41. DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ vs.

AYALA CORPORATION
G.R. No. 149734
November 19, 2004

Facts:

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses)
entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc.
(hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a development plan. The development
was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP
Construction).

Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area"
which is that part that 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 Vazquez spouses at the prevailing price at the time of
purchase. It was also stipulated in the MOA that Ayala intends to complete the first phase under its
amended development plan within three (3) years from the date of the MOA.

The parties are agreed that the development plan referred to is not Conduit's development plan, but
Ayala's amended development plan which was still to be formulated as of the time of the MOA. Whilse
in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase
thereof, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.

After the execution of the MOA, Ayala caused the suspension of work on Phase 1 of the Conduit plan.
Ayala then received a letter from Lancer General Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction.

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982,
Lancer sued G.P. Construction, Conduit and Ayala. G.P. Construction in turn filed a cross-claim against
Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the
property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after
Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

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 April 23, 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, Engr. Eduardo Turla, categorically stated that they expected "development of Phase 1
to be completed by February 19, 1990, three years from the settlement of the legal problems with the
previous contractor."

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four
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.

Issue:

Whether or not Ayala defaulted on its obligation to the spouses

Ruling:

No, Ayala was not yet in default.

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 three (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
Corporation cannot likewise be said to have delayed performance of the obligation.

50. ANTONIO TAN vs.COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES
G.R. No. 116285            
October 19, 2001

Facts:

On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two loans each in the principal
amount of P2,000,000.00, or in the total principal amount of P4,000,000.00 from respondent Cultural
Center of the Philippines (CCP, for brevity) evidenced by two promissory notes with maturity dates on
May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he
had the loans restructured by respondent CCP, and petitioner accordingly executed a promissory note
on August 31, 1979 in the amount of P3,411,421.32 payable in five installments. Petitioner Tan failed to
pay any installment on the said restructured loan, the last installment falling due on December 31, 1980.
In a letter dated January 26, 1982 and October 20, 1983, petitioner requested and proposed to
respondent CCP a mode of paying the restructured loan. No favorable response was made to said
letters. Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner
demanding full payment, within ten (10) days from receipt of said letter, of the petitioner’s restructured
loan which as of April 30, 1984 amounted to P6,088,735.03.

On August 29, 1984, respondent CCP filed a complaint for collection of a sum of money, against the
petitioner after the latter failed to settle his said restructured loan obligation. The private respondent’s
Statement of Account as of August 28, 1986, shows a total of P7,996,314.67 including the Principal of
P2,838,454.68, Interest of P576,167.89 and surcharge of P4,581,692.10 based on the additional penalty
charges at the rate of 2% per month on the total amount due until paid as stipulated in the promissory
note, payable and computed monthly.

The said statement of account shows that amounts stated therein are net of the partial payments
amounting to a total of P452,561.43 which were made during the period from May 13, 1983 to
September 30, 1983. The petitioner now seeks the reduction of the penalty due to the said partial
payments. The principal amount of the promissory note was P3,411,421.32 when the loan was
restructured on August 31, 1979. As of August 28, 1986, the principal amount of the said restructured
loan has been reduced to P2,838,454.68. Thus, petitioner contends that reduction of the penalty is
justifiable pursuant to Article 1229 of the New Civil Code which provides that: "The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable." Petitioner insists that the penalty should be reduced to ten percent (10%)
of the unpaid debt in accordance with Bachrach Motor Company v. Espiritu.

Issue:

Whether or not petitioner is entitled to reduction of the penalty due to partial compliance because the
penalty charged was unconscionable.

Ruling:

Yes. There appears to be a justification for a reduction of the penalty charge but not necessarily to ten
percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as petitioner has
made partial payments which showed his good faith, a reduction of the penalty charge from two
percent (2%) per month on the total amount due, compounded monthly, until paid can indeed be
justified under the said provision of Article 1229 of the New Civil Code.

In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on the
total amount due to be unconscionable inasmuch as the same appeared to have been compounded
monthly.

Considering petitioner’s several partial payments and the fact he is liable under the note for the two
percent (2%) penalty charge per month on the total amount due, compounded monthly, for twenty-one
(21) years since his default in 1980, we find it fair and equitable to reduce the penalty charge to a
straight twelve percent (12%) per annum on the total amount due starting August 28, 1986, the date of
the last Statement of Account. We also took into consideration the offers of the petitioner to enter into
a compromise for the settlement of his debt by presenting proposed payment schemes to respondent
CCP. The said offers at compromise also showed his good faith despite difficulty in complying with his
loan obligation due to his financial problems.