guilty of fraud, negligence, or delay, and
Song Fo & Company vs Hawaiian
Philippine Co.
G.R. No. 23769 – September 16, 1925
FACTS:
Hawaiian-Philippine Co (HPC) entered
into a contract with Song Fo and Co
(SFC) where it would deliver molasses
to the latter evidenced by a letter
containing their contract. The same
states that Mr. Song Fo agreed to the
delivery of 300,000 gallons of molasses
and the same requested for an
additional 100,000 molasses which the
HPC promised that it will do its best to
comply with the additional shipment.
However, the HPC was only able to
deliver 55,006 gallons. SFC thereafter
filed a complaint with two causes of
action for breach of contract against the
HPC and asked for P70,369.50. HPC
answered that there was a delay in the
payment from
SFC and that HPC has the right to
rescind the contract because of the
same· The trial court condemned HPC
to pay SFC a total of P35,317.93, with
legal interest.
ISSUES:
1. Whether or not SFC is entitled to
damages
2. Whether or not HPC has a right to
rescind the contract?
RULING:
As to the first question, yes, SFC is
entitled to damages. Article 1170 of the
Civil Code provides “Those who in the
performance of their obligations are
1 Reciprocal Obligations
those who in any manner contravene
the tenor thereof, are liable for
damages”
The failure of HPC to deliver the rest of
the molasses constitutes a breach of
contract by contravention of tenor and is
thus liable for damages. The bases for
damages is the cost in excess of the
agreed price in the contract when SFC
was made to acquire the needed
molasses from another supplier and the
expenses related to the transportation of
the same. Loss of profits would have
been included as part of damages had
SFC been able to substantiate such a
claim.
As to the second question, no, HPC has
no right to rescind the contract.
The court provided that 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.
It should be noted that the time of
payment stipulated for in the contract
should be treated as of the essence of
the contract. There was only a slight
breach of contract when the payment
was delayed for 20 days and does not
violate essential condition of the
contract which warrants rescission for
non-performance. Furthermore, HPC
accepted the payment of the overdue
accounts and continued with the
contract, waiving its right to rescind the
same.
Petition of partly granted, and the
judgment appealed is modified. Plaintiff
shall have and recover from the
defendant the sum of P3,000, with legal
interest from date of judgment, no
special costs.
lightweight championship of the world.
Thereafter, Interphil (D) signed Gabriel
"Flash" Elorde to a similar agreement—
that is, to engage Boysaw in a title fight.

Boysaw vs. Interphil Promotions The managerial rights over Boysaw (P)
Boxer (P) vs. Promoter (D)
was assigned and eventually reassigned
 GR L-22590 [T to Alfredo Yulo, Jr. (P) without the
consent of Interphil (D) in violation of
their contract. When informed of the
Summary: A boxer signed an
change, Interphil (D) referred the matter
agreement with a promotions agency to
to the Games and Amusement Board
arrange and promote a boxing match
culminating to a decision by the board to
with Flash Elorde. The boxer violated
approve a new date for the match. Yulo
the terms of the contract, but in spite of
(P) protested against the new date even
these, the agency proceeded except it
when another proposed date was within
negotiated for a new date for the match.
the 30-day allowable postponements.
Eventually, the match as originally
stated in the contract did not materialize.
Boysaw (P) and Yulo (P) filed for breach
Boxer and manager is now suing the
of contract when the fight contemplated
promotion agency for breach of contract.
in the original boxing contract did not
materialize.
Rule of Law: Where one party did not
perform the undertaking which he was
Issues: May the offending party in a
bound by the terms of the agreement to
reciprocal obligation compel the other
perform, he is not entitled to insist upon
party for specific performance?
the performance of the contract by the
other party, or recover damages by
Ruling: No. Evidence established that
reason of his own breach.
the contract was violated by Boysaw (P)
when, without the approval or consent of
Facts: Solomon Boysaw (P), signed
Interphil (D), he fought a boxing match
with Interphil Promotions, Inc. (D), a
in Las Vegas. Another violation was the
contract to engage Gabriel "Flash"
assignment and transfer of the
Elorde in a boxing contest for the junior

2 Reciprocal Obligations
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.
3 Reciprocal Obligations
   —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
December 1964, 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
4 Reciprocal Obligations
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.
GR ## GR No. 47206
Petitioners: Gloria M. De Erquiaga
(administratrix), Santiago De Erquiage
(deceased), and Hon. Feliciano S.
Gonzalez
Respondents: Hon. Court of Appeals,
Africa Valdez Vda de Reynoso, Jose V.
Reynoso, Jr., Ernesto Reynoso,
Benedict Reynoso, Sylvia Reynoso,
5 Reciprocal Obligations
Lourdes Reynoso, Cecile Reynoso,
Edna Reynoso, Erlinda Reynoso, and
Emily Reynoso
Date September 27, 1989
Grino-Aquino
DOCTRINE Pursuant to the rescission
decreed in the final judgment, there
should be simultaneous mutual
restitution of the principal object of the
contract to sell and of the consideration
paid.
(SHORT VERSION)
Petitioner Erquiaga sold his shares in
Erquiaga Development Corporation to
Respondent Reynoso. Reynoso failed to
pay the full amount when it was due.
Erquiaga moved for rescission of the
sale and the courts granted it but
Erquiaga needs to return the payments
already made by Reynoso in their
supposed sale.
FACTS
Petitioner Santiago De Erquiaga entered
into an agreement with Respondent
Jose L. Reynoso to sell to the latter his
3,100 shares of Erquiaga Development
Corporation for P900,000 payable in
installments but not later than November
30, 1968 (which was eventually moved
to December 17, 1969). In accordance
to their contract, Reynoso pledges 1,500
of the 3,100 shares in favor of Erquiaga
as security balance of his obligation. On
December 17, 1969, Reynoso failed to
pay the balance of P561,321.70.
Erquiaga, through counsel, formally
informed Reynoso that he was
rescinding the sale of his shares in the
Erquiaga Development Corporation.
CA ruled in favor or Erquiaga, thus
ordering the following among others:
(1) The return of 3,100 shares to
Erquiaga
(2) Reynoso should make an accounting
of the fruits of the said 3,100 and to
return such fruits.
(3) Erquiaga to return the payment
made by Reynoso for the said shares
In accordance to this, Reynoso returned
1,500 of the shared which he previously
pledge in favor of Erguiaga.
The petitioners alleges that the order of
the court that Erquiaga needs to return
the payment made by Reynoso is
inequitous
Pursuant to the rescission decreed in
the final judgment, there should be
simultaneous mutual restitution of the
principal object of the contract to sell
and of the consideration paid.
DECISION
Petition granted.
NOTE
The actual petition is about how much
should be returned. Erquiaga wants to
compute it vis-à-vis the fruits that should
be accounted for.

ISSUES/HELD

(1) WoN Erquiaga needs to return the

said amount paid by Reynoso in
accordance to their contract - YES

RATIO

(1) The order of the respondent court

directing Erquiaga to return the price
paid by Reynoso for the shares of stick
is in full accord with Art 1385 of the Civil
Code which provides: “Rescission
creates the obligation to return the
things which were the object of the
contract, together with their fruits, and
the price with its interest; consequently,
it can be carried out only when he who
demands rescission can return whatever
he may be obliged to restore. Neither
shall rescission take place when the
things which are the object of the
contract are legally in the possession of
third persons who did not act in bad
faith. In this case, indemnity for
damages may be demanded from the
person causing the loss.”

6 Reciprocal Obligations