Oblicon Week 3 Digest

Obligations and Contracts Case Digest | Alpha and Amega 1
CONTINUATION OF USURIOUS TRANSACTIONS
KENG HUA PRODUCTS VS CA

GR 116863 | 12 February 1998
OVERVIEW:
In this case, the Supreme Court laid down as to what is the effect of demand for interest in a breach of obligation
FACTS:
1. Plaintiff (herein private respondent), Sea-Land Service, Inc. a shipping company, is a foreign corporation licensed to do business in the
Philippines.
2. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed container, containing seventy-six bales of unsorted waste paper for
shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading to cover the shipment was issued by the
plaintiff.
3. On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to the defendant
but the latter failed to discharge the shipment from the container during the free time period or grace period. The said shipment remained
inside the plaintiff’s container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded
from the container on November 22, 1983, or a total of four hundred eighty-one (481) days.
4. During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were sent by the plaintiff to the
defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the
defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and damages.
ISSUE:
WON petitioner’s claim that interest cannot be allowed to run from the date of private respondent’s extrajudicial demands because there was no
demand for interest in correct
RULING:
Yes, when an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
In the case at bar, petitioner "first knew" of the demurrage claim of P67,340 only when it received, by summons, private respondent's complaint.
Hence, interest may not be allowed to run from the date of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April
24, 1983 for P37,800, considering that, in both cases, "there was no demand for interest." Consequently, the legal interest rate is six percent, to be
computed from September 28, 1990, the date of the trial court's decision. And in accordance with Philippine National Bank 33 and Eastern
Shipping, 34 the rate of twelve percent per annum shall be charged on the total then outstanding, from the time the judgment becomes final and
executory until its satisfaction.
SECURITY BANK VS RTC MAKATI

263 SCRA 453
OVERVIEW:
This case involves an issue on usury involving the interest rate for the payment of loan agreed upon by the contracting parties
FACTS:
1. Private respondent Magtanggol Eusebio executed 3 Promissory notes in favor of petitioner Security Bank and Trust Co. (SBTC) with co-
respondent Leila Venture signed as co-maker.
(1) April 27, 1983- total of P100,000 payable in 6 months with a stipulated interest of 23% per annum up to the fifth installment
(2) July 28, 1983- total of P100,000 payable in 6 monthly installments plus 23% interest per annum
(3) August 31, 1983- in amount of P65,000 payable in 6 monthly installments plus interest at the rate of 23% per annum.
2. After some time, when Eusebio failed and refused to pay the remaining principal payable a collection case was filed by the petitioner SBTC.
3. Respondent court ruled in favor of the petitioner and against defendant Eusebio and is hereby ordered to pay the remaining balance plus
interest of 12% per annum and the cost of the suit.
ISSUE:
WON the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law
RULING:
Yes, from the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is 23%
per annum. The applicable provision of law is the Central Bank Circular No. 905 which took effect on December 22, 1982.The absence of
stipulations will the 12% rate be applied or if the stipulated rate is grossly excessive.
Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and conditions. The promissory notes were signed by
both parties voluntarily. Therefore, stipulations therein are binding between them.
ALMEDA VS CA
GR 113412 | 17 April 1996
OVERVIEW:
This case involves the issue upon which the increase of interest is being questioned due to the excessive increase in the interest rate posed by
herein private respondent bank to petitioner
FACTS:
1. On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano L. Almeda and Eufemia P. Almeda
several loan/credit accommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21% per annum.
2. To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land, together
with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. Between 1981 and 1984, petitioners
made several partial payments on the loan totaling. P7,735,004.66, a substantial portion of which was applied to accrued interest.
3. On March 31, 1984, respondent bank, over petitioners’ protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of
its credit agreement. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of 1984 to September of
1986.
4. Petitioner protested the increase in interest rates, to no avail.
ISSUE:
WON PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement
RULING:
No, any contact which appears to be heavily weighted in favor of one of the parties so as to lead to an unconscionable result is void. Likewise, any
stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties is invalid. The binding effect of any
agreement between parties to a contract is premised on two settled principle: that any obligation arising from the contact has the force of law
between the parties; and that there must be mutuality between the parties based on their essential equality.
The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in
the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect
on the effectivity date of the increase or decrease of the maximum interest rate.
FIRST METRO INVESTMENT VS ESTE. DEL SOL

GR 141811 | 15 November 2001
OVERVIEW:
This case involves a loan contracted by petitioner from respondent which involves a loan agreement which petitioner contends to be a usurious
transaction
FACTS:
1. Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos
(P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project located at
Barrio Puray, Montalban, Rizal.
2. Under the agreement, the interest was 16% pa based on the diminishing balance. In case of default, an acceleration clause was provided and
the amount due is subject to 20% one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by
law. respondent executed
3. Respondent also executed, as provided for by the Loan Agreement, a real estate mortgage, individual continuing suretyship and an
underwriting agreement whereby FMIC shall underwrite the public offering of one P120,000 common shares of respondent’s capital stock for
one-time underwriting fee of P200,000, annual supervision fee and consultancy fee with Consultancy Agreement for four (4) years, coinciding
with the term of the loan. The said fees were deducted from the first release of loan.
4. Respondent failed to meet the schedule of repayment. Petitioner instituted an instant collection suit. At the public auction, FIC was the highest
bidder. Petitioner filed to collect for alleged deficiency balance against respondents since it failed to collect from the sureties, plus interest at
21%.
ISSUE:
WON the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the usurious interest charged by the petitioner
RULING:
Yes, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to
cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest.
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The
borrower may recover in accordance with the laws on usury.
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article
1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only
should be deemed void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the principal amount of the loan. With
respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the payment is deemed to have been
made under restraint, rather than voluntarily.
NACAR VS GALLERY FRAMES

GR 189871 | 13 August 2013
OVERVIEW:
This case involves an issue on the validity of the re-computation by the labor arbiter about the wages of herein petitioner which was done after the
finality of a court decision, and as to which rate of interest shall apply
FACTS:
1. Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor Relations Commission
(NLRC) against respondents Gallery Frames.
2. On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed from employment without
a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92
3. On February 29, 2000, respondents appealed to the NLRC, but was dismissed. The Petition for Review of the respondents at the CA was
dismissed. Respondents sought relief from the SC, but was likewise, denied.
4. An Entry of Judgment was later issued by the SC certifying that the resolution became final and executory on May 27, 2002.
5. Eventually, petitioner filed for a Motion for Correct Computation, praying that the computation of his backwages be computed from his
dismissal up to May 27, 2002.
6. The Labor Arbiter issued a Writ of Execution ordering respondent to pay P471,320.31. Upon appeal by respondents, the LA ruled that it is the
October 15, 1998 Decision that should be enforced considering that it was the one that became final and executory
7. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of
P62,986.56 and limited backwages of P95,933.36, no more recomputation is required to be made of the said awards. They claimed that after
the decision becomes final and executory, the same cannot be altered or amended anymore
ISSUE:
WON the computation of the LA on October 15, 1998’s decision be applied on Nacar’s backwages
RULING:
No, SC ruled that since the finality of the decision was on May 27, 2002, backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory shall be applied.
Likewise, since there is an absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum — as
reflected in the case of Eastern Shipping Lines 40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3
and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 — but will now
be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and
not retroactively. Thus, interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013
and six percent (6%) per annum from July 1, 2013 until their full satisfaction shall be applied.
KHE HONG CHENG V. CA
G.R. No. 144169, March 28, 2001 | 355 SCRA 701
OVERVIEW:
This case involves a petition for review on Certiorari under rule 45 seeking to set aside the decision of the Court of Appeals in favor of
Philam Insurance Company, Inc. (respondent). The original complaint that is the subject matter of this case is an accion pauliana — an action
filed by Philam Insurance Company, Inc. to rescind or annul the donations made by petitioner Khe Hong Cheng allegedly in fraud of creditors.
FACTS:
1. Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines.
2. The Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong
Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte.
3. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance Company (respondent
Philam's assured).
4. M/V PRINCE ERIC sank somewhere between Negros Island and Northeastern Mindanao, resulting in the total loss of the
shipment.
5. Because of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee.
6. Having been subrogated into the rights of the consignee, American Home instituted a civil case to recover the money paid to the
consignee, based on breach of contract of carriage.
7. While the case was still pending, on December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of
land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven.
8. The trial court rendered judgment against petitioner in the civil case on December 29, 1993, four years after the donations were made
and the TCTs were registered in the donees’ names ordering him to pay herein respondents.
9. After the said decision became final and executory, a writ of execution was forthwith. Said writ of execution, however, was not served. An
alias writ of execution was, thereafter, applied for and granted.
10. Despite earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy
or garnish for the satisfaction of the trial court's decision.
11. When the sheriff, accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed the subject
properties to his children.
12. Respondent Philam filed a complaint for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor
of his children and for the nullification of their titles. Respondent Philam alleged, that petitioner executed the aforesaid deeds in
fraud of his creditors, including respondent Philam.
13. The trial court denied the motion to dismiss. It held that respondent Philam's complaint had not yet prescribed. According to the trial court,
the prescriptive period began to run only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357
14. On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam.
15. The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code,
the CA ruled that the four-year period to institute the action for rescission began to run only in January 1997, and not when the
decision in the civil case became final and executory on December 29, 1993. The CA reckoned the accrual of respondent
Philam's cause of action on January 1997, the time when it first learned that the judgment award could not be satisfied because
the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name.
16. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in its favor, as prescribed under
Article 1383 of the Civil Code. Petitioners’ motion for reconsideration was likewise dismissed in the appellate court's resolution dated July
11, 2000.
ISSUE:
Whether or not the action to rescind the donations has already prescribed
RULING:
- NO. The action to rescind the donations has not yet prescribed. The petition was DENIED for lack of merit.
- SC affirmed the decision of CA declaring that the action to rescind the donations had not yet prescribed.
- Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for rescission began
to run only in January 1997, and not when the decision in the civil case became final and executory on December 29, 1993.
- The CA reckoned the accrual of respondent Philam’s cause of action on January 1997, the time when it first learned that the
judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in its favor, as
prescribed under Article 1383 of the Civil Code
- SC quotes CA in explanation about accion pauliana:
“An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against
the debtor other than an accion pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still has a
remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the creditor for
rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana
presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the
failure of the Sheriff to enforce and satisfy the judgment of the court. It presupposes that the creditor has exhausted the property of
the debtor. The date of the decision of the trial court against the debtor is immaterial. What is important is that the credit of the plaintiff
antedates that of the fraudulent alienation by the debtor of his property.”
Relevant provisions:
Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be commenced within four years." Since this provision of
law is silent as to when the prescriptive period would commence, the general rule, i.e, from the moment the cause of action accrues, therefore,
applies.
virtual 1aw library

ARTICLE 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from
the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for
the computation of the prescriptive period for the action.
ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
SIGUAN VS. LIM
G.R. No. 134686 | 19 November 1999
OVERVIEW:
This case involves the fulfillment of the requisites of accion pauliana filed by Maria Antonia Siguan (petitioner) against Rosa Lim, Ingrid
Lim, and Neil Lim (respondents).
FACTS:
1. Rosa Lim (Lim) issued two Metrobank checks in the sums of P300,000 and P241,668, respectively, payable to “cash.”
2. Upon presentment by petitioner Siguan with the drawee bank, the checks were dishonored for the reason “account closed.” Demands to
make good the checks proved futile.
3. Lim was charged w/ estafa, and found guilty. CA affirmed this decision on appeal. However on appeal to the SC, Lim was
acquitted, though her civilly liable in the amount of P169,000, as actual damages, plus legal interest, was retained.
4. While these proceedings were happening, Lim executed a Deed of Donation (DoD) conveying the following parcels of land in favor of her
children, registered with the Office of the Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in the
names of the donees.
5. Siguan filed an accion pauliana against Lim and her children before in RTC Cebu City to rescind the DoD and to declare as null
and void the new TCTs issued for the lots covered by the questioned deed. Petitioner claimed that through the DoD, Lim had
fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her. She further
alleged that Lim confederated with her children in antedating the DoD to petitioner’s and other creditors’ prejudice; and that Lim,
at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations .
6. Lim denied any liability to petitioner. She maintained that the DoD was not antedated but was made in good faith at a time when she had
sufficient property. She alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.
7. Trial Court ordered the rescission of the DoD, declared TCTs void, Lims to pay Siguan P10,000 as moral damages; P10,000 as
attorney’s fees; and P5,000 as expenses of litigation
8. CA reversed decision, thus this appeal.
9. Petitioner's argument: CA decision contrary to Oria vs McMicking ruling, w/c enumerated circumstances for existence of fraud. They also
contended that CA misapplied the Rules of Court, and that they overlooked NCC Art 759 w/c provides: “The donation is always
presumed to be in fraud of creditors when at the time of the execution thereof the donor did not reserve sufficient property to
pay his debts prior to the donation.” In this case, Lim made no reservation of sufficient property to pay her creditors prior to the
execution of the DoD.
10. Respondents argue that (a) having agreed on the law and requisites of accion pauliana, petitioner cannot take shelter under a different
law; (b) petitioner cannot invoke the credit of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) CA
correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to present convincing evidence that
the DoD was antedated and executed in fraud of petitioner; and (e) CA correctly struck down the awards of damages, attorney’s fees
and expenses of litigation because there is no factual basis therefor in the body of the TC’s decision.
ISSUE:
WoN the Deed of Donation executed by respondent Rosa Lim in favor of her children can be rescinded for being in fraud of her alleged creditor,
petitioner Siguan?
RULING:
- No. The alleged debt of respondent in favor of petitioner was incurred in August 1990, while the deed of donation was
purportedly executed on 10 August 1989. Article 1381 of the Civil Code enumerates the contracts which are rescissible, and
among them are those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them.
- The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must
be present:
(1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later;
(2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person;
(3) the creditor has no other legal remedy to satisfy his claim;
(4) the act being impugned is fraudulent;
(5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.
- The fourth requisite for an accion pauliana to prosper is not present either.
- Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property
to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, second paragraph, states that the
donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to
pay his debts prior to the donation
- For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have
recourse for the collection of their credits existing before the execution of the donation. As earlier discussed, petitioners alleged credit
existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or
defrauded by such alienation. Evidence also disclose that respondent still had other properties when the deed of donation was
executed.
PURE AND CONDITIONAL OBLIGATIONS
HSBC V. SPOUSES BROQUEZA
G.R. No. 178610, November 17, 2010
OVERVIEW:
This case involves identifying loans as a pure obligation, to be immediately demandable for not containing a period.
FACTS:
1. Petitioners Gerong and Editha Broqueza are employees of Hongkong and Shanghai Banking Corporation (HSBC). They are also
members of HSBC, Ltd. Staff Retirement Plan.
2. The Plan is a retirement plan established by HSBC through its BOT for the benefit of the employees.
3. On Oct. 1, 1990, petitioner Broqueza obtained a car loan in the amount of P175,000.00.
4. On Dec. 12, 1991, she again applied and was granted an appliance loan in the amount of P24,000.00.
5. Petitioner Gerong, on the other hand applied and was granted an emergency loan in the amount of P35,780.00 on June 2, 1993.
6. The loans were paid through automatic salary deductions.
7. A labor dispute arose between HSBC and its employees.

8. Majority of HSBCs employees were terminated among them the petitioners.
9. The employees filed an illegal dismissal case before the NLRC against HSBC, which is now pending before the CA. Because of
the dismissal, petitioners were not able to pay the monthly amortizations of their respective loans. They were considered
delinquent. Demands to pay were made.
10. On July 31, 1996, HSBCL-SRP filed a civil case against the spouses.
11. On Sept. 19, 1996, HSBCL-SRP filed another civil case. Both suits were civil actions for recovery and collection of sums of money.
12. The MeTC ruled that the nature of HSBCs demands for payment is civil and has no connection to the ongoing labor dispute.
13. The loans secured by their future retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil
obligations. They are immediately demandable.
14. The RTC reaffirmed the decision but the CA reversed it.
15. On Aug. 6, 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations.
ISSUE:
Whether or not the loan of Spouses Broqueza is a pure obligation and demandable at once even if they were dismissed by HSBC.
RULING:
- Yes, the loan is a pure obligation and is immediately demandable.

- In ruling the case, Supreme Court applies the first paragraph of Article 179 of the New Civil Code:
“Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once.”
- The RTC is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand immediate
payment.
- The spouse’s obligation to pay HSBCL-SRP is a pure obligation because they do not contain a period
PROMISSORY NOTE
- P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC RETIREMENT PLAN (hereinafter called
the "PLAN") at its office in the Municipality of Makati, Metro Manila, on or before until fully paid the sum of PESOS ___ (P___)
Philippine Currency without discount, with interest from date hereof at the rate of Six per cent (6%) per annum, payable monthly.
I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated in this note at any time depending on
prevailing conditions.
I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the principal without notice to the
other(s), and in such a case our liability shall remain joint and several.1avvphi1
In case collection is made by or through an attorney, I/WE jointly and severally agree to pay ten percent (10%) of the amount due
on this note (but in no case less than P200.00) as and for attorney’s fees in addition to expenses and costs of suit.
In case of judicial execution, I/WE hereby jointly and severally waive our rights under the provisions of Rule 39, Section 12 of the
Rules of Court.
- SC affirms the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. The RTC is
correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand immediate
payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure obligation. The
fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s salary is of no moment. Once Editha
Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure obligation.
- Finally, the enforcement of a loan agreement involves "debtor-creditor relations founded on contract and does not in any way concern
employee relations. As such it should be enforced through a separate civil action in the regular courts and not before the Labor Arbiter.
Relevant Provision:
Article 1179: Obligation demandable at once Every obligation whose performance does not depend upon a future or uncertain event or does
not depend upon a past even unknown to the parties, is demandable at once.
Pure obligation:
an obligation without a condition or a term, and therefore demandable at once
GAITE VS. FONACIER

GR. No. L-11827 | July 31, 1961
OVERVIEW:
This case involves an obligation by the respondent to pay the plaintiff his balance of 65,000 php.
FACTS:
1. Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the Dawahan Group. By a "Deed of Assignment" dated
September 29, 1952, Fonacier constituted and appointed Gaite as his true and lawful attorney-in-fact to enter into a contract with
any individual or juridical person for the exploration and development of the mining claims.
2. On March 19, 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims into
the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided by the “Deed of
Assignment".
3. For some reason or another, Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in
question, and Gaite assented thereto subject to certain conditions.
4. As a result, a "Revocation of Power of Attorney and Contract" was executed on December 8, 1954, wherein Gaite transferred to
Fonacier, all his rights and interests on development and exploitation of said mining claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and the balance of P65,000.00 will be paid from and out of
the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the
Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests.
5. To secure the payment of P65k, Fonacier executed a surety bond with himself as principal, the Larap Mines and Smelting Co. and its
stockholder as sureties. Yet, this was refused by Gaite.
6. He further required another bond underwritten by a bonding company to secure the payment of the balance.
7. Hence a second bond was produced with Far Eastern Surety as an additional surety, provided the liability of Far Eastern would only
prosper when there had been an actual sale of the iron ores of not less than the agreed amount of P65k, moreover, its liability
was to automatically expire on December 1955.
8. On December 1955, the second bond had expired and no sale amounting to the stipulation as prior agreed nor had the balance been paid
to Gaite by Fonacier. Thus such failure, prompted Gaite to file a complaint in the CFI of Manila for the payment of the balance and other
damages.
9. The lower court ruled the obligation was one with a term and that the obligation became due and demandable under Article 1198
of the New Civil Code.
ISSUE:
Whether or not the Lower Court erred in holding the obligation of appellant Fonacier to pay appelle Gaite the balance of P65,000, as one with
a period or term and not one with a suspensive condition; and that the term expired on December 1955
RULING:
- No error was found, affirming the decision of the lower court.

- Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract was executed, either
because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one year, and the balance of P65,000, became due and payable thereafter.
- The Lower Court was legally correct in holding the shipment or sale of the iron ore is not a condition or suspensive to the payment of the
balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or
obligatory force as distinguished from its demandability, is subordinated to the happening of a future and uncertain event; so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.
- The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not
being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the
agreed price, but was intended merely to fix the future date of the payment.
- While as to the right of Fonacier to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other
words, whether or not they are entitled to take full advantage of the period granted them for making the payment. The appellant had
indeed have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00,
because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor
for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale
of the ore to Fonacier (first bond).
- Under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: ART. 1198. The debtor shall lose every right to
make use of the period: “(2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3)
When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event
they disappear, unless he immediately gives new ones equally satisfactory.”
- Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor
(appellee Gaite), unless immediately renewed or replaced.
- Nevertheless, there is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on
its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants
had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the
defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed, first
bond’
GONZALES VS. HEIRS OF THOMAS

G.R. No. 131784 | September 16, 1999
OVERVIEW:
This case involves an obligation that cannot be enforced unless the plaintiff has fulfilled the condition upon which it is premised.
FACTS:
1. Petitioner Gonzales entered into a Contract of Lease/Purchase with the heirs of Thomas and Paula Cruz.
2. Based on the said contract, the petitioner was given an option to purchase the leased property after the expiration of the one-year lease.
The option was subject to a condition contained in par. 9 of the Contract which provided that: “The LESSORS (heirs) x x x shall undertake
to obtain a separate and distinct TCT over the leased portion to the LESSEE within a reasonable period of time which shall not in any case
exceed 4 years, x x x”
3. After the expiration of the lease, petitioner Gonzales did not exercise his option to purchase the property. He remained in possession
without paying the purchase price. Alleging breach of the provisions of the Contract, the heirs filed a complaint for the recovery of
possession of the property. For his part, the petitioner defended that there was no breach since the heirs had not yet registered the leased
property in their names in accordance with par. 9 of the Contract.
ISSUE:
Whether or not the obligation was subject to a condition
RULING:
- YES. The clear intent of the 9th par. was for respondents to obtain a separate and distinct TCT in their names. This was necessary
to enable them to show their ownership of the stipulated portion of the land and their concomitant right to dispose of it. It is a well-settled
principle in law that no one can give what one does not have – nemo dat quod non habet.
- Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer
legally. Because the 9th clause required respondents to obtain a separate and distinct TCT in their names and not in the name of
petitioner, it logically follows that such under taking was a condition precedent to the latter’s obligation to purchase and pay for the land.
- Put differently, petitioner’s obligation to purchase the land is a conditional one and is governed by Article 1181 of the Civil Code.
- Condition has been defined as “every future and uncertain event upon which an obligation or provision is made to depend”.
- Without it, the sale of the property under the Contract cannot be perfected, and the petitioner cannot be obliged to purchase the property.
The obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event, so that if that event does
not take place, the parties would stand as if the conditional obligation had never existed.
SUSPENSIVE CONDITION
Romulo A. Coronel, et al vs. The Court of Appeals, et al

G.R. No. 103577 (October 7, 1996)
OVERVIEW:
This case involves a contract of sale of property of petitioner Coronel to respondent Alcaraz. The petition before the Supreme Court has its roots in
a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a
parcel of land with its improvements entered into by the parties sometime in January 1985 for the price of P1,240,000.00.
FACTS:
1. Coronel et al. consummated the sale of his property located in Quezon City to respondent Alcaraz. Since the title of the property was still
in the name of the deceased father of the Coronels, they agreed to transfer its title to their name upon payment of the down payment and
thereafter an absolute deed of sale will be executed.
2. Alcaraz’s mother paid the down payment in behalf of her daughter and as such, Coronel made the transfer of title to their name.
Notwithstanding this fact, Coronel sold the property to petitioner Mabanag and rescinded its prior contract with Alcaraz.
ISSUE:
Whether or not the contract between the petitioner and the respondent was a contract to sell subject to a suspensive condition.
RULING:
 No. The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to
the subject parcel of land. Unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the property to private
respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they
undertook to have the certificate of title change to their names and immediately thereafter, to execute the written deed of absolute sale.
 Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case.
 Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price.
 From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.
 Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
 What is clearly established by the plain language of the subject document is that when the said Receipt of Down Payment was prepared
and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful
transfer of the certificate of title from the name of petitioner’s father to their names. In fact, the Court significantly notes that this
suspensive condition was fulfilled. Thus, the conditional contract of sale between petitioners and private respondent became obligatory,
the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute
sale in a public instrument.
 What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the
house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the
documents were then in order. It just so happened, however, that the transfer certificate of title was then still in the name of their father.
RESOLUTORY CONDITION
Central Philippine University v. CA

G.R. No. 112127, July 17, 1995, 246 SCRA 511
OVERVIEW:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the
RTC of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessor-in-interest.
FACTS:
1. In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the following conditions: 1.) The land should be
utilized by CPU exclusively for the establishment & use of medical college; 2.)The said college shall not sell transfer or convey to any 3rd
party; 3.)The said land shall be called “Ramon Lopez Campus” and any income from that land shall be put in the fund to be known as
“Ramon Lopez Campus Fund”.
2. However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment of donation, reconveyance & damages
against CPU for not complying with the conditions. The heirs also argued that CPU had negotiated with the NHA to exchange the donated
property with another land owned by the latter.
3. Petitioner alleged that the right of private respondents to file the action had prescribed.
ISSUE:
1. WON petitioner failed to comply the resolutely conditions annotated at the back of petitioner’s certificate of title without a fixed period when
to comply with such conditions.
2. WON there is a need to fix the period for compliance of the condition.
RULING:
 Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment or loss of those already acquired shall
depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition
that the latter would build upon the land a school is such a resolutory one. The donation had to be valid before the fulfillment of the
condition. If there was no fulfillment with the condition such as what obtains in the instant case, the donation may be revoked & all rights
which the donee may have acquired shall be deemed lost & extinguished.
 More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no
more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve
no purpose than to delay or lead to an unnecessary and expensive multiplication of suits.
 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence,
it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.
 Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can be inferred that the period was
intended, the court may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has
fixed the period for compliance therewith & such period has arrived. However, this general rule cannot be applied in this case considering
the different set of circumstances existing more than a reasonable period of 50yrs has already been allowed to petitioner to avail of the
opportunity to comply but unfortunately, it failed to do so. Hence, there is no need to fix a period when such procedure would be a mere
technicality & formality & would serve no purpose than to delay or load to unnecessary and expensive multiplication of suits.
 Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission before the
court unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of
compliance there is no more obstacle for the court to decree rescission.
Quijada v. CA
G.R. No. 126444, December 4, 1998
OVERVIEW:
Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private respondents for quieting of title, recovery of possession and
ownership of parcels of land with claim for attorney's fees and damages.
FACTS:
1. Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late
Pedro Corvera and inherited from the latter the two-hectare parcel of land. Trinidad Quijada together with her sisters Leonila Corvera Vda.
de Sequea and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the two-hectare parcel of
land with the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial
high school in Talacogon but Trinidad remained in possession of the parcel of land despite the donation.
2. On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant Regalado Mondejar. Subsequently,
Trinidad verbally sold the remaining one (1) hectare to defendant-appellant (respondent) Regalado Mondejar without the benefit of a
written deed of sale and evidenced solely by receipts of payment.
3. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry against defendant-appellant
(respondent) Regalado Mondejar, which complaint was dismissed. The proposed provincial high school having failed to materialize, the
Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the two (2) hectares of land donated back to the
donors.
ISSUE:
Whether or not the donated parcel of land will revert back to the original owner for not complying the resolutory condition of the construction of the
school.
RULING:
 Yes. In this case, that resolutory condition is the construction of the school. It has been ruled that when a person donates land to another
on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive
condition but a resolutory one. Thus, at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold
the lots since she had earlier transferred ownership thereof by virtue of the deed of donation. Only then – when the non-fulfillment of the
resolutory condition was brought to the donor’s knowledge – that ownership of the donated property reverted to the donor as provided in
the automatic reversion clause of the deed of donation.
 In the doctrine of resolutory condition provided under Article 1181, So long as the resolutory condition subsists and is capable of
fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his
successors-in-interest under the deed of donation.
 The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such
inchoate interest may be the subject of contracts including a contract of sale. In this case, however, what the donor sold was the land itself
which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation
which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition.
POTESTATIVE CONDITION
FRANCISCO LAO LIM vs. COURT OF APPEALS and BENITO VILLAVICENCIO DY

G.R. No. 87047 October 31, 1990
OVERVIEW:
This case is about the compromise agreement of Dy and Lao Lim on the issue of their contract of lease.
FACTS:
First Ejectment Case:
1. Private respondent entered into a contract of lease with petitioner for a period of three (3) years, that is, from 1976 to 1979. After the
stipulated term expired, private respondent refused to vacate the premises, hence, petitioner filed an ejectment suit against the Lao Lim.
The case was terminated by a judicially approved compromise agreement of the parties providing in part: “That the term of the lease
shall be renewed every three years retroacting from October 1979 to October 1982; after which the above-named rental shall be
raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said
increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term;”
2. By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to 1985. On April 17, 1985, Dy advised
Lao Lim that he would no longer renew the contract effective October, 1985. 3However, on August 5, 1985, private Lao Lim informed
petitioner in writing of his intention to renew the contract of lease for another term, commencing November, 1985 to October, 1988. In
reply to said letter, Dy advised private respondent that he did not agree to a renewal of the lease contract upon its expiration in October,
1985. 5
Second Ejectment Case:
1. On January 15, 1986, because of private Lao Lim’s refusal to vacate the premises, Dy filed another ejectment suit, this time with the
Metropolitan Trial Court of Manila in Civil Case No. 114659-CV. In its decision of September 24, 1987, said court dismissed the complaint
on the grounds that (1) the lease contract has not expired, being a continuous one the period whereof depended upon the lessee's need
for the premises and his ability to pay the rents; and (2) the compromise agreement entered into in the aforesaid Civil Case No. 051063-
CV constitutes res judicata to the case before it.Dy appealed to the Regional Trial Court of Manila which, in its decision of January 28,
1988 in Civil Case No. 87-42719, affirmed the decision of the lower court.
ISSUE:
Was the stipulation in the compromise agreement which allows the lessee to stay on the premises as long as he needs it and can pay rents is
valid?
HELD:
No, since the stipulation “for as long as the defendant needed the premises and can meet and pay said increases” is a purely potestative
condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.
The continuance, effectivity, and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of
the lessee between continuing payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain
in such a contract of lease and no equality exists between the lessor and the lessee.
The decision of the Court of Appeals is REVERSED AND SET ASIDE. Benito Dy is ordered to immediately vacate and return the possession of
the premises and pay the monthly rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the
same. This Judgment is immediately executory.
RELEVANT PROVISION:
1. Article 1182 of the Civil Code provides that: “When the fulfillment of the condition depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions
of this Code.”
MIXED CONDITION
Osmena V. Rama
G.R No. 4437, September 9, 1909
OVERVIEW:
This case is about the potestative condition in stipulations of the contract of Don Osmena and Dona Rama.
FACTS:
1. Doña Cenona Rama entered into a contract with Don Victoriano Osmena for a sum of money with a stipulated condition that in the
event that the former will not be able to pay the amount borrowed, she will sell to the said Señor Osmeña all the sugar that she will harvest and as
a guarantee, pledge as security all of her present and future property, and as special security the house with tile roof and ground floor of stone in
which she is currently residing. The following year, defendant contracted an additional loan from petitioner.
2. However, even before the said loans can be paid, Don Victoriano Osmena died. As a consequence, the said contractual agreements
became properties of one of his heirs. When the stipulated payment period came, defendant was not able to pay for said obligation. This prompted
the heir, herein plaintiff, to file a case in the Court of First Instance demanding for the execution and delivery of said contracts.
3. After hearing the evidence presented by both parties, the Court of First Instance rendered a decision in a favor of the plaintiff.
4. Dissatisfied with the decision, the defendants appealed.

ISSUE:
1. Whether or not the condition that herein defendant relied upon the payment of the obligation is valid and would thereby preclude her from
payment.
RULING:
1. Article 1182 of the Civil Code provides that: “When the fulfillment of the condition depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.”
2. The condition presented by the petitioner in the acknowledgement is a void condition being dependent on the sole will (potestative) of the
same. The court ruled that since the said condition is found on the acknowledgment and not on the original obligation, only the said
condition is void and the acknowledgment thus becomes an absolute recognition of the loans contracted. There already being prior
acknowledgment, the debt is considered to have not prescribed. Petition is dismissed and lower court’s decision is affirmed.
RELEVANT PROVISION:
Art. 1182 (formerly Art. 1115). When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions
of this Code.
HERMOSA v. LONGARA
G.R. No. L-5267 October 27, 1953
OVERVIEW:
This case is about Longara trying to enforce his claims against the estate of Hermosa based on an obligation subject to a mixed condition.
FACTS:
1. This is an appeal by way of certiorari against a CA decision approving certain claims presented by Epifanio Longara against the intestate
estate of Fernando Hermosa, Sr.
o Php 2341.41 – credit advances to intestate (1932-44)
o Php 12,924.12 – credit advances to his son Francisco Hermosa
o Php 3772 – credit advances to grandson Fernando Hermosa, Jr. (1945-47, after death of intestate on December,1944)
2. Claimant presented evidence that the intestate had asked for the advances for himself and for his family on condition that payment
should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain (in other
words, payable as soon as FHS’s property in Spain was sold and he received money from the sale).
3. Appellant contended that the obligation contracted by intestate was subject to a potestative condition (solely dependent upon the will of
the debtor) and therefore null and void, per Art.1115 of the old CC.
ISSUES:
1.) WON the condition in question is a potestative condition.

2.) WON the 3rd group of claims (credits furnished to intestate’s grandson, AFTER death of intestate should be allowed.
RULING:
1.) NO. It is a mixed condition. Condition does not depend exclusively upon will of the debtor, but also upon other circumstances beyond
his power or control. It implies that the intestate had already decided to sell his house, or at least that he made his creditors believe that he
had done so, and that all that was left to make his obligation (to pay debt) demandable is the consummation of the sale and the remittance
of the price. The will to sell on the debtor’s part was therefore either present in fact, or legally presumed to exist, although the price and
other conditions thereof were still within his discretion.
Therefore, the obligation is not purely a potestative one, but a mixed one, depending partly upon the will of the debtor (i.e., the intestate),
and partly upon chance, i.e., the presence of the buyer of the property.
2.) NO. The obligation to furnish support is a personal one and is extinguished upon the death of the principal. Therefore, the decision
approving the third set of claims should be reversed.
RELEVANT PROVISION:
of this Code.
Taylor vs Uy Tieng piao

G.R. No. L-16109
October 2, 1922
OVERVIEW:
This case is about the mixed condition inserted into the contract of the parties should the machinery to be installed fail.
FACTS
1. Taylor contracted his services to Tan Liuan & Co as superintendent of an oil factory which the latter contemplated establishing the contract
extended over 2 years and the salary was P600/month during the first year and P700/month during the second with electric, light and
water for domestic consumption or in lieu thereof, P60/month
2. At this time, the machinery for contemplated factory had not been acquired, though ten expellers had been ordered from the US
3. It was understood that should the machinery to be installed fail, for any reason, to arrive in Manila within the period of 6 months, the
contract may be cancelled by the party of the second part at its option, such cancellation did not to occur before the expiration of such 6
months
4. The machinery did not arrive in Manila within the 6 months; the reason does not appear, but a preponderance of evidence show that the
defendants seeing that oil business no longer promised large returns, either cancelled the order for machinery from choice or were unable
to supply the capital necessary to finance the project.
5. Defendants communicated to Taylor that they had decided to rescind the contract.
6. Taylor instituted this action to recover damages in the amount of P13k, covering salary and perks due and to become due
ISSUE
WON in a contract for the prestation of service, it is lawful for the parties to insert a provision giving the employer the power to cancel the contract
in contingency which may be dominated by himself
HELD
1. YES. One of the consequences of the stipulation was that the employers were left in a position where they could dominate the contingency,
and the result was about the same as if they had been given an unqualified option to dispense with the services of Taylor at the end of 6
months. But this circumstance does not make the stipulation illegal.
2. A condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the
obligor.
3. If it were apparent, or could be demonstrated that the defendants were under positive obligation to cause the machinery to arrive in Manila,
they would of course be liable, in the absence of affirmative proof showing that the non-arrival of the machinery was due to some cause not
having its origin in their own act or will.
4. The contract, however, expresses no such positive obligation, and its existence cannot be implied in the face of the stipulation,
defining the conditions under which the defendants can cancel the contract.
5. CFI no error in rejecting Taylor’s claim in so far as damages are sought for the period subsequent to the expiration of 6 months, but in
assessing the damages due for the six-month period, the trial judge overlooked the item of P60 (commutation of house rent) This amount
Taylor is entitled to recover in addition to P300 awarded by CFI.
Rustan Pulp and Paper Mills v. IAC
G. R. No. 70789, 19 October 1992
OVERVIEW:
This case is about the potestative condition on one of the stipulations of the contract entered into by Rustan and Lluch.
FACTS:
1. Petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. Respondent Lluch, who is a holder of a forest products
license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In their contract it stated that the
supply is not exclusive, Rustan shall have the option to buy supplies from other and that buyer shall have the right to stop delivery of the
materials by the seller if the supply will be efficient, however the seller is given sufficient notice.
2. During the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which
prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop
deliveries and the letter of similar advice sent by petitioners to private respondents.
3. Lluch sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the contract of sale was intended, but
Rustan Pulp failed to reply. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after a series of talks
between Lluch and Romeo Vergara, the manager of Rustan Pulp.
4. Later, Lluch filed a complaint for breach of contract. The case was dismissed, but at the same time, the court enjoined Rustan Pulp to
honor the contract. On appeal, the court ruled that Rustan Pulp’s suspension of deliveries was not in the lawful exercise of its rights under
the contract of sale.
ISSUE:
Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under the contract of sale?
RULING:
1. No. There is cogent basis for private respondent’s apprehension on the illusory resumption of deliveries inasmuch as the prerogative
suggests a condition solely dependent upon the will of petitioners. Petitioners can stop delivery of pulp wood from private
respondents if the supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as determined
likewise by petitioners.
2. Article 1182 of the civil code states that: When the fulfillment of the condition depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
3. A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the
stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception.
RELEVANT PROVISION:
of this Code.
Effect of Prevention of Fulfillment of the Condition by the Obligor
HERRERA VS LEVISTE, G.R. No. 55744, 20 February 1985
OVERVIEW
This is a very interesting case because the issue on the effect of prevention of fulfillment of the condition by the obligor was well-
expounded by the dissenting opinion of Justice Teehankee.
FACTS
1. Leviste obtained a loan from GSIS of P1,900,000. As a security, it mortgaged 2 lots – Paranaque and Buendia Properties
2. Leviste sold Buendia property to Herrera for P3,750,000, with the following CONDITIONS that Herrera should:
 Pay Leviste P11,900,000.
 Assume Leviste’s indebtedness P1,900,000 to GSIS
 Substitute Paranaque property with his own in 6 months.
3. Leviste’s Obligation as stipulated in the contract: "the assumption of mortgage shall be arranged and conformity thereto by GSIS
obtained by the Vendor with the full cooperation of the Vendee." (Par 4)
4. Herrera’s obligation: that failure to comply shall render contract automatically cancelled, all payments forfeited, plus rental and
damages. (Par 11)
5. Leviste on its part did not comply with his obligation under #3 and Herrera also discovered that Leviste was in arrears in its amortizationa
payments for 14 months, which he did not know at the time of the sale.
6. GSIS required Herrera to submit his papers to support his assumption of mortgage, but it was not approved because there was no final
deed of sale by Leviste even after Herrera already paid off the amount to Leviste. (The original, being a conditional sale).
7. GSIS foreclosed the property; Leviste sold it to Marcelo.
8. Herrera filed a complaint, RTC, and CA, and even SC division ruled in favor of Leviste.
ISSUE
Can respondent Leviste automatically cancel the Contract to Sell and forfeit all the sums paid by petitioner thereunder when respondent
Leviste was the one that voluntarily prevented the petitioner from fulfilling his obligations under the Contract to Sell?
RULING (dissenting opinion of Justice Teehankee)
The motion for reconsideration should be granted and the petition granted to obviate a carriage of justice. While it is true that under paragraph No.
11 of the Contract to Sell, failure to comply with any of the conditions therein enumerated would render the contract automatically cancelled and all
the sums paid by petitioner forfeited, Herrera was prevented from fulfilling the condition of assuming the GSIS mortgage because of Leviste's own
non-compliance with its obligation of securing the consent of GSIS thereto. The contract expressly obligated (Par 4) Leviste to work out with the
GSIS Herrera's assumption of the mortgage. But obviously because of selfish and self-serving motives and designs, as borne out by the events,
Leviste made no effort to assist and arrange for Herrera's assumption of its mortgage obligation. In spite of the fact that Herrera had already paid
Leviste the full amount of P1,895.688.50, Leviste refused to execute the final deed of sale in favor of Herrera as required by GSIS.
Article 1266 – The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible
without the fault of the obligor.
Article 1169 - 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 begins.
Article 1186 – The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
INTERNATIONAL HOTEL CORP VS JOAQUIN, G.R. No. 158361, 10 April 2003
OVERVIEW
This involves the determination of constructive fulfillment of a suspensive obligation.
FACTS
1. Respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the International Hotel Corporation (IHC) for him to
render technical assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by the Development Bank of the
Philippines (DBP).
2. Shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the amount of P500,000.00 for
the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the scope of the technical
proposal.
3. Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHC’s financial situation. Later, the stockholders of
IHC met and granted Joaquin’s request, allowing the payment for both Joaquin and Rafael Suarez for their services in implementing the
proposal.
4. Joaquin narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended that the Board of
Directors consider Materials Handling Corporation based on the more beneficial terms it had offered. His recommendation was accepted.
5. Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International, ensued.
6. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the
Weston International Corporation, to explore possible financing. When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for DBP’s consideration.
7. As a result, DBP cancelled its previous guaranty. Thereafter, IHC entered into an agreement with Weston, and communicated this
development to DBP.
8. However, DBP denied the application for guaranty for failure to comply with the conditions contained in its letter. Due to Joaquin’s failure
to secure the needed loan, IHC, through its President Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and
Suarez as payment for their services. Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages and injunction.
9. The trial court held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code. At the same time, the RTC found that
Joaquin and Suarez had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than with Weston, the
financier that Joaquin had recommended; and that the cancellation of the shares of stock had been proper under Section 68 of the
Corporation Code, which allowed such transfer of shares to compensate only past services, not future ones.
10. On appeal, the CA concurred with the RTC, upholding IHC’s liability under Article 1186 of the Civil Code. It ruled that in the context of
Article 1234 of the Civil Code, Joaquin had substantially performed his obligations and had become entitled to be paid for his services; and
that the issuance of the shares of stock was ultra vires for having been issued as consideration for future services.
ISSUE
WON IHC can be held liable under 1186 and 1234 to pay the respondents?
RULING
Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC’s obligation to pay respondents. There is no constructive fulfillment
of a suspensive condition as IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with
Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such
absence of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code. Nor do the Court agree with the CA’s upholding
of IHC’s liability by virtue of Joaquin and Suarez’s substantial performance. It is well to note that Article 1234 applies only when an obligor admits
breaching the contract after honestly and faithfully performing all the material elements thereof except for some technical aspects that cause no
serious harm to the obligee. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation. To secure
a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the respondents because it required the action and
discretion of third persons―an able and willing foreign financial institution to provide the needed funds, and the DBP Board of Governors to
guarantee the loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no question that when the
fulfillment of a condition is dependent partly on the will of one of the contracting parties, or of the obligor, and partly on chance, hazard or the will of
a third person, the obligation is mixed. The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but
the obligor did all in his power to comply with the obligation, the condition should be deemed satisfied. Considering that the respondents
were able to secure an agreement with Weston, and subsequently tried to reverse the prior cancellation of the guaranty by DBP, the Court ruled
that they thereby constructively fulfilled their obligation.
Article 1186 – The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Romero vs. CA
G.R. No. 107207, November 23, 1995
OVERVIEW: This case involves a “Conditional Deed of Sale” contracted between the petitioner and respondent on a parcel of land.
Respondent opted to rescind the sale in view of her failure to evict the squatters. RTC ruled a decision against the private respondent.
However, CA overturned the decision of RTC. Thus, this review on certiorari.
FACTS:
1. Petitioner Virgilio Romero is a civil engineer. He was engaged in the business of production, manufacture and exportation of perlite filter aids,
permalite insulation and processed perlite ore.
2. In 1988, petitioner and his foreign partners decided to put up a Central Warehouse in Metro Manila.
3. Alfonso Flores and his wife accompanied by a broker, offered a parcel of land measuring 1,952 square meters, covered by TCT No. 361402
under the name of private respondent Enriqueta Chua vda. De Ongsiong.
4. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse.
5. Flores called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment
case against the squatters, private respondent would agree to sell the property for only P800/ square meter. Romero agreed. Thus, the two
entered into a “Deed of Conditional Sale” wherein it was stated that the purchase price of P1,561,600.00 less the down payment of P50,000.00
shall be paid 45 days after the removal of all squatters, upon full payment, Ongsiong shall execute a deed of absolute sale in favor of Romero.
6. In a letter dated 07 April 1989, private respondent sought to return the advance payment she received because she could not get rid of the
squatters. She opted to rescind the sale in view of her failure to get rid of the squatters.
7. RTC of Makati held the decision that private respondent had no right to rescind the contract since it was she who “violated her obligation to eject
the squatters from the subject property” and the petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code,
rescind the agreement.
8. However, CA reversed the RTC decision. It opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the
ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent
substantially complied with her obligation to evict the squatters; that it was the petitioner who was not ready to pay and fulfill his part of the
contract, and that the provision requiring a mandatory return/ reimbursement of the P50,000.00 in case private respondent would fail to eject the
squatters within the 60-day period was not a penal clause.
ISSUE:
WON the contract of sale was perfected.
RULING:
YES. A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any
condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the
condition is imposed upon the obligation of a party thereto when ownership is retained until the fulfillment of a positive condition will simply prevent
the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party, which is not complied with, the
other party may either refuse to proceed or waive said condition (Article 1545, Civil Code). Where, of course, the condition is imposed upon the
perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence.
The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the
fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain
express warranties (which, in the case at bench is the timely eviction of the squatters on the property).
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent is
obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period
of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the
squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code.
Thus, the decision of CA was REVERSED.
IMPOSSIBLE CONDITION
ROMAN CATHOLIC ARCHBISHOP OF MANILA v CA

G.R. No. 77425/77450 June 19, 1991
OVERVIEW:
This case involves a donated property by spouses de Castros to archbishop of Manila with the condition that no disposition shall be
made within 100 years. RTC dismissed the complaint on the ground that the cause of action has prescribed. However, CA set aside the
decision of RTC and remanded the case to lower court. Thus this review on certiorari.
FACTS
1. On November 29, 1984, the administrators of the estate of deceased spouses Eusebio and Martina De Castro filed a complaint to nullify the
deed of donation, rescission of contract, and reconveyance of the property against petitioners, spouses Florencio and Soledad Ignao, Roman
Catholic Bishop of Imus, and Roman Catholic Archbishop of Manila.
2. Private respondents alleged that in 1930, the spouses Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation
over their Cavite property to the Archbishop of Manila, said deed allegedly providing that the latter cannot dispose or sell the property within 100
years from execution.
3. The administration of the said properties was transferred to the Bishop of Imus in 1962. And in 1980, the Bishop of Imus sold the property to the
spouses Florencio and Soledad Ignao (petitioners). The Ignaos were then able to transfer the TCT under their names.
4. The lower court ruled that the action had already prescribed and dismissed the complaint. This was reversed by the CA.
5. Petitioners, Ignaos and the Bishops, contended that the cause of action had already prescribed, relying on Art. 764 which provides that "(t)he
donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon
the latter," and that "(t)his action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the heirs of the
donor, and may be exercised against the donee's heirs.
ISSUE
WON the action has already prescribed
RULING
YES, THE ACTION HAS ALREADY PRESCRIBED. Article 764 is not applicable in this case. There is no need for prescription to be applied in
cases where there is stipulation for automatic reversion. Nonetheless, the stipulation is against public policy and thus, is void.
In contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded, but in order to determine whether or not the rescission was proper. Thus, the cause of action has not yet
prescribed since an action to enforce a written contract prescribes in ten (10) years. Article 764 was intended to provide a judicial remedy in case
of non-fulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic
revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the situation in the case at bar.
NONETHELESS, while the action may not be dismissed by reason of prescription, the same should be dismissed on the ground that the estates of
the De Castros have NO CAUSE OF ACTION against the Ignaos and other petitioners. The cause of action of the De Castros is based on the
alleged breach of the resolutory condition that the property donated should not be sold within the prohibited period. Said condition, however,
constitutes an undue restriction on the rights arising from ownership and is, therefore, contrary to public policy and should be declared as an illegal
or impossible condition. Hence, the CA decision is reversed.
Heirs of Severina San Miguel v. CA

G.R. No. 136054, September 05, 2001
OVERVIEW: This case involves a contract of sale of parcels of land claimed to be owned by Petitioner. The respondent in this case
demanded the delivery of certificate of title covering lots 1 and 2. However, the petitioner refused on the basis that respondent,
Dominador, failed to pay P300,000.00 covering lot 3. RTC and CA ruled in favor of the respondent. Hence this petition for review.
FACTS:
1. A parcel of land situated in Cavite was originally claimed by Severina San Miguel. Without her knowledge, Dominador managed to cause the
subdivision of the land into three (3) lots.
2. On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance in Cavite, as a land registration court, to issue title over
Lots 1 and 2 in their names.
3. On July 19, 1977, the Land Registration Commission rendered a decision directing the issuance of Original Certificate of Title in the names of
Dominador, et al.
4. On August 22, 1978, Severina filed with the Court of First Instance in Cavite a petition for review on the decision alleging that the land
registration proceedings were fraudulently concealed by Dominador from her.
5. The court resolved to set aside the decision of July 19, 1977, and declared the said Original Certificate of Title as null and void. The Register of
Deeds of Cavite issued a Transfer Certificate of Title in the names of Severina and her heirs.
6. The trial court issued an order in favor of Severina’s heirs to let the writ of possession previously issued in favor of petitioner Severina San
Miguel be implemented. However, the writ was returned unsatisfied.
7. On August 6, 1993, Severina’s heirs decided not to pursue the writs of possession and demolition and entered into a compromise with
Dominador, et al. According to the compromise, Severina’s heirs were to sell the subject lots to Dominador, et al. with the delivery of Transfer
Certificate of Title conditioned upon the purchase of another lot which was not yet titled.pursuant to the compromise, Severinas heirs and
Dominador, et al. executed a deed of sale.
8. Dominador, et al. filed a motion praying that Severinas heir’s deliver the owner’s copy of the certificate of title to them but Severinas heirs
opposed the motion stressing that under the kasunduan, the certificate of title would only be surrendered upon Dominador, et al’s payment of the
amount of three hundred thousand pesos (P300,000.00) within two months from August 6, 1993, which was not complied with.
9. Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that Severinas heirs have not
presented any proof of ownership over the untitled parcel of land. Dominador, et al. prayed that compliance with the kasunduan be deferred until
such time that Severina’s heirs could produce proof of ownership over the parcel of land.
ISSUE:
WON Dominador, et al. may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in the kasunduan (as a pre-
requisite for the release of the certificate of title), despite Severina’s heirs lack of evidence of ownership over the parcel of land.
RULING:
NO. The Court finds the petition no merit. Severina’s heirs are not in a position to transfer title. Without passing on the question of who actually
owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina’s heirs. In fact, it is a certain Emiliano
Eugenio, who holds a tax declaration over the said land in his name. Though tax declarations do not prove ownership of the property of the
declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for
prescription. Severina’s heirs have nothing to counter this document.
Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severinas heir’s unjust enrichment. The essence
of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised. In Nool v. Court of Appeals, we held that if the
sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall
under Article 1405, No. 5 of the Civil Code, to wit:
Article 1405. The following contracts are inexistent and void from the beginning: (5) Those which contemplate an impossible service. Severinas
heirs insist that delivery of the certificate of title is predicated on a condition – payment of three hundred thousand pesos (P300,000.00) to cover
the sale of Lot 3 of. We find this argument not meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil
Code provides that “Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation
which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.
Xxx” Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of
title. The certificate of title covers Lots 1 and 2 which were fully paid for by Dominador, et al. Therefore, Severinas heirs are bound to deliver the
certificate of title covering the lots.
Rescission of Reciprocal Obligation
Substantial vs. Causal Breach
SONG FO & COMPANY VS HAWAIIAN PHILIPPINE CO. G.R. No. 23769 | September 16, 1925
OVERVIEW:
This is about the case filed in the court of First instance in Iloilo where Song Fo & Company (plaintiff), presented a complaint with two
causes of action for breach of contract against Hawaiian – Philippine Co. (defendant).
FACTS:
1. Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC) where it would deliver molasses to the latter
evidenced by a letter containing their contract.
2. The same states that Mr. Song Fo agreed to the delivery of 300,000 gallons of molasses and the same requested for an additional
100,000 molasses which the HPC promised that it will do its best to comply with the additional shipment.
3. However, the HPC was only able to deliver 55,006 gallons. SFC thereafter filed a complaint with two causes of action for breach of
contract against the HPC and asked for P70,369.50.
4. HPC answered that there was a delay in the payment from SFC and that HPC has the right to rescind the contract because of the same·.
5. The trial court condemned HPC to pay SFC a total of P35,317.93, with legal interest.
ISSUES:
1. Whether or not SFC is entitled for damages
2. Whether or not HPC has a right to rescind the contract
RULING:
1. As to the first question, yes, SFC is entitled to damages.
Article 1170 of the Civil Code provides “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”
The failure of HPC to deliver the rest of the molasses constitutes a breach of contract by contravention of tenor and is thus liable for
damages. The bases for damages is the cost in excess of the agreed price in the contract when SFC was made to acquire the needed
molasses from another supplier and the expenses related to the transportation of the same. Loss of profits would have been included as
part of damages had SFC been able to substantiate such a claim.
2. As to the second question, no, HPC has no right to rescind the contract.
The court provided that the general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only
for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement.
It should be noted that the time of payment stipulated for in the contract should be treated as of the essence of the contract. There was
only a slight breach of contract when the payment was delayed for 20 days and does not violate essential condition of the contract which
warrants rescission for non-performance. Furthermore, HPC accepted the payment of the overdue accounts and continued with the
contract, waiving its right to rescind the same.
Petition of partly granted, and the judgment appealed is modified. Plaintiff shall have and recover from the defendant the sum of P3,000,
with legal interest from date of judgment, no special costs.
NOTE:
Take note that the reason why there is no breach in the part of Song-Fo while there is in the part of HawaiianPhil is that the court did not
recognize the non-payment of Song-Fo to Hawaiian-Phil as a breach but still Hawaiian-Phil, upon non-payment of Song-Fo, moved to
cancel and rescind the said contract.
Thus, in the eyes and reasoning of the court, it was the Hawaiian-Phil which first violated the contract. Also, the reason why the court
did not recognize that the non-payment of Song-Fo as a breach is for the fact that after month of non-payment, Song-Fo suddenly resumed to pay
their monthly obligations to Hawaiian-Phil and that the latter accepted it. The court reasoned that a delay in payment for a small quantity of
molasses for some twenty days is not such a violation if an essential condition of the contract as warrants rescission for
nonperformance.
DOCTRINE: Rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches are as substantial and
fundamental as to defeat the object of the parties in making the agreement.

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Obligations and Contracts Case Digest | Alpha and Amega 1

CONTINUATION OF USURIOUS TRANSACTIONS

KENG HUA PRODUCTS VS CA

SECURITY BANK VS RTC MAKATI

FIRST METRO INVESTMENT VS ESTE. DEL SOL

NACAR VS GALLERY FRAMES

KHE HONG CHENG V. CA

G.R. No. 144169, March 28, 2001 | 355 SCRA 701

virtual 1aw library

SIGUAN VS. LIM

G.R. No. 134686 | 19 November 1999

PURE AND CONDITIONAL OBLIGATIONS

HSBC V. SPOUSES BROQUEZA

G.R. No. 178610, November 17, 2010

7. A labor dispute arose between HSBC and its employees.

- Yes, the loan is a pure obligation and is immediately demandable.

- P_____ Makati, M.M. ____ 19__

GAITE VS. FONACIER

- No error was found, affirming the decision of the lower court.

GONZALES VS. HEIRS OF THOMAS

Whether or not the obligation was subject to a condition

Romulo A. Coronel, et al vs. The Court of Appeals, et al

Central Philippine University v. CA

FRANCISCO LAO LIM vs. COURT OF APPEALS and BENITO VILLAVICENCIO DY

First Ejectment Case:

Second Ejectment Case:

4. Dissatisfied with the decision, the defendants appealed.

G.R. No. L-5267 October 27, 1953

1.) WON the condition in question is a potestative condition.

Taylor vs Uy Tieng piao

G. R. No. 70789, 19 October 1992

Effect of Prevention of Fulfillment of the Condition by the Obligor

HERRERA VS LEVISTE, G.R. No. 55744, 20 February 1985

RULING (dissenting opinion of Justice Teehankee)

INTERNATIONAL HOTEL CORP VS JOAQUIN, G.R. No. 158361, 10 April 2003

This involves the determination of constructive fulfillment of a suspensive obligation.

WON the contract of sale was perfected.

Thus, the decision of CA was REVERSED.

ROMAN CATHOLIC ARCHBISHOP OF MANILA v CA

Heirs of Severina San Miguel v. CA

Rescission of Reciprocal Obligation

Substantial vs. Causal Breach

2. Whether or not HPC has a right to rescind the contract

1. As to the first question, yes, SFC is entitled to damages.

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- P___ Makati, M.M. 19