MAKATI STOCK EXCHANGE, INC.

VS MIGUEL CAMPOS

G.R. NO. 138814, APRIL 26, 2009

FACTS: SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos
with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange
Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE).

The Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of
Directors, which allegedly deprived him of his right to participate equally in the allocation of Initial Public
Offerings (IPO) of corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly
deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1
million as exemplary damages, and P500,000.00 as attorneys fees and litigation expenses.

The SICD issued an Order granting respondents prayer for the issuance of a Temporary Restraining
Order to enjoin petitioners from implementing or enforcing the Resolution of the MKSE Board of
Directors. Subsequently issued another Order on 10 March 1994 granting respondents application for a
Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678,
the implementation or enforcement of the MKSE Board Resolution in question.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition based on the following
grounds: (1) the Petition became moot due to the cancellation of the license of MKSE; (2) the SICD had
no jurisdiction over the Petition; and (3) the Petition failed to state a cause of action. The SICD denied
petitioners Motion to Dismiss. Petitioners again challenged Order of SICD before the SEC en banc
through another Petition for Certiorari.

The SEC en banc nullified the Order of SICD granting a Writ of Preliminary Injunction in favour of
respondent. SEC en banc annulled the Order of SICD in SEC Case No. 02-94-4678 denying petitioners
Motion to Dismiss, and accordingly ordered the dismissal of respondents Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals. Petitioners filed a Motion for
Reconsideration but was denied by the Court of Appeals.

ISSUE: WHETHER OR NOT THE PETITION FAILED TO STATE A CAUSE OF ACTION.

RULING:The petition filled by the respondent, Miguel Campos should be dismissed for failure to state a
cause of action. A cause of action is the act or omission by which a party violates a right of another. A
complaint states a cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act
or omission of the defendant in violation of said legal right. If these elements are absent, the complaint
becomes vulnerable to dismissal on the ground of failure to state a cause of action.

However, the terms right and obligation are not magic words that would automatically lead to the
conclusion that such Petition sufficiently states a cause of action. Right and obligation are legal terms
with specific legal meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law while an obligation is defined in the Civil Code as a juridical necessity to give, to do
or not to do. Justice J.B.L. Reyes offers the definition given by Arias Ramos as a more complete
definition:
 An obligation is a juridical relation whereby a person (called the creditor) may demand from another
(called the debtor) the observance of a determinative conduct (the giving, doing or not doing), and in
case of breach, may demand satisfaction from the assets of the latter.

Art. 1157 of the Civil Code provides that Obligations arise from (1) Law; (2) Contracts; (3) Quasi-
contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.

The mere assertion of a right and claim of an obligation in an initiatory pleading, whether a Complaint
or Petition, without identifying the basis or source thereof, is merely a conclusion of fact and law. (In
the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondents right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners
obligation to continue respecting and observing such right, the Petition utterly failed to lay down the
source or basis of respondents right and/or petitioners obligation.)

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989,
granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the said
Petition from which the Court can deduce that respondent, by virtue of his position as Chairman
Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to subscribe to the
IPOs of corporations listed in the stock market at their offering prices. (allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the members of the
stock exchange) A practice or custom is, as a general rule, not a source of a legally demandable or
enforceable right.

Ang Yu Asuncion v. CA

FACTS:
 DE GUIA V. MANILA ELECTRIC,

RAILROAD & LIGHT CO

STREET; Jan. 28, 1920

NATURE

APPEAL from a judgment of the Court of First Instance of Manila.

FACTS

-The plaintiff is a physician residing in Caloocan City.

-Sept 4, 1915, at about 8pm, the defendant boarded a car at the end of the line with the intention of coming to Caloocan.

-At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle of the right-hand door. Upon
coming out of the switch, the small wheels of the rear truck left the track ran for a short distance and hit a concrete post.

-the post was shattered: at the time the car struck against the concrete post, the plaintiff was allegedly standing on the rear platform, grasping the handle of the
right-hand door. The shock of the impact threw him forward, and the left part of his chest struck against the door causing him to fall. In the falling, the plaintiff
alleged that his head struck one of the seats and he became unconscious.

-the plaintiff was taken to his home which was a short distance away from the site of the incident. A physician of the defendant company visited the plaintiff and
noted that the plaintiff was walking about and apparently suffering somewhat from bruises on his chest. The plaintiff said nothing about his head being injured
and refused to go to a hospital.

-The plaintiff consulted other physicians about his condition, and all these physicians testified for the plaintiff in the trial court.
-the plaintiff was awarded with P6,100, with interest and costs, as damages incurred by him in consequence of physical injuries sustained. The plaintiff and the
defendant company appealed.

ISSUES

1. WON the defendant has disproved the existence of negligence

2. What is the nature of the relation between the parties?

3. WON the defendant is liable for the damages

4. If liable for damages, WON the defendant could avail of the last paragraph of Art 1903 on culpa aquiliana (Art 2180)

5. What is the extent of the defendants liability?

5.1 Did the trial judge err in the awarding of the damages for loss of professional earnings (P900)?

5.2 Did the trial judge err in the awarding of the damages for inability to accept a position as a district health officer?

5.3 Did the trial judge err in not awarding damages for the plaintiffs supposed incapacitation for future professional practice (P30,000)?

5.4 Is the plaintiff reasonable in demanding P10,000 for the cost of medical treatment and other expenses incident to his cure?

6. WON the trial judge erred in treating written statements of the physicians who testified as primary evidence?

HELD

1. NO, the existence of negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence.

Ratio An experienced and attentive motorman should have discovered that something was wrong and would have stopped before he had driven the car over the
entire distance from the point where the wheels left the track to the place where the post was struck.

Reasoning The motorman alleged that he reduced his speed to the point that the car barely entered the switch under its own momentum, and this operation was
repeated as he passed out. Upon getting again on the straight track he put the control successively at points one, two, three and lastly at point four. At the
moment when the control was placed at point four he perceived that the rear wheels were derailed and applied the brake; but at the same instant the car struck
the post, some 40 meters distant from the exit of the switch. However, testimonial evidence alleged that the rate of a car propelled by electricity with the control at
point "four" should be about five or 6 miles per hour (around 8 kph) and other evidence showed that the car was behind schedule time and that it was being
driven, after leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. The car was practically empty (so its possible that it
could run faster???). The court granted that there is negligence as shown by the distance which the car was allowed to run with the front wheels of the rear truck
derailed, aside from the fact that the car was running in an excessive speed.

2. The relation between the parties was of a contractual nature.

Ratio The company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care which, under the circumstances, is
required by law and custom applicable to the case.

Reasoning The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to convey him for hire.

3. YES, the defendant is liable for the damages

Ratio/ Reasoning Upon failure to comply with that obligation arising from the contract, the company incurred the liability defined in articles 1103-1107 of the
Civil Code.

4. No, the defendant could not avail of the last paragraph of Art 1903

Ratio/ Reasoning The last paragraph of article 1903 of the civil code refers to liability incurred by negligence in the absence of contractual relation, that is, to the
culpa aquiliana of the civil law and not to liability incurred by breach of contract; therefore, it is irrelevant to prove that the defendant company had exercised due
care in the selection and instruction of the motorman who was in charge of its car and that he was in experienced and reliable servant.
5. The defendant is liable for the damages ordinary recoverable for the breach of contractual obligation, against a person who has acted in good faith,
which could be reasonably foreseen at the time the obligation is contracted.

Ratio The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the
damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties.

Reasoning The court has the power to moderate liability according to the circumstances of the case, i.e. when the defendant must answer for the consequences
of the negligence of its employees. Also, an employer who has displayed due diligence in choosing and instructing his servants is entitled to be considered a
debtor in good faith (w/n meaning of article 1107, old CC)

5.1. NO, the trial judge was liberal enough to the plaintiff.

Reasoning As a result of the incident, the plaintiff was unable to properly attend his professional labors for 3 months and suspend his practice for that period. By
testimonial evidence, his customary income, as a physician, was about P300/month. So the trial judge accordingly allowed P900 as damages for loss of
earnings.

5.2 YES. The trial judge erred in awarding such damages.

Ratio Damage of this character could not, at the time of the accident, have been foreseen by the delinquent party as a probable consequence of the injury
inflicted.

Reasoning The representative from Negros Occidental has supposedly asked Dr. Montinola to nominate the plaintiff as district health officer of Negros
Occidental for two years, with a salary of P1,600 per annum and a possible outside practice worth of P350. However, even if true, the damages were too
speculative to be the basis of recovery in a civil action.

5.3 NO. the trial court was fully justified in rejecting the exaggerated estimate of damages allegedly created.

Ratio/ Reasoning The plaintiff alleged, even showing testimonial evidences from numerous medical experts, that he developed infarct of the liver and traumatic
neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, and these manifestations of disorder
rendered him liable to a host of other dangerous diseases, and that restoration to health could only be accomplished after long years of complete repose.

-The medical experts introduced by the defendant testified however that the plaintiffs injuries, considered in their physical effects, were trivial and that the
attendant nervous derangement, with its complicated train of ailments, was merely simulated.

-According to the court, the evidence showed that immediately after the incident the plaintiff, sensing in the situation a possibility of profit, devoted himself with
great assiduity to the promotion of this litigation; and with the aid of his own professional knowledge, supplemented by suggestions obtained from his professional
friends and associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true
value the symptoms of disorder which he developed.

5.4 No. He is only justified with P200, or the amount actually paid to Dr. Montes (the doctor who treated the plaintiff) which is the obligation
supposedly incurred with respect to treatment for said injuries.

Ratio In order to constitute a proper element of recovery in an action of this character, the medical service for which reimbursement is claimed should not only be
such as to have created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition.

Reasoning Dr. Montes, in his testimony, speaks in the most general terms with respect to the times and extent of the services rendered; and it is not clear that
those services which were rendered many months, or year, after the incident had in fact any necessary or legitimate relation to the injuries received by the
plaintiff.

-On the obligation supposedly incurred by the plaintiff to three other physicians: (1) it does not appear that said physicians have in fact made charges for those
services with the intention of imposing obligations on the plaintiff to pay them; (2) in employing so many physicians the plaintiff must have had in view the
successful promotion of the issue of this lawsuit rather than the bona fide purpose of effecting the cure of his injuries.

6. YES, certificates or the written statements of the physicians which were referred to in the trial cannot be admitted as primary evidence since it is
fundamentally of a hearsay nature

Ratio The only legitimate use of certificates could be put, as evidence for plaintiff, was to allow the physician who issued it to refer thereto, to refresh his memory
upon details which he might have forgotten
DECI

Judgment from the trial court modified by reducing the amount of the recovery to P1,100, with legal interest from Nov. 8, 1916 (all judges 6 (ponente counted)
concurred)

THE UNITED STATES, plaintiff-appellee,vs.SEGUNDO BARIAS, defendant-appellant.G.R. No. L-7567 23 phil.

434 November 12, 1912
Relevant Facts: This is an appeal from a sentence imposed by the Court of First Instance of Manila, for
homicide resulting from reckless negligence. On November 2, 1911, Segundo Barias, a motorman of
Manila Electric Railroad and Light Company, was driving his vehicle car along Rizal Avenue and stopped
in near the interserction of Calle Requesen Street, upon stopping, he took some passengers and looked
backward presumably to take not whether all the passengers were aboard. At that moment, Fermina
Jose, a child about 3 years old, walked or ran in front of the car. She was knocked down and dragged
some little distance underneath the car, which caused her death. Barias proceeded with his car some
distance from the place of the accident, and apparently knew nothing of it until his return, when he was
informed of what happened. One witness testified that Barias started the car without turning his head
over the track immediately in front of the car. Afterwhich, a case was filed against him in the Trial Court
of Manila, holding him guilty of Reckless Negligence.

Issue: Whether or not the evidence shows such carelessness or want of ordinary care onthe part of the
defendant as to amount to Reckless Negligence

Ruling: The place on which the incident occurred was a public street in a densely populated section of
the city at about six in the morning, the time when the residents of such streets begins to move about.
Under such conditions a motorman of an electric street car was clearly charged with a high degree of
diligence in the performance of his duties. Barias did not exercise that degree of diligence required of
him. Having brought his car to a standstill it was his bounden duty to keep his eyes directed to the front.
It was his duty to satisfy himself that the track was clear, and, for that purpose, to look and to see the
track just in front of his car. This the defendant did not do, and the result of his negligence was the
death of the child. Wherefore, the judgment of the lower court convicting and sentencing the appellant
is affirmed. The penalty should be reduced. So ordered.
SARMIENTO V SUN-CABRIDO (2003)

FACTS:
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find
somebody to reset a pair of diamond earrings into two gold rings. Accordingly, petitioner sent a certain Tita Payag
with the pair of earrings to Dingdings Jewelry Shop, owned and managed by respondent spouses Luis and Rose
Cabrido, which accepted the job order for P400.
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. After 3 days, Tita Payag delivered
to the jewelry shop one of Dra. Laos diamond earrings which was earlier appraised as worth .33 carat and almost
perfect in cut and clarity. Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original
setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the
setting with a pair of pliers, breaking the gem in the process.
Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the
petitioner was forced to buy a replacement in the amount of P30,000.
Petitioner filed a complaint for damages on June 28, 1994.
private respondents vigorously denied any transaction between Dingdings Jewelry Shop and the petitioner, through
Tita Payag.
DECISION OF LOWER COURTS:
1. MTC: declared respondents liable.
2. RTC: absolving the respondents of any responsibility arising from breach of contract. while ostensibly admitting the
existence of the said agreement, private respondents, nonetheless denied assuming any obligation to dismount the
diamonds from their original settings.
3. CA: declared the private respondents not liable for damages.

ARGUMENTS OF THE PARTIES:

Respondents
- dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents
under the contract of service.
Petitioners
- agreement was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the
said diamonds from their original setting.

ISSUE:
Whether respondents are liable

RULING:
Yes.
it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be
the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their
original settings. However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage
of the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required by the
circumstances. It should be pointed out that Marilou examined the diamond before dismounting it from the original
setting and found the same to be in order. Its subsequent breakage in the hands of Santos could only have been
caused by his negligence in using the wrong equipment. Res ipsa loquitur. (the thing speaks for itself)
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who in the
performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the
tenor thereof, are liable for damages.23[23] The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. Marilou and Zenon Santos were employed at Dingdings Jewelry Shop in order to perform
activities which were usually necessary or desirable in its business.
Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount
of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner

Crisostomo v. CA, 409 SCRA 528 (2003)

FACTS: Estela L. Crisostomo contracted the services of Caravan Travel and Tours International, Inc. to
arrange and facilitate her booking, ticketing and accommodation in a tour dubbed "Jewels of Europe".
The package tour cost her P74, 322.70. She was given a 5% discount on the amount, which included
airfare, and the booking fee was also waived because petitioners niece, Meriam Menor, was formers
companys ticketing manager. Menor went to her aunts residence on a Wednesday to deliver
petitioners travel documents and plane tickets. Estela, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday,
two hours before her flight on board British Airways. Without checking her travel documents, Estela
went to NAIA on Saturday, to take the flight for the first leg of her journey from Manila to Hongkong.
She discovered that the flight she was supposed to take had already departed the previous day. She
learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to
complain. Subsequently, Menor prevailed upon Estela to take another tour the "British Pageant, which
cost P20, 881.00. She gave caravan travel and tours P7, 980.00 as partial payment and commenced the
trip in July 1991.Upon petitioners return from Europe, she demanded from respondent the
reimbursement of P61, 421.70, representing the difference between the sum she paid for "Jewels of
Europe" and the amount she owed respondent for the "British Pageant" tour. Despite several demands,
respondent company refused to reimburse the amount, contending that the same was non-refundable.
Estela filed a complaint against Caravan travel and Tours for breach of contract of carriage and damages.

A) Will the action prosper?

B) Will she be entitled to damages?

Answer:

A)No, for there was no contract of carriage.

By definition, a contract of carriage or transportation is one whereby a certain person or association of

persons obligate themselves to transport persons, things, or news from one place to another for a fixed
price.

From the above definition, Caravan Travel and Tours is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Caravan Travel and Tours did not undertake to transport Estela from one place to another since its
covenant with its customers is simply to make travel arrangements in their behalf. Caravan travel and
tours services as a travel agency include procuring tickets and facilitating travel permits or visas as well
as booking customers for tours.

While Estela concededly bought her plane ticket through the efforts of respondent company, this does
not mean that the latter ipso facto is a common carrier. At most, Caravan Travel and Tours acted merely
as an agent of the airline, with whom the former ultimately contracted for her carriage to Europe.

B) No.

The negligence of the obligor in the performance of the obligation renders him liable for damages for
the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as the nature of the obligation so
demands.

In the case at bar, Caravan Travel and Tours exercised due diligence in performing its obligations under
the contract and followed standard procedure in rendering its services to Estela. The plane ticket issued
to petitioner clearly reflected the departure date and time, contrary to Estelas contention. The travel
documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to her
two days prior to the trip. The Caravan Travel and Tours also properly booked Estela for the tour,
prepared the necessary documents and procured the plane tickets. It arranged Estelas hotel
accommodation as well as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.

From the foregoing, it is clear that the Caravan Travel and Tours performed its prestation under the
contract as well as everything else that was essential to book Estela for the tour.

Hence, Estela cannot recover and must bear her own damage.
SURVIVING HEIRS OF ALFREDO R. BAUTISTA VS. LINDO
G.R. No. 208232, March 10, 2014

Facts:

Alfredo R. Bautista (Bautista), petitioners predecessor, inherited in 1983 a free-patent land located in
Davao Oriental and covered by OCT No. (1572) P-6144.A few years later, he subdivided the property and
sold it to several vendees, herein respondents, via a notarized deed of absolute sale dated May 30,
1991. Two months later, OCT No.(1572) P-6144 was canceled and Transfer Certificates of Title (TCTs)
were issued in favor of the vendees.

On August 1994, Bautista filed a complaint for repurchase against respondents before the RTC,
anchoring his cause of action on Section 119 of Commonwealth Act No. (CA) 141, otherwise known as
the Public Land Act, which reads:

SECTION 119. Every conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five
years from the date of the conveyance.

During the pendency of the action, Bautista died and was substituted by petitioner, Efipania.
Respondents, Sps. Lindo entered into a compromise agreement with petitioners, whereby they agree to
cede to Epifania 3,230 sq.m..portion of the property as well as to waive, abandon, surrender, and
withdraw all claims and counterclaims against each other. RTC approve the compromise agreement on
January 2011.

Other respondents, filed a Motion to Dismissed on February 2013 alleging lack of jurisdiction of the RTC
on the ground that the complaint failed to state the value of the property sought to be recovered and
alleges that the total value of the properties in issue is only P16,500 pesos. RTC ruled in favor of the
respondent dismissing the case.

Issue:
Whether or not the RTC erred in granting the motion for the dismissal of the case on the ground of lack
of jurisdiction over the subject matter.

Ratio:
Yes. Jurisdiction of courts is granted by the Constitution and pertinent laws. Jurisdiction of RTCs, as may
be relevant to the instant petition, is provided in Sec. 19 of BP 129.

Issue:
Whether the action filed by petitioners is one involving title to or possession of real property or any
interest therein or one incapable of pecuniary estimation.

Ratio:
The Court rules that the complaint to redeem a land subject of a free patent is a civil action incapable of
pecuniary estimation. It is a well-settled rule that jurisdiction of the court is determined by the
allegations in the complaint and the character of the relief sought. In this regard, the Court, in Russell v.
Vestil, wrote that "in determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal
action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered
capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the RTCs would
depend on the amount of the claim." But where the basic issue is something other than the right to
recover a sum of money, where the money claim is purely incidental to, or a consequence of, the
principal relief sought, this Court has considered such actions as cases where the subject of the litigation
may not be estimated in terms of money, and, hence, are incapable of pecuniary estimation.
Decision:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The April 25, 2013 and July
3, 2013 Orders of the Regional Trial Court in Civil Case No. (1798)-021 are hereby REVERSED and SET
ASIDE.
The Regional Trial Court, Branch 32 in Lupon, Davao Oriental is ORDERED to proceed with dispatch in
resolving Civil Case No. (1798)-021.
No pronouncement as to costs.

Boysaw vs. Interphil Promotions

Boxer (P) vs. Promoter (D)
GR L-22590 [T]

Summary: A boxer signed an agreement with a promotions agency to arrange and promote a boxing
match with Flash Elorde. The boxer violated the terms of the contract, but in spite of these, the agency
proceeded except it negotiated for a new date for the match. Eventually, the match as originally stated in
the contract did not materialize. Boxer and manager is now suing the promotion agency for breach of
contract.
Rule of Law: Where one party did not perform the undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the performance of the contract by the other party,
or recover damages by reason of his own breach.
Facts: Solomon Boysaw (P), signed with Interphil Promotions, Inc. (D), a contract to engage Gabriel
"Flash" Elorde in a boxing contest for the junior lightweight championship of the world. Thereafter,
Interphil (D) signed Gabriel "Flash" Elorde to a similar agreementthat is, to engage Boysaw in a title
fight.
The managerial rights over Boysaw (P) was assigned and eventually reassigned to Alfredo Yulo, Jr. (P)
without the consent of Interphil (D) in violation of their contract. When informed of the change, Interphil
(D) referred the matter to the Games and Amusement Board culminating to a decision by the board to
approve a new date for the match. Yulo (P) protested against the new date even when another proposed
date was within the 30-day allowable postponements.
Boysaw (P) and Yulo (P) filed for breach of contract when the fight contemplated in the original boxing
contract did not materialize.
Issues: May the offending party in a reciprocal obligation compel the other party for specific
performance?
Ruling: No. Evidence established that the contract was violated by Boysaw (P) when, without the
approval or consent of Interphil (D), he fought a boxing match in Las Vegas. Another violation was the
assignment and transfer of the managerial rights over Boysaw (P) without the knowledge or consent of
Interphil (D).
While the contract imposed no penalty for such violation, this does not grant any of the parties the
unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that actionable
injury inheres in every contractual breach.

Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who
in any manner contravene the terms thereof, are liable for damages.
Article 1170, Civil Code.

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.
Article 1191, Civil Code.
The contract in question gave rise to reciprocal obligations.

Reciprocal obligations are those which arise from the same cause, and in 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
fulfillment of the other.
Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.

The power to rescind is given to the injured party.

Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of
the agreement to perform, he is not entitled to insist upon the performance of the contract by the
defendant, or recover damages by reason of his own breach.
Seva vs. Alfredo Berwin, 48 Phil. 581.

Under the law, when a contract is unlawfully novated by an applicable and unilateral substitution of the
obligor by another, the aggrieved creditor is not bound to deal with the substitute. However, from the
evidence, it is clear that the Interphil (D), instead of availing themselves of the options given to them by
law of rescission or refusal to recognize the substitute obligor, really wanted to postpone the fight date
owing to an injury that Elorde sustained in a recent bout. That Interphil (D) had justification to
renegotiate the original contract, particularly the fight date is undeniable from the facts. Under the
circumstances, Interphil's (D) desire to postpone the fight date could neither be unlawful nor
unreasonable.

University of the Philippines v. De Los Angeles G.R. No. L-28602 September 29, 1970

Facts: On November 2, 1960, UP and ALUMCO entered into a logging agreement under which the latter
was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965,
extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove
timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that
ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid
account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received
notice that UP would rescind or terminate the logging agreement, ALUMCO executed an
instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9
December1964, which was approved by the president of UP, which expressly states that, upon default by
the debtor ALUMCO, the creditor (UP) has the right and the power to consider the Logging Agreement
as rescinded without the necessity of any judicial suit. ALUMCO continued its logging operations, but
again incurred an unpaid account. On July 19, 1965, petitioner UP informed respondent ALUMCO that it
had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they
had entered in 1960. UP filed a complaint against ALUMCO for the collection or payment of the herein
before stated sums of money and it prayed for and obtained an order for preliminary attachment and
preliminary injunction restraining ALUMCO from continuing its logging operations in the Land
Grant. Respondent ALUMCO contended that it is only after a final court decree declaring the contract
rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract
and treat the agreement as breached and of no force or effect.

Issue: Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may disregard
the same before any judicial pronouncement to that effect.

Held: UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP)has "the right and the
power to consider, the Logging Agreement as rescinded without the necessity of any judicial suit." In
connection with Article 1191 of the Civil Code, the Court stated in Froilan vs. Pan Oriental Shipping
Co that there is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured party to resort to court for rescission of the contract.
It must be understood that the act of party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional,
being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party prejudiced.

Vda. de Mistica v. Sps. Naguiat (2003)

FACTS:
- Eulalio Mistica, Fidelas predecessor-in-interest, is the owner of a parcel of land in Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to Bernardino Naguiat (Naguiat) sometime
in 1970.
- On 5 April 1979, Eulalio entered into a contract to sell with Naguiat over a portion of the
aforementioned lot containing an area of 200 m2. This agreement was reduced to writing in a
document entitled Kasulatan sa Pagbibilihan.
`Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang
Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula
sa araw din ng lagdaan ang kasulatang ito.
`Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan,
an[g] BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon
nilakaran hanggang sa ito'y mabayaran tuluyan ng Bumibili
- Naguiat gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on
7 February 1980. He failed to make any payments thereafter.
- Eulalio Mistica died sometime in October 1986.
- On 4 December 1991, Fidela filed a complaint for rescission alleging: that Naguiats failure
and refusal to pay the balance of the purchase price constitutes a violation of the contract which
entitles her to rescind the same.
- Naguiats contended that the contract cannot be rescinded on the ground that it clearly stipulates
that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid.
Naguiat likewise alleged that sometime in October 1986, during Eualalios wake, he offered to
pay the remaining balance to Fidela but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio, his heirs
or assigns pursuant to the said document.
- RTC disallowed rescission. CA affirmed. It held that the conclusion of the ten-year period was
not a resolutory term, because the Contract had stipulated that payment with interest of 12% could
still be made if Naguiats failed to pay within the period. Fidela did not disprove the allegation of
Naguiats that they had tendered payment of the balance of the purchase price during her
husband's funeral, which was well within the ten-year period. Moreover, rescission would be
unjust to Naguiats, because they had already transferred the land title to their names. The proper
recourse, the CA held, was to order them to pay the balance of the purchase price, with 12%
interest.
- Before SC, Fidela claimed that she is entitled to rescind the Contract under A1191, because
Naguiats committed a substantial breach when they did not pay the balance of the purchase price
within the 10-year period.
ISSUES:

WON there is a breach of obligation that warrants rescission under A1191

o NO. The transaction between Eulalio and Naguiats, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute
in nature when there is neither a stipulation in the deed that title to the property
sold is reserved to the seller until the full payment of the price nor a stipulation
giving the vendor the right to unilaterally resolve the contract the moment the buyer
fails to pay within a fixed period.
o In a contract of sale, the remedy of an unpaid seller is either specific performance
or rescission. Under A1191, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a breach of faith by
one of them. Rescission, however, is allowed only where the breach is substantial
and fundamental to the fulfillment of the obligation.
o Naguiats failure to pay the balance of the purchase price within 10 years from the
execution of the Deed did not amount to a substantial breach. In the Kasulatan, it
was stipulated that payment could be made even after ten years from the execution
of the Contract, provided the vendee paid 12 percent interest. The stipulations of
the contract constitute the law between the parties thus, courts have no alternative
but to enforce them as agreed upon and written.
o Moreover, it is undisputed that during the ten-year period, Fidela and her deceased
husband never made any demand for the balance of the purchase price. Fidela
even refused the payment tendered by Naguiats during her husband's funeral, thus
showing that she was not exactly blameless for the lapse of the ten-year period.
Had she accepted the tender, payment would have been made well within the
agreed period.

NOTES: The issuance of a certificate of title in favor of Naguiats does not determine whether
Fidela is entitled to rescission.
Fil-Estate Golf and Development, Inc. vs. Vertex Sales and Trading, Inc., 698 SCRA 272, June 10,
2013
Article 1191
Doctrine:
Mutual restitution is required in cases involving rescission under Article 1191 of the Civil Code as to bring
back the parties to their original situation, prior to the inception of the contract.
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.
FACTS:
FEGDI is a stock corporation primarily engaged in the development of golf courses.
As developer of the Forest Hill Golf and Country Club and in consideration of its financing support,
FEGDI was issued several shares of stock of Forest Hill.
FEGDIs Forest Hills stocks were later sold to, RSACC (a third party), which prior to full payment
sold the shares to Vertex (respondent).
17 months after the sale and after the full payment of Vertex, the share remained in the name of
FEGDI.
Vertex made a final demand which remained unheeded, thus a complaint for rescission (with
damages) against FEGDI, FELI and Forest Hill was filed, alleging that they defaulted in their
obligations as sellers.
During the pendency of this case, a certificate of stock was issued in Vertexs name but the latter
refused to accept it.
Position of Petitioner - FEGDI argued that the delay cannot be considered a substantial breach
because Vertex was unequivocally recognized as a shareholder of Forest Hills.
Position of Respondent - Vertex alleged that the fulfillment of its obligation to pay the purchase
price called into action the petitioners reciprocal obligation to deliver the stock certificate. Since
there was delay in the issuance of a certificate for more than three years, then it should be
considered a substantial breach warranting the rescission of the sale.
ISSUE:
W/N the delay in the issuance of stock certificate can be considered a substantial breach as to
warrant rescission of the contract of sale.
HELD:
YES, delay in issuance constitute a substantial breach because physical delivery is necessary to
transfer ownership of stocks as previously held in Raquel-Santos v. Court of Appeals.
o Theres no valid transfer of shares where there is no delivery of the stock certificate, under
the Corp Code
o Corp Code - SEC. 63 Certificate of stock and transfer of shares. xxx Shares of stock so
issued are personal property and may be transferred by delivery of the certificate No
transfer shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation
In this case, Vertex fully paid the purchase price by February 1999 but the stock certificate was
only delivered on January 2002 after Vertex filed an action for rescission against FEGDI.
o FEGDI clearly failed to deliver the stocks within a reasonable time. This was a substantial
breach of their contract that entitles Vertex the right to rescind the sale under Article 1191
of the Civil Code.
o The sale is not considered consummated due to the issuance of the certificates. It does
not suffice because the law requires a specific form to transfer ownership.
Mutual restitution is required in cases involving rescission under Article 1191 of the Civil Code as
to bring back the parties to their original situation, prior to the inception of the contract.
Final Ruling:
o CA order is affirmed
Petitioners should return the amounts paid by Vertex.
The prolonged issuance of the stock certificate is a substantial breach that served
as basis for Vertex to rescind the sale
o No award of damages bec. Vertex failed to prove by sufficient evidence that it suffered
actual damage due to the delay
o FELI is absolved from liability - bec. no privity of contract exists between Vertex and FELI
Facts:

The Sanchezes entered into an agreement with Garcia (doing business in the name of TSEI) to sell for P
1.850 million their parcel of land, with an earnest money of 50k. They agreed that Garcia shall pay the
purchase price in cash once the property is vacated. The Sanchezes entrusted to Garcia the owners copy
of TCT because it was agreed that he shall take care of all the documentations necessary for the
transaction.

Immediately after the property was vacated, Garcia took possession and began constructing townhouses
thereon without the Sanchezes knowledge and consent. While these developments were ongoing, Garcia
failed to pay the purchase price. Subsequently, the Sanchezes were given six checks representing the
amount of the purchase price. Four of these checks were postdated, thus further delaying their overdue
payment. To properly document the check payments, they made an agreement stipulating that if one of
the checks were dishonored, the Sanchezes may rescind the contract.

The last two checks were dishonored, so the Sanchezes rescinded the contract and demanded from Garcia
the return of the TCT. However, Garcia refused to return the documents and vacate the property.

Meanwhile, the Sanchezes found out that Garcia/TSEI were selling townhouses situated in the property.
So they informed the HLURB, the City Building Official and the RD in Quezon City, of the illegal
constructions being made thereon. The HLURB issued a Cease and Decease Order enjoining Garcia /
TSEI from further developing and selling the townhouses. Such orders were left unheeded. In fact, Garcia
were already able to sell many of the units to different individuals and entities, and even mortgaged the
property. Consequently, the Sanchezes filed before the RTC a complaint for rescission, restitution and
damages with TRO.

The purchasers and mortgagee who are the intervenors in this case were found by the court to be in bad
faith. On the other hand, the Sanchezes were held to be in good faith and not negligent.

Issue 1: W/N rescission of the contract was barred by the subsequent transfer of the property

No. Under Article 1191 of the Civil Code, rescission is available to a party in a reciprocal obligation where
one party fails to comply with it. As an exception to this rule, Article 1385 provides that rescission shall
not take place if the subject matter of the prior agreement is already in the hands of a third party who did
not act in bad faith.

Here, the failure of Garcia/TSEI to pay the consideration for the sale of the property entitled the
Sanchezes to rescind the Agreement. And in view of the finding that the intervenors acted in bad faith in
purchasing the property from Garcia, the subsequent transfer in their favor did not and cannot bar
rescission.

G.R. No. 167519 January 14, 2015

THE WELLEX GROUP, INC., Petitioner,
vs.
U-LAND AIRLINES, CO., LTD., Respondent.
Ponenete: Leonen, J.

Facts:
Wellex and U-Land agreed to develop a long-term business relationship through the creation of joint
interest in airline operations and property development projects in the Philippines. The agreement includes: I.
Acquisition of APIC and PEC shares; II. Operation and management of APIC/PEC/APC; III. Entering into and funding a
joint development agreement; and IV. The option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK
("ESB") up to 40% of the outstanding capital stock of ESB of U-Land. The provisions of the memorandum were agreed
to be executed within 40 days from its execution date.

The 40-day period lapsed but Wellex and U-Land were not able to enter into any share purchase agreement
although drafts were exchanged between the two. However, Despite the absence of a share purchase agreement,
U-Land remitted to Wellex a total of US$7,499,945.00. Wellex acknowledged the receipt of these remittances in a
confirmation letter addressed to U-Land and allegedly delivered stock certificates and TCTs of subject properties.
Despite these transactions, Wellex and U-Land still failed to enter into the share purchase agreement and the joint
development agreement. Thus, U-Land filed a Complaint72 praying for rescission of the First Memorandum of
Agreement and damages against Wellex and for the issuance of a Writ of Preliminary Attachment. Note: After
verification with the Securities and Exchange Commission, U-Land discovered that "APIC did not own a single share
of stock in APC.

RTC: Ruled In favor of Uland and ordered rescission of contract under Art. 1911 of the civil code. Basis of rescission:
Wellexs misrepresentation that APIC was a majority shareholder of APC that compelled it to enter into the
agreement..
Notwithstanding the said remittances, APIC does not own a single share of APC. On the other hand, defendant
could not even satisfactorily substantiate its claim that at least it had the intention to cause the transfer of APC
shares to APIC. Defendant obviously did not enter into the stipulated SPA because it did not have the shares of APC
transferred to APIC despite its representations. Under the circumstances, it is clear that defendant fraudulently
violated the provisions of the MOA.

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court. Hence this petition.

Petitioners invokes Suria v. Intermediate Appellate Court, which held that an "action for rescission is not a
principal action that is retaliatory in character under Article 1191 of the Civil Code, but a subsidiary one which is
available only in the absence of any other legal remedy under Article 1384 of the Civil Code Respondent U-land avers
that this case was inapplicable because the pertinent provision in Suria was not Article 1191 but rescission under
Article 1383 of the Civil Code. The "rescission" referred to in Article 1191 referred to "resolution" of a contract due
to a breach of a mutual obligation, while Article 1384 spoke of "rescission" because of lesion and damage. Thus, the
rescission that is relevant to the present case is that of Article 1191, which involves breach in a reciprocal obligation.
It is, in fact, resolution, and not rescission as a result of fraud or lesion, as found in Articles 1381, 1383, and 1384 of
the Civil Code.
Issue: Whether or not respondent U-Land correctly sought the principal relief of rescission or resolution under Article
1191.

Held: Yes.
Respondent U-Land is praying for rescission or resolution under Article 1191, and not rescission under
Article 1381. The failure of one of the parties to comply with its reciprocal prestation allows the wronged party to
seek the remedy of Article 1191. The wronged party is entitled to rescission or resolution under Article 1191, and
even the payment of damages. It is a principal action precisely because it is a violation of the original reciprocal
prestation. Article 1381 and Article 1383, on the other hand, pertain to rescission where creditors or even third
persons not privy to the contract can file an action due to lesion or damage as a result of the contract. Rescission or
resolution under Article 1191, therefore, is a principal action that is immediately available to the party at the time
that the reciprocal prestation was breached. Article 1383 mandating that rescission be deemed a subsidiary action
cannot be applicable to rescission or resolution under Article 1191. Thus, respondent U-Land correctly sought the
principal relief of rescission or resolution under Article 1191.

The order is valid. Enforcement of Section 9 of the First Memorandum of Agreement has the same effect
as rescission or resolution under Article 1191 of the Civil Code. The parties are obligated to return to each other all
that they may have received as a result of the breach by petitioner Wellex of the reciprocal obligation. Therefore,
the Court of Appeals did not err in affirming the rescission granted by the trial court.

Contrary to petitioner Wellexs argument, this is not rescission under Article 1381 of the Civil Code. This
case does not involve prejudicial transactions affecting guardians, absentees, or fraud of creditors. Article 1381(3)
pertains in particular to a series of fraudulent actions on the part of the debtor who is in the process of transferring
or alienating property that can be used to satisfy the obligation of the debtor to the creditor. There is no allegation
of fraud for purposes of evading obligations to other creditors. The actions of the parties involving the terms of the
First Memorandum of Agreement do not fall under any of the enumerated contracts that may be subject of
rescission.

Further, respondent U-Land is pursuing rescission or resolution under Article 1191, which is a principal
action. Justice J.B.L. Reyes concurring opinion in the landmark case of Universal Food Corporation v. Court of
Appeals184 gave a definitive explanation on the principal character of resolution under Article 1191 and the
subsidiary nature of actions under Article 1381:
The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party
plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This
rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises
when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda."
Hence, the reparation of damages for the breach is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison detre as well as the measure of the right to
rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or
continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the
cases of rescission for lesin enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to
cases under Article 1191.

Rescission or resolution under Article 1191, therefore, is a principal action that is immediately available to
the party at the time that the reciprocal prestation was breached. Article 1383 mandating that rescission be deemed
a subsidiary action cannot be applicable to rescission or resolution under Article 1191. Thus, respondent U-Land
correctly sought the principal relief of rescission or resolution under Article 1191.

The obligations of the parties gave rise to reciprocal prestations, which arose from the same cause: the
desire of both parties to enter into a share purchase agreement that would allow both parties to expand their
respective airline operations in the Philippines and other neighboring countries.

Other Matters:
1. The MOA is ambiguous. The parties were never able to arrive at a specific period within which they would
bind themselves to enter into an agreement.
2. There was no express or implied novation of the First Memorandum of Agreement. There was no
incompatibility between the original terms of the First Memorandum of Agreement and the remittances made by
respondent U-Land for the shares of stock. These remittances were actually made with the view that both parties
would subsequently enter into a share purchase agreement. It is clear that there was no subsequent agreement
inconsistent with the provisions of the First Memorandum of Agreement. There being no novation of the First
Memorandum of Agreement, respondent U-Land is entitled to the return of the amount it remitted to petitioner
Wellex. Petitioner Wellex is likewise entitled to the return of the certificates of shares of stock and titles of land it
delivered to respondent U-Land.
3. Applying Article 1185 of the Civil Code, the parties are obligated to return to each other all they have
received. petitioner Wellex is obligated to return the remittances made by respondent U-Land, in the same way that
respondent U-Land is obligated to return the certificates of shares of stock and the land titles to petitioner Wellex.
4. The jurisprudence relied upon by petitioner Wellex is not applicable.
5. Petitioner Wellex was not guilty of fraud but of violating Article 1159 of the Civil Code. The absence of fraud
in a transaction does not mean that rescission under Article 1191 is not proper. This case is not an action to declare
the First Memorandum of Agreement null and void due to fraud at the inception of the contract or dolo causante.
This case is not an action for fraud based on Article 1381 of the Civil Code. Rescission or resolution under Article
1191 is predicated on the failure of one of the parties in a reciprocal obligation to fulfill the prestation as required
by that obligation. It is not based on vitiation of consent through fraudulent misrepresentations.
6. Respondent U-Land was not bound to pay the US$3 million under the joint development agreement.
7. Respondent U-Land was not obligated to exhaust the "securities" given by petitioner Wellex
Provisions:
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 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.
Articles 1380 and 1381, on the other hand, provide an enumeration of rescissible contracts: ART. 1380. Contracts
validly agreed upon may be rescinded in the cases established by law. ART. 1381. The following contracts are
rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
 Article 1383 expressly provides for the subsidiary nature of rescission:
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.

Rescission itself, however, is defined by Article 1385:

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.

For Article 1191 to be applicable, however, there must be reciprocal prestations as distinguished from
mutual obligations between or among the parties. A prestation is the object of an obligation, and it is the conduct
required by the parties to do or not to do, or to give.177 Parties may be mutually obligated to each other, but the
prestations of these obligations are not necessarily reciprocal. The reciprocal prestations must necessarily emanate
from the same cause that gave rise to the existence of the contract. This distinction is best illustrated by an
established authority in civil law, the late Arturo Tolentino:
This article applies only to reciprocal obligations. It has no application to every case where two persons are mutually
debtor and creditor of each other. There must be reciprocity between them. Both relations must arise from the same
cause, such that one obligation is correlative to the other. Thus, a person may be the debtor of another by reason
of an agency, and his creditor by reason of a loan. They are mutually obligated, but the obligations are not reciprocal.
Reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time.

Note: Wellex is a corporation established under Philippine law and it maintains airline operations in the Philippines.
It owns shares of stock in several corporations including Air Philippines International Corporation (APIC), Philippine
Estates Corporation (PEC), and Express Savings Bank (ESB). Wellex alleges that it owns all shares of stock of Air
Philippines Corporation (APC).

U-Land Airlines Co. Ltd. (U-Land) "is a corporation duly organized and existing under the laws of Taiwan, registered
to do business . . . in the Philippines." It is engaged in the business of air transportation in Taiwan and in other Asian
countries.

Note: This case distinguished rescission under Art. 1191-resolution and rescission under Art. 1381, 1383 and 1384.

When a party seeks the relief of rescission as provided in Article 1381, there is no need for reciprocal prestations to
exist between or among the parties. All that is required is that the contract should be among those enumerated in
Article 1381 for the contract to be considered rescissible. Unlike Article 1191, rescission under Article 1381 must be
a subsidiary action because of Article 1383.

Rescission or resolution under Article 1191 is a principal action that is immediately available to the party at the time
that the reciprocal prestation was breached. Mutual restitution is required in cases involving rescission under Article
1191. This means bringing the parties back to their original status prior to the inception of the contract. Determining
the existence of fraud is not necessary in an action for rescission or resolution under Article 1191. The existence of
fraud must be established if the rescission prayed for is the rescission under Article 1381.
Woodhouse v Halili

FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant Halili
stating among others that: 1) that they shall organize a partnership for the bottling and distribution of
Missionsoft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist,
furnishing the capital necessary therefore; 2) that plaintiff was to secure the Mission Soft Drinks
franchise for and in behalf of the proposed partnership and 3) that the plaintiff was to receive 30 per
cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles,
California, that he had interested a prominent financier (defendant herein) in the business, who was
willing to invest half a milliondollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred to the corporation.
Pursuant to this request, plaintiff was given a thirty days option on exclusive bottling and distribution
rights for the Philippines. The contract was finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership
papers be executed. Defendant Halili gave excuses and would not execute said agreement, thus the
complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and 3)share
thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the other hand
claims that: 1) the defendants consent to the agreement, was secured by the representation of plaintiff
that he was the owner, or was about to become owner of an exclusive bottling franchise, which
representation was false, and that plaintiff did not secure the franchise but was given to defendant
himself 2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed
and 3)that plaintiff agreed to contribute to the exclusive franchise to the partnership, but plaintiff failed
to do so with a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution
of contract cannot be enforced upon parties. Lastly, the 3) fraud wasnt proved

ISSUES

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership

HELD

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission Dry
Corporation asking for the latter to grant him temporary franchise so that he could settle the agreement
with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement to secure the Mission Dry franchise for and in behalf of the proposed
partnership. The existence of this provision in the final agreement does not militate against plaintiff
having represented that he had the exclusive franchise; it rather strengthens belief that he did actually
make the representation. The defendant believed, or was made to believe, that plaintiff was the grantee
of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred
to the name of the partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiffs participation in the net profits to
one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him
believe that he(plaintiff) was the exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the
causal fraud, which may be ground for the annulment of a contract, and the incidental deceit, which
only renders the party who employs it liable for damages only. The Supreme Court has held that in order
that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the main
cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership.
The original draft prepared by defendants counsel was to the effect that plaintiff obligated himself to
secure a franchise for the defendant. But if plaintiff was guilty of a false representation, this was not the
causal consideration, or the principal inducement, that led plaintiff to enter into the partnership
agreement. On the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net
profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits
because he was transferring his exclusive franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the agreement
be carried out or executed? The SC finds no merit in the claim of plaintiff that the partnership was
already a fait accompli from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution of the agreement to form a
partnership was to be carried out at a later date. , The defendant may not be compelled against his will
to carry out the agreement nor execute the partnership papers. The law recognizes the individuals
freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.

Dispostive Postion: With modification above indicated, the judgment appealed from is hereby affirmed.

LYDIA L. GERALDEZ(petitioner) vs. HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION,
(respondents)

Facts: An action for damages by reason of contractual breach was filed by petitioner against private
respondent Kenstar Travel Corporation, RTC of Quezon City, Branch 80 and likewise moved for the
issuance of a writ of preliminary attachment against private respondent on the ground that it committed
fraud in contracting an obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court. After
the parties failed to arrive at an amicable settlement, trial on the merits ensued. Petitioner, Geraldez
came to know about private respondent from advertisements in newspapers regarding tours in Europe.
She paid the total equivalent of the trip amounting to P190,000.00 for the Volare 3 tour program as
charged by private respondent. However, Geraldez during the tour was very uneasy and disappointed.
The petitioner contend that there is no substantial compliance with such representation in the brochure
on the following: First, not providing the members of the tour group with a European tour manager
whose duty was to explain the points of interest of and familiarize the tour group with the places they
would visit in Europe. Second, assigning Rowena Zapanta a first timer tour guide to perform that role
which definitely requires being experienced and knowledgeable of such places. Third, the hotels were
not first-class that is supposed to be equipped with basic facilities and were at a distance from the cities
covered by the projected tour. Lastly, they were not able to visit the UGC leather factory as one of the
highlights of the tour.

Issue: W/N the private respondent acted in bad faith or with gross negligence in discharging its
obligations under the contract

Held: Yes. When they authorized an inexperienced and a first timer to be a tour escort, private
respondent manifested its indifference to the convenience, satisfaction and peace of mind of its clients
during the trip despite its express commitment to provide such facilities under the Volare 3 Tour
Program which had the grandiose slogan Let your heart sing. This incompetence must necessarily be
traced to the lack of due diligence on the part of private respondent in the selection of its employees. It
is true that among the thirty-two destinations, which included twenty-three cities and special visits to
nine tourist spots, this was the only place that was not visited. Clearly, therefore, private respondents
choice of Zapanta as the tour guide is a manifest disregard of its specific assurances to the tour group,
resulting in agitation and anxiety on their part, and which deliberate omission is contrary to the
elementary rules of good faith and fair play. It is extremely doubtful if any group of Filipino tourists
would knowingly agree to be used in effect as guinea pigs in an employees training program of a travel
agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles and
languages.

In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary to its representations, it employed
an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its
promise of a European tour manager and the visit to the leather factory, it is indubitably liable for
damages to petitioner. The effects of dolo causante are the nullity of the contract and the
indemnification of damages, 63 and dolo incidente also obliges the person employing it to pay damages.

Wherefore, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L. Geraldez
the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and P20,000.00
as and for attorneys fees, with costs against private respondent.