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Civil Law Review II 1st Assignment

1. Makati Stock Exchange v. Campos (2009)

Miguel Campos filed a case against the Makati
Stock Exchange (MKSE) before the SEC for allegedly
depriving him of his right to participate equally in the
allocation of IPO of corporations registered with MKSE.
In its defense, MKSE filed a motion to dismiss on the
ground of failure to state a cause of action.
Issue: Whether or not there is failure to state a cause
of action.
Held: Yes. It is true that Miguels petition before the
SEC asserted a right in his favor and stipulates the
correlative obligation of MKSE to respect such right.
However, the terms rights and obligation in his petition
are not magic words that would automatically lead to
the conclusion that such petition sufficiently states a
cause of action. A right is a claim or title to an interest
in anything whatsoever that is enforceable by law,
while an obligation is a juridical necessity to give, to do
or not to do. Under Art. 1157, obligations arise from
law, contracts, quasi-contracts, crime, and quasidelicts. Thus, an obligation imposed on a person, and
the corresponding right granted to another must be
rooted in at least one of these five sources.
In this case, Miguel failed to lay down the source or
basis his right and/or MKSEs obligation. He merely
quoted in his petition the MKSE Board Resolution
passed some time ago, granting him the position of
Chairman Emeritus of MKSE for life. But there is
nothing in his petition from which it can be deduced
that by virtue of such position he has the right to
subscribe to the IPOs of corporations listed in the stock
market at their offering prices.
2. Macasaet v. COA (1989)
Philippine Tourism Authority (PTA) entered into a
contract for the development of the proposed
Zamboanga Golf and Country Club with petitioner
Macasaet & Associates. When the project was
completed, dispute arose as to the payment of
professional fees. PTA paid an additional sum of around
P3 million to the main contractor representing the
escalation cost of the contract price due to the
increase in the price of construction materials. Upon
learning this, petitioner requested payment of an
additional professional fee representing 7% of the P3
million pursuant to their contract. PTA denied payment,
reasoning that the increased cost of construction
material did not entail additional work on the part of
petitioner. Thereafter, petitioner filed a claim with COA
but to no avail.
Issue: Whether or not petitioner is entitled to 7% of
the P3 million.
Held: Yes. From the terms of their contract, the
balance of the professional fee was to be computed on
the basis of the final actual project cost. This means
that the parties intended that the final actual project
cost would cover the totality of all costs as actually and
finally determined, and logically includes the escalation

cost of the contract price. The price escalation cost

must be deemed included in the final actual project
cost and petitioner should be paid it additional
professional fees. Obligations arising from contract
have the force of law between the contracting parties
and should be complied with in good faith.
3. Philippine Export and Foreign Loan Guarantee
v. VP Eusebio Construction Inc. (2004)
The State Organization of Buildings (SOB) of the
Iraq government contracted with respondent VPEC for
the construction of the Institute of Physical Therapy
Medical Rehabilitation Center in Baghdad. There were
three layers of guarantee, but basically petitioner
Philguarantee ended up as VPECs guarantor. The
project was 51% completed when VPEC could not
continue, because SOB did not comply with its
obligation to shoulder 75% of the cost of project.
Philguarantee thereafter paid Al Ahli Bank, which in
turn is the guarantor of Philguarantee in favor of SOB.
Then, Philguarantee sued VPEC for reimbursement.
Issue: Whether or not Philguarantee is entitled to
reimbursement on the basis of its contract with VPEC.
Held: No. It was established that Philguarantee is a
guarantor, not a surety, of VPEC. It follows that it was
improper for Philguarantee to pay the Bank when VPEC
had not even defaulted in the performance of its
obligation. VPEC could not be considered to have
defaulted, since SOB failed to comply with its corollary
obligation, and besides it did not even make a demand
from VPEC.
It was also held that Philguarantee cannot collect
anything from VPEC. Under the law, a person who
makes payment without the knowledge or against the
will of the debtor has the right to recover only insofar
as the payment has been beneficial to the debtor.
Here, VPEC did not benefit from Philguarantees
4. Jacinto Tanguilig v. CA (1997)
Petitioner Jacinto Tanguilig (JMT Engineering)
constructed a windmill in favor of respondent Vicente
Herce, Jr. But later on, Vicente refused to pay,
prompting JMT to sue him for collection. In his defense,
Vicente argued that: (1) He already paid the amount to
San Pedro General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill system
was to be connected; and (2) Assuming that he owed
JMT the balance, this should be offset by the defects in
the windmill system which caused the structure to
collapse after a strong wind hit their place.
Issue: Whether or not Vicente is liable to JMT.
Held: Yes. Under the Civil Code, payment shall be
made to the person in whose favor the obligation has
been constituted or his successor in interest or any
person authorized to receive it. Here, SPGMI was not
so authorized. Neither can Vicente claim the benefit of
the law concerning payments made by a third

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person, because no creditor-debtor relationship
between JMT and SPGMI exists. It is obvious that the
construction of the well by SPGMI was for the sole
account of Vicente.
As to the issue of offsetting, JMT claimed that the
collapse of the windmill due to strong winds was a
fortuitous event, but the Court disagreed, saying that a
strong wind could not be considered fortuitous as in
fact windmills are created in places where there are
strong winds. JMTs argument that Vicente was already
in default and hence should burden his own loss is
untenable, because in reciprocal obligations, neither
party incurs in delay if the other does not comply with
his own obligation. Here, when the windmill failed to
function properly, it became incumbent upon JMT to
instate the proper repairs pursuant to the contract it
entered into.

opening, an extraordinary large volum of water rushed

out of the gates and hit the installations and
construction works of ECI at the IPO site. Thus, ECI
sued Napocor for negligence. In its defense, Napocor
invoked fortuitous event.
Issue: Whether or not Napocor is liable to ECI.
Held: Yes. Napocor committed negligence when it
opened the spillway gates of the Angat Dam only at
the height of typhoon when it should have done so
earlier. Conceding that the typhoon was force majeure,
Napocor cannot escape liability, because its negligence
was the proximate cause of the loss. If a fortuitous
event is coupled with a corresponding fraud,
negligence, delay or violation or contravention in any
manner of the obligation as provided for in Art. 1170 of
the Civil Code, the obligor cannot escape liability.

5. Barzaga v. CA and Alviar (1997)

7. Picart v. Smith (1918) Horse on a Bridge



Ignacio Barzagas wife died on Dec. 19, 1990. Her

dying wish is to be laid to rest before Christmas to
spare her family from loneliness during Christmas day.
On December 21, Ignacio went to respondent Alviars
hardware store to buy materials for his wifes casket.
He was promised that the materials would arrive at the
burial site at 8 am, and upon such assurance Ignacio
paid the costs of the materials. The following morning,
the delivery did not arrive as scheduled. Instead, it
arrived at around 10:30 am, and worse, Alviars
employees were rude and unapologetic. Ignacio
cancelled its contract with Alviar and went to another
hardware store. He was not able to fulfill his wifes
dying wish.
Thereafter, Ignacio sued Alviar for damages. The
latter put the blame on Ignacio, also arguing that the
sales invoice contained no stipulation as to time.

Amado Picart was riding his horse over the

Carlatan Bridge in San Fernando, La Union. Before he
had gotten half-way across, an automobile driven by
Frank Smith was fast approaching at the speed of 10 or
12 miles per hour. Smith kept blowing his horn but
didnt reduce speed. As the car was running rapidly,
Picart pulled the horse closely up against the railing on
the right side of the bridge instead of going left,
thinking he had no time to do so. The problem was
Smith merely assumed that Picart would go left, also
taking note of the fact that the horse did not exhibit
any fright. Smith tried to maneuver the car but hit the
hind leg of the horse, with Picart being thrown off.
unconsciousness and requiring medical attention for
several days, while the horse died. Thus, Picart sued
Smith for damages to which the trial court ruled in
favor of Smith.

Issue: Whether or not Alviar is liable for damages.


Held: Yes. Under the law, those who in the

performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
The argument that the invoices never indicated a
specific delivery time must fall in the face of the
positive verbal commitment of Alviars storekeeper.
The Court did not buy Alviars excuse of fortuitous
event, saying that flat tires do not constitute
fortuitous event. This case is clearly one of nonperformance of a reciprocal obligation.

Whether or not Smith was negligent.


Ruling: Yes. The test by which to determine the

existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the
alleged negligent act use that person would have used
in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of
the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not
determined by reference to the personal judgment of
the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in
the man of ordinary intelligence and prudence and
determines liability by that.

Engineering Construction Inc. (ECI) executed a

contract with the National Waterworks and Sewerage
Authority (NAWASA), undertaking to construct the
proposed 2nd Ipo-Bicti Tunnel at Norzagaray, Bulacan.
When the project was about to be completed, a
typhoon (Welming) ravaged the area. To prevent an
overflow of water from the dam, Napocor caused the
opening of the spillway gates. However, upon its

Applying this test to the conduct of the defendant

in the present case we think that negligence is clearly
established. A prudent man, placed in the position of
the defendant, would in our opinion, have recognized
that the course which he was pursuing was fraught
with risk, and would therefore have foreseen harm to
the horse and the rider as reasonable consequence of
that course. As the defendant started across the

6. NAPOCOR v. CA and Engineering Construction

Inc. (1988)

Civil Law Review II 1st Assignment

bridge, he had the right to assume that the horse and
the rider would pass over to the proper side; but as he
moved toward the center of the bridge it was
demonstrated to his eyes that this would not be done;
and he must in a moment have perceived that it was
too late for the horse to cross with safety in front of the
moving vehicle. In the nature of things this change of
situation occurred while the automobile was yet some
distance away; and from this moment it was not longer
within the power of the plaintiff to escape being run
down by going to a place of greater safety. The control
of the situation had then passed entirely to the
defendant; and it was his duty either to bring his car to
an immediate stop or, seeing that there were no other
persons on the bridge, to take the other side and pass
sufficiently far away from the horse to avoid the
danger of collision. Instead of doing this, the defendant
ran straight on until he was almost upon the horse. He
was, we think, deceived into doing this by the fact that
the horse had not yet exhibited fright. But in view of
the known nature of horses, there was an appreciable
risk that, if the animal in question was unacquainted
with automobiles, he might get exited and jump under
the conditions which here confronted him. When the
defendant exposed the horse and rider to this danger
he was, in our opinion, negligent in the eye of the law.
The Court also conceded that Picart himself was
negligent. However, while contributory negligence on
the part of the person injured did not constitute a bar
to recovery, it could be received in evidence to reduce
the damages which would otherwise have been
assessed wholly against the other party.
8. Saludaga v. FEU (2008) Shot by the Guard,
and FEUs to Blame
FEU law student Joseph Saludaga sued FEU for
culpa contractual over an incident wherein Joseph was
accidentally shot by one of FEUs security guard. In its
defense, FEU said that the shooting incident was a
fortuitous event as they could not have reasonably
foreseen nor avoided the accident caused by the guard
who was not an FEU employee.
Issue: Whether or not the shooting incident was a
fortuitous event.
Held: No. In order for force majeure to be considered,
there must be no negligence or misconduct on the part
of the obligor that may have occasioned the loss. When
the effect is found to be partly the result of a persons
participationwhether by active intervention, neglect
or failure to actthe whole occurrence is humanized
and removed from the rules applicable to acts of God.
9. Consolidated Bank and Trust Corporation v. CA
and LC Diaz (2003) The Missing Passbook
LC Diaz, an accounting firm, sent a messenger to
make cash deposits with Solidbank. The messenger
briefly left to attend to other errands, but when he
came back, he was informed that the passbook was
given to someone else. Because of this incident,

unauthorized withdrawals from the account of LC Diaz

were made. LC Diaz sued Solidbank for collection.
Issue: Whether or not Solidbank is liable to LC Diaz.
Held: Yes. Art. 1172 of the Civil Code provides that
performance of every kind of obligation is demandable.
Here, the contract between Solidbank and LC Diaz is
governed by the provisions of the Civil Code on simple
loan. Moreover, the law imposes on banks high
standards in view of the fiduciary nature of banking. In
culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant
was at fault or negligent. Here, Solidabank failed to
discharge its burden. The defense of exercising the
required diligence in the selection and supervision of
employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.
10. Schmitz Transport & Brokerage Corporation
v. Transport Venture, Inc. (2005)
Petitioner, who was in charge of securing requisite
clearances, receive the cargoes from the shipside and
deliver it to the consignee Little Giant Steel Pipe
Corporation warehouse at Cainta, Rizal, hired the
services of respondent Transport Venture Incorporation
(TVI)s tugboat for the hot rolled steel sheets in coil.
Coils were unloaded to the barge but there was no
tugboat to pull the barge to the pier. Due to strong
waves caused by approaching storm, the barge was
abandoned. Later, the barge capsized washing 37 coils
into the sea. Consignee was executed a subrogation
receipt by Industrial Insurance after the formers filing
of formal claim. Industrial Insurance filed a complaint
against both petitioner and respondent herein. The trial
court held that petitioner and respondent TVI were
jointly and severally liable for the subrogation.
Issue: Whether or not the loss of cargoes was due to
fortuitous event.
Held: No. In order, to be considered a fortuitous event:
(1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with
his obligation, must be independent of human will; (2)
it must be impossible to foresee the event which
constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must
be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor
must be free from any participation in the aggravation
of the injury resulting to the creditor.
TVIs failure to promptly provide a tugboat did not
only increase the risk that might have been reasonably
anticipated during the shipside operation, but was the
proximate cause of the loss. A man of ordinary
prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the
barge does not have any power of its own and is totally
defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a
tugboat would be charging overtime pay did not
excuse TVI from calling for one such tugboat. As for

Civil Law Review II 1st Assignment

Schmitz, for it to be relieved of liability, it should,
following Article 1739 of the Civil Code, prove that it
exercised due diligence to prevent or minimize the
loss, before, during and after the occurrence of the
storm in order that it may be exempted from liability
for the loss of the goods. While Schmitz sent checkers
and a supervisor on board the vessel to counter-check
the operations of TVI, it failed to take all available and
reasonable precautions to avoid the loss.
After noting that TVI failed to arrange for the
prompt towage of the barge despite the deteriorating
sea conditions, it should have summoned the same or
another tugboat to extend help, but it did not. The
Court holds then that Schmitz and TVI are solidarily
liable for the loss of the cargoes. As for Black Sea, its
duty as a common carrier extended only from the time
the goods were surrendered or unconditionally placed
in its possession and received for transportation until
they were delivered actually or constructively to
consignee Little Giant Parties to a contract of carriage
may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the
case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made to the port of
discharge or so near thereto as she may safely get,
always afloat. The delivery of the goods to the
consignee was not from pier to pier but from the
shipside of M/V Alexander Saveliev and into barges,
for which reason the consignee contracted the services
of petitioner. Since Black Sea had constructively
delivered the cargoes to Little Giant, through Schmitz,
it had discharged its duty. In fine, no liability may thus
attach to Black Sea.
11. Real v. Belo (2007)
Virginia Real was the owner and operator of the
Wasabe Fastfood stall located at the Food Center of the
Philippine Womens University (PWU). Near it was the
BS Masters fastfood stall owned by Sisenando Belo.
One morning, fire broke out at the Wasabe Fastfood
stall. The fire spread and gutted other stalls, including
the one belonging to Belo. Investigation revealed that
the cause of the fire was the leaking fumes coming
from the LPG stove and tank installed at Reals stall.
Thereafter, Belo sued Real, alleging that the latter
failed to exercise due diligence in the upkeep and
maintenance of her cooking equipment, as well as the
selection and supervision of her employees, and that
her negligence was the proximate cause of the
accident. In her answer, Real argued that the fire was a
fortuitous event and that she exercised due diligence in
the selection and supervision of her employees. The
MeTC, RTC and CA all ruled in favor of Belo.
Issue: Whether or not Real is liable.
Ruling: At the onset, it was held that the fire was not a
fortuitous event. Citing Art. 2180, the Court said that
whenever an employee's negligence causes damage or
injury to another, there instantly arises a presumption
juris tantum that the employer failed to exercise
diligentissimi patris families in the selection (culpa in

eligiendo) or supervision (culpa in vigilando) of its

employees. To avoid liability for a quasi-delict
committed by his employee, an employer must
overcome the presumption by presenting convincing
proof that he exercised the care and diligence of a
good father of a family in the selection and supervision
of his employee. In this case, petitioner not only failed
to show that she submitted proof that the LPG stove
and tank in her fastfood stall were maintained in good
condition and periodically checked for defects but she
also failed to submit proof that she exercised the
diligence of a good father of a family in the selection
and supervision of her employees. For failing to prove
care and diligence in the maintenance of her cooking
equipment and in the selection and supervision of her
employees, the necessary inference was that petitioner
had been negligent.
12. Philcomsat v. Globe Telecom (2004)
Philcomsat and Globe entered into an agreement
whereby Philcomsat obliged itself to establish and
operate an earth station within the Subic Naval Base
for the exclusive use of the US Defense
Communications Agency. However, in 1991, the RP-US
Military Bases Agreement expired and was not renewed
resulting in the exodus of the US military forces in the
Subic bases. Due to this developments, Globe notified
Philcomsat that it could no longer use the earth station,
but Philcomsat still demanded payment. Since Globe
refused to pay, Philcomsat filed a collection suit against
Globe, which invoked fortuitous event.
Issue: Whether or not there fortuitous event in this
Held: Yes. Art. 1174, which exempts an obligor from
liability on account of fortuitous events or force
majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable
but inevitable. Philcomsat and Globe had no control
over the non-renewal of the RP-US Military Bases
13. Olivarez Realty Corporation v. Castillo (2014)
Conditional Sale vs. Contract to Sell
Benjamin Castillo entered into a contract of
conditional sale with Dr. Pablo Olivarez and his
corporation, Olivarez Realty, over a parcel of land in
Batangas. Under the contract, Castillo agreed to sell
his property for P19 million payable by 30 equal
monthly installments. However, there were subsequent
disagreements between the parties eventually leading
to Castillos filing of an action for rescission, alleging
among others that Olivarez only paid P2,500,000.
According to Castillo, Olivarez committed a substantial
breach of contract warranting a rescission under Art.
Issue: Whether or not rescission is proper in this case.
Held: No, because the contract between Castillo and
Olivarez was actually a contract to sell, because

Civil Law Review II 1st Assignment

Castillo reserved his title to the property and undertook
to execute a deed of absolute sale upon Olivarezs full
payment of the purchase price. Art. 1191 of the Civil
Code does not apply to contracts to sell, because
failure to fully pay the purchase price in contracts to
sell is not the breach of contract contemplated under
Art. 1191. Failure to fully pay is merely an event which
prevents the sellers obligation to convey title from
acquiring binding force. This is because there can be
no rescission of an obligation that is still non-existent,
the suspensive condition not having happened.
14. HSCBC v. Sps. Broqueza (2010)
Respondents are HSBC employees who obtained
several loans with HSBC. These loans were paid
through automatic salary deduction. Later on, a labor
dispute arose between HSBC and its employees
eventually resulting in respondents dismissal. Because
of this, respondents were not able to pay off their loan.
The RTC ruled in favor of HSBC, but the CA reversed,
ruling that since the promissory notes executed by
respondents do not contain a period, it follows that the
obligations have not yet matured.
Issue: Whether or not CA is correct.
Held: No. Art. 1179 of the Civil Code provides: Every
obligation whose performance does not depend upon a
future or uncertain event, or upon a past event
unknown to the parties, is demandable at once. Since
the promissory notes do not contain a period, HSBC
has the right to demand immediate payment, applying
Art. 1179. Respondents obligation to pay HSBC is a
pure obligation.
15. Security Bank v. CA and Ferrer (1995)
Ysmael Ferrer was contracted by Security Bank to
construct a building in Davao for P1,760,000. The
contract dated Feb. 4, 1980 provided that Ferrer would
finish the construction in two hundred (200) working
days. He was able to complete the construction of the
building on Aug. 15, 1980 (within the contracted
period) but he was compelled by a drastic increase in
the cost of construction materials to incur expenses of
about P300,000 on top of the original cost. The
additional expenses were made known to Security
Bank as early as March 1980. The following year,
Security Banks assistant vice president made a
recommendation to settle Ferrers additional claim but
only for P200,000. But instead of paying the
recommended additional amount, Security Bank
denied ever having authorized payment of any amount
beyond the original contract price, citing a provision in
its contract with Ferrer to the effect that any increase
in the price of labor and/or materials resulting in an
increase in construction cost above the stipulated
contract price will not automatically make petitioners
liable to pay for such increased cost, as any payment
above the stipulated contract price has been made
subject to the condition that the "appropriate
adjustment" will be made upon mutual agreement of

both parties. Security Bank argued that since there was

no mutual agreement between the parties, petitioners'
obligation to pay amounts above the original contract
price never materialized. Thus, Ferrer sued Security
Bank for breach of contract with damages. The RTC and
the CA ruled for Ferrer.
Issue: Whether or not Security Bank should be made
liable to Ferrer.
Held: Yes. Under Art. 1182 of the Civil Code, a
conditional obligation shall be void if its fulfillment
depends upon the sole will of the debtor. In the present
case, the mutual agreement, the absence of which
petitioner bank relies upon to support its non-liability
for the increased construction cost, is in effect a
condition dependent on petitioner banks sole will,
since private respondent would naturally and logically
give consent to such an agreement which would allow
him recovery of the increased cost.
16. Catungal v. Rodriguez (2011)
Agapita Catungal entered into a conditional sale
with Angel Rodriguez over a parcel of land located in
Cebu. The contract contained the following provisions:
(1) Vendee shall pay the balance of the purchase price
when he has successfully negotiated and secured a
road right of way and (2) Vendee has the option to
rescind the sale. However, things went south, with
Catungal eventually cancelling the sale. Rodriguez
sued Catungal for damages. Catungal argued that the
subject provisions resulted in the nullity of the
contract, invoking Art. 1182.
Issue: Whether or not the contract is void.
Held: No. 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
partylandowners 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. We must hasten to add, however, that
where the so-called "potestative condition" is imposed
not on the birth of the obligation but on its fulfillment,
only the condition is avoided, leaving unaffected the
obligation itself.
The Catungals' interpretation of the foregoing
stipulation was that Rodriguez's obligation to negotiate
and secure a road right of way was one with a period
and that period, i.e., "enough time" to negotiate, had

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already lapsed by the time they demanded the
payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct
that the respondent's obligation to negotiate a road
right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be

herein, must be equitably adjusted; and, (b) the

foregoing unmistakable declarations in the body of the
Decision should merge with and become an intrinsic
part of the fallo thereof which under the premises is
clearly inadequate since the dispositive portion is not
in accord with the findings as contained in the body

With respect to Rodriguezs option to rescind, it is

not purely potestative but rather also subject to the
same mixed condition as his obligation to pay the
balance of the purchase price. In the event the
condition is not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not proceed with
the sale and demand return of his downpayment or (b)
considering that the condition was imposed for his
benefit, to waive the condition and still pay the
purchase price despite the lack of road access. This is
the most just interpretation of the parties' contract that
gives effect to all its provisions. In any event, even if
we assume for the sake of argument that the grant to
Rodriguez of an option to rescind, in the manner
provided for in the contract, is tantamount to a
potestative condition, not being a condition affecting
the perfection of the contract, only the said condition
would be considered void and the rest of the contract
will remain valid.

In fine, the decision in favor of respondents must

be affirmed. The rights and duties between the MCIAA
and respondents are governed by Article 1190 of the
Civil Code which provides: When the conditions have
for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said
conditions, shall return to each other what they have
received. In case of the loss, deterioration, or
improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding
article [Article 1189] shall be applied to the party who
is bound to return.

17. Mactan-Cebu International Airport Authority

v. Tudtud (2008)

Respondents must likewise pay the MCIAA the

necessary expenses it may have incurred in sustaining
Lot No. 988 and the monetary value of its services in
managing it to the extent that respondents were
benefited thereby. Following Article 1187 of the Civil
Code, the MCIAA may keep whatever income or fruits it
may have obtained from Lot No. 988, and respondents
need not account for the interests that the amounts
they received as just compensation may have earned
in the meantime. In accordance with the earlier-quoted
Article 1190 of the Civil Code vis--vis Article 1189
which provides that "[i]f a thing is improved by its
nature, or by time, the improvement shall inure to the
benefit of the creditor x x x," respondents, as creditors,
do not have to settle as part of the process of
restitution the appreciation in value of Lot 988 which is
a natural consequence of nature and time.

expropriated several adjoining lots in Cebu for the
construction of the Cebu Lahug Airport, but several
years later, the airport was closed and abandoned,
with a significant area of the land were then being used
for commercial purposes. The original owners filed an
action for reconveyance against the NACs successorin-interest, Mactan-Cebu International Airport Authority
(MCIAA), alleging that they are entitle to recover the
land since the purpose for which the lot was acquired
no longer existed. MCIAA argued that the trial courts
pronouncement in the expropriation case did not
contain a condition that the lots would revert to their
owners in case the airport would be abandoned.
Issue: Whether or not the lots should revert to their
original owners.
Held: Yes. While the trial court in Civil Case No. R-1881
could have simply acknowledged the presence of
public purpose for the exercise of eminent domain
regardless of the survival of Lahug Airport, the trial
court in its Decision chose not to do so but instead
prefixed its finding of public purpose upon its
understanding that "Lahug Airport will continue to be in
operation." Verily, these meaningful statements in the
body of the Decision warrant the conclusion that the
expropriated properties would remain to be so until it
was confirmed that Lahug Airport was no longer "in
operation". This inference further implies two (2)
things: (a) after the Lahug Airport ceased its
undertaking as such and the expropriated lots were not
being used for any airport expansion project, the rights
vis--vis the expropriated Lots Nos. 916 and 920 as
between the State and their former owners, petitioners

While the MCIAA is obliged to reconvey Lot No. 988

to respondents, respondents must return to the MCIAA
what they received as just compensation for the
expropriation of Lot No. 988, plus legal interest to be
computed from default, which in this case runs from
the time the MCIAA complies with its obligation to the

18. Gaite v. The Plaza Inc. and FGU Insurance

Corporation (2011)
The Plaza Inc., represented by its president Jose
Reyes, entered into a contract with Rhogen Builders,
represented by Ramon Gaite, for the construction of a
restaurant building in Greenbelt, Makati. While the
construction was ongoing, the Makati local government
ordered Gaite to cease and desist from continuing with
the construction for violation of the National Building
Code. He sought Reyess help to settle the issue, but
the latter refused, saying that he had no obligation to
help Rhogen. Later on, Gaite informed The Plaza that
he is terminating the contract.
Thereafter, The Plaza filed a complaint for breach
of contract, sum of money and damages against Gaite,
who invoked Art. 1191 of the Civil Code, which states
that the power to rescind obligations is implied in

Civil Law Review II 1st Assignment

reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. According to
Gaite, The Plaza was not paying the progress billings
which was being given by Rhogen.
Issue: Whether or not Gaite properly rescinded the
contract with The Plaza.
Held: No. Respondent The Plaza predicated its action
on Article 1191 of the Civil Code, which provides for the
remedy of rescission or more properly resolution, a
principal action based on breach of faith by the other
party who violates the reciprocity between them. The
breach contemplated in the provision is the obligors
failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his
The construction contract between Rhogen and
The Plaza provides for reciprocal obligations whereby
the latters obligation to pay the contract price or
progress billing is conditioned on the formers
performance of its undertaking to complete the works
within the stipulated period and in accordance with
approved plans and other specifications by the owner.
Pursuant to its contractual obligation, The Plaza
furnished materials and paid the agreed down
payment. It also exercised the option of furnishing and
delivering construction materials at the jobsite
pursuant to Article III of the Construction Contract.
However, just two months after commencement of the
project, construction works were ordered stopped by
the local building official and the building permit
subsequently revoked on account of several violations
of the National Building Code and other regulations of
the municipal authorities.
Such non-observance of laws and regulations of
the local authorities affecting the construction project
constitutes a substantial violation of the Construction
Contract which entitles The Plaza to terminate the
same, without obligation to make further payment to
Rhogen until the work is finished or subject to refund of
payment exceeding the expenses of completing the
19. Song Fo & Company v. Hawaiian Philippine
Co. (1925)

1. Whether HPC actually agreed to sell 400,000

gallons of molasses (NO)
2. Whether or not HPC had the right to rescind the
contract (NO)
1. Only 300,000 gallons of molasses was agreed to
by HPC as seen in the documents presented in court.
The language used with reference to the additional
100,000 gallons was not a definite promise.
2. No. There was a doubt as to when SFC was
supposed to make the payments. Resolving such
ambiguity as exists and having in mind ordinary
business practice, a reasonable deduction is that SFC
was to pay the HPC upon presentation of accounts at
the end of each month. Under this hypothesis, SFC
should have paid for the molasses delivered in
December, 1922, and for which accounts were received
by it on January 5, 1923, not later than January 31 of
that year. Instead, payment was not made until
February 20, 1923. All the rest of the molasses was
paid for either on time or ahead of time.
The general rule is 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. A delay in payment for a small
quantity of molasses for some twenty days is not such
a violation of an essential condition of the contract was
warrants rescission for non-performance. Not only this,
but the HPC waived this condition when it arose by
accepting payment of the overdue accounts and
continuing with the contract. Thus, SFC was not in
default in payment so that the HPC had in reality no
excuse for writing its letter of April 2, 1923, cancelling
the contract.
20. Cortes v. CA (2006)

Hawaiian-Philippine Co. (HPC) entered into a
contract with Song Fo &Co (SFC) whereby it would
deliver molasses to the latter. HPC had delivered
55,006 gallons of molasses until it stopped delivery,
prompting SFC to sue the former for breach of contract.
In its defense, HPC said that SFC delayed in paying
hence it had the right to rescind the contract.

Petitioner Antonio Cortes (Cortes) and private

respondent Villa Esperanza Development Corporation
(Corporation), with the former as the seller and the
latter as the buyer, entered into a contract of sale
wherein the purchase price is of P3,700,000.00. The
Corporation advanced to Cortes the total sum of
The Corporation then filed a case for specific
performance seeking to compel Cortes to deliver the
TCTs and the original copy of the Deed of Absolute
Sale, alleging that, despite its readiness and ability to
pay the purchase price, Cortes refused delivery of the
sought documents. Cortes claimed that the owner's

Civil Law Review II 1st Assignment

duplicate copy of the three TCTs were surrendered to
the Corporation and it is the latter which refused to pay
in full the agreed down payment.
The trial court rendered a decision rescinding the
sale and directed Cortes to return to the Corporation
the amount of P1,213,000.00, plus interest. It ruled
that pursuant to the contract of the parties, the
Corporation should have fully paid the amount of
P2,200,000.00 upon the execution of the contract.
On appeal, the Court of Appeals directed Cortes to
execute a Deed of Absolute Sale conveying the
properties and to deliver the same to the Corporation
TCTs, simultaneous with
Corporation's payment of the balance of the purchase
price of P2,487,000.00. It found that the parties agreed
that the Corporation will fully pay the balance of the
down payment upon Cortes' delivery of the three TCTs
to the Corporation.
Issue: Whether there is a delay in the performance of
the parties' obligation that would justify the rescission
of the contract of sale? (NO)
Held: Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay
by the other begins. Since Cortes did not perform his
part, the provision of the contract requiring the
Corporation to pay in full the down payment never
acquired obligatory force.
The transcript of stenographic notes reveal Cortes'
admission that he agreed that the Corporation's full
payment of the sum of P2,200,000.00 would depend
upon his delivery of the TCTs of the three lots.It was
also found that Cortes never surrendered said
documents to the Corporation. Cortes testified that he
delivered the same to Manny Sanchez, the son of the
broker, and that Manny told him that her mother,
Marcosa Sanchez, delivered the same to the
Corporation. However, Marcosa Sanchez's unrebutted
testimony is that, she did not receive the TCTs. She
also denied knowledge of delivery thereof to her son,
reciprocal, performance
simultaneous. The mutual inaction of Cortes and the
Corporation therefore gave rise to a compensation
morae or default on the part of both parties because
neither has completed their part in their reciprocal
obligation. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation
is yet to pay in full the agreed down payment of
P2,200,000.00. This mutual delay of the parties cancels
out the effects of default, such that it is as if no one is
guilty of delay.
The meaning of "execution" in the instant case is
not limited to the signing of a contract but includes as
accomplishment of the parties' agreement. With the
transfer of titles as the corresponding reciprocal
obligation of payment, Cortes' obligation is not only to
affix his signature in the Deed, but to set into motion
the process that would facilitate the transfer of title of
the lots, i.e., to have the Deed notarized and to

surrender the original copy thereof to the Corporation

together with the TCTs.
Reciprocal obligations are those which arise from
the same cause, and which each party is a debtor and
a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are
to be performed simultaneously, so that the
performance of one is conditioned upon the
simultaneous fulfilment of the other.
21. Roque v. Lapuz and CA (1980)
Felipe Roque and Nicanor Lapuz entered into an
agreement of sale covering 3 lots of Roques property
known as the Rockville Subdivision of Q.C. In
accordance thereto, Lapuz paid P150.00 as deposit and
the further sum of P740.56 to complete the payment of
4 monthly installments covering the period July to
October 1954. In a modified agreement, Roque allowed
Lapuzs abandonment of the said lots and to
substitute, instead, 2 corner lots as the subject of their
transaction. In addition, it was agreed that the
purchase price of these lots would be payable in 120
equal monthly installments with an annual interest of
8%. Thus, Lapuz occupied the lots, built a house
thereon and surrounded it with barbed wires and adobe
However, aside from the initial payments made by
Lapuz, he failed to make any further payment on
account of the new agreement. Despite Roques
demand to pay the stipulated monthly installments and
a formal letter sent on November 1957 to vacate the
lots and pay reasonable rent, Lapuz remained therein
and failed to pay. Both the Court of First Instance and
the Court of Appeals (CA) decided in favor of Roque. In
reference to the mode payment, the CA found that
though the agreed period within which to pay the lot is
10 years, Lapuz claims that he could pay the purchase
price at any time within the period, while Roque
maintains that Lapuz was bound to pay monthly
Was the transaction between Roque and Lapuz a
Contract of Sale or Contract to Sell? (CONTRACT TO
Is Lapuz entitled to fix the period within which he
should pay Roque? (NO)
There is no writing or document evidencing the
agreement originally entered into between the parties,
except the receipt showing the initial deposit of
P150.00 and the payment of the 4 months installment
made by Lapuz. Neither is there any writing or
document evidencing the modified agreement when
the 3 lots were changed to 2 other corner lots. This
absence of a formal deed of conveyance is a very
strong indication that the parties did not intend
immediate transfer of ownership and title, but only a
transfer after full payment of the price. Parenthetically,
the standard printed contracts for the sale of the lots in
the Rockville Subdivision on a monthly installment

Civil Law Review II 1st Assignment

basis, showing the terms and conditions thereof, are
immaterial to the case at bar since they have not been
signed by either of the parties to this case.
The overwhelming weight of authority culminating
in the Luzon Brokerage vs. Maritime cases has laid
down the rule that Article 1592 of the New Civil Code
(NCC) does not apply to a contract to sell where title
remains with the vendor until full payment of the price,
as in the case at bar. Art. 1191 of the NCC is the
applicable provision where the obligee, like Roque,
elects to rescind or cancel his obligation to deliver the
ownership of the two lots in question for failure of
Lapuz to pay in full the purchase price on the basis of
120 monthly equal installments, promptly and
punctually for a period of 10 years. Thus, Roque is
entitled to repossess the property object of the
contract, possession being a mere incident to his right
of ownership.
As obligor, Lapuz is not entitled to the benefits of
paragraph 3 of Art. 1191 of the NCC. Having been in
default, he is not entitled to the new period of 90 days
from entry of judgment within which to pay Roque the
balance of P11,434.44 with interest due on the
purchase price of P12,325.00 for the 2 lots. His refusal
to pay further installments on the purchase price, his
insistence that he had the option to pay the purchase
price any time in 10 years inspire of the clearness and
certainty of his agreement with Roque, as evidenced
further by the receipt, his dilatory tactic of refusing to
sign the necessary contract of sale on the pretext that
he will sign later when he shall have updated his
monthly payments in arrears but which he never
attempted to update, and his failure to deposit or make
available any amount for a period of 26 years are all
unreasonable and unjustified, which altogether,
manifest clear bad faith and malice on Lapuzs part,
making inapplicable and unwarranted the benefits of
par. 3 of Art. 1191. Moreover, his failure to pay the
succeeding 116 monthly installments after paying only
4 monthly installments is a substantial and material
breach on his part, not merely casual.
22. Gil v. CA (2003)
The case at hand revolves around a disputed parcel
of commercial land originally co-owned by Concepcion
Palma Gil, and her sister, Nieves Palma Gil who was
married to Angel Villarica. Concepcion filed a complaint
against her sister Nieves Civil Case No. 1160 for
specific performance, to compel the defendant to cede
and deliver to her an undivided portion of the said
property. The lower court ruled in favor of Concepcion.
CA affirmed and the decision became final and
executory. The sheriff had the property subdivided and
executed a Deed of Transfer of one of the four lots to
Concepcion. Concepcion executed a deed of absolute
sale over the said lot in favor of Iluminada Pacetes.
Also, Concepcion filed a complaint for unlawful detainer
against the spouses Angel and Nieves Villarica Civil
Case No. 2246, which the MTC decided in favor of
Concepcion. Meanwhile, the spouses Angel and Nieves
Villarica filed a complaint against the sheriff and
Concepcion with the Civil Case No. 2151 for the

nullification of the deed of transfer executed by the

sheriff. Iluminada Pacetes filed a motion to intervene in
Civil Case No. 2151, as vendee of the property subject
of the case, which was granted by the court. She then
filed a motion to dismiss the complaint. The court
granted the motion.
On the basis of the deed of transfer executed by
Sheriff, the Register of Deeds issued TCTs in the name
of Concepcion. However, the latter failed to transfer
title to the property to and under the name of
Iluminada Pacetes. Consequently, the latter did not
remit the balance of the purchase price of the property
to Concepcion.
More than five years having elapsed without the
decision in the unlawful detainer case being enforced,
Iluminada filed a complaint Civil Case No. 4413 for the
revival and execution of the decision of the unlawful
detainer case.
Subsequently, the lot was sold to Constancio
Maglana then to Emilio Matulac. In the meantime, on
August 8, 1977, Iluminada consigned with the court in
the specific performance case the amount of
P11,983.00 only as payment of the purchase price of
the property. Three of the surviving heirs of Concepcion
Gil, namely, Perla Palma Gil, Vicente Hizon, Jr. and
Angel Palma Gil filed on June 17, 1982, a complaint
against Emilio Matulac, Constancio Maglana, Agapito
Pacetes, and the Register of Deeds, with the CFI for the
cancellation of the deed of sale executed by
Concepcion in favor of Iliminada Pacetes; the deed of
sale executed by the latter in favor of Constancio
Maglana; the deed of sale executed by the latter in
favor of Emilio Matulac. Petitioners in this case assert
that private respondent Iluminada Pacetes failed to pay
the balance of the purchase price in the amount of
P14,100.00. They did consign and deposit the amount
of P11,983.00, but only on August 8, 1977, twenty one
years from the execution of the Deed of Absolute Sale
in favor of the said spouses, without the latter
instituting an action for the cancellation of their
consignation made by Iluminada Pacetes of the amount
did not produce any legal effect.
In the procedural aspect, it is important to note
that the petitioners failed to implead all the
compulsory heirs of the deceased Concepcion Gil in
their complaint. When she died intestate, Concepcion
Gil, a spinster, was survived by her sister Nieves, and
her nephews and nieces, three of whom are the
petitioners herein.
Whether or not the property has been
conveyed to Iluminada Pacetes and the subsequent
vendees in spite of the balance that existed for 21
years? (YES)
Held: Article 1191 in tandem with Article 1592 of the
New Civil Code are central to the issues at bar. Under
the last paragraph of Article 1169 of the New Civil
Code, in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills
his obligation, delay in the other begins. Thus,

Civil Law Review II 1st Assignment

simultaneously so that the performance of one is
conditioned upon the simultaneous fulfillment of the
other. The right of rescission of a party to an obligation
under Article 1191 of the New Civil Code is predicated
on a breach of faith by the other party that violates the
reciprocity between them.
That the deed of absolute sale executed by
Concepcion Gil in favor of Iluminada Pacetes is an
executory contract and not an executed contract is a
settled matter. In a perfected contract of sale of realty,
the right to rescind the said contract depends upon the
fulfillment or non-fulfillment of the prescribed
condition. We ruled that the condition pertains in
reality to the compliance by one party of an
undertaking the fulfillment of which would give rise to
the demandability of the reciprocal obligation
pertaining to the other party. The reciprocal obligation
envisaged would normally be, in the case of the
vendee, the payment by the vendee of the agreed
purchase price and in the case of the vendor, the
fulfillment of certain express warranties.
In another case, we ruled that the non-payment of
the purchase price of property constitutes a very good
reason to rescind a sale for it violates the very essence
of the contract of sale. In Central Bank of the
Philippines v. Bichara, we held that the non-payment of
the purchase price of property is a resolutory condition
for which the remedy is either rescission or specific
performance under Article 1191 of the New Civil Code.
This is true for reciprocal obligations where the
obligation is a resolutory condition of the other. The
vendee is entitled to retain the purchase price or a part
of the purchase price of realty if the vendor fails to
perform any essential obligation of the contract. Such
right is premised on the general principles of reciprocal
In this case, Concepcion Gil sold Lot 59-C-1 to
Iluminada Pacetes for P21,600.00 payable as follows:
The purchase price of P21,600.00 shall be paid as
follows: P7,500.00, to be paid upon the signing of this
instrument; and the balance of P14,100.00, to be paid
upon the delivery of the corresponding Certificate of Title
in the name of the VENDEE.
Concepcion Gil obliged herself to transfer title over
the property to and under the name of the vendee within
120 days from the execution of the deed.
That it is further stipulated that this contract shall be
binding upon the heirs, executors and administrators of
the respective parties hereof.

The vendee paid the downpayment of P7,500.00.

By the terms of the contract, the obligation of the
vendee to pay the balance of the purchase price
ensued only upon the issuance of the certificate of title
by the Register of Deeds over the property sold to and
under the name of the vendee, and the delivery
thereof by the vendor Concepcion Gil to the latter.
Concepcion failed to secure a certificate of title over
the property. When she died intestate on August 4,
1959, her obligation to deliver the said title to the
vendee devolved upon her heirs, including the
petitioners. The said heirs, including the petitioners
failed to do so, despite the lapse of eighteen years

since Concepcions death.

Iluminada was not yet obliged on August 8, 1977 to
pay the balance of the purchase price of the property,
but as a sign of good faith, she nevertheless consigned
the amount of P11,983.00, part of the balance of the
purchase price of P14,000.00, with the court in Civil
Case No. 1160. The court accepted the consignation
and she was issued receipts therefor. Still, the heirs of
Concepcion Gil, including the petitioners, failed to
deliver the said title to the vendee. Iluminada was
compelled to file, at her expense, a petition with the
RTC docketed as Miscellaneous Case No. 4715 for the
issuance of an owners duplicate of TCT No. 7450
covering the property sold which was granted by the
court on March 22, 1978. It was only on May 9, 1978
that Iluminada managed to secure TCT No. 61514 over
the property under her name. Upon the failure of the
heirs to comply with the decedents prestation,
Iluminada Pacetes was impelled to resort to legal
means to protect her rights and interests.
The petitioners, as successors-in-interest of the
vendor, are not the injured parties entitled to a
rescission of the deed of absolute sale. It was
Concepcions heirs, including the petitioners, who were
obliged to deliver to the vendee a certificate of title
over the property under the latters name, free from all
liens and encumbrances within 120 days from the
execution of the deed of absolute sale on October 24,
1956, but had failed to comply with the obligation.
The consignation by the vendee of the purchase
price of the property is sufficient to defeat the right of
the petitioners to demand for a rescission of the said
deed of absolute sale.
It bears stressing that when the vendee consigned
part of the purchase price with the Court and secured
title over the property in her name, the heirs of
Concepcion, including the petitioners, had not yet sent
any notarial demand for the rescission of the deed of
absolute sale to the vendee, or filed any action for the
rescission of the said deed with the appropriate court.
Although the vendee consigned with the Court only
the amount of P11,983.00, P2,017.00 short of the
purchase price of P14,000.00, it cannot be claimed that
Concepcion was an unpaid seller because under the
deed of sale, she was still obligated to transfer the
property in the name of the vendee, which she failed to
do so. According to Article 1167 of the New Civil Code:
If a person obliged to do something fails to do it, the
same shall be executed at his cost. This same rule
shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
The vendee (Iluminada) had to obtain the owners
duplicate of TCT No. 7450 and thereafter secure its
transfer in her name. Pursuant to Article 1167, the
expenses incurred by the vendee should be charged
against the amount of P2,617.00 due to the heirs of
Concepcion Gil as the vendors successors-in-interest.
23. Rayos v. CA (2004)

Civil Law Review II 1st Assignment

Petitioner Orlando A. Rayos, a practicing lawyer,
and his wife, petitioner Mercedes T. Rayos, secured a
short-term loan from the PSB payable within a period of
1 year in quarterly installments. To secure the payment
of the loan, the petitioners-spouses executed, a Real
Estate Mortgage over their property located in Las
Pias, Metro Manila. Petitioners, as vendors, and the
respondents, Spouses Miranda, as vendees, executed a
Deed of Sale with Assumption of Mortgage over the
subject property. However, the petitioners-spouses,
likewise, executed a Contract to Sell the said property
in favor of the respondents. The petitioners obliged
themselves to execute a deed of absolute sale over the
property in favor of the respondents upon the full
payment of the purchase price thereof. In the
meantime, respondent Rogelio Miranda secured the
services of petitioner Orlando Rayos as his counsel in a
Both parties agreed to the payment of attorney's
fees. When the petitioner demanded the payment of
attorney's fees, the respondent refused to pay.
Petitioner then received a Letter from the PSB,
reminding him that this loan with the bank would
mature on December 24, 1986, and that it expected
him to pay his loan on or before the said date. Fearing
that the respondents would not be able to pay the
amount due, petitioner paid the bank on December 12,
1986, leaving the balance of P1,048.04. The petitioner
advised the PSB not to turnover to the respondents the
owner's duplicate of the title over the subject property,
even if the latter paid the last quarterly installment on
the loan, as they had not assumed the payment of the
same. Respondent filed a complaint against the
petitioners and the PSB for damages with a prayer for a
writ of preliminary attachment with the RTC of Makati.
The respondents contend that the petitioners breached
their contract.
Whether the parties executed a contract of sale
Held: The Court ruled that the parties executed a
contract to sell and not a contract of sale. The
remedies by the respondents until the payment of the
purchase price of the property in full. Such payment is
a positive suspensive condition, failure of which is not
really a breach, serious or otherwise, but an event that
prevents the obligation of the petitioners to convey
title from arising, in accordance with Article 1184 of the
Civil Code.
In Lacanilao v. Court of Appeals, the Court ruled
that where the seller promised to execute a deed of
absolute sale upon completion of payment of the
purchase price by the buyer, the agreement is a
contract to sell. In contracts to sell, where ownership is
retained by the seller until payment of the price in full,
such payment is a positive suspensive condition,
failure of which is not really a breach but an event that
prevents the obligation of the vendor to convey title in
accordance with Article 1184 of the Civil Code. The
non-fulfillment by the respondent of his obligation to
pay, which is a suspensive condition to the obligation
of the petitioners to sell and deliver the title to the

property, rendered the contract to sell ineffective and

without force and effect. The parties stand as if the
conditional obligation had never existed. Article 1191
of the New Civil Code will not apply because it
presupposes an obligation already extant. There can
be no rescission of an obligation that is still nonexisting, the suspensive condition not having
24. Golden Valley Exploration, Inc. v. Pinkian
Mining Company and Copper Valley, Inc. (2014)
PMC is the owner of 81 mining claims located in
Kayapa, Nueva Vizcaya, 15 of which were covered by
Mining Lease Contract (MLC) while the remaining 66
had pending applications for lease. On October 30,
1987, PMC entered into an Operating Agreement (OA)
with GVEI, granting the latter "full, exclusive and
irrevocable possession, use, occupancy , and control
over the [mining claims], and every matter pertaining
to the examination, exploration, development and
mining of the [mining claims] and the processing and
marketing of the products x x x ,"for a period of 25
In a Letter dated June 8, 1999, PMC extra-judicially
rescinded the OA upon GVEIs violation of the
provisions thereof. GVEI contested PMCs extra-judicial
rescission through a Letter averring therein that its
obligation to PMC arises only when the mining claims
are placed in commercial production which condition
has not yet taken place.
PMC no longer responded to GVEIs letter. Instead,
it entered into a Memorandum of Agreement dated
May 2, 2000 (MOA) with CVI, whereby the latter was
granted the right to "enter, possess, occupy and
control the mining claims" and "to explore and develop
the mining claims, mine or extract the ores, mill,
process and beneficiate and/or dispose the mineral
products in any method or process," among others, for
a period of 25 years.
Due to the foregoing, GVEI filed a Complaint for
Specific Performance, Annulment of Contract and
Damages against PMC and CVI before the RTC.
RTC ruled in favor of GVEI. CA reversed RTC ruling.
Hence this petition.
Issue: Whether or not there was a valid rescission of
the OA (YES)
Held: There was a valid rescission of the OA. The Court
held that in reciprocal obligations, either party may
rescind the contract upon the others substantial
breach of the obligation/s he had assumed thereunder.
The basis therefor is Article 1191 of the Civil Code
which states as follows:
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.

Civil Law Review II 1st Assignment

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.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and
1388 and the Mortgage Law.
More accurately referred to as resolution, the right
of rescission under Article 1191 is predicated on a
breach of faith that violates the reciprocity between
parties to the contract. This retaliatory remedy is given
to the contracting party who suffers the injurious
breach on the premise that it is "unjust that a party be
held bound to fulfill his promises when the other
violates his."

commercial production of the 15 perfected mining

claims and the beneficial exploration of those
remaining. Consequently, seven years into the life of
the OA, no royalties were paid to PMC. Compounding
its breach, GVEI not only failed to pay royalties to PMC
but also did not carry out its obligation to conduct
operations on and/or commercialize the mining claims
already covered by MLC. Truth be told, GVEIs nonperformance of the latter obligation under the OA
actually made the payment of royalties to PMC virtually
impossible. Hence, GVEI cannot blame anyone but
itself for its breach of the OA, which, in turn, gave PMC
the right to unilaterally rescind the same.
On the claim of GVEI that the ground to rescind the OA
was only limited to its non-payment of royalties:
While Section 8.01, Article VIII of the OA as abovecited appears to expressly restrict the availability of an
extra-judicial rescission only to the grounds stated
thereunder, the Court finds that the said stipulation
does not negate PMCs implied statutory right to
judicially rescind the contract for other unspecified acts
that may actually amount to a substantial breach of
the contract. This is based on Article 1191 of the Civil
Code (also above-cited) which pertinently 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" and that
"[t]he court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period."
On Extra-judicial rescission:

As a general rule, the power to rescind an

obligation must be invoked judicially and cannot be
exercised solely on a partys own judgment that the
other has committed a breach of the obligation. This is
so because rescission of a contract will not be
permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would
defeat the very object of the parties in making the
agreement. As a well-established exception, however,
an injured party need not resort to court action in order
to rescind a contract when the contract itself provides
that it may be revoked or cancelled upon violation of
its terms and conditions.

While it remains apparent that PMC had not

judicially invoked the other grounds to rescind in this
case, the only recognizable effect, however, is with
respect to the reckoning point as to when the contract
would be formally regarded as rescinded. Where
parties agree to a stipulation allowing extra-judicial
rescission, no judicial decree is necessary for rescission
to take place; the extra-judicial rescission immediately
releases the party from its obligation under the
contract, subject only to court reversal if found
improper. On the other hand, without a stipulation
allowing extra-judicial rescission, it is the judicial
decree that rescinds, and not the will of the rescinding

With this in mind, the Court therefore affirms the

correctness of the CAs Decision upholding PMCs
unilateral rescission of the OA due to GVEIs nonpayment of royalties considering the parties express
stipulation in the OA that said agreement may be
cancelled on such ground.

Finally, the Court cannot lend credence to GVEI's

contention that when PMC entered into an agreement
with CVI covering the mining claims, it was committing
a violation of the terms and conditions of the OA. As
above-explained, the invocation of a stipulation
allowing extra-judicial rescission effectively puts an
end to the contract and, thus, releases the parties from
the obligations thereunder, notwithstanding the lack of
a judicial decree for the purpose.

On the claim of GVEI that no commercial mining was

yet in place:
Despite earlier demands made by PMC, no
meaningful steps were taken by GVEI towards the