SICAM V.

JORGE

FACTS: It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent
Lulu) pawned several pieces of jewelry with Agencia de R.C. Sicam located at No. 17 Aguirre Ave., BF
Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault.

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her
jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then
wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice
that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw
the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned
jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against
petitioner Sicam seeking indemnification for the loss of pawned jewelry and payment of actual, moral
and exemplary damages as well as attorney’s fees.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop
was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and
could not be made liable for an event that is fortuitous.

RTC: petitioner Sicam could not be made personally liable for a claim arising out of a corporate
transaction; that in the Amended Complaint of respondents, they passerted that “plaintiff pawned
assorted jewelries in defendants’ pawnshop”; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.

petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not
been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the
corporation was occasioned by armed robbery; that robbery is a
fortuitous event which exempts the victim from liability for the loss and that the parties’ transaction
was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is
not responsible for those events which could not be foreseen.

CA: In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of
piercing the veil of corporate entity reasoning that respondents were misled into thinking that they
were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them
bear the words “Agencia de R.C. Sicam”; and that there was no indication on the pawnshop tickets that
it was the petitioner corporation that owned the pawnshop which explained why respondents had to
amend their complaint impleading petitioner corporation.

The corresponding diligence required of a pawnshop is that it should take steps to secure and protect
the pledged items and should take steps to insure itself against the loss of articles which are entrusted
to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that
Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality
had not as yet reached the levels attained in the present day; that they are at least guilty of
contributory negligence and should be held liable for the loss of jewelries; and that robberies and
hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to
foresee.

ISSUE: Whether petitioners are liable for the loss of the pawned articles in their possession? YES

RULING: Petitioners are incorrect when they insisted that they are not liable since robbery is a fortuitous
event and they are not negligent at all.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same.

To constitute a fortuitous event, the following elements must concur:

(a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen,
it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal
manner; and
d) the obligor must be free from any participation in the aggravation of the injury or loss.

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One’s negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person’s participation—whether by active
intervention, neglect or failure to act—the whole occurrence is humanized and removed from the rules
applicable to acts of God.

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the
robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of
opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged
by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted show that to them the possibility of robbery was not
only foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect,
contradicts petitioners’ defense of fortuitous event.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. The fact that a thing was unlawfully and forcefully taken
from another’s rightful possession, as in cases of carnapping, does not automatically give rise to a
fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the event was an act of God or was done
solely by third parties and that neither the claimant nor the person alleged to be negligent has any
participation.
METRO CONCAST V. ALLIED BANKING

FACTS: Metro Concast obtained several loans from Allied Bank. These loan transactions were covered by
a promissory note and separate letters of credit/trust receipts By way of security, the individual
petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in favor of Allied
Bank.

Petitioners failed to settle their obligations under the aforementioned promissory note and trust
receipts, hence, Allied Bank, through counsel, sent them demand letters but to no avail. Thus, Allied
Bank was prompted to file a complaint for collection of sum of money.

Petitioners admitted their indebtedness to Allied Bank but denied liability for the interests and penalties
charged. They also alleged that the economic reverses suffered by the Philippine economy in 1998 as
well as the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and eventually leading to its cessation.

Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s
remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however,
refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the sale to
their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but since there
were no takers, the equipment was reduced into ferro scrap or scrap metal over the years.

In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed
interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty.
Peter Saw (Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent.
Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement
was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through
Camiling, under which Peakstar obligated itself to purchase the scrap metal

Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners
asseverated that: (a) their failure to pay their outstanding loan obligations to Allied Bank must be
considered as force majeure; and (b) since Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners must therefore be deemed to have settled
their obligations to Allied Bank.

RTC: since Allied Bank was duly represented by its agent, Atty. Saw, in all the negotiations and
transactions with Peakstar — considering that Atty. Saw (a) drafted the MoA, (b) accepted the bank
guarantee issued by Bankwise, and (c) was apprised of developments regarding the sale and disposition
of the scrap metal — then it stands to reason that the MoA between Metro Concast and Peakstar was
binding upon said bank.

CA: there was “no legal basis in fact and in law to declare that when Bankwise reneged its guarantee
under the [MoA], herein [petitioners] should be deemed to be discharged from their obligations lawfully
incurred in favor of [Allied Bank].”[33] The CA examined the MoA executed between Metro Concast, as
seller of the ferro scrap, and Peakstar, as the buyer thereof, and found that the same did not indicate
that Allied Bank intervened or was a party thereto. It also pointed out the fact that the post-dated
checks pursuant to the MoA were issued in favor of Jose Dychiao.
Likewise, the CA found no sufficient evidence on record showing that Atty. Saw was duly and legally
authorized to act for and on behalf of Allied Bank, opining that the RTC was “indulging in hypothesis and
speculation”[34] when it made a contrary pronouncement. While Atty. Saw received the earnest money
from Peakstar, the receipt was signed by him on behalf of Jose Dychiao.[35] It also added that “in the
final analysis, the aforesaid checks and receipts were signed by [Atty.] Saw either as representative of
[petitioners] or as partner of the latter’s legal counsel, and not in anyway as representative of [Allied
Bank].”

ISSUE: whether or not the loan obligations incurred by the petitioners under the subject promissory
note and various trust receipts have already been extinguished. NO

RULING: The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from
various loan transactions. Absent any showing that the terms and conditions of the latter transactions
have been, in any way, modified or novated by the terms and conditions in the MoA, said contracts
should be treated separately and distinctly from each other, such that the existence, performance or
breach of one would not depend on the existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale transaction
between Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues
related to petitioners’ loan obligations to the bank. Besides, as the CA pointed out, the fact of Allied
Bank’s representation has not been proven in this case and hence, cannot be deemed as a sustainable
defense to exculpate petitioners from their loan obligations to Allied Bank.

Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a
fortuitous event. While it may be argued that Peakstar’s breach of the MoA was unforeseen by
petitioners, the same is clearly not “impossible” to foresee or even an event which is “independent of
human will.” Neither has it been shown that said occurrence rendered it impossible for petitioners to
pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory altogether.
In any case, as earlier stated, the performance or breach of the MoA bears no relation to the
performance or breach of the subject loan transactions, they being separate and distinct sources of
obligation. The fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for
the basic reason that the former has not been able to prove that the same had already been paid[41] or,
in any way, extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must perforce
stand. Considering, however, that Allied Bank’s extrajudicial demand on petitioners appears to have
been made only on December 10, 1998, the computation of the applicable interests and penalty charges
should be reckoned only from such date.

CENTRAL PHIL. UNIVERSITY V. CA

FACTS: Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board
of Trustees of the Central Philippine College (now Central Philippine University) executed a deed
of donation in favor of the latter of a parcel of land. The conditions in the deed were the ff:

1. The land described shall be utilized by the CPU exclusively for the establishment and use
of a medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;
3. The said land shall be called “RAMON LOPEZ CAMPUS,” and the said college shall be
under obligation to erect a cornerstone bearing that name. Any net income from the land
 or any of its parks shall be put in a fund to be known as the “RAMON LOPEZ CAMPUS
FUND” to be used for improvements of said campus and erection of a building thereon.”

On 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the
time the action was filed the latter had not complied with the conditions of the donation.
Private respondents also argued that petitioner had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated property with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had
prescribed; that it did not violate any of the conditions in the deed of donation because it never
used the donated property for any other purpose than that for which it was intended; and, that
it did not sell, transfer or convey it to any third party.

TC: CPU failed to comply with the conditions of the donation and declared it null and void. It
directed CPU to execute a deed of reconveyance of the property in favor of the heirs of the
donor.

CA: the annotations at the back of petitioner’s certificate of title were resolutory conditions
breach of which should terminate the rights of the donee thus making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize the
donated property for the establishment of a medical school, the donor did not fix a period
within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of
the condition, petitioner could not be considered as having failed to comply with its part of the
bargain. Thus, the appellate court rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the determination of the time within which
petitioner should comply with the first condition annotated in the certificate of title.

ISSUE: WON the quoted annotations in the certificate of title of petitioner are onerous obligations
and resolutory conditions of the donation which must be fulfilled noncompliance of which would
render the donation revocable

RULING: Yes. A clear perusal of the conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent of the donation itself,
e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land
to the City of Manila requiring the latter to erect schools, construct a children’s playground and
open streets on the land was considered an onerous donation.

Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the donation must be for an
onerous consideration. Under Art. 1181 of the Civil Code, on 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. Thus, when a person donates
land to another on the condition that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a suspensive condition but a resolutory
one.4 It is not correct to say that the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the owner of the land, otherwise, it
would be invading the property rights of the donor. The donation had to be valid before the
fulfillment of the condition. If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights which the
donee may have acquired under it shall be deemed lost and extinguished.

DEVELOPMENT BANK V. CA

FACTS: Private respondents were the original owners of a parcel of agricultural land. On 30 May 1977,
private respondents mortgaged said land to petitioner. When private respondents defaulted on their
obligation, petitioner foreclosed the mortgage on the land and emerged as sole bidder in the ensuing
auction sale.

On 6 April 1984, petitioner and private respondents entered into a Deed of Conditional Sale wherein
petitioner agreed to reconvey the foreclosed property to private respondents.

On 6 April 1990, upon completing the payment of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of Conveyance in their favor. Petitioner then
informed private respondents that the prestation to execute and deliver a deed of conveyance in their
favor had become legally impossible in view of Sec. 6of Rep. Act 6657 (the Comprehensive Agrarian
Reform law or CARL)

Aggrieved, private respondents filed a complaint for specific performance with damages against
petitioner.

RTC: petitioner interpreted the fourth paragraph of Sec. 6, Rep. Act 6657 literally in conjunction with
Sec. 1 of E.O. 407. The court a quo noted that Sec. 6 of Rep. Act 6657, taken in its entirety, is a provision
dealing primarily with retention limits in agricultural land allowed the landowner and his family and that
the fourth paragraph, which nullifies any sale x x x by the original landowner in violation of the Act,does
not cover the sale by petitioner (not the original landowner) to private respondents.

On the other hand, according to the trial court, E.O. 407took effect on 10 June 1990. But private
respondents completed payment of the price for the property, object of the conditional sale, as early as
6 April 1990. Hence, with the fulfillment of the condition for the sale, the land covered thereby, was
detached from the mass of foreclosed properties held by DBP, and, therefore, fell beyond the ambit or
reach of E.O. 407.

CA: the full payment by the appellee on April 6, 1990 retroacts to the time the contract of conditional
sale was executed on April 6, 1984. From that time, all elements of the contract of sale were
present.Consequently, the contract of sale was perfected. As such, the said sale does not come under
the coverage of R.A. 6657. Going now to E.O. 407, We hold that the same can neither affect appellants’
obligation under the deed of conditional sale.Under the said law, appellant is required to transfer to
theRepublic of the Philippines ‘all lands foreclosed’ effective June 10,1990. Under the facts obtaining,
the subject property has ceased to belong to the mass of foreclosed property falling within the reach of
said law. As earlier explained, the property has already been sold to herein appellees even before the
said E.O. has been enacted. On this same reason, We therefore need not delve on the applicability of
DBP Circular No. 11
ISSUE:WON Rep. Act 6657, E.O. 407 andDBP Circular No. 11 rendered its obligation to execute a Deed of
Sale to private respondents “a legal impossibility.”

RULING: The deed of conditional sale between petitioner and private respondents was executed on 6
April 1984. Private respondents had religiously paid the agreed installments on the property until they
completed payment on 6 April1990. Petitioner, in fact, allowed private respondents to fulfill the
condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after private
respondents,having fully paid the repurchase price, demanded the execution of a Deed of Sale in their
favor.

It will be noted that Rep. Act 6657 was enacted on 10June 1988. Following petitioner’s argument in this
case, its prestation to execute the deed of sale was rendered legally impossible by Section 6 of said law.
In other words, the deed of conditional sale was extinguished by a supervening event, giving rise to an
impossibility of performance.

Neither Sec. 6 ofRep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the obligation of contract
petitioner had much earlier concluded with private respondents.More specifically, petitioner cannot
invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its obligations already existing prior to
its enactment. In the first place, said last paragraph clearly deals with “any sale,lease, management
contract or transfer or possession of private lands executed by the original landowner.” The original
owner in this case is not the petitioner but the private respondents.Petitioner acquired the land through
foreclosure proceedings but agreed thereafter to reconvey it to private respondents, albeit
conditionally.

As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law to
small landowners. Since the property here involved is more orless ten (10) hectares, it is then within the
jurisdiction ofthe Department of Agrarian Reform (CAR) to determine whether or not the property can
be subjected to agrarian reform. But this necessitates an entirely different proceeding.

The CARL (Rep. Act 6657) was not intended to takeaway property without due process of law. Nor is it
intended to impair the obligation of contracts. In the same manner must E.O. 407 be regarded. It was
enacted two (2)months after private respondents had legally fulfilled the condition in the contract of
conditional sale by the payment of all installments on their due dates. These laws cannot have
retroactive effect unless there is an express provision in them to that effect.
MEGAWORLD V. MAJESTIC FINANCE

FACTS: On September 23, 1994, Megaworld entered into a JVA with Majestic Finance for the
development of a residential subdivision. According to the JVA, the development of the land
belonging to the owner would be for the sole account of the developer and that upon
completion of the development of the subdivision, the owner would compensate the developer
in the form of saleable residential subdivision lots. The JVA further provided that the developer
would advance all the costs for the relocation and resettlement of the occupants of the joint
venture property, subject to reimbursement by the owner; and that the developer would deposit
the initial amount of P10,000,000.00 to defray the expenses for the relocation and settlement,
and the costs for obtaining from the Government the exemptions and conversion permits, and the
required clearances.

On October 27, 1994, the developer, by deed of assignment, transferred, conveyed and assigned
to Empire East Land Holdings, Inc. (developer/assignee) all its rights and obligations under the JVA
including the addendum.

On February 29, 2000, the owner filed in the RTC a complaint for specific performance with
damages against the developer, the developer/assignee, and Andrew Tan. The complaint was mainly
based on the failure of the petitioners to comply with their obligations under the JVA, including
the obligation to maintain a strong security force to safeguard the entire joint venture property
of 215 hectares from illegal entrants and occupants.

MAJESTIC FINANCE: prayed that petitioners be directed to provide round-the-clock security for the
joint venture property in order to defend and protect it from the invasion of unauthorized persons.

MEGAWORLD, ET. AL.: opposed and stated that (1) the move to have them provide security in the
properties was premature; and (2) under the principle of reciprocal obligations, the owner could
not compel them to perform their obligations under the JVA if the owner itself refused to honor
its obligations under the JVA and the addendum.

RTC: issued its first assailed order, directing the developer to provide sufficient round-the-clock
security for the protection of the joint venture property.

CA: These clear and categorical provisions in the JVA — which petitioners themselves do not
question — obviously belie their contention that the respondent judge’s order to provide security
for the property is premature at this stage. The petitioner’s obligation to secure the property
under the JVA arose upon the execution of the Agreement, or as soon as the petitioners
acquired possession of the joint venture property in 1994, and is therefore already demandable.

ISSUE: Whether or not the petitioners are obligated to perform their obligations under the JVA,
including that of providing round-the-clock security for the subject properties, despite respondents’
failure or refusal to acknowledge, or perform their reciprocal obligations there;

RULING: The obligations of the parties under the JVA were unquestionably reciprocal. Reciprocal
obligations are those that arise from the same cause, and in which each party is a debtor and a
creditor of the other at the same time, such that the obligations of one are dependent upon the
obligations of the other. They are to be performed simultaneously, so that the performance by
one is conditioned upon the simultaneous fulfillment by the other.

The determination of default on the part of either of the parties depends on the terms of the
JVA that clearly categorized the parties’ several obligations into two types (continuous & activity).

CONTINUOUS OBLIGATIONS would be continuously performed from the moment of the execution
of the JVA until the parties shall have achieved the purpose of their joint venture:

(1) the developer would secure the joint venture property from unauthorized occupants;
(2) the owner would allow the developer to take possession of the joint venture property;
(3) the owner would deliver any and all documents necessary for the accomplishment of each
activity;
(4) both the developer and the owner would pay the real estate taxes.

ACTIVITY OBLIGATIONS - In each activity, the obligation of each party was dependent upon the
obligation of the other. Although their obligations were to be performed simultaneously, the
performance of an activity obligation was still conditioned upon the fulfillment of the continuous
obligation, and vice versa. Should either party cease to perform a continuous obligation, the
other’s subsequent activity obligation would not accrue. Conversely, if an activity obligation was
not performed by either party, the continuous obligation of the other would cease to take effect.

The performance of the continuous obligation was subject to the resolutory condition that the
precedent obligation of the other party, whether continuous or activity, was fulfilled as it became
due. Otherwise, the continuous obligation would be extinguished.

According to Article 1184 of the Civil Code, the condition that some event happen at a
determinate time shall extinguish the obligation as soon as the time expires, or if it has
become indubitable that the event will not take place.

Here, the common cause of the parties in entering into the joint venture was the development
of the joint venture property into the residential subdivision as to eventually profit therefrom.
Consequently, all of the obligations under the JVA were subject to the happening of the
complete development of the joint venture property, or if it would become indubitable that
the completion would not take place, like when an obligation, whether continuous or activity, was
not performed. Should any of the obligations, whether continuous or activity, be not performed,
all the other remaining obligations would not ripen into demandable obligations while those
already performed would cease to take effect. This is because every single obligation of each
party under the JVA rested on the common cause of profiting from the developed subdivision.

It appears that upon the execution of the JVA, the parties were performing their respective
obligations until disagreement arose between them that affected the subsequent performance of
their accrued obligations. Being reciprocal in nature, their respective obligations as the owner and
the developer were dependent upon the performance by the other of its obligations; hence, any
claim of delay or nonperformance against the other could prosper only if the complaining party
had faithfully complied with its own correlative obligation.

TAYAG V. CA
FACTS: The deed of conveyance executed on May 28, 1975 by JuanGalicia, Sr., prior to his demise in
1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a
piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following
terms:

1. The sum of PESOS: THREE THOUSAND(P3,000.00) is HEREBY acknowledged to have been paid
upon the execution of this agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00)shall be paid within ten (10) days from and
after the execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with
the Philippine Veterans Bank which is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00) shall be paid within one(1) year
from and after the execution of this instrument."

There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr.
According to petitioners, of the P 10,000.00 to be paid within ten days from execution of the instrument,
only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up
to November 3,1979.

Concerning private respondent's assumption of the vendor’s obligation to the Philippine Veterans Bank,
the vendee paid only the sum of P6,926.41 while the difference of the indebtedness came from Celerina
Labuguin Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the
remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are
disavowing the contract inked by their predecessor, private respondent filed the complaint for) specific
performance.

RTC: In addressing the issue of whether the conditions of the instrument were performed by herein
private respondent as vendee, RTC decided to uphold private respondent's theory on the basis of
constructive fulfilment under Article 1186 and estoppel through acceptance of piecemeal payments in
line with Article 1235 of the Civil Code.

Regarding the third condition, the trial court noted that plaintiff below paid more than P6,000.00 to
thePhilippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid
P3,778.77which circumstance was construed to be a ploy underArticle 1186 of the Civil Code that
"prematurely prevented plaintiff from paying the installment fully" and "for the purpose of withdrawing
the title to the lot". The acceptance by petitioners of the various payments even beyond the periods
agreed upon, was perceived by the lower court as tantamount to faithful performance of the obligation
pursuant to Article 1235 of the Civil Code. Furthermore,the trial court noted that private respondent
consignedP18,520.00, an amount sufficient to offset the remaining balance, leaving the sum of P
1,315.00 to be credited to private respondent.

CA: concurred with RTC but modified the decision regarding 4 th condition

ISSUE: WON insofar as the third item is concerned, constructive fulfillment should not have been
appreciated because they are the pbligees while the proviso speaks of the obligor.
RULING: Petitioners must concede that in a reciprocal obligation like a contract of purchase, both
parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-
fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfilment. In
short, it is puerile for petitioners to say that they are the only obligees under the contract since they are
also bound as obligors to respect the stipulation in permitting private respondent to assume the loan
with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan.
As vendors, they are supposed to execute the final deed of sale upon full payment; of the balance as
determined hereafter.

DEVELOPMENT BANK V. STA. INES MELALE

FACTS: Sometime in 1977, National Galleon Shipping Corporation (Galleon), was organized to
operate a liner service between the Philippines and its .  .  . trading partners. Galleon’s major
stockholders were respondents Sta. Ines Melale Forest Products Corporation (Sta. Ines), Cuenca
Investment Corporation Cuenca Investment), Universal Holdings Corporation (Universal Holdings),
Galleon’s President Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the Philippine
National Construction Corporation (PNCC).

Galleon experienced financial difficulties and had to take out several loans from different sources
such as foreign financial institutions, its shareholders and other entities “with whom it had
ongoing commercial relationships.”

DBP guaranteed Galleon’s foreign loans. In return, Galleon and its stockholders Sta. Ines, Cuenca
Investment, Universal Holdings, Cuenca, and Tinio, executed a Deed of Undertaking and obligated
themselves to guarantee DBP’s potential liabilities.

To secure DBP’s guarantee, Galleon undertook to secure a first mortgage on its five new vessels
and two secondhand vessels. However, despite the loans extended to it, “[Galleon’s] financial
condition did not improve.

Cuenca, as Galleon’s president, wrote to the members of the Cabinet Standing Committee “for
the consideration of a policy decision to support a liner service.” Cuenca also wrote then
President Ferdinand Marcos and asked for assistance.

On August 10, 1981, pursuant to Letter of Instructions No. 1155, Galleon’s stockholders and NDC
entered into a Memorandum of Agreement, where NDC and Galleon undertook to prepare and
sign a share purchase agreement covering 100% of Galleon’s equity for P46,740,755.00. The
purchase price was to be paid after five years from the execution of the share purchase
agreement. The share purchase agreement also provided for the release of Sta. Ines, Cuenca, Tinio
and Construction Development Corporation of the Philippines from the personal counter
guarantees they issued in DBP’s favor under the Deed of Undertaking.

Acting as Galleon’s guarantor, DBP paid off Galleon’s debts to its foreign bank creditor and, on
January 25, 1982, pursuant to the Deed of Undertaking, Galleon executed a mortgage contract
over seven of its vessels in favor of DBP.

NDC took over Galleon’s operations “even prior to the signing of a share purchase agreement.”
However, despite NDC’s takeover, the share purchase agreement was never formally executed.
On February 10, 1982, or barely seven months from the issuance of Letter of Instructions No.
1155, President Marcos issued Letter of Instructions No. 1195, which reads:

TO : Development Bank of the Philippines

National Development Company
RE : Galleon Shipping Corporation

WHEREAS, NDC has assumed management of Galleon’s operations pursuant to LOI No. 1155;

WHEREAS, the original terms under which Galleon acquired or leased the vessels were such that
Galleon would be unable to pay from its cash flows the resulting debt service burden;

WHEREAS, in such a situation the financial exposure of the Government will continue to increase
and therefore the appropriate steps must be taken to limit and protect the Government’s
exposure;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct the
following:

1) The DBP and the NDC shall take immediate steps, including foreclosure of Galleon vessels
and other assets, as may be deemed necessary to limit and protect the Government’s
exposure;
2) NDC shall discharge such maritime liens as it may deem necessary to allow the foreclosed
vessels to engage in the international shipping business;
3) Any provision of LOI No. 1155 inconsistent with this Letter of Instructions is hereby rescinded.
These instructions are to take effect immediately.

On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal
Holdings filed a Complaint with Application for the Issuance of a Temporary Restraining Order or
Writ of Preliminary Injunction.

In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings alleged
that NDC, “without paying a single centavo, took over the complete, total, and absolute
ownership, management, control, and operation of defendant [Galleon] and all its assets, even
prior to the formality of signing a share purchase agreement, which was held in abeyance
because the defendant NDC was verifying and confirming the amounts paid by plaintiffs to
Galleon, and certain liabilities of Galleon to plaintiffs[.]”

They also alleged that NDC tried to delay ‘the formal signing of the share purchase agreement in
order to interrupt the running of the 5-year period to pay the purchase of the shares in the
amount of P46,740,755[.00] and the execution of the negotiable promissory notes to secure
payment[.]”

As for DBP, they claimed that “DBP can no longer go after [them] for any deficiency judgment
[since] NDC had been subrogated [in their place] as borrower[s], hence the Deed of Undertaking
between [Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP] had been
extinguished and novated[.]”
Meanwhile, on December 8, 1986, Proclamation No. 50 created the Asset Privatization Trust. The
Asset Privatization Trust was tasked to “take title to and possession of, conserve, provisionally
manage and dispose of, assets which have been identified for privatization or disposition and
transferred to the TI-List for [that] purpose.”

Under Administrative Order No. 14 issued by then President Corazon C. Aquino, certain assets of
DBP, which included Galleon’s loan accounts, “were identified for transfer to the National
Government.”

On February 27, 1987, a Deed of Transfer was executed providing for the transfer of the Galleon
loan account from DBP to the National Government. The Asset Privatization Trust was “constituted
as [the National Government’s] trustee over the transferred accounts and assets[.]”

RTC: The Letter of Instructions No. 1155 and the Memorandum of Agreement executed by NDC
and Galleon’s stockholders, pursuant to Letter of Instructions No. 1155 is valid.

Letter of Instructions No. 1195 did not supersede or impliedly repeal Letter of Instructions No.
1155, and assuming that it did impliedly repeal Letter of Instructions No. 1155, it would be void
and unconstitutional for violating the non impairment clause.

As regards NDC’s argument that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings had no basis to compel it to pay Galleon’s shares of stocks because no share purchase
agreement was executed, the Regional Trial Court held that the NDC was in estoppel since it
prevented the execution of the share purchase agreement and had admitted to being Galleon’s
owner.

CA: NDC is estopped from claiming that there was no agreement between it and Cuenca since
the agreement had already been partially executed after NDC took over the control and
management of Galleon.

NDC “voluntarily prevented the execution of a share purchase agreement when it reneged on its
various obligations under the Memorandum of Agreement.”

ISSUE: Whether the Memorandum of Agreement obligates NDC to purchase Galleon’s shares of
stocks and pay the advances made by respondents in Galleon’s favor.

RULING: We uphold the Court of Appeals’ finding that the failure to execute the share purchase
agreement was brought about by NDC’s delay in reviewing the financial accounts submitted by
Galleon’s stockholders. The Memorandum of Agreement was executed on August 10, 1981, giving
the parties no more than sixty days or up to October 9, 1981, to prepare and sign the share
purchase agreement. However, it was only on April 26, 1982, or more than eight months after
the Memorandum of Agreement was signed, did NDC’s General Director submit his
recommendation on Galleon’s outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement. Article
1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment.” Considering NDC’s delay, the execution of the share purchase
agreement should be considered fulfilled with NDC as the new owner of 100% of Galleon’s
shares of stocks.
VELARDE V. CA

FACTS: David Raymundo [herein private respondent] is the absolute and registered owner of a
parcel of land, together with the house and other improvements thereon. George Raymundo is
David’s father who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for
the sale of said property, which was, however, under lease.

On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant
David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee.

On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the
consent of her husband, Mariano, executed an Undertaking. This undertaking was signed by
Avelina and Mariano Velarde and David Raymundo. It appears that the negotiated terms for the
payment of the balance of P1.8 million was from the proceeds of a loan that the Velardes were
to secure from a bank with Raymundo’s help. Raymundos had a standing approved credit line
with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI’s
approval of an application for assumption of mortgage by plaintiffs. Pending BPI’s approval o[f]
the application, plaintiffs were to continue paying the monthly interests of the loan secured by a
real estate mortgage.

Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the
aforementioned mortgage for three (3) months

On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage
with BPI was not approved. This prompted plaintiffs not to make any further payment.

On January 5, 1987, defendants Raymundo, thru counsel, wrote plaintiffs Velarde informing the
latter that their non-payment to the mortgage bank constitute[d] non-performance of their
obligation.

In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded that they are willing to pay the
balance in cash provided that: (a) they deliver the actual possession of the property to her for her
immediate occupancy; (b) that they cause the release of title and mortgage from the Bank of P.I.
and make the title available and free from any liens and encumbrances; and (c) to execute an
absolute deed of sale in her favor free from any liens or encumbrances.

On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the

intended sale of the subject property allegedly due to the latter’s failure to comply with the
terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking.

Petitioners filed a Complaint against private respondents for the nullity of cancellation, among
others.

RTC: MR was filed after it was dismissed. AFTER MR: instructed petitioners to pay the balance of
P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute
sale and to surrender possession of the disputed property to petitioners.
CA: reinstated the earlier decision by the previous judge. Upheld the validity of the rescission made by
the Raymundos.

ISSUE: WON the rescission of the contract by the Raymundos was justified.

RULING: Petitioners likewise claim that the rescission of the contract by private respondents was
not justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval of
their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases15 in which
this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.

The breach committed by petitioners was not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal obligation to pay the purchase price
under the contract of sale. Private respondents’ right to rescind the contract finds basis in Article
1191 of the Civil Code.

The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them.
The breach contemplated in the said provision is the obligor’s failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.

In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondents’ right to rescind the same in
accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one month
after it became due; however, this was not equivalent to actual payment as would constitute a
faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on
the performance by private respondents of additional burdens that had not been agreed upon in
the original contract. Thus, it cannot be said that the breach committed by petitioners was
merely slight or casual as would preclude the exercise of the right to rescind.

In the instant case, the breach committed did not merely consist of a slight delay in payment or
an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed
upon private respondents new obligations as preconditions to the performance of their own
obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which
was legally due and demandable under the contract of sale. Hence, private respondents were left
with the legal option of seeking rescission to protect their own interest.
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments
in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense
of the former.

Rescission creates the obligation to return the object of the contract. It can be earned out
only when the one who demands rescission can return whatever he may be obliged to restore.
To rescind is to declare a contract void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release the parties from further obligations to
each other, but to abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.

CANNU V. GALANG

FACTS: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings &
Loan Association for P173,800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas in
the names of respondents-spouses. To secure payment, a real estate mortgage was constituted
on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC
purchased the mortgage loan of respondents-spouses from Fortune Savings & Loan Association for
P173,800.00.

Respondent Fernandina Galang authorized her attorney-in-fact, Adelina R. Timbang, to sell the
subject house and lot. Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to
assume the balance of the mortgage obligations with the NHMFC and with CERF Realty (the
Developer of the property).

Of the 120,000, there is a pending balance of 45,000. A Deed of Sale with Assumption of Mortgage
Obligation dated 20 August 1990 was made and entered into by and between spouses Fernandina
and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house and lot
in question.

Petitioners immediately took possession and occupied the house and lot. Petitioners paid the
“equity” or second mortgage to CERF Realty.

Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so.

In a letter, petitioner Leticia Cannu informed Mr. Fermin T. Arzaga, Vice President, Fund
Management Group of the NHMFC, that the ownership rights over the landin the names of
respondents-spouses had been ceded and transferred to her and her husband per Deed of Sale
with Assumption of Mortgage, and that they were obligated to assume the mortgage and pay the
remaining unpaid loan balance. Petitioners’ formal assumption of mortgage was not approved by
the NHMFC. Because the Cannus failed to fully comply with their obligations, respondent
Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage
loan with NHMFC.

Petitioners opposed the release of TCT No. T-8505 in favor of respondents-spouses insisting that
the subject property had already been sold to them. Consequently, the NHMFC held in abeyance
the release of said TCT.

CANNU: they be declared the owners of the property involved subject to reimbursements of the
amount made by respondents-spouses (defendants therein) in preterminating the mortgage loan
with NHMFC.

NHMFC: petitioners have no cause of action against it because they have not submitted the
formal requirements to be considered assignees and successors-in-interest of the property under
litigation.

SPS. GALANG: because of petitioners-spouses’ failure to fully pay the consideration and to update
the monthly amortizations with the NHMFC, they paid in full the existing obligations with NHMFC
as an initial step in the rescission and annulment of the Deed of Sale with Assumption of
Mortgage. In their counterclaim, they maintain that the acts of petitioners in not fully complying
with their obligations give rise to rescission of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.

RTC: plaintiffs have no cause of action either against the spouses Galang or the NHMFC. Plaintiffs
have admitted on record they failed to pay the amount of P45,000.00 the balance due to the
Galangs in consideration of the Deed of Sale With Assumption of Mortgage Obligation.
Consequently, this is a breach of contract and evidently a failure to comply with obligation arising
from contracts.

In this case, NHMFC has not been duly informed due to lack of formal requirements to
acknowledge plaintiffs as legal assignees, or legitimate tranferees and, therefore, successors-in-
interest to the property, plaintiffs should have no legal personality to claim any right to the
same property.

CA: The rescission of the Contract of Sale is warranted and justified. Obligations arising from contract
have the force of law between the contracting parties and should be complied in good faith. The
terms of a written contract are binding on the parties thereto. Plaintiffs-appellants therefore are
under obligation to pay defendants-appellees spouses Galang the sum of P250,000.00, and to
assume the mortgage.

Out of the P250,000.00 purchase price which was supposed to be paid on the day of the
execution of contract in July, 1990 plaintiffs-appellants have paid, in the span of eight (8) years,
from 1990 to present, the amount of only P75,000.00. Plaintiffsappellants should have paid the
P250,000.00 at the time of the execution of contract in 1990. Eight (8) years have already lapsed
and plaintiffs-appellants have not yet complied with their obligation.

ISSUE: WON the petitioner’s breach of the obligation was substantial, the rescission of the Contract of
Sale is warranted and justified.
RULING: Settled is the rule that rescission or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a breach of faith by the other party that violates
the reciprocity between them.

Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be
had only for such breaches that are substantial and fundamental as to defeat the object of the
parties in making the agreement. The question of whether a breach of contract is substantial
depends upon the attending circumstances and not merely on the percentage of the amount not
paid.

In the case at bar, we find petitioners’ failure to pay the remaining balance of P45,000.00 to be
substantial. Even assuming arguendo that only said amount was left out of the supposed
consideration of P250,000.00, or eighteen (18%) percent thereof, this percentage is still
substantial. Taken together with the fact that the last payment made was on 28 November 1991,
eighteen months before the respondent Fernandina Galang paid the outstanding balance of the
mortgage loan with NHMFC, the intention of petitioners to renege on their obligation is utterly clear.
Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission.

From the foregoing, it is clear that rescission (“resolution” in the Old Civil Code) under Article
1191 is a principal action, while rescission under Article 1383 is a subsidiary action. The former is
based on breach by the other party that violates the reciprocity between the parties, while the
latter is not. In the case at bar, the reciprocity between the parties was violated when petitioners
failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to update
their amortizations with the NHMFC.