ALTERNATIVE OBLIGATION

Felipe Agoncillo vs. Crisanto Javier

G.R. No. L-12611, August 7, 1918
38 Phil 124
Fisher, J.

FACTS:

On February 27 1904, Anastasio Alano, Jlose Alano and Florencio

Alano executed in favor of the plaintiff, Dra. Marcela Marino a document
stipulating that the Alanos as testamentary heirs of deceased Rev.
Anastacio Cruz, would pay the sum of P2, 730.50 within one (1) year with
interest of 12 percent per annum representing the amount of debt incurred
by Cruz. Moreover, the agreement provided that the Alanos are to convey
the house and lot bequeathed to them by Cruz in the event of failure to pay
the debt in money at its maturity.

No part of interest or principal due has been paid except the sum of
P200 paid in 1908 by Anastacio Alano. In 1912, Anastasio died intestate.
On August 8, 1914, CFI of Batangas appointed Crisanto Javier as
administrator of Anastasio’s estate. On March 17, 1916, the plaintiffs filed
the complaint against Florencio, Jose and Crisanto praying that unless
defendants pay the debt for the recovery of which the action was brought,
they be required to convey to plaintiffs the house and lot described in the
agreement, that the property be appraised and if its value is found to be
less than the amount of the debt, with accrued interest at the stipulation
rate, judgment be rendered in favor of the plaintiffs for the balance.

ISSUE:
The issue is whether or not the agreement that the defendant-
appellant, at the maturity of the debt, will pay the sum of the money lent by
the appellees or will transfer the rights to the ownership and possession of
the house and lot bequeathed to the former by the testator in favor of the
appellees, is valid.

HELD:
This stipulation is valid because it is simply an alternative
obligation, which is expressly allowed by law. The agreement to convey the
house and lot on an appraised value in the event of failure to pay the debt
in money at its maturity is valid. It is simply an undertaking that if debt is not
paid in money, it will be paid in another way. The agreement is not open to
the objection that the agreement is pacto comisorio. It is not an attempt to
permit the creditor to declare the forfeiture of the security upon the failure of
the debtor to pay at its maturity. It is simply provided that if the debt is not
paid in money, it shall be paid by the transfer of the property at a valuation.
Such an agreement unrecorded, creates no right in rem, but as between
the parties, it is perfectly valid and specific performance by its terms may
be enforced unless prevented by the creation of superior rights in favor of
third persons.

The contract is not susceptible of the interpretation that the title to

the house and lot in question was to be transferred to the creditor ipso facto
upon the mere failure of the debtors to pay the debt at its maturity. The
obligations assumed by the debtors were in the alternative, and they had
the right to elect which they would perform. The conduct of parties shows
that it was not their understanding that the right to discharge the obligation
by the payment of the money was lost to the debtors by their failure to pay
the debt at its maturity. The plaintiff accepted the payment from Anastacio
in 1908, several years after the debt matured.

It is quite clear therefore that under the terms of the contract, and
the parties themselves have interpreted it, the liability of the defendant as
to the conveyance of the house and lot is subsidiary and conditional, being
dependent upon their failure to pay the debt in money. It must follow
therefore that if the action to recover the debt was prescribed, the action to
compel a conveyance of the house and lot is likewise barred, as the
agreement to make such conveyance was not an independent principal
undertaking, but merely a subsidiary alternative pact relating to the method
by which the debt must be paid.

Ong Guan Can vs. The Century Insurance Company, Ltd.

G.R. No. 21196, February 6, 1924
46 Phil 592
Johnson, J.

FACTS:

A building of the plaintiff was insured against fire by the defendant in

the sum of P30,000.00 as well as the goods and merchandise therein
contained in the sum of P15,000.00. The house and merchandise insured
were burnt early in the morning of February 28, 1923 while the policies
issued by the defendant in favor of the plaintiff were in force.
The appellants contend that under clause 14 of the conditions of the
policies, it amay rebuild the house burnt and although the house may be
smaller, yet it would be sufficient indemnity to the insured for the actual loss
suffered by him.

ISSUE:

Whether or not the defendant company may perform the alternative

obligation despite the fact that the plaintiff’s consent was not secured.

HELD:

It must be noted that in alternative obligations, the debtor, the

insurance company in this case, must notify the creditor of his election,
stating which of the two prestations he is disposed to fulfill, in accordance
with the law. The object of this notice is to five the creditor, that is , the
plaintiff in the instant case, opportunity to expr3ss his consent. The record
shows that the appellant company did not give a formal notice of its
selection to rebuild and while the witnesses speaks of the propped
reconstruction of the house destroyed, yet the plaintiff id d not give his
assent to the proposition, for the reason that the new house would be
smaller and of materials of lower kind than those employed in the
construction of the house destroyed.

LEGARDA VS MIAILHE
GR No. L-3435 April 28, 1951
Bautista Angelo, J.

FACTS:
 On June 3, 1944, plaintiffs filed a complaint against the original
defendant William J.B. Burke, alleging defendant’s unjustified refusal to
accept payment in discharge of a mortgage indebtedness in his favor, and
praying that the latter be order (1) to receive the sum of P75,920.83; (2) to
execute the corresponding deed of release of mortgage, and; (3) to pay
damages in the sum of P1,000. The Court then decided in favor of plaintiff
Legarda. After the war and the subsequent defeat of the Japanese
occupants, defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to deposit
worthless Japanese military notes when they originally agreed that the
interest was to be condoned until after the occupation and that payment
was rendered either in Philippine or English currency. Defendant was later
substituted upon death by his heir Miailhe and the Courts judged in
defendant’s favor. Plaintiff now assails said decision.

ISSUE:

Is the tender of payment by plaintiff valid?

RULING:

On February 17, 1943, the only currency available was the Philippine
currency, or the Japanese Military notes, because all other currencies,
including the English, were outlawed by a proclamation issued by the
Japanese Imperial Commander on January 3, 1942. The right to election
ceased to exist on the date of plaintiff’s payment because it had become
legally impossible. And this is so because in alternative obligations there is
no right to choose undertakings that are impossible or illegal. In other
words, the obligation on the part of the debtor to pay the mortgage
indebtedness has since then ceased to be alternative. It appears therefore,
that the tender of payment in Japanese Military notes was a valid tender
because it was the only currency permissible at the time and its payment
was tantamount to payment in Philippine currency.

However, payment with the clerk of court did not have any legal
effect because it was made in certified check, and a check does not meet
the requirements of legal tender. Therefore, her consignation did not have
the effect of relieving her from her obligation of the defendant.
 COMMISSION ON ELECTIONS petitioner, vs. JUDGE MA.
LUISA QUIJANO-PADILLA respondents.
389 SCRA 353

FACTS:

The Philippine Congress passed Republic Act No. 8189, otherwise known
as the "Voter's Registration Act of 1996," providing for the modernization
and computerization of the voters' registration list and the appropriate of
funds therefor "in order to establish a clean, complete, permanent and
updated list of voters."
The COMELEC issued invitations to pre-qualify and bid for the supply and
installations of information technology equipment and ancillary services for
its VRIS Project. Private respondent Photokina Marketing Corporation
(PHOTOKINA) won the bid however the budget appropriated by the
Congress for the COMELEC’s modernization project was only 1B which
was not sufficient to PHOTOKINA bid in the amount of 6.588B.
Senator Edgardo J. Angara directed the creation of a technical working
group to “assist the COMELEC in evaluating all programs for the
modernization of the COMELEC which will also consider the PHOTOKINA
contract as an alternative program and various competing programs for the
purpose.”
PHOTOKINA filed a petition for mandamus, prohibition and damages (with
prayer for temporary restraining order, preliminary prohibitory injunction and
preliminary mandatory injunction) against the COMELEC and all its
Commissioners.
Judge Luisa Quijano-Padilla rendered her decision in favor of
PHOTOKINA.

ISSUE:

May a successful bidder compel a government agency to formalize a

contract with it notwithstanding that its bid exceeds the amount
appropriated by Congress for the project?

RULING:
 The SC cannot accede to PHOTOKINA's contention that there is
already a perfected contract. While we held in Metropolitan Manila
Development Authority vs. Jancom Environmental Corporation[50] that
"the effect of an unqualified acceptance of the offer or proposal of the
bidder is to perfect a contract, upon notice of the award to the bidder,"
however, such statement would be inconsequential in a government where
the acceptance referred to is yet to meet certain conditions. To hold
otherwise is to allow a public officer to execute a binding contract that
would obligate the government in an amount in excess of the
appropriations for the purpose for which the contract was attempted to be
made.
In the case at bar, there seems to be an oversight of the legal requirements
as early as the bidding stage. The first step of a Bids and Awards
Committee (BAC) is to determine whether the bids comply with the
requirements. The BAC shall rate a bid "passed" only if it complies with all
the requirements and the submitted price does not exceed the approved
budget for the contract.”
The SC ruled that PHOTOKINA, though the winning bidder, cannot compel
the COMELEC to formalize the contract. Since PHOTOKINA’s bid is
beyond the amount appropriated by Congress for the VRIS Project, the
proposed contract is not binding upon the COMELEC and is considered
void; and that in issuing the questioned preliminary writs of mandatory and
prohibitory injunction and in not dismissing Special Civil Action No. Q-01-
45405, respondent judge acted with grave abuse of discretion. Petitioners
cannot be compelled by a writ of mandamus to discharge a duty
that involves the exercise of judgment and discretion, especially where
disbursement of public funds is concerned.

SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND

FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE
CORPORATION
G.R. No. 139523 2005 May 26

FACTS:

Respondents-spouses Gil and Fernandina Galang obtained a

loan from Fortune Savings & Loan Association for P173,800.00 to purchase
a house and lot located at Pulang Lupa, Las Piñas, in the names of
respondents-spouses. To secure payment, a real estate mortgage was
constituted on the said house and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan Association for
P173,800.00. Petitioner Leticia Cannu agreed to buy the property for
P120,000.00 and to assume the balance of the mortgage obligations with
the NHMFC and with CERF Realty (the Developer of the property).

A Deed of Sale with Assumption of Mortgage Obligation dated

20 August 1990 was made and entered into by and between spouses
Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot and petitioners immediately took
possession and occupied the house and lot. However, despite requests
from Adelina R. Timbang and Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the property in question,
petitioners refused to do so. Because the Cannus failed to fully comply with
their obligations, respondent Fernandina Galang, on 21 May 1993, paid
P233,957.64 as full payment of her remaining mortgage loan with NHMFC.

From 1991 until the present, no other payments were made by

plaintiffs-appellants to defendants-appellees spouses Galang. Out of the
P250,000.00 purchase price which was supposed to be paid on the day of
the execution of contract in July, 1990 plaintiffs-appellants have paid, in the
span of eight (8) years, from 1990 to present, the amount of only
P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8) years have already
lapsed and plaintiffs-appellants have not yet complied with their obligation.

ISSUE:

Whether or not the action for rescission was subsidiary, and

that there was a substantial breach of the obligation.

RULING:

Rescission or, more accurately, resolution, of a party to an

obligation under Article 1191 is predicated on a breach of faith by the other
party that violates the reciprocity between them. Art. 1191 states 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. 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.

Rescission will not be permitted for a slight or casual breach of the

contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in making
the agreement. The question of whether a breach of contract is substantial
depends upon the attending circumstances and not merely on the
percentage of the amount not paid.Thus, the petitioners’ failure to pay the
remaining balance of P45,000.00 is substantial. Even assuming arguendo
that only said amount was left out of the supposed consideration of
P250,000.00, or eighteen percent thereof, this percentage is still
substantial. Their failure to fulfill their obligation gave the respondents-
spouses Galang the right to rescission.