SONG FO & CO. V HAWAIIAN-PHILIPPINE CO.

MALCOLM; September 16, 1925 NATURE Appeal from a judgment of the Court of First Instance of Iloilo FACTS Plaintiff presented a complaint with two causes of action for breach of contract against the defendant in which judgment was asked for P70,369.50, with legal interest and cost. In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the contract. The case was submitted for decision on a stipulation of facts and exhibits. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93 with legal interest from the date of the presentation of the complaint, and with costs. HELD - The written contract between the parties provided for the delivery by the Hawaiian-Philippine Co. to Song Fo & Co. of 300,000 gallons of molasses. The language used in another exhibit with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation. - The terms of contract fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Hawaiian-Philippine Co. had no legal right to rescind the contract of sale because of the failure of Song Fo & Co. to pay for the molasses within the time agreed upon by the parties. The general rule is that the rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches are as so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some 20 days is not such a violation of an essential condition of the contracts as warrants rescission for nonperformance. - The measure of damages for breach of contract in this case is as follows: Song Fo & Co. is allowed P3,000 on account of the greater expense to which it was put in being compelled to secure molasses in the open market. It is allowed nothing for lost profits on account of the breach of the contract, because of failure of proof. BOYSAW V INTERPHIL PROMOTIONS FERNAN; March 20, 1987 NATURE Appeal from the decision of the court of first instance of Rizal, Br. V. FACTS - On May 1, 1961, Boysaw and manager Ketchum signed with Interphil (represented by Sarreal) a contract to engage Flash Elorde in a boxing match at Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days shld a postponement be mutually agreed upon. Boysaw, accdg to contract, shld not engage in other bouts prior to the contest. - Interphil signed Elorde to a similar agreement. - Boysaw fought and defeated Louis Avila in Nevada. - Ketchum assigned to Amado Araneta his managerial rights, who later transferred

the rights to Alfredo Yulo. - Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of managers bec they werent notified. - GAB called for conferences and decided to schedule the Elorde-Boysaw bout on Nov 4, 1961. USA National Boxing Assoc approved. - Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable postponement in the contract. Yulo refused. He was willing to approve the fight on Nov 4 provided it will be promoted by a certain Mamerto Besa. - The fight contemplated in the May 1 contract never materialized. Boysaw and Yulo sued Interphil, Sarreal and Nieto. - Boysaw was abroad when he was scheduled to take the witness stand. Lower court reset the trial. Boysaw was still absent on the later date. Court reset. On the third instance, a motion for postponement was denied. - Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal. ISSUES 1. WON there was a violation of the May 1 contract and if so, who was guilty 2. WON there was legal ground for postponement of the fight 3. WON lower court erred in refusing postponement of the trial for 3rd time 4. WON lower court erred in denying new trial 5. WON lower court erred in awarding appellees damages HELD 1. Boysaw violated the contract when he fought with Avila. Civil Code provides, the power to rescind obligations is implied, in reciprocal ones, (as in this case) in case one of the obligors shld not comply w/ what is incumbent upon him. Another violation was made in the transfers of managerial rights. These were in fact novations which, to be valid, must be consented to by Interphil. When a contract is unlawfully novated, the aggrieved creditor may not deal with the substitute. 2. The appellees could have opted to rescind or refuse to recognize the new manager, but all they wanted was to postpone the fight owing to an injury Elorde sustained. The desire to postpone the fight is lawful and reasonable. The GAB did not act arbitrarily in acceding to the request to reset the date of the fight and Yulo himself agreed to abide by the GAB ruling. The appellees offered to move the fight w/in the 30 day period for postponement but this was refused by the appellants, notwithstanding the fact that by virtue of the appellants violations, they have forfeited any right to the enforcement of the contract. 3. The issue of denial of postponement of trial was raised in another petition for certiorari and prohibition. It cant be resurrected in this case. 4. The court was correct in denying new trial. The alleged newly discovered evidence are merely clearances fr clerk of court, which cant alter the result of the trial. 5. Because the appellants willfully refused to participate in the final hearing and refused to present documentary evidence, they prevented themselves fr objecting to or presenting proof contrary to those adduced by the appellees.

UP v. DELOS ANGELES REYES; September 29, 1970 NATURE Petition for certiorari and prohibition FACTS - Nov. 2, 1960 UP entered into a logging agreement with ALUMCO wherein ALUMCO was granted the exclusive authority to cut, collect and remove timber from the Land Grant. The said logging agreement began on the date of agreement to Dec. 31, 1965, extendible for a period of five years. - Dec. 8, 1964 ALUMCO accumulated unpaid dues of P219,362.94 which it failed to pay despite repeated demands. - UP sent a notice to ALUMCO, saying that the former would terminate/rescind the contract. ALUMCO then drew up an Acknowledgment of Debt and Proposed Mariner of Payments dated Dec. 9, 1964 and was approved by the UP president. - ALUMCO should pay its outstanding balance to UP on or before June 30, 1965 - If ALUMCO fails to do that, UP will have the right to rescind the contract without the necessity of a judicial suit and UP shall have the right to P50,000 in damages. - ALUMCO continued the logging concession but once more incurred an outstanding balance of P61,133.74 from Dec. 9, 1964 to July 15, 1965 on top of its existing outstanding obligation. - July 19, 1965 UP rescinded the contract and filed a civil suit against ALUMCO on September 7 of the same year. - Sept. 30, 1965 UP obtained an order which prevented ALUMCO from continuing its logging activities. - Before the preliminary injunction was granted, UP already conducted a bidding and eventually awarded the concession to Sta. Clara Lumber. The contract with Santa Clara was signed on Feb. 16, 1966. - Feb. 25, 1966 ALUMCO obtained an order which enjoined UP from awarding logging rights to a different concessionaire. - April 12, 1966 UP declared in contempt of court and Sta. Clara was told to stop the logging activities. Respondents Comments: - Respondents blame their former manager for their financial turmoil because he did not turn over the company to ALUMCO. - It was unable to comply with the manner of payments stated in the Acknowledgement because the logs they harvested were rotten. - It is only upon a judicial declaration that the contract can be considered rescinded. ISSUE WON UP can treat the contract with ALUMCO as rescinded without any judicial pronouncement HELD Yes, UP can treat the contract with ALUMCO as rescinded without any judicial pronouncement.

Ratio The party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. It is only the final judgment of the corresponding court that will and finally settle whether the action taken was or was not correct in law. Reasoning - The Acknowledgement already indicated that should ALUMCO fail to pay its dues on time, the contract would be rescinded. - But since the decision finding UP in contempt is on appeal in the CA, the SC decided not to make any comment. DE ERQUIAGA V CA GRIO-AQUINO, September 27,1989 NATURE PETITION to review the decision of the Court of Appeals. FACTS - This is a case that began in the CFI of Sorsogon in 1970. Although the decision dated September 30, 1972 of the trial court became final and executory because none of the parties appealed, its execution has taken all of the past seventeen (17) years with the end nowhere in sight. The delay in writing finis to this case is attributable to several factors, not the least of which is the intransigents of the defeated party. - Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development Corporation (EDC) which owns the Hacienda San Jose in Irosin, Sorsogon. - On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares of EDC for P900,000 payable in installments on definite dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third installments on time, the total price of the sale was later increased to P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest - As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon transferred all his shares (3,100 paid up shares) in EDC to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation. However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the balance of his obligation. Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares in the Erquiaga. Development Corporation. - On September 30 1972, upon the complaint filed by de Erquiaga, the CFI of Sorsogon, rendered judgment in favor of the de Erquiaga, rescinding the sale of 3,100 paid up shares of stock of the EDC to Reynoso, and ordering: a) the defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the EDC which now stand in his name in the books of the corporation; b) the defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up shares of stock of the EDC, as well as to return said fruits

received by him to plaintiff ; c) the plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from November 4,1968, and the amount of P310,000.00 plus legal interest from December 17, 1968, until paid; d) the defendant to pay the plaintiff as actual damages the amount of P12,000.00; P50,000.00 as attorney's fees; and to pay the costs of this suit and expenses of litigation. - The parties did not appeal therefrom and it became final and executory. - On March 21, 1973, the CFI of Sorsogon issued an Order, stating that, although the decision has become final and executory, the payment to the defendant of the total sum ofP410,000.00 plus the interest, damages and attorneys fees, should be held in abeyance pending rendition of the accounting by the defendant of the fruits received by him on account of the 3,100 shares of the capital stock of EDC. Indeed it is reasonable to suppose that when such accounting is made (not only to the dividends due from the shares of stock but to the products of the hacienda which is the only asset of the EDC) certain sums may be found due to the plaintiff from the defendant which may partially or entirely off set the amount adjudged against him in the decision. - The court also held that the fruits referred to in the decision include not only the dividends received, if any, on the 3,100 shares of stocks but more particularly the products received by the defendant from the hacienda. The hacienda and the products thereon produced constitute the physical assets of the EDC represented by the shares of stock and it would be absurd to suppose that any accounting could be made by the defendant without necessarily taking into account the products received which could be the only basis for determining whether dividends are due or not on account of the investment. The hacienda and its natural fruits as represented by the shares of stock which the defendant received as manager and controlling stockholder of the EDC can not be divorced from the certificates of stock in order to determine whether the defendant has correctly reported the income of the corporation or concealed part of it for his personal advantage. The EDC and defendant Jose Reynoso are one and the same persons as far as the obligation to account for the products of the hacienda is concerned, - In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of P100,000.00 because Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver' in order to preserve the Hacienda which has obviously been mismanaged by the defendant to a point where the amortization of the loan with the DBP has been neglected and the arrears in payments have risen to the amount of P503,510.70 as of October 19,1972, and there is danger that the DBP may institute foreclosure proceedings to the damage and prejudice of the plaintiff. - On April 26, 1973, defendant Reynoso died and he was substituted by his surviving spouse Valdez Vda. de Reynoso and children, who filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the annulment of the aforementioned. - On February 12, 1975, upon motion of Erquiaga, the CFl of Sorsogon issued an order, dissolving the receivership and ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00 conditioned to the payment of whatever may be due to the substituted

heirs of deceased defendant Reynoso after the approval of the accounting report submitted by Reynoso. -On March 3, 1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the possession, management and control of the hacienda were turned over to Erquiaga. Reynosos filed their motion for reconsideration which the CFI of Sorsogon but was denied - On October 9, 1975, the CFI of Sorsogon issued an order directing defendants to deliver to the plaintiff or his counsel within five (5) days from receipt of this order the 1,600 shares of stock of the EDC which are in their possession. Should the defendants refuse or delay in delivering such shares of stock, as prayed for, the plaintiff is authorized: a) To call and hold a special meeting of the stockholders of the EDC to elect the members of the Board of Directors; b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name but also the 1,600 shares in the name and possession of the defendants; c) The question as to who shall be elected members of the Board of Directors and officers of the board is left to the discretion of the plaintiff; d) The members of the board and the officers who are elected are authorized to execute any and a contracts or agreements under such conditions as may be required by the DBP for the purpose of restructuring the loan of the EDC with the said bank. - Hence, the present petition for certiorari, prohibition and mandamus with the CA instituted by the substitute defendants. - On May 31, 1976, with a view of putting an end to a much protracted litigation and for the best interests of the parties, the CA issued a writ of mandamus, commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the necessary deed of conveyance to effect the transfer of ownership of the entire 3,100 shares of stock of the EDC to Erquiaga in case of failure of petitioners to comply with the Order of October 9, 1975 insofar as the delivery of the 1,600 shares of stock to private respondent is concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of execution ordering private respondent to pay petitioners the amount of P410,000.00 plus interests, setting-off therewith the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners' predecessor-ininterest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. - As of the time the Court of Appeals rendered its decision on May 31, 1976,only the following have been done by the parties in compliance with the final judgment in the main case: 1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety bond of P410,000 in favor of Reynoso; 2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final judgment. - What the parties have not done yet are: 1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a) of the decision;

2. Reynoso has riot rendered a full accounting of the fruits he has received from Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him under the sale, as ordered in paragraph (b) of the decision; 3. Erquiaga. has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from November 4,1968 and P31 0,000 plus legal interest from December 17,1968, until paid (total: P410,000) as ordered in paragraph (c) of the decision; 4. Reynoso has not paid the judgment of P12,000 as actual damages in favor of Erquiaga, under paragraph (d) of the judgment; 5. Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the judgment; and 6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the final judgment. ISSUE WON the decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum of P410,000 plus interest, without first awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates Article 1385 of the Civil Code HELD NO. The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the fruits (construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with Art. 1385 of the Civil Code which provides: "ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. "Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. "In this case, indemnity for damages may be demanded from the person causing the loss." - The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the possession of Erquiaga, and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the time the hacienda was delivered to him on November 4, 1968 until it was placed under receivership by the court on March 3, 1975. - However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver to Reynosa the legal interest earned by his money, should await the rendition and approval of his accounting. To this extent,

the decision of the Court of Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned by Reynosa's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3,1975. - The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the EDC should be computed up to September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after September 30, 1972, the date of the judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the Court of Appeals in CA is affirmed. ANGELES V CALASANZ GUTIERREZ; March 18, 1985 NATURE Appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorneys fees and costs. FACTS - On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees. - On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration, of the said cancellation was denied by the defendants-appellants. The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty taxes and

incidental expenses for the registration and transfer of the land. CFI rendered a ruling favor of the plaintiffs-appellees prompting Calasanz spouses to appeal. ISSUES 1. WON the contract to sell has been automatically and validly cancelled by the defendants-appellants Calasanz spouses 2. WON the contract partakes of a contract of adhesion and therefore must be strictly construed against the one who drafted it (defendants-appellants) HELD 1. NO. "The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. - The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendantsappellants. - Article 1234 of the Civil Code which provides that: If the obligation has been substantially performed in good faith, the obligor may recovers though there had been a strict and complete fulfillment, less damages suffered by the obligee." - Also militates against the unilateral act of the defendants-appellants in cancelling the contract. We agree with the observation of the lower court to the effect that: "Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own." - The defendants-appellants argue that paragraph nine of the contract clearly allows the seller to waive the observance of paragraph 6 not merely once, but for as many times as he wishes. The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendantsappellants have waived and are now estopped from exercising their alleged right of rescission. 2. YES. We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendantsappellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis. "x x x (W)hile generally, stipulations in a contract come

about after deliberate drafting by the parties thereto, . . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the signing of his signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. '(Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.)" (Italics supplied) - While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers." Disposition Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interests thereon, the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are justified. WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY-ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests. ONG V COURT OF APPEALS YNARES-SANTIAGO; July 6, 1999 NATURE Petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses FACTS - Petitioner Jaime Ong and respondent spouses Miguel K. Robles and Alejandra Robles, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. - Petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. - Pursuant to the contract they executed, petitioner paid respondent spouses the

sum of P103,499.91 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), in accordance with their stipulation that petitioner pay the loan of respondents with BPI. - To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent spouses. When presented for payment, however, the checks were dishonored due to insufficient funds. - Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which petitioner, should have paid, petitioner only managed to dole out no more than P393,679.60. - When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of petitioner. - Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential purposes. - Respondent spouses, sent petitioner a demand letter asking for the return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed a complaint for rescission of contract and recovery of properties with damages. - Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a writ of preliminary injunction. The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for repairs. - The trial court rendered a decision, ordering that the contract entered into by plaintiff spouses and the defendant, Jaime Ong be set aside - Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition. ISSUES 1. WON the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code 2. WON the parties had novated their original contract as to the time and manner of payment HELD 1. NO. - Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. - While Article 1191 uses the term rescission, the original term which was used in the old Civil Code, from which the article was based, was resolution. Resolution is a principal action which is based on breach of a party, while rescission under Article

1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the rescissible contracts. - The contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable. - The "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. - Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the agreement of the parties may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. 2. NO. - Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. - In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. - The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. Disposition The decision rendered by the Court of Appeals was AFFIRMED with the MODIFICATION that respondent spouses were ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded.

DEIPARINE, JR. V CA CRUZ; April 23, 1993 NATURE Petition for review of decision of CA FACTS - Spouses Carungay entered into an agreement with Deiparine for the construction of a 3-storey dormitory. The Carungays agreed to pay Php970K, and Deiparine bound himself to erect the building in strict accordance to the plans and specifications. In the General Conditions and Specifications document, the minimum acceptable compressive strength of the building was set at 3,000 psi (pounds per square inch). However, the Carungays found out that Deiparine was deviating from the plans and specifications, thus impairing the strength and safety of the building. The spouses even issued a memorandum complaining that the construction works were faulty and done haphazardly mainly due to lax supervision coupled with inexperienced and unqualified staff. The memorandum was ignored. After several conferences, the parties agreed to conduct cylinder tests to ascertain compliance with safety standards. Carungay suggested core testing (a more reliable test of safety and strength), and although Deiparine was relunctant at first, he agreed to it and even promised that should the structure fail the test, he would shoulder the test expenses. The core test was conducted, and the building was found to be structurally defective. - The spouses then filed in the RTC for rescission of the construction contract and for damages. Deiparine alleged that RTC did not have jurisdiction for construction contracts are now cognizable by the Philippine Construction Development Board. RTC declared the contract rescinded, Deiparine to have forfeited his expenses in the construction, and ordered Deiparine to reimburse the spouses for the core testing and restore the premises to their former condition before the construction began. CA affirmed RTC. ISSUES 1. WON RTC had jurisdiction over the case 2. WON rescission is the proper remedy HELD 1. Yes. Firstly, there is no Philippine Construction Development Board in existence. There is however, a Philippine Domestic Construction Board (PDCB), but this body has jurisdiction to settle claims and disputes in the implementation of PUBLIC construction contracts (only), and thus does not have jurisdiction over private construction contracts. (Deiparines counsel is even held in contempt of court for changing the wording of the relevant provision in the law, making it appear that the PDCB had jurisdiction over the instant case.) 2. Yes. - The facts show that Deiparine deliberately deviated from the specifications of the Carungays (changing the minimum strength, concrete mixture, etc.), possibly to avoid additional expenses so as to avoid reduction in profits. His breach of duty constituted a substantial violation of the contract, which is correctible by judicial rescission. Particularly for reciprocal obligations, Art.1191 CC provides that: The power to rewind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

- The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. - Clearly, the construction contract falls squarely under the coverage of Art.1191 because it imposes upon Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for the project upon its completion. - Art.1191 is not predicated on economic prejudice to one of the parties but on breach of faith by one of them that violates the reciprocity between them. The violation of reciprocity between the parties, to wit, the breach caused by Deiparine's failure to follow the stipulated plans and specifications, has given the Carungay spouses the right to rescind or cancel the contract. Disposition Decision affirmed. IRINGAN V COURT OF APPEALS QUISIMBING; September 26, 2006 \ NATURE Petition assailing decision of Court of Appeals. FACTS - On March 22, 1985 private respondent Antonio Palao sold to petitioner Alfonso Iringan an undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located in Poblacion of Tuguegarao. Parties executed a Deed of Sale on same date with the purchase price of P295K, payable as follows: a) P10K upon execution of this instrument, and vendor acknowledges having received the amount; b) P140K on or before April 30, 1985; c) P145K on or before December 31, 1985. - When second payment was due, Iringan paid only P40K. On July 18, 1985, Palao sent a letter to Iringan stating that he would not accept any further payment considering that Iringan failed to comply with his obligation to pay full amount of second installment. - On August 20, 1985, Iringan replied that they were not opposing the revocation of the Deed of Sale, but asked for the reimbursement of the ff: P50K cash received; P3,200geodetic engineers fee; P500attorneys fee; Interest on P53,700 - Palao declared he was not amenable to the reimbursements claimed by Iringan. Iringan then proposed that the P50K which he had paid Palao be reimbursed, or Palao could sell to Iringin an equivalent portion of the land. - Palao replied that Iringans standing obligation had reached P61,600 representing payment of arrears for rentals from October 1985 to March 1989. - Spouses Iringan alleged that the contract of sale was a consummated contract, hence the remedy for Palao was for collection of the balance of the purchase price and not rescission. In addition they declared that they had always been ready and

willing to comply with their obligations to Palao. - RTC ruled in favor of Palao and affirmed the rescission of the contract. Petitioners Claim - That no rescission was effected simply by virtue of the letter sent by respondent stating that he considered the contract of sale rescinded. - That a judicial or notarial act is necessary before one party can unilaterally effect a rescission. Respondents Comment - The right to rescind is vested by law on the obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed rescission. ISSUES 1. WON the contract of sale was validly rescinded; 2. WON the award of moral and exemplary damages is proper. HELD 1. Ratio The contract of sale between the parties as far as the prescriptive period applies, can still be, validly rescinded. Reasoning - Art 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract. ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay xxx as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. - Art 1592 refers to a demand that the vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to create no obstacle to this contractual mode of extinguishing obligations. (Manresa) - A judicial and notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. The phrase even though emphasizes that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies. ART. 1191. 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. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed xxx. - The right to resolve reciprocal obligations is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But the right must be invoked judicially. Even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a decree of rescission. The operative act is the decree of the court. - However, when private respondent filed an action for Judicial Confirmation of Rescission and Damages before RTC, he complied with the requirement of the law for judicial decree of rescission in stating that its

purpose is: 1) To compel appellants to formalize in public document, their mutual agreement of revocation and rescission; 2) To have judicial confirmation. 2. Ratio The award of moral and exemplary damages is proper. Reasoning Petitioner claimed he was ready to pay but never actually paid respondent, even when he knew that the reason for selling the lot was for Palao to needed to raise money to pay his SSS loan. 1) Iringan knew Palaos reason for selling the property, and still he did not pay Palao. 2) Petitioner refused to formally execute an instrument showing their mutual agreement to rescind the contract of sale, even when it was Iringan who breached the terms of their contract, leaving Palao desperate to find other sources of funds to pay off the loan. 3) Petitioner did not substantiate by clear and convincing proof that he was ready and willing to pay respondent. It was more of an afterthought to evade the consequence of the breach.

VDA. DE MISTICA V NAGUIAT PANGANIBAN; December 11, 2003 NATURE Petition for review on certiorari of the decision and resolution of the Court of Appeals FACTS - Eulalio Mistica owned a parcel of land in Meycauayan, Bulacan, a portion of it was leased by Bernardino Naguiat sometime during 1970. On 5 April 1979 they entered into a contract to sell a portion of the lot that contains around 200 sq. meters. A written document was signed by both parties acknowledging the sale for the amount of Php. 20,000 with the downpayment of Php. 2,000 and the rest of the balance of Php. 18,000 to be paid within ten (10) years. Naguiat paid the downpayment of two thousand and subsequently paid another one-thousand, however, no other payment was given thereafter the said payment in 1980. Eulalio died in 1986. In 1991 the wife of the late Eulalio filed for a complaint for rescission for the failure of Naguiat to pay the remaining balance of Php. 17,000. Naguiat responded that there was no breach of contract and that he got hold of the land through the Free Patent Title duly awarded to him by the Bureau of lands making it indefeasible and incontrovertible. Judgment was served by the CA disallowing rescission saying that the contract did not have a resolutory term and that it was highlighted by the option of paying 12 percent interest if the respondent Naguiat so chooses, Also, it was said that payment was offered during the funeral of Eulalio but was not accepted by his wife. With regards to the additional 58 sq. meters that was taken by Naguiat the CA held that since it is already included in the title then it was no longer feasible to reconvey, payment was for the said land is the only remedy for petitioner. ISSUE 1. WON the CA erred in applying Art. 1191 of the Civil Code in their ruling that there

is no Breach of Contract regardless of the lapse of the stipulated period for Naguiat to pay 2. WON rescission is no longer feasible due to the certificate of title issued in favor of Naguiat 3. WON the CA erred in ruling that the 58 sq. m. portion in question is covered by a certificate of title in the names of respondents reconveyance and thus is no longer feasible and proper HELD 1. NO, it did not. - The Kasulatan was a Contract of Sale therefore absolute in nature given that 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. Art. 1191 gives the right to rescind on the violation of the reciprocity between parties brought about by the breach of faith by one of them. It is allowed only is the breach is substantial and fundamental. The present case shows that it is not given that the 12 percent interest is in place for late payment. Petitioner also did not give any demand for the remaining balance. Petitioner also refused to accept the payment at the time of her husbands funeral. 2. NO, it is still feasible. - The title is merely an evidence of an indefeasible and incontrovertible title to the party in favor of the person whose name appears therein. However, such title could only be modified, altered, or canceled in direct proceedings in accordance with law. Hence it is not determinable in the present civil case. 3. YES, it was a mistake. - Such ruling allows a collateral attack on the certificate of title. However, given that there is already a case filed by the State in favor of the petitioner and the heirs of her husband there is no need to pass upon the right of respondents to the registration of the subject land under their names. There is no necessity to ask for the payment of 58 sq.m. importunately included in the title.