforesaid preliminary injunction UP had taken steps to have another
concessionaire take over the logging operation; the concession was awarded to Sta. Clara
Lumber Company, Inc.;
● ALUMCO had filed several motions to discharge the writs of attachment and preliminary
injunction but were denied by the court;
● On12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting
the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on
25 February 1966, respondent judge issued the first of the questioned orders, enjoining UP from
awarding logging rights over the concession to any other party.
● UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara
Lumber Company, Inc., and said company had started logging operations. That, on motion dated
12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14 January 1967,
declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara Lumber
Company, Inc., to refrain from exercising logging rights or conducting logging operations in the
concession.

ISSUE:
● Whether UP can treat its contract with ALUMCO rescinded, and may disregard the same
before any judicial pronouncement to that effect

HELD:
● YES
● UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right
and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without
the necessity of any judicial suit."
 ● As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court
stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
"there is nothing in the law that prohibits the parties from entering into agreement that violation
of the terms of the contract would cause cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured party to resort to court for rescission of the
contract."
● If the other party denies that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court.
● The party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk
● CERTIORARI APPLIED FOR IS GRANTED.

Vda. deMistica v Sps. Naguiat, 418 SCRA 72 (2003)

FACTS:
● On April 5, 1979, Eulalio Mistica entered into a contract to sell with respondent Bernardino
Naguiat over a portion of lot containing an area of 200 sqm.
● Pursuant to their agreement, respondent gave a downpayment of P2,000.00 out of the full
purchase price of P20,000.00.
● On February 7, 1980, respondent made another payment of P1,000.00 and after that no other
payment was made.
● Eulalio died sometime in 1986.
● Petitioner Fidela Del Castillo Vda. De Mistica, Eulalio's widow, filed with the trial court a
complaint for rescission of the contact to sell alleging that the failure of respondents to pay the
balance of the purchase price constitutes a violation of the contract which entitles her to rescind
the same.
● Respondents contend that the contract cannot be rescinded on the ground that it clearly
stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to
be paid. They also alleged that during the wake of Eulalio Mistica, he offered to pay the remaining
balance but the latter refused, hence no breach was committed by them.
● RTC: dismissed the complaint and ordered respondents to pay the balance of the purchase
price.
● CA: disallowed rescission of the contract holding that the conclusion of the ten-year period was
not a resolutory term because the contract stipulated that payment could still be made if
respondents failed to pay within the term. The Court further ruled that rescission would be unjust
because respondents had already transferred the land title to their names.

ISSUE:
Whether the petitioner is entitled to rescind because of substantial breach
HELD:
● NO
● In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
● Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a breach of faith by one of them.
● Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation.
● In the present case, the failure of respondents to pay the balance of the purchase price within
ten years from the execution of the deed did not amount to substantial breach because it was
stipulated in their agreement that payment could still be made even after ten years from the
execution of the contract, provided that the vendee paid 12 percent interest.
 ● The issuance of a certificate of title in favor of respondents does not determine whether petitioner
is entitled to rescission because the title serves merely as evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose name appears therein.
● The Court also upheld the appellate court in holding that the propriety of the issuance of the title
in the names of respondents is an issue not determinable in the proceedings at bar because a
certificate of title cannot be subject to collateral attack and can only be altered, modified or
canceled in a direct proceedings in accordance with law.
● DECISION OF LOWER COURT AFFIRMED.

Fil-Estate v Vertex, G.R. No. 202079, June 10, 2013

PARTIES:
Petitioner: Fil-Estate Golf and Development, Inc. and Fil-Estate Land, Inc.
Respondents: Vertex Sales and Trading, Inc.

FACTS:
● FEGDI sold, on installment, to (RSACC) one Common Share of Forest Hills. Prior to the full
payment of the purchase price, RSACC sold, on February 11, 1999, the Common Share to
respondent Vertex Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex
and FEGDI, in turn, instructed Forest Hills to recognize Vertex as a shareholder. For this reason,
Vertex enjoyed membership privileges in Forest Hills.
● Despite Vertex's full payment, the share remained in the name of FEGDI. Seventeen (17)
months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance
of a stock certificate in its name. FELI replied, initially requested Vertex to first pay the necessary
fees for the transfer. Although Vertex complied with the request, no certificate was issued.
● Vertex filed on January 7, 2002 a Complaint for Rescission with Damages and Attachment
against FEGDI, FELI and Forest Hills. It averred that the petitioners defaulted in their obligation
as sellers when they failed and refused to issue the stock certificate covering the subject share
despite repeated demands. On the basis of its rights under Article 1191 of the Civil Code, Vertex
prayed for the rescission of the sale and demanded the reimbursement of the amount it paid,
plus interest.
● Petitioner argued that the delay cannot be considered a substantial breach because Vertex was
unequivocally recognized as a shareholder of Forest Hills. In fact, Vertex's nominees became
members of Forest Hills and fully enjoyed and utilized all its facilities. It added that RSACC also
used its shareholder rights and eventually sold its share to Vertex despite the absence of a stock
certificate. In light of these circumstances, delay in the issuance of a stock certificate cannot be
considered a substantial breach.
● RTC dismissed the complaint
o Delay in the issuance of a stock certificate does not warrant rescission of the contract
as this constituted a mere casual or slight breach
● CA reversed the RTC decision and rescinded the sale of the share

ISSUE:
Whether or not the delay in the issuance of a stock certificate can be considered a substantial breach
as to warrant rescission of the contract of sale

HELD:
YES. Under the Corporation Code, a sale of shares of stock, physical delivery of a stock certificate is
one of the essential requisites for the transfer of ownership of the stocks purchased.
Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only delivered
on January 23, 2002 after Vertex filed an action for rescission against FEGDI.

Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock purchased by Vertex, within a reasonable time from the
point the shares should have been delivered. This was a substantial breach of their contract that entitles
Vertex the right to rescind the sale under Article 1191 of the Civil Code.

“Mutual restitution is required in cases involving rescission under Article 1191" of the Civil Code; such
restitution is necessary to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the amount paid to FEGDI by reason of the sale should be returned to Vertex.

WHEREFORE, we hereby DENY the petition. The decision dated February 22, 2012 and the
resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are AFFIRMED
with the MODIFICATION that Fil-Estate Land, Inc. is ABSOLVED from any liability.

BPI vs. Sanchez, G.R. No. 179518, November 19, 2014

PARTIES:
Petitioner: BANK OF THE PHILIPPINE ISLANDS
Respondents: VICENTE VICTOR C. SANCHEZ, HEIRS OF KENNETH NEREO SANCHEZ,
represented by FELISA GARCIA YAP, and HEIRS OF IMELDA C. VDA. DE SANCHEZ, represented
by VICENTE VICTOR C. SANCHEZ

PONENTE: J. Velasco Jr
FACTS:
These are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing
the November 6, 2006 Decision and August 31, 2007 Resolution of the Court of Appeals in CA-G.R.
No. 83236 entitled Vicente Victor C. Sanchez, Heirs of Kenneth Nereo Sanchez represented by Felisa
Garcia Yap, and Heirs of Imelda C. Vda. de Sanchez represented by Vicente Victor C. Sanchez v.
Jesus V Garcia and TransAmerican Sales and Exposition, Inc. The assailed Decision affirmed with
modification the Decision dated July 14, 2004 of the Regional Trial Court, Branch 89 in Quezon City, in
Civil Case No. Q-90-4690.

The Sanchezes entered into an agreement with Garcia (doing business in the name of TSEI) to sell for
P 1.850 million their parcel of land, with an earnest money of 50k. They agreed that Garcia shall pay
the purchase price in cash once the property is vacated. The Sanchezes entrusted to Garcia the
owner’s copy of TCT because it was agreed that he shall take care of all the documentations necessary
for the transaction.

Immediately after the property was vacated, Garcia took possession and began constructing
townhouses thereon without the Sanchezes’ knowledge and consent. While these developments were
ongoing, Garcia failed to pay the purchase price. Subsequently, the Sanchezes were given six checks
representing the amount of the purchase price. Four of these checks were postdated, thus further
delaying their overdue payment. To properly document the check payments, they made an agreement
stipulating that if one of the checks were dishonored, the Sanchezes may rescind the contract.

The last two checks were dishonored, so the Sanchezes rescinded the contract and demanded from
Garcia the return of the TCT. However, Garcia refused to return the documents and vacate the property.
Meanwhile, the Sanchezes found out that Garcia/TSEI were selling townhouses situated in the
property. So they informed the HLURB, the City Building Official and the RD in Quezon City, of the
illegal constructions being made thereon. The HLURB issued a Cease and Decease Order enjoining
Garcia / TSEI from further developing and selling the townhouses. Such orders were left unheeded. In
fact, Garcia were already able to sell many of the units to different individuals and entities, and even
mortgaged the property. Consequently, the Sanchezes filed before the RTC a complaint for rescission,
restitution and damages with TRO.

The purchasers and mortgagee who are the intervenors in this case were found by the court to be in
bad faith. On the other hand, the Sanchezes were held to be in good faith and not negligent.

ISSUES:
W/N rescission of the contract was barred by the subsequent transfer of the property
W/N Article 449 – 450 of the Civil Code is applicable to the Sanchezes

HELD:
Issue 1: No.
Article 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 and 1388 and the Mortgage Law.
Under Article 1191 of the Civil Code, rescission is available to a party in a reciprocal obligation where
one party fails to comply with it. As an exception to this rule, Article 1385 provides that rescission shall
not take place if the subject matter of the prior agreement is already in the hands of a third party who
did not act in bad faith.

Here, the failure of Garcia/TSEI to pay the consideration for the sale of the property entitled the
Sanchezes to rescind the Agreement. And in view of the finding that the intervenors acted in bad faith
in purchasing the property from Garcia, the subsequent transfer in their favor did not and cannot bar
rescission.

Issue 2

Yes. Bad faith on the part of the purchasers leads to the application of Art 449-450.

Consequently, the Sanchezes have the following options: (1) acquire the property with the townhouses
and other buildings and improvements that may be thereon without indemnifying TSEI or the
intervenors; (2) demand from TSEI or the intervenors to demolish what has been built on the property
at the expense of TSEI or the intervenors; or (3) ask the intervenors to pay the price of the land.
As such, the Sanchezes must choose from among these options within 30 days from finality of the
decision. Should the Sanchezes opt to ask from the intervenors the value of the land, the case shall be
remanded to the RTC for the sole purpose of determining the fair market value of the lot at the time the
same were taken from the Sanchezes. If the Sanchezes decide to appropriate the townhouses, other
structures and improvements as their own pursuant to Art 449, then the intervenors-purchasers shall
be ordered to vacate said premises within a reasonable time from notice of the finality of the decision
by the Sanchezes. They have a right to recover their investment in the townhouses from Garcia and
TSEI. If the Sanchezes do not want to make use of the townhouses and improvements on the subject
lot, then the purchasers can be ordered to demolish said townhouses or if they don’t demolish the same
within a reasonable time, then it can be demolished at their expense. On the 3rd option, if the
Sanchezes do not want to appropriate the townhouses or have the same demolished, then they can
ask that the townhouse purchasers pay to them the fair market value of the respective areas allotted to
their respective townhouses subject of their deeds of sale.

Wellex Group vs. U-Land Airlines, G.R. No. 167519, January 14, 2015

PARTIES:
Petitioner: The Wellex Group, Inc.
Respondents: U-Land Airlines, Co., Ltd.

FACTS:
● Wellex maintains airline operations in the Philippines
● U-Land Airlines, Co., Ltd. (U-Land) is engaged in the business of air transportation in Taiwan
and in other Asian countries
● The parties entered into a Memorandum of Agreement (First Memorandum of Agreement) to
expand their respective airline operations in Asia
o Under this, the parties agreed to develop a long-term business relationship through
the creation of joint interest in airline operations and property development projects in
the Philippines. This long-term business relationship would be implemented through
acquisition by U-Land of various shares of stock from Wellex
o U-Land agreed to remit the sum of USD3 million to serve as initial funding for the
development projects that the parties would undertake pursuant to the joint
development agreement; in exchange, Wellex would deliver stock certificates to U-
Land
o Wellex and U-Land agreed that if they were unable to agree on the terms of the share
purchase agreement and the joint development agreement within 40 days from
signing, then the First Memorandum of Agreement would cease to be effective.
● The 40-day period lapsed, and the parties were unable to enter into any share purchase
agreement; despite this, U-Land remitted to Wellex a total of USD7,499,945.00
● U-Land prayed for rescission of the First Memorandum of Agreement and damages against
Wellex
o U-Land argued that the 40-day period lapsed, and no share purchase agreement was
finalized
o Wellex alleged that it presented draft versions of the share purchase agreement which
were never finalized, so it believed that there was an implied extension of the 40-day
period within which to enter into the share purchase agreement and the joint
development agreement since U-Land began remitting sums of money in partial
payment for the purchase of the shares of stock
● RTC and CA held that the rescission of the First Memorandum of Agreement was proper

ISSUE:
Whether or not U-Land is entitled to rescission

HELD:
YES. The parties included the following stipulation in case of a failure to agree on the terms of the share
purchase agreement or the joint development agreement:

9. Validity. — In the event the parties are unable to agree on the terms of the SHPA and/or the
JDA within forty (40) days from date hereof (or such period as the parties shall mutually agree),
 this Memorandum of Agreement shall cease to be effective and the parties released from their
respective undertakings herein, except that WELLEX shall refund the US$3.0 million provided
under Section 4 within three (3) days therefrom, otherwise U-LAND shall have the right to
recover on the 57,000,000 PEC shares delivered to U- LAND under Section 4.

When the 40-day period provided for in Section 9 lapsed, the efficacy of the First Memorandum of
Agreement ceased. The parties were "released from their respective undertakings." Thus, from June
25, 1998, the date when the 40-day period lapsed, the parties were no longer obliged to negotiate with
each other in order to enter into a share purchase agreement.

Rescission does not merely terminate the contract and release the parties from further obligations to
each other, but abrogates the contract from its inception and restores the parties to their original
positions as if no contract has been made. Consequently, mutual restitution, which entails the return of
the benefits that each party may have received as a result of the contract, is thus required. To be sure,
it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally
applicable to cases under Article 1191, to wit:

xxx xxx xxx

Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the
parties back to their original status prior to the inception of the contract.

For Article 1191 to be applicable, however, there must be reciprocal prestations as distinguished from
mutual obligations between or among the parties. Parties may be mutually obligated to each other, but
the prestations of these obligations are not necessarily reciprocal. The reciprocal prestations must
necessarily emanate from the same cause that gave rise to the existence of the contract.

The parties are bound by the 40-day period provided for in the First Memorandum of Agreement.
Adherence by the parties to Section 9 of the First Memorandum of Agreement has the same effect as
the rescission or resolution prayed for and granted by the trial court.

WHEREFORE, the petition is DENIED. The Decision of the Regional Trial Court in Civil Case No.
99-1407 and the Decision of the Court of Appeals in CA-G.R. CV No. 74850 are AFFIRMED. Costs
against petitioner The Wellex Group, Inc.

Swire Realty v. Jayne Yu,G.R. No. 207133, March 09, 2015

PARTIES:

PONENTE:

KEY TAKE-AWAY OR DOCTRINE TO REMEMBER

The breach contemplated in Art. 1191 is the obligor’s failure to comply with an existing obligation. When
the obligor cannot comply with what is incumbent upon it, the oblige may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the court shall decree
the rescission.

FACTS
● [July 25, 1995] Jane Yu entered into a contract to sell with Swire Realty Development
Corporation covering one residential condominium unit located at the Palace of Makati, Makati
for the amount of P7,519,371.80. And a parking slot worth P600,000.
 ● [September 24, 1997] Yu paid the complete amount of the unit and P20,000 for the parking.
Petitioner failed to complete and deliver the subject unit on time.
● Yu filed a complaint for Rescission of Contract with Damages before the HLURB Expanded
National Capital Region Field Office.
● [October 19, 2004] HLURB ENCRFO dismissed Yu’s complaint. Ruling that rescission is not
permitted for slight or casual breach of the contract but only for such breaches as are substantial
and fundamental as to defeat the object of the parties in making the agreement.
● Yu elevated the complaint to HLURB Board of Commissioners. Reversing the decision of the
ENCRFO.
● Petitioner moved for reconsideration, but denied by the HLURB BOC.
● Petitioner appealed to the Office of the President but was denied.
● After a Motion for Reconsideration, OP overturned its previous ruling.
● Yu now sought for reconsideration at the CA, but was denied.

ISSUES / RATIO ARTICLES/LAWS INVOLVED

1. WON rescission of a contract is proper in herein case Art. 1191 of the NCC - 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 and 1388
and the Mortgage Law.

HELD
1. Yes. The SC ruled in favor of Yu. Citing Article 1191 of the Civil Code. Basic is the rule that the right
of rescission of a party to an obligation under Art. 1191 is predicated on a breach of faith by the party
who violates the reciprocity between them. The breach contemplated in the said provision is the
obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is
incumbent upon it, the oblige may seek rescission and, in the absence of any just cause for the court
to determine the period of compliance, the court shall decree the rescission. In the instant case, the CA
found that the completion date of the unit was November 1998. From an ocular inspection of the HLURB
ENCRFO, the unit was still incomplete. From the foregoing, it is evident that the amenities under the
approved plan have not yet been provided as of May 3, 2002, and that the subject unit has not been
delivered to respondent as of August 28, 2002, which is beyond the period of development of December
1999. The petitioner has incurred delay in the performance of its obligation amounting to breach of
contract. The delay in the completion of the project as well as the delay in the delivery of the unit
are breaches of statutory and contractual obligations which entitle Yu to rescind the contract,
demand a refund, and payment of damages.

Fong vs. Duenas, G.R. No. 185592, June 15, 2015

PARTIES:
Petitioner: George Fong
Respondent: Jose V. Duenas

PONENTE: Brion, J.

KEY TAKE-AWAY OR DOCTRINE TO REMEMBER

Reciprocal Obligations are those which arise from the same cause, in which each party is a debtor and
a creditor of the other, such that the obligation of one is dependent on the obligation of the other.
RECIT-READY / SUMMARY
Fong and Duenas were former schoolmates at the DLSU. They entered into a verbal joint venture
contract to create Alliance Holdings, Inc. The capital needed was Php65M to which they would
contribute in equal parts. However, after Fong provided Duenas with Php5M (lower than 32.5M as
previously agreed upon), and upon repeated demands towards Duenas failed to provide the former
with the financial documents on the valuation of Duenas’ companies. Fong then asked for the rescission
of the contract. The SC ruled that both Fong and Duenas both breached their verbal joint venture. With
Fong lowering the amount to P5M, and Duenas to investing the P5M to his companies, Danton and
Bakcom. The SC asked Duenas to return the P5M and the joint venture be deemed extinguished.

FACTS
● [November 1996] Fong and Duenas entered into a verbal joint venture contract where they
agreed to engage in the food business and to incorporate a holding company under the name
Alliance Holdings, Inc.
● The parties agreed to contribute equal amounts of P32.5M. With Fong paying in cash, and
Duenas would contribute all his Danton and Bakcom shares that he valued at P32.5M.
● [November 25, 1996] Fong started remitting money to Duenas with a total of P5M.
● [June 13, 1997] Fong sent a letter to Duenas informing him of his decision to limit his total
contribution to P5M.
● Upon repeated demands from Fong to have Duenas deliver the financial documents on the
valuation of Danton and Bakcom, Fong then informed Duenas that he will cancel the joint venture
agreement.
● [March 25, 1998] Fong wrote a final letter of demand to Duenas informing the latter that he will
file a judicial action against him should he still fail to pay the P5M.
● [April 24, 1998] Fong filed a complaint.
● RTC ruled in favor of Fong. The RTC also ruled that Duenas erroneously invested Fong’s cash
towards the former’s companies, Danton and Bakcom.
● CA ruled that Duenas correctly invested the money to his companies since the agreement was
that the shares of Danton and Bakcom will be used in the creation of the Alliance Holdings, Inc.

ISSUES / RATIO ARTICLES/LAWS INVOLVED

1. WON Duenas unjustly enriched himself when he invested the P5M to his companies
2. WON Fong has the right to cancel their verbal agreement Art. 1191 of the NCC - 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
and 1388 and the Mortgage Law.

HELD
1. Yes. The agreement of Fong and Duenas was to provide P32.5M of cash (Fong) and the shares of
Danton and Bakcom (Duenas). However, after Fong deposited the P5M, Duenas used the money to
invest into his two businesses. The SC ruled that Duenas must return the contribution of Fong.
2. Yes. Both parties agreed to incorporate a company that would hold the shares of Danton and Bakcom
and which, in turn, would be the platform for their food business. Fong obligated to contribute P32.5M.
When the proposed company remained unincorporated by October 30, 1997, Fong cancelled the joint
venture agreement and demanded the return of his P5M. And since Duenas invested the money to his
companies, it is erroneous for him to claim that there is nothing irregular with his actions since the two
companies will soon form part of Alliance. However, Fong is also to blame for he only invested P5M
contrary to the originally agreed P32.5M. This in turn, caused the lack of funds to create Alliance which
is also a breach of the original agreement.

The SC ruled that Duenas return the P5M sans damages.

Cupino v. Pacific Rehouse, G.R. No. 205113, August 26, 2015

PONENTE: Carpio, J.

FACTS:
● The petitioners, and their sister, Noeminia Ascano, (collectively, the Ascanos) entered into a
Deed of Conditional Sale with Pacific Rehouse Corporation (Pacific).
● Following the terms of the Deed of Conditional Sale, Pacific paid a down payment of P1,792,590
the balance to be paid upon the fulfillment of the ff conditions: (1) the completion of all documents
necessary for the transfer of the certificate of title of the land; (2) removal of the tenants,
squatters and other occupants on the land, with the disturbance compensation to said tenants
to be paid by vendors; and (3) submission by vendors to Pacific of the Affidavit of Non-Tenancy
and the land operation transfer documents. Two subsequent payments were made by Pacific
upon request of petitioners.
● Subsequently, the petitioners failed to submit the necessary documents despite several
demands from Pacific. Instead, they informed Pacific that they wanted to rescind the contract
and refused to accept Pacific's tender of additional payments.
● Pacific, opened a savings account in the names of petitioners, depositing in said account the
amount of P1,005,180.11 and informing petitioners of the deposit and that "they were authorized
to withdraw the same at [their] convenience."
● Pacific’s several demands on petitioners to fulfill their obligations under the Deed of Conditional
Sale went unheeded so it filed a complaint for cancellation of contract. However, before pre-trial,
Pacific discovered that petitioners had withdrawn the PI,005,180 it had deposited hence it filed
an Amended Complaint changing its cause of action from cancellation to specific performance.
ISSUE:
● Whether or not Pacific was entitled to ask for specific performance

HELD:
● Article 1191 of the Civil Code states:
○ 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 fulfillment and the rescission of the
obligation, with 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 and 1388 and the Mortgage
Law.
● As previously discussed, the Deed of Conditional Sale clearly spells out the obligations of each
party. Based on the allegations of the parties and the findings of the lower courts, Pacific has
already partially fulfilled its obligation while petitioners have not.
● The obligation of petitioners under the Deed of Conditional Sale is to "guarantee removal of
tenants" and not merely to pay disturbance compensation. It is an undertaking specifically given
to petitioners under the Deed of Conditional Sale, considering that Pacific is not yet the owner
of the property and will have no personality to evict the property's present occupants. Petitioners
failed to fulfill this obligation, as well as the obligation to deliver the necessary documents to
complete the sale.
● As previously held by the Court, "the injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his obligation."64 From the foregoing, it is clear that
Pacific is the injured party, entitled to elect between rescinding of the contract and exacting
fulfillment of the obligation. It has opted for the remedy of specific performance, as embodied in
its Amended Complaint.
● Moreover, rescission must not be allowed in favor of petitioners, since they themselves failed to
perform their obligations under the Deed of Conditional Sale.