OBLIGATION AND CONTRACTS ASSIGNMENT NO.

1. INTERNATIONAL HOTEL CORPORATION, petitioner, -versus- FRANCISCO B.

JOAQUIN, JR. and RAFAEL SUAREZ, INC., respondents.
G.R. No. 158361, FIRST DIVISION, April 10, 2013, BERSAMIN, J.
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. Here, IHC is liable to pay under the rule on constructive
fulfillment of a mixed conditional obligation.
FACTS
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). 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.
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. 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. Negotiations with Materials
Handling Corporation and, later on, with its principal, Barnes International, ensued.
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. As a
result, DBP cancelled its previous guaranty. Thereafter, IHC entered into an
agreement with Weston, and communicated this development to DBP. 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.
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. 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
Whether or not IHC is liable to pay the respondents. (YES)
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.
2. FERNANDO A. GAITE, Plaintiff-Appellee, v. ISABELO FONACIER, GEORGE
KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS,
FRANCISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, Defendants-
Appellants.
Alejo Mabanag for Plaintiff-Appellee.
Simplicio U. Tapia Antonio Barredo and Pedro Guevarra, for Defendants-
Appellants.
G.R. No. L-11827. July 31, 1961

Fact:
Defendant decided to revoke the authority granted by him to Plaintiff to exploit and
develop the mining claims, and plaintiff assented thereto subject to certain conditions.
As a result, a document was executed wherein Plaintiff transferred to Defendant, for
the consideration of P20,000.00, plus 10% of the royalties that Defendant would
receive from the mining claims, all his rights and interests on all the roads,
improvements, and facilities in or outside said claims, the right to use the business
name “Larap Iron Mines” and its goodwill, and all the records and documents relative
to the mines. In the same document, plaintiff transferred to Defendant all his rights
and interests over the iron ore, 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 SIXTY-FIVE
THOUSAND PESOS (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. To secure the payment of the said balance of P65,000.00, Defendant
promised to execute in favor of Plaintiff a surety bond, and pursuant to the promise.
In the subsequent year, Defendant failed to renew the bond to sureties. Plaintiff, the
latter filed the present complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the
ore, consequential damages, and attorney’s fees.

Issue:
Whether the obligation of defendants and his sureties to pay Plaintiff become due and
demandable when the former failed to renew the surety bond?

Held:
Yes, the obligation becomes demandable. The provision in the contract was not a
condition but a only a suspensive period or term to the payment of the balance of
P65,000.00. 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. That the parties to the contract did not intend any such state of things to
prevail. There is no uncertainty that the payment will have to be made sooner or later;
what is undetermined is merely the exact date at which it will be made. By the very
terms of the contract, therefore, the existence of the obligation to pay is recognized;
only its maturity or demandability is deferred. The defendant lose the right of the
period when it failed to renew the surety according to ART. 1198 of the Civil Code.

3.ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL

AND ERLINDA CATUNGAL-WESSEL, PETITIONERS, VS. ANGEL S. RODRIGUEZ,
RESPONDENT. G.R. No. 146839, March 23 : 2011

FACTS:
Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) situated in the Barrio
of Talamban, Cebu City. Agapita, with the consent of her husband Jose, entered into a
Contract to Sell with respondent Rodriguez which subsequently purportedly
“upgraded” into a Conditional Deed of Sale. Both the Contract to Sell and the
Conditional Deed of Sale were annotated on the title.
On August 31, 1990 the spouses Catungal requested an advance of P5,000,000.00 on
the purchase price for personal reasons. Rodriquez allegedly refused on the ground
that the amount was substantial and was not due under the terms of their agreement.
The Catungal’s rescinded the contract.
Rodirguez filed a complaint against the Catungal’s for arbitrarily rescinding the
contract. In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
finding that: (a) under the contract it was complainant (Rodriguez) that had the option
to rescind the sale; (b) Rodriguez’s obligation to pay the balance of the purchase price
arises only upon successful negotiation of the road right of way; (c) he proved his
diligent efforts to negotiate the road right of way; (d) the spouses Catungal were guilty
of misrepresentation which defeated Rodriguez’s efforts to acquire the road right of
way; and (e) the Catungals’ rescission of the contract had no basis and was in bad
faith.
The Catungals alleged that the conditional deed of sale was void ab initio because it
violates the mutuality of contract in view of Article 1308 ncc.
ISSUE:
(a) Are petitioners allowed to raise their theory of nullity of the Conditional Deed of
Sale for the first time on appeal?
(b) Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of
mutuality of contracts under Article 1308 of the Civil Code?
RULING:
(a)
This is not an instance where a party merely failed to assign an issue as an error in
the brief nor failed to argue a material point on appeal that was raised in the trial
court and supported by the record. Neither is this a case where a party raised an error
closely related to, nor dependent on the resolution of, an error properly assigned in his
brief. This is a situation where a party completely changes his theory of the case on
appeal and abandons his previous assignment of errors in his brief, which plainly
should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw the lines of
battle between the litigants and to indicate fairly the nature of the claims or defenses
of both parties.

We have also previously ruled that "courts of justice have no jurisdiction or power to
decide a question not in issue. Thus, a judgment that goes beyond the issues and
purports to adjudicate something on which the court did not hear the parties, is not
only irregular but also extrajudicial and invalid. The rule rests on the fundamental
tenets of fair play."
(b)
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the
balance of the purchase price when he has successfully negotiated and secured a road
right of way, is not a condition on the perfection of the contract nor on the validity of
the entire contract or its compliance as contemplated in Article 1308. It is a condition
imposed only on respondent's obligation to pay the remainder of the purchase price. In
our view and applying Article 1182, such a condition is not purely potestative as
petitioners contend. It is not dependent on the sole will of the debtor but also on the
will of third persons who own the adjacent land and from whom the road right of way
shall be negotiated. In a manner of speaking, such a condition is likewise dependent
on chance as there is no guarantee that respondent and the third party-landowners
would come to an agreement regarding the road right of way. This type of mixed
condition is expressly allowed under Article 1182 of the Civil Code.
Furthermore, it is evident from the language of paragraph 1(b) that the condition
precedent (for respondent's obligation to pay the balance of the purchase price to
arise) in itself partly involves an obligation to do, i.e., the undertaking of respondent to
negotiate and secure a road right of way at his own expense.
What the Catungals should have done was to first file an action in court to fix the
period within which Rodriguez should accomplish the successful negotiation of the
road right of way pursuant to the above quoted provision. Thus, the Catungals'
demand for Rodriguez to make an additional payment of P5,000,000.00 was
premature and Rodriguez's failure to accede to such demand did not justify the
rescission of the contract.
4. REYNALDO LABAYEN, ET AL, v. TALISAY SILAY MILLING CO.
G.R. No. 29298 December, 16, 1928

FACTS:
Reynaldo Labayen and Teodoro Labayen are the owners of Dos Hermanos, a hacienda
in Talisay, Negros Occidental. They entered into a contract with Talisay-Silay Milling
Company Incorporated, also called the Central, for the milling of sugar canes from
their hacienda.
Stipulated in the contract is the construction of a railroad with three and a half meters
right of way and maintenance of such railroad by the central. However, the central
was only able to construct a railroad reaching hacienda Esmeralda No. 2, four
kilometers away from hacienda Dos Hermanos. For a railroad to extend to hacienda
Dos Hermanos, the construction would require a gradual elevation of 4.84% to 7%,
would necessitate 26 curves and would cost Php80,000.00. A civil engineer testifying
in behalf of the defendants allege that to construct such would be possible but it
would be very dangerous.
This led to an action for damages in the amount of Php 28,620.00 by the petitioners
for the alleged breach of contract to grind sugar canes at the Court of First Instance of
Negros Occidental. The court ruled against the petitioners and on the cross-complaint
of the defendants, condemned the petitioners to pay the sum of Php 12, 114.00.
ISSUE:
Whether or not the action for damages should prosper?
RULING:
No. If the obligor voluntarily prevented the fulfillment of the condition of the obligation,
such condition shall be deemed fulfilled (article 1186 of the New Civil Code). The path
of the railroad has to pass through the haciendas of Esteban de la Rama. Since he
would not grant permission to use his land, therefore preventing the compliance of the
obligation to grind, the action cannot prosper.
Acontractenteredintobyasugarcentralandtheownerofahaciendaprovidedfor the
construction of a rail road "whenever the contour of the land, the curves, and
elevations
permitthesame."Itwasshownthatsuchconstructionwasposiblebutverydangerous.

The contract further provided that "In case of inability to secure, under reasonable
conditions such rights-of-way as ’La Central’ may require, its effects shall be
suspended in part or in whole during such period of incapacity." It was shown that the
owner of the haciendas through which the rail road would have to pass would not
grant permission to use his land for this purpose. On these facts ,it is held that the
action for damages for the alleged breach of contract to grind sugarcane can to
prosper.

5. FERNANDO CARRASCOSO, JR., Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and
Minority Stockholder and On Behalf of Other Stockholders of El Dorado
Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of
its minority stockholders, Lauro P. Leviste, Respondents
G.R. No. 123672 December 14, 2005

FACTS:
Sometime in March 1972, El Dorado Plantation Inc, through board member Mauro
Leviste, executed a Deed of Sale with Carrascoso. The subject of the sale was an 1825
hectare of land. It was agreed that Carrascoso is to pay P1.8M. P290K would be paid
by Carrascoso to the PNB to settle the mortgage placed on the said land. P210K would
be paid directly to Leviste. The balance of P1.3M plus 10% interest would be paid over
the next 3 years at P519k every 25th of March. Leviste also assured that there were no
tenants hence the land does not fall under the Land Reform Code. Leviste allowed
Carracoso to mortgage the land which the latter did.
Carrascoso obtained a total of P1.07M as mortgage and he used the same to pay the
down payment agreed upon in the contract. Carrascoso defaulted from his obligation
which was supposed to be settled on March 25, 1975. Leviste then sent him letters to
make good his end of the contract otherwise he will be litigated.
In 1977, Carrasco executed a Buy and Sell Contract with PLDT. The subject of the sale
was the same land sold to Carrascoso by Leviste but it was only the 1000 sq portion
thereof. The land is to be sold at P3M. Part of the terms and conditions agreed upon
was the Carrascoso is to remove all tenants from the land within one year. He is also
given a 6 month extension in case he’ll need one. Thereafter, PLDT will notify
Carrascoso if whether or not PLDT will finalize the sale. PLDT gained possession of the
land.
El Dorado filed a civil case against Carrascoso. PLDT intervened averring that it was a
buyer in good faith. The RTC ruled in favor of Carrascoso. CA Reversed the RTC
ruling.
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional
contract of sale, thus calling for the application of Articles 1181 and 1187 of the Civil
Code as held in Coronel v. Court of Appeals.
ISSUE:
a. What is the nature of the contracts?
b. Is Article 1187 applicable?

RULING:
The court ruled that the contract executed between El Dorado and Carracoso was a
contract of sale. It was perfected by their meeting of the minds and was consummated
by the delivery of the property to Carrascoso. However, El Dorado has the right to
rescind the contract by reason of Carracsoso’s failure to perform his obligation. A
contract of sale is a reciprocal contract.

The contract between Carrascoso and PLDT is a contract to sell. This is evidenced by
the terms and conditions that they have agreed upon that after fulfillment of
Carrascoso’s obligation PLDT has to “notify Carrascoso of its decision whether or not
to finalize the sale.”

Therefore the Agreement to Buy And Sell is not a conditional contract of sale. For in a
conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale
is thereby perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto automatically transfers to
the buyer by operation of law without any further act having to be performed by the
seller. Whereas in a contract to sell, upon fulfillment of the suspensive condition,
ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.

Article 1187 is not applicable in the case at hand since the contract is not a
conditional contract of sale.

6. Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,

vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO,
respondents.
G.R. No. 108346 July 11, 2001
FACTS:
David Raymund executed a Deed of Sale with Assumption of Mortgage in favor of
Avelina Velarde for a parcel of land under TCT 142177. The land together with the
house and improvements thereon were mortgaged by David Raymundo to BPI to
secure a loan of 1.8M. As part of the consideration of the sale, the Avelina Velarde
assumes to pay the mortgage obligations on the property. The Application for
Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to
make any further payment.
David and George Raymundo, thru counsel, wrote Sps. Velarde informing the latter
that their non-payment to the mortgage bank constitute non-performance of their
obligation.
Sps. Velarde, thru counsel, responded, as follows:
“This is to advise you, therefore, that our client is willing to pay the balance in cash
not later than January 21, 1987 provided:
(a) you deliver actual possession of the property to her not later than January 15,
1987 for her immediate occupancy;
(b) you cause the re- lease of title and mortgage from the Bank of P.I. and make the
title available and free from any liens and encumbrances; and
(c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January”
David and George Raymundo sent Sps. Velarde 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.

ISSUE:
Whether the defendant has the right to rescind the contract?

RULING:
Yes. 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 respondent’s 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.
7. AGUSTINA LIQUETTE TAN, petitioner,
vs.
COURT OF APPEALS AND SPS. MARIANO SINGSON and VISITACION
SINGSON, respondents.
Noe Villanueva for petitioner.
Jose Beltran for private respondents.

The instant petition for review raises the main issue of whether the private
respondents committed a substantial breach of their obligation so as to warrant
petitioner's exercise of her right to rescind the contract of sale under Article 1191 of
the Civil Code.

FACTS:

Private respondents herein are the owners of a house and lot which were then for sale.
On June 14, 1984, plaintiff-appellee together with her agent went to see said spouses
at their residence regarding the property. The parties finally agreed on the price of
Pl,800,000.00, with appellee to advance earnest money of P200,000.00 to enable
appellants to secure the cancellation of the mortgage and lien annotated on the title of
the property and the balance of the price to be paid by appellee on June 21, 1984.
Forthwith, appellee handed to appellants a check for P200,000.00 and thereupon the
parties signed a receipt.
Three days thereafter, appellee returned to appellants' house together with her
daughter Corazon and one Ines, to ask for a reduction of the price to Pl,750,000.00
and appellants spouses agreed. The very same day that appellants received the
earnest money of P 200,000.00, they started paying their mortgage loan with the DBP
to clear up the title of the subject property. On July 9, 1984, the DBP executed a
cancellation of mortgage, which was registered with the Registry of Property of Baguio
City in July 12, 1984. Appellants also paid all the taxes due and in appears on the
property. It likewise appears that appellants paid in full on July 17, 1984 the cost
price of the 338 square meter lot which was awarded to appellant Visitacion Singson
per her townsite sale application for said property. the parties agreed on an extension
of two (2) weeks for the execution of the deed of sale. Here, the parties' respective
versions on the matter parted ways. According to appellants, it was appellee who
asked for the extension because she was not yet ready to pay the balance of P
l,550,000.00. On the other hand, appellee said that it was appellants who asked for it
because the title of the property was not yet cleared.
On August 27, 1984 the case for recovery of sum of money with damages which is now
this case on appeal before us. In her complaint, appellee alleged that she gave
appellants spouses P200,000.00 upon their assurances that they could transfer to her
the house and lot she was buying from them free from any liens and encumbrances,
including the furnishings thereof and the adjacent lot being used as driveway, on June
25, 1984, but that day had come and passed without appellants being able to make
good their promise, because she "discovered to her shock and dismay that she had
been dealt with in bad faith by defendants" as the mortgage on the property was not
released or cancelled and the driveway was still public land and could not be validly
transferred to her as any disposition thereof would yet require approval by the
Secretary of Agriculture and Natural Resources.

ISSUE:
Are the private respondent entitled to rescind the contract pursuant to article 1191 of
the civil code?

RULING:
No. That the power to rescind obligations is implied in reciprocal ones in case one of
the obligors should not comply with what is incumbent upon him is clear from a
reading of the Civil Code provisions. However, it is equally settled that, in the absence
of a stipulation to the contrary, this power must be invoked judicially; it cannot be
exercised solely on a party's own judgment that the other has committed a breach of
the obligation. Where there is nothing in the contract empowering the petitioner to
rescind it without resort to the courts, the petitioner's action in unilaterally
terminating the contract in this case is unjustified
In this case, petitioner received on July 17, 1984 through her daughter Cora Tan
Singson, a telegram from private respondent Visitacion Singson advising the former
that the papers for the sale of the property are ready for final execution. The parties
likewise met on June 25, 1984, the day agreed upon for the full payment of the
purchase price, and they agreed on a further extension of two weeks for the execution
of the deed of sale. Despite this agreement, 'private respondents suddenly received a
telegram from Atty. Quitoriano, counsel for the petitioner, unilaterally stopping the
sale and demanding the return of the earnest money paid by petitioner
It is a settled principle of law 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
8. UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES GR NO. L-28602
September 29, 1970

FACTS:
On Nov 2, 1960, UP and ALUMCO entered into a logging agreement under which the
latter was granted exclusive authority, for a period starting from the date of the
agreement to 31 december 1965, extendible for a further period of five years by mutual
agreement, to cut, collect and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.
Alumco cut and removed timber therefrom but as for dec 8 1964, it had incurred an
unpaid account which despite repeated demands, it had failed to pay.
After it had received notice that UP would rescind the loggin agreement, ALUMCO
executed an instrument which was approved by the president of UP, which expressly
states that upon default by the debtor ALUMCO, the creditor has the right and power
to consider the Logging Agreement as rescinded without the necessity of any judicial
suit.
ALUMCO continued its logging operations, but again incurred an unpaid account.
Petitioner UP infrared ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they had entered in 1960.
UP filed a complaint against ALUMCO for the collection or payment of the herein
before stated sums of money and it prayed for and obtained an order for preliminary
attachment and preliminary injunction restraining ALUMCO from continuing its
logging operations in the land grant.
ALUMCO contended that it is only after a final court decree declaring the contract
rescinded for violation of its terms that UP could disregard ALUMCO’s rights under the
contract and treat the agreement as breached and of no force or effect.

ISSUE:
Whether or not petitioner UP can treat its contract with ALUMCO rescinded and may
disregard the same before any judicial pronouncements to that effect?

RULING:
UP and ALUMCO had expressly stipulated that upon default by the debtor, the
creditor has the right and the power to consider the logging agreement as rescinded
without the necessity of any judicial suit.
In connection with Art 1191 of the Civil Code, the court stated in Froilan vs Pan
Oriental Shipping CO. that there is nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention.
In other words, it is not always necessary for the injured party to resort to court for
rescission of the contract.

It must be understood that the act of party in treating a contract as cancelled or

resolved on account of infractions by the other contracting party must be made known
to the other and is always provisional, being ever subject to scrutiny and review by the
proper court. If the other party denies that the rescission is justified, it is free to resort
to judicial action in its own behalf, and bring the matter to court. Should the court,
after due hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages: in the contrary cadem the resolution
will be affirmed, and the consequent indemnity awarded to the party prejudiced.

9. SPOUSES SY VS. ANDOK’S LITSON CORPORATION GR

NO. 192108 NOVEMBER 21, 2012

FACTS:
On July 5, 2005, Petitioner Cely Sy entered into a 5-year lease contract with Andok's
Litson Corporation covering the parcel of land owned by Sy. Andok's immediately paid
its four months of advance deposit and a security deposit equivalent to four months of
rental. However, while in the process of applying for electrical connection on the
improvements to be constructed on Sys land, Andok's discovered that Sy has an
unpaid MERALCO bill amounting to P400,000.00. Andok’s presented a system-
generated statement from MERALCO. Andok's further complained that construction
for the improvement it intended for the leased premises could not proceed because
another tenant, Mediapool, Inc. incurred delay in the construction of a billboard
structure also within the leased premises.
Andoks first informed Sy in a letter dated August 25, 2005 about the delay in the
construction of the billboard structure on a portion of its leased property. Three more
letters of the same tenor were sent to Sy but the demands fell on deaf ears. Thus,
Andok's filed a complaint for rescission before the RTC. The RTC ruled in favor of
Andoks. On appeal, the CA affirmed the RTCs ruling. Petitioner then filed a petition for
review on certiorari before the SC alleging that the CA failed to appreciate that the
respondent itself contractually assumed the risk of delay, and thus any delay could
not be a ground for the resolution or annulment of the contract of lease.
ISSUE:

Whether or not rescission is proper in this case?

RULING:

Article 1191 of the Civil Code provides that the power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. A lease contract is a reciprocal contract. By signing the lease
agreement, the lessor grants possession over his/her property to the lessee for a
period of time in exchange for rental payment. Indeed, rescission is statutorily
recognized in a contract of lease. Article 1659 of the Civil Code provides: Art. 1659. If
the lessor or the lessee should not comply with the obligations set forth in articles
1654 and 1657, the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in
force.
While Andok’s had complied with all its obligation as a lessee, the lessor failed to
render the premises fit for the use intended and to maintain the lessee in the peaceful
and adequate enjoyment of the lease.

10. DEL CASTILLO VDA. DE MISTICA VS. SPS NAGUIAT

GR NO. 137909 DECEMBER 11, 2003

FACTS:
Eulalio Mistica, Fidela’s predecessor-in-interest, is the owner of a parcel of land in
Malhaca, Meycauayan, Bulacan. A portion thereof was leased to Bernardino naguiat
sometime in 1970. On April 5, 1979, Eulalio entered into a contract to sell with
Naguiat over a portion of the aforementioned lot containing an area of 200 meter
squared. This agreement was reduced into writing in a document entitled Kasulatan
sa pagbibilihan.
Bernardino Naguiat gave a downpayment of 2,000. He made another partial payment
of 1,000 on February 7, 1980. He failed to make payments thereafter. Sometime in
October 1986, Eulalio Mistica died. On December 4, 1991, Fidela filed a complaint for
rescission alleging that Naguiat’s failure and refusal to pay the balance of the
purchase price constitutes a vilation of the contract which entitles her to rescind the
same.
Respondent Naguiat contended that the contract cannot be rescinded on the ground
that it clearly stipulates that in case of failure to pay the balance as stipulated, a
yearly interest of 12% is to be paid. He likewise alleged that during the wake of the late
Eulalio Mistica, he offered to pay the remaining balance to petitioner but the latter
refused. Moreover, he acquired the lot portion by virtue of a Free Patent Title duly
awarded to him by the Bureau of Lands and that his title and ownership had already
become indefeasible and incontrovertible.
The lower court disallowed the rescission which the CA affirmed. Hence, the petition.
Disallowing rescission, the CA held that respondents did not breach the Contract of
Sale. It explained that the conclusion of the ten-year period was not a resolutory term,
because the Contract had stipulated that payment — with interest of 12 percent —
could still be made if respondents failed to pay within the period. According to the
appellate court, petitioner did not disprove the allegation of respondents that they had
tendered payment of the balance of the purchase price during her husband’s funeral,
which was well within the ten-year period.

ISSUE:
Whether or not the petitioner is entitled to rescind the contract?

RULING:
No. Petitioner cannot rescind the contract. The transaction between Eulalio Mistica
and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A
deed of sale is considered absolute in nature when there is neither a stipulation in the
deed that title to the property sold is reserved to the seller until the full payment of the
price; nor a stipulation giving the vendor the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed period. In a contract of sale, the
remedy of an unpaid seller ilabayes either specific performance or rescission. Under
Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a breach of faith by one
of them. Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation.
In the present case, the failure of respondents to pay the balance of the purchase price
within ten years from the execution of the Deed did not amount to a substantial
breach. In
the Kasulatan, it was stipulated that payment could be made even after ten years from
the execution of the Contract, provided the vendee paid 12 percent interest. The
stipulations of the contract constitute the law between the parties; thus, courts have
no alternative but to enforce them as agreed upon and written.
If petitioner would like to impress upon this Court that the parties intended otherwise,
she has to show competent proof to support her contention. Instead, she argues that
the period cannot be extended beyond ten years, because to do so would convert the
buyer’s obligation to a purely potestative obligation that would annul the contract
under Article 1182 of the Civil Code. This contention is likewise untenable. The Code
prohibits purely potestative, suspensive, conditional obligations that depend on the
whims of the debtor, because such obligations are usually not meant to be fulfilled.
Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor’s will
would be to sanction illusory obligations. The Kasulatan does not allow such thing.
First, nowhere is it stated in the Deed that payment of the purchase price is
dependent upon whether respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties intended to be
bound by the Kasulatan.