Mahinay, Beya Ammahry

LE-104
Obligations and Contract

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ

v. AYALA CORPORATION
G.R. NO. 149734 November 19, 2004

FACTS:

            On April 23, 1981, spouses Vasquez entered into a MOA with Ayala Corp. with Ayala
buying from the Vazquez spouses all of the latter's shares of stock in Conduit Development, Inc.

The main asset was a property in Ayala Alabang which was then being developed by Conduit
under a development plan where the land was divided into Villages 1, 2 and 3. The development
was then being undertaken by G.P. Construction and Development Corp. Under the MOA, Ayala
was to develop the entire property, less what was defined as the "Retained Area".

This "Retained Area" was to be retained by the Vazquez spouses. The area to be developed by
Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the
"Retained Area" and Ayala agreed to offer these lots for sale to the spouses at the prevailing
price at the time of purchase.

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the
project. Ayala then received a letter from Lancer General Builder Corp. in which the latter was
claiming a certain amount as subcontractor. G.P. Construction not being able to reach an
amicable settlement with Lancer, Lancer sued G.P. Construction, Conduit and Ayala in the court.
G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of
the property.

The suit was terminated only on 1987. Taking the position that Ayala was obligated to sell the 4
lots adjacent to the "Retained Area" within 3 years from the date of the MOA, the Vasquez
spouses sent several "reminder" letters of the approaching so-called deadline. However, no
demand after 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the
contrary, one of the letters signed by their authorized agent categorically stated that they
expected development of Phase 1 to be completed 3 years from the settlement of the legal
problems with the previous contractor.

By early 1990, Ayala finished the development of the vicinity. The 4 lots were then offered to be
sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez
spouses who wanted to pay at 1984 prices, thereby leading to the suit below.
ISSUE:

            Whether or not respondent incurred default or delay in the fulfillment of its obligation.

RULING:

No. In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been
fixed shall be demandable only when that day comes.

However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand
performance after the 3 year period fixed by the MOA for the development of the first phase of
the property since this is not the same period contemplated for the development of the subject
lots. Since the MOA does not specify a period for the development of the subject lots, petitioners
should have petitioned the court to fix the period in accordance with Article 1197 of the Civil
Code.

As no such action was filed by petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point. Accordingly, Ayala Corp. cannot
likewise be said to have delayed performance of the obligation.

Even assuming that the MOA imposes an obligation on Ayala Corp. to develop the subject lots,
within 3 years from date thereof, Ayala Corp. could still not be held to have been in delay since
no demand was made by petitioners for the performance of its obligation. Moreover, the letters
were mere reminders and not categorical demands to perform. These letters were sent before the
obligation could become legally demandable.

More importantly, petitioners waived the 3 year period as evidenced by their agent’s letter to the
effect that petitioners agreed that the 3 year period should be counted from the termination of the
case filed by Lancer.
 ANITA C. BUCE
v.
THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and
ARACELI TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE
M. TIONGCO
G.R. No. 136913 May 12, 2000

FACTS:

Anita Buce leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan,
Manila from Tionco Family. The lease contract was for a period of fifteen years to commence on
1 June 1979 and to end on 1 June 1994 "subject to renewal for another ten years, under the same
terms and conditions."

Anita Buce constructed a building and paid the required monthly rental of P200. Jose Tiongco
demanded a gradual increase in the rental until it reached P400 in 1985. For July and August
1991, Anita paid private respondents P1,000 as monthly rental. In December 1991, Tionco’s
counsel wrote Anita Buce about the increase in the rent to P1,576.58 effective January 1992
pursuant to the provisions of the Rent Control Law.

Anita tendered checks for only P400 each to Jose Tiongco but Jose Tiongco refused to accept the
payment. Anita filed a consignation with the Regional Trial Court of Manila. RTC ruled that the
petitioner cannot be ejected from the premises but the increase of the rent was approved as a
form of novation. The Court of Appeals reversed the decision of RTC and ordered the immediate
ejectment from the premises.

Issue:
1. Should the period of lease to renew the contract be given to the lessee or lessor?
2. Whether or not the Fernandez Case is applicable to the case at bar.

RULING:

1. As a general rule, it must be for the both parties but in the given case of contract of lease,
it is given to the lessor.

Under Article 1196 of the Civil Code, the period of the lease contract is deemed to have
been set for the benefit of both parties. Renewal of the contract may be had only upon
their mutual agreement or at the will of both of them. In the given case, "this lease shall
be for a period of fifteen years effective June 1, 1979, subject to renewal for another ten
(10) years, under the same terms and conditions" does not mean an automatic extension
of the contract. The fact that the lessee was allowed to introduce improvements on the
 property is not indicative of the intention of the lessors to automatically extend the
contract. 

However in the given case, Tionco were not amenable to a renewal, they cannot be
compelled to execute a new contract when the old contract terminated on 1 June 1994. It
is the owner-lessor’s prerogative to terminate the lease at its expiration.

The fulfilment of a contract of lease cannot be made to depend exclusively upon the free
and uncontrolled choice of the lessee and completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract would be dictated solely by
the lessee.

2. No, the ruling of Fernandez case is not applicable to the case at bar. The Fernandez Case
shall not apply because it was not specifically indicated who may exercise the option to
renew, neither was it stated that the option was given for the benefit of herein
petitioner. In the case of Fernandez, it was for the benefit of the lessee alone.

GREGORIO ARANETA, INC.

v.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
G.R. No. L-22558   May 31, 1967

FACTS:

J. M. Tuason & Co., Inc. is the owner of a big tract land otherwise known as the Sta. Mesa
Heights Subdivision, and covered by a Torrens title in its name. On July 1950, through Gregorio
Araneta, Inc., it sold a portion thereof to Philippine Sugar Estates Development Co., Ltd
(PSEDC).

The parties stipulated, among in the contract of purchase and sale with mortgage, that the buyer
will build on the said parcel land the Sto. Domingo Church and Convent while the seller for its
part will construct streets on the NE and NW and SW sides of the land herein sold so that the
latter will be a block surrounded by streets on all four sides; and the street on the NE side shall
be named "Sto. Domingo Avenue.” The buyer, finished the construction of Sto. Domingo
Church and Convent, but the seller was unable to finish the construction of the street in the
Northeast side named (Sto. Domingo Avenue) because a third-party, by the name of Manuel
Abundo, who has been physically occupying a middle part thereof, refused to vacate the same.
On May 1958, PSEDC filed its complaint against Tuason seeking to compel the latter to comply
with their obligation, as stipulated in the above-mentioned deed of sale, and/or to pay damages in
the event they failed or refused to perform said obligation.
Defendant Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not
expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and
that the evidence presented at the trial was insufficient to warrant the fixing of such a period.

The lower court ruled the following: defendant is given two (2) years from the date of finality of
this decision to comply with the obligation to construct streets on the NE, NW and SW sides of
the land sold to plaintiff so that the same would be a block surrounded by streets on all four
sides.

ISSUE: Was there a duly fixed period within which the obligation should be complied with?

RULING: No, Article 1197 of the Civil Code involves a two-step process. The Court must first
determine that "the obligation does not fix a period but from the nature and the circumstances it
can be inferred that a period was intended". This preliminary point settled, the Court must then
proceed to the second step, and decide what period was "probably contemplated by the parties" .
As the record stands, the trial Court appears to have pulled the two-year period set in its decision
out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted
by the Civil Code.

The contract shows that the parties were fully aware that the land described therein was occupied
by squatters, because the fact is expressly mentioned therein. As the parties must have known
that they could not take the law into their own hands, but must resort to legal processes in
evicting the squatters, they must have realized that the duration of the suits to be brought would
not be under their control nor could the same be determined in advance. The conclusion is thus
forced that the parties must have intended to defer the performance of the obligations under the
contract until the squatters were duly evicted, as contended by Araneta.

It follows that there is no justification in law for the setting the date of performance at any other
time than that of the eviction of the squatters occupying the land in question. It is not denied that
the case against one of the squatters, Abundo, was still pending in the Court of Appeals when its
decision in this case was rendered.
 DEVELOPMENT BANK OF THE PHILIPPINES
v.
STA. INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO CUENCA,
MANUEL TINIO, CUENCA INVESTMENT CORPORATION AND UNIVERSAL
HOLDINGS CORPORATION
G.R. No. 193099, February 1, 2017

FACTS: 

DBP guaranteed Galleon’s foreign loans. In return, Galleon undertook to secure a first mortgage
on its five new vessels and two second-hand vessels.

On July 21, 1981, President Marcos issued Letter of Instructions addressed to the NDC, DBP,
and the Maritime Industry Authority to acquire 100% of the shareholdings of Galleon Shipping
Corporation from its present owners. For the furtherance of the government’s policy to provide a
reliable liner service between the Philippines and its major trading partners.

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, 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.
Carpio acknowledged reviewing Galleon’s outstanding accounts submitted by Cuenca. Despite
the verification still to be done, both parties agreed to execute the share purchase agreement as
soon as possible but not more than sixty days from the signing of the Memorandum of
Agreement.

Barely seven months from the issuance of Letter of Instructions No. 1155, President Marcos
issued Letter of Instructions No. 1195, which:

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.

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.

It 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.”

As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings claimed that
“DBP can no longer go after [them] for any deficiency judgment since NDC had been
subrogated in their place as borrowers, hence the Deed of Undertaking between Sta. Ines,
Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP had been extinguished and
novated.”

Meanwhile, Proclamation No. 50 created the Asset Privatization Trust 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.

RTC upheld the validity of Letter of Instructions No. 1155 and the Memorandum of Agreement
executed by NDC and Galleon’s stockholders, pursuant to Letter of Instructions No. 1155.

The Regional Trial Court also held that 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.
The Regional Trial Court also ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings’ liability to DBP under the Deed of Undertaking had been extinguished due
to novation, with NDC replacing them and PNCC as debtors.

In its assailed Decision dated March 24, 2010, the Court of Appeals upheld the Regional Trial
Court’s findings that the Memorandum of Agreement between NDC and Cuenca (representing
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings) was a perfected contract,
which bound the parties. It also found that DBP was privy to the Memorandum of Agreement
since Ongpin was concurrently Governor of DBP and chairman of NDC Board of Directors at
the time the Memorandum of Agreement was signed. Hence, this petition.

ISSUE: Whether or not the Memorandum of Agreement novated the Deed of Undertaking

executed between DBP and the shareholders of Galleon.

RULING: No, the Supreme Court ruled that there exist no novation in the present case.
It should be noted that in order to give novation its legal effect, the law requires that the creditor
should consent to the substitution of a new debtor. This consent must be given expressly for the
reason that, since novation extinguishes the personality of the first debtor who is to be substituted
by new one, it implies on the part of the creditor a waiver of the right that he had before the
novation, which waiver must be express under the principle that renuntiatio non
prcesumitur, recognized by the law in declaring that a waiver of right may not be performed
unless the will to waive is indisputably shown by him who holds the right. (Emphasis supplied)

The general rule is that, “[i]n the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation.” A corporation is a
juridical person, separate and distinct from its stockholders and members, having “powers,
attributes and properties expressly authorized by law or incident to its existence.”

“A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused persons dealing with the officer or
agent to believe that it has conferred.”

Aside from Ongpin being the concurrent head of DBP and NDC at the time the Memorandum of
Agreement was executed, there was no proof presented that Ongpin was duly authorized by the
DBP to give consent to the substitution by NDC as a co-guarantor of Galleon’s debts. Ongpin is
not DBP, therefore, it is wrong to assume that DBP impliedly gave its consent to the substitution
simply by virtue of the personality of its Governor.
Novation is never presumed. The animus novandi, whether partial or total, “must appear by
express agreement of the parties, or by their acts which are too clear and unequivocal to be
mistaken.”
There was no such animus novandi in the case at bar between DBP and respondents, thus,
respondents have not been discharged as Galleon’s co-guarantors under the Deed of Undertaking
and they remain liable to DBP.

FERNANDO A. GAITE, plaintiff-appellee, 
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY
G.R. No. L-11827     July 31, 1961

FACTS:
Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the Dawahan
Group. By a "Deed of Assignment" dated September 29, 1952, Fonacier constituted and
appointed Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual
or juridical person for the exploration and development of the mining claims. On March 19,
1954, Gaite in turn executed a general assignment conveying the development and exploitation
of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and
belonging to him, on the same royalty basis provided by the “Deed of Assignment".

 Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the
mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a
"Revocation of Power of Attorney and Contract" was executed on December 8, 1954, wherein
Gaite transferred to Fonacier, all his rights and interests on development and exploitation of said
mining claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon
the signing of the agreement, and

b. The balance of P65,000.00 will be paid from and out of the first letter of credit
covering the first shipment of iron ores and of the first amount derived from the local sale
of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or
successors in interests.

Payment of P65, 000.00 was secured by two surety bonds: One from Larap Mines and its
stockholders and the other from Far Eastern Surety and Insurance Co.

ISSUE: Whether or not Fonacier and his sureties are entitled to take full advantage of the period
granted them for making the payment.
RULING: No, SC agreed with the court below that the appellant have forfeited the right to
compel Gaite to wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else
replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on
December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the
unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted
when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes
under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly
impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or
replaced.