Different kinds of Obligations: Pure and Conditional Obligations (Arts.

1179 -119)

31. Suria and Joven v. IAC; G.R. No. 73893; June 30, 1987

FACTS: Petitioner and respondent spouses Crispin entered into a contract of sale of a parcel of land wherein
the respondent shall transfer the title to the petitioner, the petitioner shall pay the price, and the petitioner
shall executive a deed of mortgage in favor of the respondent.

Consequently, Petitioner executed the deed of mortgage, and the title of the land was transferred to the
petitioner. However, the petitioner failed to pay the installments.

After repeated formal demands, the respondent instituted a civil action for rescission under Art 1191 for
substantial failure to comply with the reciprocal obligation to pay the purchase price. The petitioner defended
that Art 1191 is not applicable but it is Art 1383.

ISSUE: Whether Article 1191 of the Civil Code of the Philippines is applicable in this case?

HELD: No. Firstly, even though the contract was denominated as a contract to sell, it is clearly a contract of
absolute sale as there was a transfer of title. Secondly, Article 1191 shall only be applied if one of the parties
failed to comply with their reciprocal obligations.

In a contract of sale, the reciprocal obligation of the seller would be to deliver the thing and the buyer to pay
the purchase price. The court ruled that the petitioner as a buyer complied with his reciprocal obligation on
paying the purchase price when he executed the deed of mortgage.

Thus, the payment of the land is already secured through the mortgage and the sale is now perfected and
consummated. The parties cease to be buyer and seller but are now considered as mortgagor and mortgagee.
Therefore, Art 1191 will not lie.

The provision that seems to be applicable is Article 1383 which deals with rescission due to cases of lesion
cited under Article 1381. However, Art 1383 has a limitation that it shall not be applied when there are still
other available remedies to the creditor.

In the case at bar, a remedy is available to the respondent and that is the foreclosure of the mortgage. Thus,
Article 1383 shall also not lie and the proper remedy of the seller-turned-mortgagee is to foreclose the land.

32. Jacinto v. Kaparaz

FACTS: petitioners and private respondents entered into an agreement under which the private respondents
agreed to sell and convey to petitioners a portion consisting of 600 square meters of a lot located in Matiao,
Mati, Davao Oriental for a total consideration of P1,800.00 of downpayment of P800.00 was paid upon
execution of the Agreement. The balance of P1,000.00 was to be paid by petitioners on installment at the rate
of P100.00 a month to the Development Bank of the Philippines (DBP) to be applied to private respondents'
loan accounts. 

In view of the refusal of private respondents to execute the deed of sale, petitioners filed against them a
complaint for specific performance with the then Court of First Instance (now Regional Trial Court) of Davao
Oriental. In their Answer, private respondents alleged that the sale did not materialize because of the failure
of petitioners to fulfill their promise to make timely payments on the stipulated price to the DBP; as a result of
such failure, they (private respondents) failed to secure the release of the mortgage on the property. They
then prayed for the dismissal of the case and a declaration that the agreement is null and void. The lower
court rendered a decision in favor of the petitioners.

However, the respondent Court of Appeals reversed the decision of the trial court. Respondent Court was of
the opinion that: The petitioners had not fully discharged their obligation under the agreement considering
that their last payments to DBP were "several months delayed beyond the date/s agreed upon by the parties
and that the delay in the payments was not a slight breach. Unable to accept the verdict made, petitioner
commenced petition to SC.

ISSUE:

1. Is it a contract of Sale?

2.  Whether or not the respondents have the right to rescind the agreements? 

RULING:

1. Yes. In a contract of Sale, ownership is retained by the seller and is not to pass until full payment of the
price. Such payment is a positive suspensive condition the failure of which is not a broach, casual or serious,
but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. In
such a situation, to argue that there was only a casual breach is to proceed from the assumption that the
contract is one of absolute sale, where non-payment is a resolutory question. There can be no rescission or
resolution of an obligation as yet non-existent, because the suspensive condition did not happen.

2. NO. The respondent has no right to rescind the agreement because in the first place they never demanded
it from the petitioner nor exact filed an action for rescission, they only raised that issue later on as a defense
by reason of the petitioner breach their obligation by untimely payment of the loan.
For the delay on the loan payment, Supreme Court ruled out that the delay was a mere casual or slight breach
of the agreement which did not defeat the party’s object or reason in entering into the agreement.

Furthermore, the prompt payment of monthly amortization of the unpaid balance of the loan was not a
condition precedent to the execution of the final deed of sale

33. Central Bank v CA

The bank’s asking for advance interest for the loan is improper considering that the total loan hasn’t been
released. A person can’t be charged interest for non-existing debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. Since Island Savings Bank failed to furnish the
P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent.

Facts: Island Savings Bank approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan. The loan called for a lump sum of P80,000, repayable in semi-annual installments
for 3 yrs, with 12% annual interest.

After the agreement, a mere P17K partial release of the loan was made by the bank and Tolentino and his wife
signed a promissory note for the P17,000 at 12% annual interest payable w/in 3 yrs.

An advance interest was deducted from the partial release but this pre-deducted interest was refunded to
Tolentino after being informed that there was no fund yet for the release of the P63K balance.

Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the bank
from making new loans and investments.

And after the bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank from doing
business in the Philippines.

Island Savings Bank in view of the non-payment of the P17K filed an application for foreclosure of the real
estate mortgage.

Tolentino filed petition for specific performance or rescission and damages with preliminary injunction,
alleging that since the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind
the real estate mortgage.

Issues:

1) Whether or not Tolentino’s can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
3) Whether or not the real estate mortgage can be foreclosed

Ruling:
1) Whether or not Tolentino can collect from the bank for damages

No. The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the
other party not ready or willing incurs in delay. When Tolentino executed real estate mortgage, he signified
willingness to pay. That time, the bank’s obligation to furnish the P80K loan accrued. Now, the Central Bank
resolution made it impossible for the bank to furnish the P63K balance. The prohibition on the bank to make
new loans is irrelevant bec it did not prohibit the bank from releasing the balance of loans previously
contracted. Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a breach of contract.

The bank’s asking for advance interest for the loan is improper considering that the total loan hasn’t been
released. A person can’t be charged interest for non-existing debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. The bank officials should have been more responsible and
the bank bears risk in case the collateral turned out to be overvalued. Furthermore, this was not raised in the
pleadings so this issue can’t be raised. The bank was in default and Tolentino may choose bet specific
performance or rescission w/ damages in either case. But considering that the bank is now prohibited from
doing business, specific performance cannot be granted. Rescission is the only remedy left, but the
rescission should only be for the P63K balance.

2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note

The promissory note gave rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the P17,000.00 loan when
it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in
default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed
a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform
his reciprocal obligation to pay. Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan
and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.

3) Whether or not the real estate mortgage can be foreclosed

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00
debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.