Metropolitan Bank v.
Rosales we find that petitioner is guilty of breach of contract when it unjustifiably
GR 183204 Jan 13/2014
G.R. No.183204 | Jan 13, 2014 | J. Del Castillo | Source of Obligations
Digest by: Ante
Petitioners: THE METROPOLITAN BANK AND TRUST COMPANY
Respondents: ANA GRACE ROSALES AND YO YUK TO
Facts:
Recit-ready Digest + Doctrine: In 2000, respondents opened a Joint Peso
Account with petitioner’s Pritil-Tondo Branch. As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of ₱2,515,693.52.
Respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a
savings account, as required by the PLRA. Since Liu Chiu Fang could speak
only in Mandarin, respondent Rosales acted as an interpreter for her. On
March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a
Joint Dollar Account with an initial deposit of US$14,000.00. On July 31, 2003,
petitioner issued a "Hold Out" order against respondents’ accounts. On
September 3, 2003, petitioner, through its Special Audit Department Head
Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a
criminal case for Estafa through False Pretences, Misrepresentation, Deceit,
and Use of Falsified Documents, docketed as I.S. No. 03I-25014,against
respondent Rosales. On December 15, 2003, the Office of the City Prosecutor
of Manila issued a Resolution dismissing the criminal case for lack of probable
cause. Respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint for Breach of Obligation and Contract with Damages, docketed as
Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their
deposits but were unable to because petitioner had placed their accounts
under "Hold Out" status.No explanation, however, was given by petitioner as
to why it issued the "Hold Out" order. Thus, they prayed that the "Hold Out"
order be lifted and that they be allowed to withdraw their deposits. They
likewise prayed for actual, moral, and exemplary damages, as well as
attorney’s fees. SC: The "Hold Out" clause applies only if there is a valid
and existing obligation arising from any of the sources of obligation
enumerated in Article 1157 of the Civil Code, to wit: law, contracts,
quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law, contract,
quasi-contract, delict, or quasi-delict. And although a criminal case was
filed by petitioner against respondent Rosales, this is not enough reason
for petitioner to issue a "Hold Out" order as the case is still pending and
no final judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time petitioner issued the
"Hold Out" order, the criminal complaint had not yet been filed. Thus,
considering that respondent Rosales is not liable under any of the five sources
of obligation, there was no legal basis for petitioner to issue the "Hold Out"
order. Accordingly, we agree with the findings of the RTC and the CA that the
"Hold Out" clause does not apply in the instant case. In view of the foregoing,
refused to release respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.
Doctrine: BOLD PORTION
● Metropolitan Bank and Trust Company is a domestic banking
corporation duly organized and existing under the laws of the
Philippines. Respondent Ana Grace Rosales (Rosales) is the owner of
China Golden Bridge Travel Services, a travel agency. Respondent Yo
Yuk To is the mother of respondent Rosales.
● In 2000, respondents opened a Joint Peso Account with petitioner’s
Pritil-Tondo Branch. As of August 4, 2004, respondents’ Joint Peso
Account showed a balance of ₱2,515,693.52.
● Respondent Rosales accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retiree’s visa from the Philippine
Leisure and Retirement Authority (PLRA), to petitioner’s branch in
Escolta to open a savings account, as required by the PLRA. Since Liu
Chiu Fang could speak only in Mandarin, respondent Rosales acted as
an interpreter for her.
● On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo
Branch a Joint Dollar Account with an initial deposit of US$14,000.00.
● On July 31, 2003, petitioner issued a "Hold Out" order against
respondents’ accounts.
● On September 3, 2003, petitioner, through its Special Audit Department
Head Antonio Ivan Aguirre, filed before the Office of the Prosecutor of
Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed
as I.S. No. 03I-25014,against respondent Rosales. Petitioner accused
respondent Rosales and an unidentified woman as the ones responsible
for the unauthorized and fraudulent withdrawal of US$75,000.00 from
Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.
● That in the afternoon of the same day, respondent Rosales went to
petitioner’s Escolta Branch to inform its Branch Head, Celia A. Gutierrez
(Gutierrez), that Liu Chiu Fang was going to withdraw her dollar
deposits in cash; that Gutierrez told respondent Rosales to come back
the following day because the bank did not have enough dollars; that on
February 6, 2003, respondent Rosales accompanied an unidentified
impostor of Liu Chiu Fang to the bank; that the impostor was able to
withdraw Liu Chiu Fang’s dollar deposit in the amount of US$75,000.00;
that on March 3, 2003, respondents opened a dollar account with
petitioner; and that the bank later discovered that the serial numbers of
Page 1 of 74
 the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.
● Respondent Rosales denied this and further claimed that after Liu Chiu
Fang opened an account with petitioner, she lost track of her.
● On December 15, 2003, the Office of the City Prosecutor of Manila
issued a Resolution dismissing the criminal case for lack of probable
cause.
● respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint for Breach of Obligation and Contract with Damages,
docketed as Civil Case No. 04110895 and raffled to Branch 21, against
petitioner. Respondents alleged that they attempted several times to
withdraw their deposits but were unable to because petitioner had
placed their accounts under "Hold Out" status.No explanation, however,
was given by petitioner as to why it issued the "Hold Out" order. Thus,
they prayed that the "Hold Out" order be lifted and that they be allowed
to withdraw their deposits. They likewise prayed for actual, moral, and
exemplary damages, as well as attorney’s fees.
● While the case for breach of contract was being tried, the City
Prosecutor of Manila issued a Resolution dated February 18, 2005,
reversing the dismissal of the criminal complaint. An Information,
docketed as Criminal Case No. 05-236103, was then filed charging
respondent Rosales with Estafa
contract, delict, or quasi-delict. And although a criminal case was filed
by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and no
final judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time petitioner issued
the "Hold Out" order, the criminal complaint had not yet been filed.
Thus, considering that respondent Rosales is not liable under any of the
five sources of obligation, there was no legal basis for petitioner to issue
the "Hold Out" order. Accordingly, we agree with the findings of the RTC
and the CA that the "Hold Out" clause does not apply in the instant
case.
● In view of the foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit
despite demand. Having breached its contract with respondents,
petitioner is liable for damages.
Dispositive:
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008
Decision and the May 30, 2008 Resolution of the Court of Appeals in CA-
G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.

● RTC ruled that it is the duty of petitioner to release the deposit to

respondents as the act of withdrawal of a bank deposit is an act of
demand by the creditor, which CA affirmed

Issue/s:
● W/N there is breach of contract by Metrobank in the instant case. YES

Ratio:
● Petitioner claims that it did not breach its contract with respondents
because it has a valid reason for issuing the "Hold Out" order. Petitioner
anchors its right to withhold respondents’ deposits on the Application
and Agreement for Deposit Account, which reads:

The Bank may, at any time in its discretion and with or without notice to
all of the Depositors, assert a lien on any balance of the Account and
apply all or any part thereof against any indebtedness, matured or
unmatured, that may then be owing to the Bank by any or all of the
Depositors.

● The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in
Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts,
delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-

Page 2 of 74

PEZA v. Pilhino Sales Corp
G.R. No. 185765 | 9/26/2016 | Leonen, J. | Rescission/Liquidated Damages
Digest by: NAME OF DIGESTER
Petitioners: PHILIPPINE ECONOMIC ZONE AUTHORITY
Respondents: PILHINO SALES CORPORATION
Recit-ready Digest + Doctrine:
See BOLD portion of Ratio.
Facts:
● On October 4, 1997, the PEZA published an invitation to bid for its
acquisition of two brand new fire truck units.
● 3 companies participated in the bidding:
○ Starbilt Enterprise, Inc.,
○ Shurway Industries, Inc., and
○ Pilhino.
● Pilhino secured the contract for the acquisition of the fire trucks.
● The contract awarded to Pilhino stipulated that it was to deliver to the
PEZA two FF3HP brand fire trucks within 45 days of receipt of a
purchase order from the PEZA.
● A further stipulation stated that:
○ “in case of failure to deliver the . . . good on the date specified .
. . , the Supplier agrees to pay penalty at the rate of 1/10 of 1%
of the total contract price for each day commencing on the first
day after the date stipulated above.”
● Pilhino failed to deliver the trucks as it had committed.
● As Pilhino still failed to comply despite repeated demands, the PEZA
filed before the RTC a Complaint for rescission of contract and
damages.
● RTC: ruled for the PEZA.
● CA: partly granted Pilhino’s appeal by deleting the forfeiture of Pilhino’s
performance bond and pegging the liquidated damages due from it to
the PEZA in the amount of P1,400,000.00.
● The PEZA moved for reconsideration, but it was denied by the CA.
● Petitioner PEZA asks for the reinstatement of the RTC’s award
asserting that it already suffered damage when respondent Pilhino
Sales Corporation failed to deliver the trucks on time:
○ That the contractually stipulated penalty of 1/10 of 1% of the
contract price for every day of delay was neither unreasonable
nor contrary to law, morals, or public order
○ That the stipulation on liquidated damages was freely entered
into by it and respondent; and that the CA’s computation had
no basis in fact and law.
● Respondent Pilhino suggests that with the rescission of its contract with
PEZA must have come to the negation of the contractual stipulation on
liquidated damages, and hence the obliteration of its liability for such
liquidated damages.
Issue/s:
W/N an award based on contractually stipulated liquidated damages is proper
notwithstanding the rescission of the same contract stipulating it. – YES.
Ratio:
● Although the provisions of a contract are legally null and void, the
stipulated method of computing liquidated damages may be accepted
as evidence of the intent of the parties.
● The provisions, therefore, can be basis for finding a factual anchor for
liquidated damages. The liable party may nevertheless present better
evidence to establish a more accurate basis for awarding damages. In
this case, the respondent failed to do so.
● Respondent’s intimation that with the rescission of a contract
necessarily and inexorably follows the obliteration of liability for what the
same contracts stipulates as liquidated damages is entirely misplaced.
● A contract of sale, such as that entered into by petitioner and
respondent, entails reciprocal obligations.
● Spouses Velarde v. CA,
○ “[i]n a contract of sale, the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer to
pay therefor a price certain in money or its equivalent.”
● Rescission on account of breach of reciprocal obligations is provided for
in Article 1191 of the Civil Code:
○ Article 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.
● Spouses Velarde vs. CA
○ Considering that the rescission of the contract is based on
Article 1191 of the Civil Code, mutual restitution is required to
bring back the parties to their original situation prior to the
inception of the contract.
○ Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments . . . should be returned by
Page 3 of 74
 private respondents, lest the latter unjustly enrich themselves
at the expense of the former.
● Rescission creates the obligation to return the object of the contract. It
can be carried out only when the one who demands rescission can
return whatever he may be obliged to restore.
● To rescind is to declare a contract void at its inception and to put an end
to it as though it never was. It is not merely to terminate it and release
the parties from further obligations to each other, but to abrogate it from
the beginning and restore the parties to their relative positions as if no
contract has been made.
● Contrary to respondent’s assertion, mutual restitution under Article
1191 is, however, no license for the negation of contractually
stipulated liquidated damages.
● Article 1191 itself clearly states that the options of rescission and
specific performance come with “with the payment of damages in
either case.”
○ The very same breach or delay in performance that
triggers rescission is what makes damages due.
● When the contracting parties, by their own free acts of will, agreed
on what these damages ought to be, they established the law
between themselves.
○ Their contemplation of the consequences proper in the
event of a breach has been articulated.
● When courts are, thereafter, confronted with the need to award
damages in tandem with rescission, courts must not lose sight of how
the parties have explicitly stated, in their own language, these
consequences.
● To uphold both Article 1191 of the Civil Code and the parties’ will,
contractually stipulated liquidated damages must, as a rule, be
maintained.
● To sustain respondent’s claim would be to sustain an absurdity and an
injustice. Respondent’s position suggests that with rescission must
necessarily come the obliteration of the punitive consequence which, to
begin with, was the product of its own (along with the other contracting
party’s) volition. Its position turns delinquency into a profitable
enterprise, enabling contractual breach to itself be the means for
evading its own fallout. It is a position we cannot tolerate.

Dispositive:
WHEREFORE, the Petition is GRANTED. The assailed May 2, 2008 Decision
and November 25, 2008 Resolution of the Court of Appeals in CA G.R. CV No.
86406 are REVERSED and SET ASIDE. The Decision dated November 2, 2005
of Branch 108 of the Regional Trial Court of Pasay City in Civil Case No. 00-0343
is REINSTATED.

Page 4 of 74
 Buenviaje v. Sps. Salonga
GR 216023 | Oct 5, 2016 | Perlas-Bernabe, J. | Art. 1191
Digest by: Capacite
Petitioners: Dr. Restituto Buenviaje
Respondents: Sps Jovito and Lydia Salonga, Jebson Holdings Corp, and
Ferdinand Banez
Recit-ready Digest + Doctrine: Jebson entered into a JVA with Sps.
Salonga, where Jebson was to construct 10 high-end residential units in the 3
parcels that the spouses owned. 7 units will belong to Jebson; 3 to the
spouses. Jebson may sell its allocated units with the condition that the price
agreed upon was with the conformity of Sps. Salonga. Jebson entered into a
Contract to Sell over Unit 5 with Buenviaje without the conformity of Sps.
Salonga. Part of the payment was through a swapping arrangement (house
and lot and golf share). Despite full payment, Jebson was unable to complete
Unit 5 within 12mos. Buenviaje filed before the HLURB a Complaint for
Specific Performance for the (a) completion of Unit 5, (b) partition and
subdivision of the property, (c) delivery of the title to Unit 5, and (d) payment of
damages and attorney's fees. In the alternative, he prayed for the
rescission of the subject Contract to Sell, and the return of all payments
made as well as the house and lot and golf share.
SC: Specific performance and "rescission" (more accurately referred to as
resolution) are alternative remedies available to a party who is aggrieved by a
counter-party's breach of a reciprocal obligation. Specific performance is
defined as "the remedy of requiring exact performance of a contract in the
specific form in which it was made, or according to the precise terms agreed
upon." Resolution is defined as the "unmaking of a contract for a legally
sufficient reason." Resolution under Article 1191 will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in making the
agreement.
Here, the HLURB-BOC, the OP, and the CA all pointed out that Buenviaje
primarily prayed for the remedy of specific performance - i.e., the completion
of Unit 5, the subdivision of Sps. Salonga's property into individual lots per
unit, and the tum-over of Unit 5 as well as the subdivided lot portion allocated
to such unit to him and only prayed for the remedy of rescission as an
alternative remedy. As between the two remedies, Buenviaje had, in fact,
chosen the remedy of specific performance and therefore, ought to be bound
by the choice he had made. While Buenviaje’s alternative prayer for resolution
is textually consistent with that portion of Article 1191 which states that an
injured party "may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible,” impossibility of fulfillment was not
sufficiently demonstrated in the proceedings conducted in this case.
Facts:
● Jebson, engaged in the real estate business, through its VP, Bañez,
entered into a Joint Venture Agreement (JVA) with Sps. Salonga.
o Sps. Salonga, who owned 3 parcels of land in Tagaytay City
agreed for Jebson to construct thereon 10 high-end single
detached residential units, to be known as Brentwoods
Tagaytay Villas.
o Jebson undertook to construct the units at its own expense,
secure the building and development permits, and the license
to sell from the HLURB, as well as the other permits required.
o 7 units will belong to Jebson while the remaining 3 units will
correspond to Sps. Salonga's share.
o Jebson may sell its allocated units with the condition that the
price agreed upon was with the conformity of Sps. Salonga.
● Jebson entered into a Contract to Sell with Buenviaje over Unit 5 for
P10,500,000.00, without the conformity of Sps. Salonga.
o P7,800,000.00 was paid through a "swapping arrangement,"
whereby Buenviaje conveyed to Jebson a house and lot valued
at P5,800,000.00 and Tagaytay Highlands Golf share No. 0722
worth P2,000,000 while the remaining balance was paid
periodically.
o Despite full payment, Jebson was unable to complete Unit 5 in
violation of its contractual stipulation to finish the same within
12 months from the date of issuance of the building permit.
● Buenviaje formally demanded the completion and delivery of Unit 5.
o Jebson cited the 1997 financial crisis for the delay.
o Jebson asked to be given until the early part of the year 2000
to complete the same but still failed to do so.
● Buenviaje filed before the HLURB Regional Field Office IV a Complaint
for Specific Performance with Damages and Attorney's Fees, against
Jebson, Bañez, and Sps. Salonga for the (a) completion of Unit 5, (b)
partition and subdivision of the property, (c) delivery of the title to Unit 5,
and (d) payment of damages and attorney's fees.
o In the alternative, he prayed for the rescission of the
subject Contract to Sell, and the return of all payments made
thereunder, with interest, as well as the house and lot, and golf
share pursuant to the "swapping arrangement.”
● HLURB-RIV rescinded the contract to sell and found respondents
solidarily liable for the return of the payments and for damages.
● HLURB-Board of Commissioners reversed.
o It upheld the contract to sell, rescinded the swapping
arrangement, and ordered Jebson and Banez solidarily liable
to return (no basis to hold Sps. Salonga solidarily liable).
o There was no substantial breach but only a slight or casual
one, which did not justify a rescission of the contracts to sell,
especially in view of the fact that the residential units covered
by the said contracts were already at their finishing stages.
o The proper remedy, instead, was to fix the period for
completion of the concerned units.
Page 5 of 74
 ● Office of the President affirmed, adding that the contract to sell was
unenforceable against Sps. Salonga whose conformity thereto was not
secured in violation of the JVA.
● CA affirmed.
Issues:
1. W/N specific performance is proper instead of resolution – YES (MAIN)
2. W/N the swapping arrangement should be rescinded – NO
Ratio:
1.
● Specific performance and "rescission" (more accurately referred to as
resolution) are alternative remedies available to a party who is
aggrieved by a counter-party's breach of a reciprocal obligation.
○ This is provided for in Article 1191 of the Civil Code.
● Specific performance is defined as "the remedy of requiring exact
performance of a contract in the specific form in which it was made, or
according to the precise terms agreed upon."
○ It pertains to "the actual accomplishment of a contract by a
party bound to fulfill it."
● Resolution is defined as the "unmaking of a contract for a legally
sufficient reason."
○ Resolution does not merely terminate the contract and release
the parties from further obligations to each other, but abrogates
the contract from its inception and restores the parties to their
original positions as if no contract has been made.
○ Consequently, mutual restitution, which entails the return of the
benefits that each party may have received as a result of the
contract, is thus required.
○ Resolution under Article 1191 will not be permitted for a slight
or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the
parties in making the agreement.
○ Ultimately, the question of whether a breach of contract is
substantial depends upon the attending circumstances.
● Here, the HLURB-BOC, the OP, and the CA all pointed out that
Buenviaje primarily prayed for the remedy of specific performance - i.e.,
the completion of Unit 5, the subdivision of Sps. Salonga's property into
individual lots per unit, and the tum-over of Unit 5 as well as the
subdivided lot portion allocated to such unit to him and only prayed for
the remedy of rescission as an alternative remedy.
○ As between the two remedies, Buenviaje had, in fact, chosen
the remedy of specific performance and therefore, ought to be
bound by the choice he had made.
● Buenviaje's alternative prayer for resolution is textually consistent with
that portion of Article 1191 which states that an injured party "may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible."
○ Nevertheless, the impossibility of fulfillment was not sufficiently
demonstrated in the proceedings conducted in this case.
2.
● Creditors are given remedies whenever their debtors perform acts or
omissions or enter into contracts that tend to defraud the former of what
is due them.
○ Rescission (as contemplated in Articles 1380 to 1389 of the
Civil Code) is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by restoration of things to their condition at the moment
prior to the celebration of the contract.
○ It implies a contract, which even if initially valid, produces a
lesion or a pecuniary damage to someone.
○ Where the defendant makes good the damages caused, the
action cannot be maintained or continued (Arts. 1383-1384).
● Here, there is no basis to rescind the aforesaid "swapping
arrangement."
○ Although the same was admittedly entered into by Jebson with
Buenviaje without the conformity of Sps. Salonga, the records
do not show that this separate arrangement was entered into in
order to defraud Jebson's creditor under the JVA.
○ Absent such proof of fraud, the the "swapping arrangement"
was a bona fide transaction freely entered into between
Jebson and Buenviaje, and therefore, valid and binding.
Dispositive: WHEREFORE, the petition is PARTLY GRANTED. The Decision
dated November 29, 2013 and the Resolution dated December 15, 2014 of the
Court of Appeals (CA) in CA-G.R. SP No. 93422 are hereby AFFIRMED with
MODIFICATION, DELETING the following directives: (a) the rescission of the
"swapping arrangement" entered into by respondent Jebson Holdings
Corporation (Jebson) with petitioner Dr. Restituto C. Buenviaje (Buenviaje) and
the consequent order for the latter to pay Jebson the sum of P7,200,000.00 in
cash as part of his down payment under their Contract to Sell; and (b) the order
for Buenviaje to pay respondents Spouses Jovito R. Salonga and Lydia B.
Salonga moral damages and attorney's fees in the amounts of P50,000.00 and
P25,000.00, respectively. The rest of theCA Decision STANDS.
Page 6 of 74
 Sps. Beltran v. Sps. Cangayda
G.R. No. 225033| August 15, 2018 | Caguioa | Article 1191
Digest by: V. CHANG
Petitioners: Sps Antonio Beltran And Felisa Beltran
Respondents: Sps Apolonio Cangayda, Jr. And Loreta E. Cangayda
Recit-ready Digest + Doctrine:
Sps. Cangayda verbally sold their property to Sps. Beltran from 35K.
Sps. Beltran were only able to pay 29k. After repeated demand, the
parties go to the Barangay where they signed an amicable settlement,
with the Sps Beltran promising to pay at a certain date. Sps Beltran
were not able to pay the 5.3k balance on the said date, but offered to
pay 2 days after. Sps. Cangayda refused the payment.
Almost 17 years after, Sps. Cangayda filed a complaint for recovery of
possession and damages with the RTC. RTC ruled against Sps.
Beltran, asking them to vacate. RTC characterized the oral agreement
as a contract to sell. CA affirmed RTC ruling.
Issue: W/N the delay in the payment justified rescission of the
contract? No. Slight delay is not sufficient to justify rescission.
SC ruled that it was a contract of sale. In a contract of sale, the
vendor has lost and cannot recover ownership until and unless
the contract is resolved or rescinded. The right of rescission
granted to the injured party under Article 1191 is predicated on a
breach of faith by the other party who violates the reciprocity between
them. Stated otherwise, rescission may not be resorted to in the
absence of breach of faith. A reading of Article 1592 in conjunction
with Article 1191 suggests that in the absence of any stipulation to the
contrary, the vendee's failure to pay within the period agreed upon
shall not constitute a breach of faith, so long as payment is made
before the vendor demands for rescission, either judicially, or by
notarial act.
Respondents do not dispute that petitioners offered to settle their
outstanding balance of P5.3k "2 days after the deadline and a few
times thereafter," which offers respondents refused to accept.
Respondents also do not claim to have made a demand for rescission
at any time before petitioners made such offers to pay, either through
judicial or extra-judicial means, such as through a notarial act.
Doctrine: Where time is not of the essence of the agreement, a
slight delay on the part of one party in the performance of his
obligation is not a sufficient ground for the rescission of the
agreement".
Facts:
● Sps. Cangayda verbally agreed to sell the disputed property to
Sps. Beltran for P35k.
● After making an initial payment, Sps. Beltran took possession of
the disputed property and built their family home thereon.
o Sps. Beltran made additional payments, which, together
with their initial payment, amounted to P29,690.00.
● Despite Sps. Cangayda's repeated demands, petitioners failed to
pay their remaining balance of P5.3k This prompted Sps.
Cangayda to go to the Office of the Barangay Chairman in
Tagum City (OBC). There, the parties signed an Amicable
Settlement.
o Sps. Beltran agreed to pay the balance one week from
August 24, 1992.
o That Cangayda is also willing to sign a deed of sale
agreement after Beltran is able to pay the remaining
balance. (clause 6)
● Petitioners failed to pay within the period in the Amicable
Settlement.
● Nearly 17 years after the expiration of Beltran's period to pay
their remaining balance, Sps. Cangayda served upon them a
"Last and Final Demand" to vacate the disputed property within
30 days from notice. This demand was left unheeded.
● Sps. Cangayda filed a complaint for recovery of possession and
damages (Complaint) before the RTC. They alleged that
petitioners had been occupying the disputed property without
authority, and without payment of rental fees.
● Sps. Beltran admitted that they failed to settle their unpaid
balance within the period set in the Amicable Settlement. BUT
they alleged that when they later attempted to tender payment
two days after said deadline, respondents refused to accept their
payment, demanding, instead, for an additional payment of
P50k.
RTC: Sps. Beltran should vacate the premises and Cangayda should
return the P29k paid by Beltran.
● RTC characterized the oral agreement between the parties as a
contract to sell. It held that the consummation of this contract to
sell was averted due to petitioners' failure to pay the purchase
Page 7 of 74
 price in full. Hence the RTC held that ownership over the
disputed property never passed to petitioners.
● MR was denied.
CA: affirmed the findings of the RTC
Argument of Sps Beltran: the oral agreement they had entered into with
respondents was not a contract to sell but rather, a contract of sale
which had the effect of transferring ownership of the disputed property
upon its delivery.
Issue/s:
1. W/N the oral agreement between the parties wass a contract to
sell? No.
2. [IMPT] W/N the delay in the payment justified rescission of the
contract? NO.
Ratio:
1. 1. The agreement between the parties is an oral contract of sale. As a
consequence, ownership of the disputed property passed to petitioners
upon its delivery.
● In a contract of sale, title passes to the vendee upon the delivery
of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the
full payment of the price. In a contract of sale, the vendor has
lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of the
price.
● Neither respondent Loreta's testimony nor clause 6 of the
Amicable Settlement supports the conclusion that the parties'
agreement is not a contract of sale, but only a contract to sell
— the reason being that it is not evident from said testimony
and clause 6 that there was an express agreement to reserve
ownership despite delivery of the disputed property.
● Based on the foregoing distinctions, the oral agreement entered
into by the parties constitutes a contract of sale and not a
contract to sell.
● The essential requisites of a contract are: (1) consent of the
contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation which
is established.
● A perfected contract of sale imposes reciprocal obligations on
the parties whereby the vendor obligates himself to transfer the
ownership of and to deliver a determinate thing to the buyer who,
in turn, is obligated to pay a price certain in money or its
equivalent.
● Failure of either party to comply with his obligation entitles
the other to rescission as the power to rescind is implied in
reciprocal obligations.
● In a contract of sale, ownership of a thing sold shall pass to the
buyer upon actual or constructive delivery thereof in the absence
of any stipulation to the contrary.
● Ownership of the disputed property passed to petitioners when
its possession was transferred in their favor, as no reservation to
the contrary had been made.
● Considering that respondents' Complaint is anchored upon their
alleged ownership of the disputed property, their prayer to
recover possession thereof as a consequence of such alleged
ownership cannot prosper.
2. Slight delay is not sufficient to justify rescission.
● Article 1191 lays down the remedies that the injured party may
resort to in case of breach of a reciprocal obligation —
fulfillment of the obligation or rescission thereof, with
damages in either case.
● Thus, in a contract of sale, the vendor's failure to pay the price
agreed upon generally constitutes breach, and extends to the
vendor the right to demand the contract's fulfillment or
rescission.
● It is important to stress, however, that the right of rescission
granted to the injured party under Article 1191 is predicated on a
breach of faith by the other party who violates the reciprocity
between them. Stated otherwise, rescission may not be
resorted to in the absence of breach of faith.
● In this connection, Art.1592 extends to the vendee in a sale of
immovable property the right to effect payment even after
expiration of the period agreed upon, as long as no demand for
rescission has been made upon him by the vendor.
● A reading of Article 1592 in conjunction with Article 1191 thus
suggests that in the absence of any stipulation to the contrary,
the vendor's failure to pay within the period agreed upon
shall not constitute a breach of faith, so long as payment is
made before the vendor demands for rescission, either
judicially, or by notarial act.
Page 8 of 74
The SC cited Taguba v. Peralta: SO ORDERED.

● Slight delay in the payment of the purchase price does not Article 1592. In the sale of immovable property, even though it
serve as a sufficient ground for the rescission of a sale of may have been stipulated that upon failure to pay the price at the
real property time agreed upon the rescission of the contract shall of right take
● Where time is not of the essence of the agreement, a slight place, the vendee may pay, even after the expiration of the period,
delay on the part of one party in the performance of his as long as no demand for rescission of the contract has been
obligation is not a sufficient ground for the rescission of the made upon him either judicially or by a notarial act. After the
agreement". demand, the court may not grant him a new term.
● Here, petitioners acknowledge that they failed to settle the
purchase price of the disputed property in full within the deadline
set by the Amicable Settlement. Nevertheless, the Court does
not lose sight of the fact that petitioners have already paid more
than three-fourths of the purchase price agreed upon.
● Further, petitioners have constituted their family home on the
disputed property in good faith, and have lived thereon for 17
years without protest.
● In addition, respondents do not dispute that petitioners offered to
settle their outstanding balance of P5.3k "2 days after the
deadline and a few times thereafter," which offers respondents
refused to accept.
● Respondents also do not claim to have made a demand for
rescission at any time before petitioners made such offers
to pay, either through judicial or extra-judicial means, such
as through a notarial act.
● Thus, pursuant to Art. 1592, and consistent with the Court's
rulings in Taguba and Dignos, the Court deems it proper to grant
petitioners a period of 30 days from notice of this Decision to
settle their outstanding balance.

Dispositive:
WHEREFORE, the Petition is GRANTED. The Decision and Resolution respectively dated October 19,
2015 and May 17, 2016 rendered by the Court of Appeals-Cagayan de Oro City in CA-G.R. CV No.
03414-MIN, and the Decision dated July 15, 2013 issued by the Regional Trial Court, Branch 31, 11 th
Judicial Region, Davao del Norte (RTC) in Civil Case No. 4020 are REVERSED and SET ASIDE.

Petitioners Antonio and Felisa Beltran are ORDERED to pay respondents Apolonio Cangayda, Jr. and
Loreta E. Cangayda the sum of P5,310.00, representing their outstanding balance, within 30 days from
notice of this Decision. In case of refusal or inability on the part of respondents to receive said amount,
petitioners are DIRECTED to deposit the same with the RTC for the account of respondents. The sum
due shall earn interest at the rate of six percent (6%) per annum from the date of finality of this Decision
until full payment, in accordance with the Court's ruling in Nacar v. Gallery Frames49.

Upon receipt of the foregoing sum, or the deposit of such sum with the RTC, respondents are
DIRECTED to EXECUTE a Deed of Absolute Sale in favor of petitioners for the purpose of formalizing
the oral contract of sale concerning the 300-square-meter residential lot situated in Barangay Magugpo,
Tagum City, Davao del Norte, covered by TCT No. T-74907, and DELIVER to petitioners the original
owner's duplicate copy of TCT No. T-74907. In case of refusal or inability on the part of respondents to
execute a Deed of Absolute Sale and/or deliver said owner's duplicate copy, this Decision shall be
sufficient to grant the proper Registrar of Deeds the necessary authority to cancel TCT No. T-74907 and
issue a new title in the name of petitioners.

Page 9 of 74
 Guanio v. Makati Shangrila GR 190601 Feb 7/2011
Breach of Contract
Digest by: NAME OF DIGESTER
Petitioners: SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-
GUANIO
Respondents: MAKATI SHANGRI-LA HOTEL and RESORT, INC., also
doing business under the name of SHANGRI-LA HOTEL MANILA,
Recit-ready Digest + Doctrine:
Petitioners filed a complaint for breach of contract and damages against
respondent for their failure to perform their obligations in the Banquet and
Meeting Services Contract. The RTC relied on the letter by Svennson on the
admission of the respondent admitting fault or breach ruling in favor of
petitioner. CA reversed saying that the proximate causes of breach is the
petitioner’s unexpected increase of guests. The issue is WON respondent is
liable based on the doctrine of proximate cause
The doctrine of proximate cause is applicable only in actions for quasi-delicts,
not in actions involving breach of contract.
In culpa contractual x x x the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of relief.
The law, recognizing the obligatory force of contracts, will not permit a party to
be set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests
of the promissee that may include his "expectation interest," which is his
interest in having the benefit of his bargain by being put in as good a position
as he would have been in had the contract been performed, or his "reliance
interest," which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in
had the contract not been made; or his "restitution interest," which is his
interest in having restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either for their makers
or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make RECOMPENSE to the one
who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability.
Facts:
● For their wedding reception on July 28, 2001, spouses Luigi M. Guanio
and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la
Hotel Makati (the hotel).
● Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent)
scheduled an initial food tasting.
● Petitioners claim that they requested the hotel to prepare for seven
persons ─ the two of them, their respective parents, and the wedding
coordinator. At the scheduled food tasting, however, respondent
prepared for only six.
● Petitioners initially chose a set menu which included black cod, king
prawns and angel hair pasta with wild mushroom sauce for the main
course which cost ₱1,000.00 per person.
● They were, however, given an option in which salmon, instead of king
prawns, would be in the menu at ₱950.00 per person. They in fact
partook of the salmon.
● Three days before the event, a final food tasting took place. Petitioners
aver that the salmon served was half the size of what they were served
during the initial food tasting; and when queried about it, the hotel
quoted a much higher price (₱1,200.00) for the size that was initially
served to them. The parties eventually agreed on a final price ─ ₱1,150
per person.
● A day before the event or on July 27, 2001, the parties finalized and
forged their contract.
● Petitioners claim that during the reception, respondent’s
representatives, Catering Director Bea Marquez and Sales Manager
Tessa Alvarez, did not show up despite their assurance that they would;
their guests complained of the delay in the service of the dinner; certain
items listed in the published menu were unavailable; the hotel’s waiters
were rude and unapologetic when confronted about the delay; and
despite Alvarez’s promise that there would be no charge for the
extension of the reception beyond 12:00 midnight, they were billed and
paid ₱8,000 per hour for the three-hour extension of the event up to
4:00 A.M. the next day.
● Petitioners further claim that they brought wine and liquor in accordance
with their open bar arrangement, but these were not served to the
guests who were forced to pay for their drinks.
● Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel
and Resort, Inc. (respondent) and received an apologetic reply from
Krister Svensson, the hotel’s Executive Assistant Manager in charge of
Food and Beverage.
● They nevertheless filed a complaint for breach of contract and damages
before the Regional Trial Court (RTC) of Makati City.
● Respondent claimed that petitioners requested a combination of king
prawns and salmon, hence, the price was increased to ₱1,200.00 per
person, but discounted at ₱1,150.00; that contrary to petitioners’ claim,
Marquez and Alvarez were present during the event, albeit they were
not permanently stationed thereat as there were three other hotel
functions; that while there was a delay in the service of the meals, the
same was occasioned by the sudden increase of guests to 470 from the
guaranteed expected minimum number of guests of 350 to a maximum
Page 10 of 74
 of 380, as stated in the Banquet Event Order (BEO); and that Isaac
Albacea, Banquet Service Director, in fact relayed the delay in the
service of the meals to petitioner Luigi’s father, Gil Guanio.
● Respecting the belated service of meals to some guests, respondent
attributed it to the insistence of petitioners’ wedding coordinator that
certain guests be served first.
● On Svensson’s letter, respondent, denying it as an admission of liability,
claimed that it was meant to maintain goodwill to its customers.
● RTC rendered judgment in favor of petitioners.
● In finding for petitioners, the trial court relied heavily on the letter of
Svensson which is partly quoted below:
Upon receiving your comments on our service rendered during your reception
here with us, we are in fact, very distressed. Right from minor issues pappadums
served in the soup instead of the creutons, lack of valet parkers, hard rolls being
too hard till a major one – slow service, rude and arrogant waiters, we have
disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were
unacceptable and definitely not up to our standards. We understand that it is our
job to provide excellent service and in this instance, we have fallen short of your
expectations. We ask you please to accept our profound apologies for causing
such discomfort and annoyance. 4 (underscoring supplied)
● The trial court observed that from "the tenor of the letter . . . the
defendant[-herein respondent] admits that the services the plaintiff[-
herein petitioners] received were unacceptable and definitely not up to
their standards."5
● CA reversed the trial court’s decision, it holding that the proximate
cause of petitioners’ injury was an unexpected increase in their guests
Issue/s:
● W/N respondent is liable based on doctrine of proximate cause? No
Ratio:
● The Court finds that since petitioners’ complaint arose from a contract,
the doctrine of proximate cause finds no application to it:
● The doctrine of proximate cause is applicable only in actions for quasi-
delicts, not in actions involving breach of contract. x x x The doctrine is
a device for imputing liability to a person where there is no relation
between him and another party. In such a case, the obligation is created
by law itself. But, where there is a pre-existing contractual relation
between the parties, it is the parties themselves who create the
obligation, and the function of the law is merely to regulate the relation
thus created.8 (emphasis and underscoring supplied)
● What applies in the present case is Article 1170 of the Civil Code which
reads:
● Art. 1170. 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.
● SEE DOCTRINE
● The pertinent provisions of the Banquet and Meeting Services Contract
between the parties read:
● 4.3 The ENGAGER shall be billed in accordance with the prescribed
rate for the minimum guaranteed number of persons contracted for,
regardless of under attendance or non-appearance of the expected
number of guests, except where the ENGAGER cancels the Function in
accordance with its Letter of Confirmation with the HOTEL. Should the
attendance exceed the minimum guaranteed attendance, the
ENGAGER shall also be billed at the actual rate per cover in excess of
the minimum guaranteed attendance.
● xxxx
● 4.5. The ENGAGER must inform the HOTEL at least forty eight (48)
hours before the scheduled date and time of the Function of any change
in the minimum guaranteed covers. In the absence of such notice,
paragraph 4.3 shall apply in the event of under attendance. In case the
actual number of attendees exceed the minimum guaranteed
number by ten percent (10%), the HOTEL shall not in any way be
held liable for any damage or inconvenience which may be caused
thereby. The ENGAGER shall also undertake to advise the guests
of the situation and take positive steps to remedy the same.
● Breach of contract is defined as the failure without legal reason to
comply with the terms of a contract. It is also defined as the [f]ailure,
without legal excuse, to perform any promise which forms the whole or
part of the contract.
● The appellate court, and even the trial court, observed that petitioners
were remiss in their obligation to inform respondent of the change in the
expected number of guests. The observation is reflected in the records
of the case. Petitioners’ failure to discharge such obligation thus
excused, as the above-quoted paragraph 4.5 of the parties’
contract provide, respondent from liability for "any damage or
inconvenience" occasioned thereby.
● As for petitioners’ claim that respondent departed from its verbal
agreement with petitioners, the same fails, given that the written
contract which the parties entered into the day before the event, being
the law between them.
● Respecting the letter of Svensson on which the trial court heavily
relied as admission of respondent’s liability but which the
appellate court brushed aside, the Court finds the appellate court’s
stance in order. It is not uncommon in the hotel industry to receive
comments, criticisms or feedback on the service it delivers. It is also
customary for hotel management to try to smooth ruffled feathers to
preserve goodwill among its clientele.
● Statements which are not estoppels nor judicial admissions have no
quality of conclusiveness, and an opponent whose admissions have
been offered against him may offer any evidence which serves as an
explanation for his former assertion of what he now denies as a fact.
● Respondent’s Catering Director, Bea Marquez, explained the hotel’s
procedure on receiving and processing complaints, viz:
● ATTY. CALMA:
● Q You mentioned that the letter indicates an acknowledgement of the
concern and that there was-the first letter there was an acknowledgment
of the concern and an apology, not necessarily indicating that such or
admitting fault?
● A Yes.
Page 11 of 74
● Q Is this the letter that you are referring to? ● In the present petition, under considerations of equity, the Court deems
● If I may, Your Honor, that was the letter dated August 4, 2001, it just to award the amount of ₱50,000.00 by way of nominal damages
previously marked as plaintiff’s exhibits, Your Honor. What is the to petitioners, for the discomfiture that they were subjected to during to
procedure of the hotel with respect to customer concern? the event The Court recognizes that every person is entitled to respect
● A Upon receipt of the concern from the guest or client, we acknowledge of his dignity, personality, privacy and peace of mind.16 Respondent’s
receipt of such concern, and as part of procedure in service industry lack of prudence is an affront to this right.
particularly Makati Shangri-la we apologize for whatever inconvenience
but at the same time saying, that of course, we would go through certain Dispositive:
investigation and get back to them for the feedback with whatever WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is
concern they may have. PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion,
● Q Your Honor, I just like at this point mark the exhibits, Your Honor, the ORDERED to pay the amount of ₱50,000.00 to petitioners by way of nominal
letter dated August 4, 2001 identified by the witness, Your Honor, to be damages.
marked as Exhibit 14 and the signature of Mr. Krister Svensson be
marked as Exhibit 14-A.
● xxxx
● Q In your opinion, you just mentioned that there is a procedure that the
hotel follows with respect to the complaint, in your opinion was this
procedure followed in this particular concern?
● A Yes, ma’am.
● Q What makes you say that this procedure was followed?
● A As I mentioned earlier, we proved that we did acknowledge the
concern of the client in this case and we did emphatize from the client
and apologized, and at the same time got back to them in whatever
investigation we have.
● Q You said that you apologized, what did you apologize for?
● A Well, first of all it is a standard that we apologize, right? Being in the
service industry, it is a practice that we apologize if there is any
inconvenience, so the purpose for apologizing is mainly to show
empathy and to ensure the client that we are hearing them out and that
we will do a better investigation and it is not in any way that we are
admitting any fault.14 (underscoring supplied)
● To the Court, the foregoing explanation of the hotel’s Banquet Director
overcomes any presumption of admission of breach which Svensson’s
letter might have conveyed.
● The exculpatory clause notwithstanding, the Court notes that
respondent could have managed the "situation" better, it being held in
high esteem in the hotel and service industry. Given respondent’s vast
experience, it is safe to presume that this is not its first encounter with
booked events exceeding the guaranteed cover. It is not audacious to
expect that certain measures have been placed in case this
predicament crops up. That regardless of these measures, respondent
still received complaints as in the present case, does not
amuse.1avvphil
● Respondent admitted that three hotel functions coincided with
petitioners’ reception. To the Court, the delay in service might have
been avoided or minimized if respondent exercised prescience in
scheduling events. No less than quality service should be delivered
especially in events which possibility of repetition is close to nil.
Petitioners are not expected to get married twice in their lifetimes.

Page 12 of 74
 R.S. Tomas v. Rizal Cement
G.R. No. 173155 | March 21, 2012 | Peralta | Breach of Contract
Digest by: Cua
Petitioners: R.S. Tomas Inc.
Respondents: Rizal Cement Company Inc.
Recit-ready Digest + Doctrine:
Petitioner, R.S. Tomas entered into a contract with respondent, Rizal Cement
Company to complete three projects within 120 days. Petitioners sent letters
asking for various extensions of time. Eventually respondent, Rizal Cement
Company informed petitioner of its default and notified petitioner of its
termination of the contract as well as demand for refund of amounts paid.
Petitioner expressed desire to complete two projects and exclude another.
Respondent filed a complaint of sum of money against petitioner. Petitioner
claimed that respondent misrepresented the condition of the transformer,
which led to the delay.
Issue: WON there was a breach of contract? Yes
The court found that petitioner not only failed to comply with its obligation on
time but failed to complete the project at all. Thus respondent could validly
terminate the contract. Based on the evidence there was no fraud or
misrepresentation on behalf of respondent proven.
Doctrine: Breach of contract is defined as the failure without legal reason to
comply with the terms of a contract. It is also defined as the failure, without
legal excuse, to perform any promise which forms the whole or part of the
contract.64 In the present case, petitioner did not complete the projects. This
gives respondent the right to terminate the contract by serving petitioner a
written notice.
Facts:
● Respondent and petitioner entered into a contract for the supply of
labor, materials and technical supervision of three projects
o 1. J.O. #P-90-212 – Wiring and installation of primary and
secondary lines system.
o 2. J.O. #P-90-213 – Supply and installation of primary
protection and disconnecting switch.
o 3. J.O. #P-90-214 – Rewinding and conversion of one (1) unit
3125 KVA, 34.5 KV/2.4 KV, 3ø Transformer to 4000 KVA, 34.5
KV/480V, 3ø Delta Primary, Wye with neutral secondary.
● Petitioner, R.S. Tomas, Inc. agreed to performed the job orders and
agreed to complete it within 120 days from effectivity of the contract
● Respondent, Rizal Cement Company, Inc agreed to pay the sum of
2,944,000 in consideration of the performance of the job orders.
Respondent paid an initial payment of 1,458,618.18
● It was agreed that petitioner would be liable for liquidated damages in
the amount of 29,440 per day of delay in the completion of the projects
which shall be limited to 10% of the project cost
● Petitioner obtained from times insurance a performance bond in an
amount equivalent to 50 percent of the contract price or 1,456,618.18
● On March 9, 1991 R.S. Tomas requested for an extension of 75 days to
complete the project due to the need to import some materials. It further
asked for a price adjustment of 255,000 to cover the higher cost of
materials.
● On March 27, 1991 R.S. Tomas requested another 75 days extension
for competition of the transformer portion of the projects for failure of its
supplier to deliver the materials
● On June 14, 1991, R.S. Tomas requested for respondent’s assistance
by facilitating the acquisition of materials and supplies needed to
complete J.O. #P-90-212 and J.O. #P-90-213 by directly paying the
suppliers. It further sought that it be allowed to back out from J.O. #P-
90-214 covering the rewinding and conversion of the damaged
transformer.
● Rizal Cement Company, through counsel, manifested its observation
that petitioner’s financial status showed that it could no longer complete
the projects as agreed upon.
● They also informed petitioner that it was already in default having failed
to complete the projects within 120 days from the effectivity of the
contract.
● Respondent further notified petitioner that the former was terminating
the contract. It also demanded for the refund of the amount already paid
to petitioner, otherwise, the necessary action would be instituted.
● Respondent sent another demand letter to Times Insurance for the
payment of ₱1,472,000.00 pursuant to the performance bond it issued.
● On November 14, 1991 respondent entered two contracts with Geostar
for the completion of the projects commenced but not completed by
petitioner for 3,435,000 pesos
● On December 14, 1991, petitioner reiterated its desire to complete J.O.
#P-90-212 and J.O. #P-90-213 and to exclude J.O. #P-90-214, but the
same was denied by respondent in a letter dated January 14, 1992. In
the same letter, respondent pointed out that amicable settlement is
impossible.
● A Complaint for Sum of Money filed by respondent against petitioner
and Times Surety & Insurance Co., Inc. praying for the payment of the
following: ₱493,695.00 representing the amount which they owed
respondent from the downpayment and advances made by the latter
vis-à-vis the work accomplishment; ₱2,550,945.87 representing the
amount incurred in excess of the cost of the projects as agreed upon;
₱294,000.00 as liquidated damages; plus interest and attorney’s fees
● Petitioner denied liability and claimed that it failed to complete the
project due to respondent’s fault
● Petitioner claims they relied on the respondent’s representation with
regard to the transformer. They believed the transformer subject of the
contract could still be rewound and converted but upon dismantling the
Page 13 of 74
 core-coil assembly, it discovered that the coils were already badly ○ 1. Violation by Contractor of the terms and conditions of this
damaged and the primary bushing broken. Contract;
● This discovery allegedly entailed price adjustment. Petitioner thus ○ 2. Non-completion of the Work within the time agreed upon, or
requested respondent for additional time within which to complete the upon the expiration of extension agreed upon;
project and additional amount to finance the same. Petitioner also ○ 3. Institution of insolvency or receivership proceedings
insisted that the proximate cause of the delay is the misrepresentation involving Contractor; and
of the respondent on the extent of the defect of the transformer. ○ 4. Other causes provided by law applicable to this contract
● RTC rendered a decision in favor of petitioner, R.S. Tomas stating that ● Considering that the petitioner was already in delay and in breach of
the failure of petitioner to complete the projects was not solely due to its contract, it is liable for damages that are the natural and probable
fault but more on the respondent’s misrepresentation and bad faith consequences of its breach of obligation. Since advanced payments
● CA reversed the decision of the RTC had been made by respondent, petitioner is bound to return the excess
Issue/s: vis-à-vis its work accomplishments. In order to finish the projects, the
WON there was a breach of contract? Yes respondent had to contract the services of another contractor.
●
Ratio:
● As stated in its letters to respondent, petitioner justified its inability to Dispositive:
complete the projects within the stipulated period on the alleged WHEREFORE, premises considered, the petition is hereby DENIED. The Court
unavailability of the materials to be used to perform the projects as of Appeals Decision dated December 19, 2005 and Resolution dated June 6,
stated in the job orders. Nowhere in said letters did petitioner claim that 2006 in CA-G.R. CV No. 61049 are AFFIRMED.
it could not finish the projects, particularly the conversion of the
transformer unit because the defects were worse than the
representation of respondent.
● Even in its letter dated May 25, 1991, petitioner only requested
respondent that payment to the first progress billing be released as
soon as possible and without deduction. It further proposed that
respondent make a direct payment to petitioner’s suppliers.
● It was only later in June when petitioner raised concerns over the
subject transformer
● From the facts there was not only a delay but a failure to complete the
project
● Assuming for the sake of argument that the subject transformer was
indeed in a damaged condition even before the bidding which makes it
impossible for petitioner to perform its obligations under the contract,
the SC agreed with the CA that petitioner failed to prove that respondent
was guilty of bad faith, fraud, deceit or misrepresentation.
● Petitioner’s representatives were given the opportunity to inspect the
subject transformer before it offered its bid. If indeed the transformer
was completely sealed, it should have demanded that the same be
opened if it found it necessary before it offered its bid. As contractor,
petitioner had been remiss in its obligation to obtain as much
information as possible on the actual condition of the subject
transformer or at least it should have provided a qualification in its bid
so as to make clear its right to claim contract price and time adjustment
● Undoubtedly, the petitioner is guilty of breach of contract. Breach of
contract is defined as the failure without legal reason to comply with the
terms of a contract. Thus respondent is given the right to terminate the
contract by giving written notice
● The contract specifically stated that it may be terminated for any of the
following causes:

Page 14 of 74
 Tankeh v. DBP GR 171428 Nov 11/2013
G.R. No. | Date | Ponente | Cause of Breach - Fraud/Dolo
Digest by: Faderguya
Petitioners: Alejandro Tankeh
Respondents: DEVELOPMENT BANK OF THE PHILIPPINES, STERLING
SHIPPING LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, and
ASSET PRIVATIZATION TRUST
Recit-ready Digest + Doctrine:
Doctrine is underlined in the ratio portion.
For recit ready digest, the facts and ratio below are already condensed
(contains the pertinent facts and ruling) and arranged for a much simpler
reading experience (case is 30 pages long).
Facts:
● Respondent Ruperto was the President of Sterling Shipping Lines
(SSL). SSL was engaged in operating ocean-going vessels. He applied
for a $3.5Million loan from respondent DBP to finance a vessel (M/V
Golden Lilac). The application for loan was subject to the ff conditions:
o Mortgage obtained over the vessel financed (renamed to M/V
Sterling Ace)
o Respondent Tankeh, petitioner Tankeh and SSL become
solidarily liable for the amount of loan (They all signed a
promissory note)
o Future earnings of the vessel should be assigned to DBP
o DBP should be assigned 67% of SSL’s stocks.
● SSL’s business did not flourish. Eventually, its assets were transferred
by DBP to the Asset Privatization Trust. Prior to the transfer, DBP sold
M/V Sterling Ace to a buyer in Singapore for a measly sum of $350,000.
Petitioner raised his concern about this saying that the vessel was
grossly undervalued when it was sold.
● DBP is now collecting the payment for the loan applied by Ruperto
against those who signed the Promissory Note.
● Petitioner wants to be exonerated from any liability arising from the loan
transaction with DBP. He allege the following:
o His consent was vitiated by fraud and deceit. He alleged that
he was induced by fraudulent machinations to sign the
Promissory Note.
o He did not invest any money in SSL. He was approached by
his brother respondent Ruperto who gave him 1000 shares
worth P1 Million to be a director of SSL.
o He was convinced by his brother, Ruperto, that it was a
profitable business. He was also promised that in exchange for
signing the promissory note, he will be charged with
overseeing the operations of SSL. That his son will be also
appointed at an executive position in the company.
o It turned out that all of those promises were only made to
convince him to sign the promissory note and become a
solidary debtor so that the loan will be approved.
o He claims that he was excluded from taking part in the
operations since he was only allowed to attend one board
meeting and its purpose was to introduce him to the directors
appointed by DBP in the board (to make it appear that he took
part in the operation of business).
● Respondent Ruperto contends that the Petitioner signed the promissory
note voluntarily. He claims that there was no fraud or deceit employed
to secure petitioner’s involvement in the company.
● Respondent DBP contends that it was irrelevant whether the petitioner
was indeed not involved in SSL because by affixing his signature, he
became liable for the obligation that he guaranteed.
● The Trial Court ruled for Petitioner. It held that without the fraudulent
machinations and inducement of Ruperto, the Petitioner would not have
signed the promissory note.
● Court of Appeals reversed. CA held that petitioner’s cause is only
against Ruperto and not to DBP and APT. It also ruled that there was no
fraud as it was not proven by clear and convincing evidence.
Issue/s:
● W/N fraud was present in this case - YES, but only incidental fraud
which is not enough to annul the promissory note.
Ratio:
● As to the ruling of CA on the cause of action, SC held that the issue on
commission of fraud was tried with the implied consent of other
respondents. Thus, SC is allowed to ascertain fraud in this case.
● There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
● There are two types of fraud contemplated in the performance of
contracts. Incidental fraud and Causal fraud
a. Causal fraud are those deceptions of a serious character
employed, and without which the other party would not have
entered into the contract.
b. Incidental fraud are those which are not of serious nature and
without which the other party would still have entered into the
contract. It only obliges the person employing it to pay
damages.
● Under Art. 1344, fraud must be serious to annul a contract and render it
voidable. The fraud employed must be so material that the party would
not have entered into the contract if it was not present.
● The quantum of evidence to prove the existence of fraud, whether
incidental or causal, is clear and convincing evidence.
● An assessment of the allegations in the pleadings and findings of
fact by TC and CA shows that there was no causal fraud.
Page 15 of 74
 a. The petitioner knows what he entered into when he signed the
promissory note. He knew the gravity of the obligation he was
undertaking.
b. Civil Code states that the usual exaggerations in trade are not
fraudulent when the other party had the opportunity to know
the facts.
c. Here, the petitioner had the opportunity to ascertain those
facts.
i. He was fully aware of the financial reverses SSL was
undergoing. (SC is saying that he knew that the loan
was applied for since SSL was not doing well
financially). Thus, when he was given 1000 shares by
Ruperto, he knew that it had a catch (to assume
obligation if things don’t go well).
ii. As a businessman, he was aware of the risks of his
participation when he signed the promissory note.
iii. He was aware of the effect of signing the note. His
action of repeated plea to release him from the
obligation goes against his claim of complete lack of
awareness regarding the circumstances and contract
that he entered into.
● Nevertheless, respondent Ruperto committed incidental fraud in
the performance of the obligation when he refused to allow the
petitioner to participate in the management of the business.
a. Petitioner was unjustly excluded from participating in the
management of the affairs of SSL.
b. In exchange of Petitioner signing the promissory note, SSL and
Ruperto had the obligation to allow petitioner to participate in
the operations of SSL.
c. Petitioner was only able to attend one board meeting because
SSL failed to inform him of the other board meetings. In fact, it
was proven that the sale of MV Sterling Ace only came to the
petitioner’s knowledge through the news and not as one of the
board members of SSL.
d. Petitioner had a reasonable expectation that he will be treated
as a board member when he signed the promissory note and
the respondent breached this obligation through incidental
fraud.

● The presence of incidental fraud obligates Ruperto to pay damages.

SSL can’t be held liable for the breach committed by ruperto since it has
a separate and distinct personality from Ruperto.

Dispositive:
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals as to the
assailed Decision in so far as the finding of fraud is SUSTAINED with the MODIFICATION that
respondent RUPERTO V. TANKEH be ordered to pay moral damages in the amount of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) and the amount of TWO HUNDRED THOUSAND PESOS
(₱200,000.00) by way of exemplary damages.

Page 16 of 74

Sps. Tumbay v. Sps. Lopez GR 171692 June 3/2013
G.R. No.171692 | June 3, 2013 | Del Castillo J. | Dolo
Digest by: Cruz
Petitioners: SPOUSES DELFIN O. TUMIBAY and AURORA T. TUMIBAY-
deceased; GRACE JULIE ANN TUMIBAY MANUEL, legal representative
Respondents: SPOUSES MELVIN A. LOPEZ and ROWENA GAY T.
VISITACION LOPEZ
Recit-ready Digest + Doctrine:
Contract to sell was agreed upon. Seller had an agent. Even though it was
contract to sell, buyer and the agent transferred title even though no full
payment yet. ISSUE: W/N there is DOLO? YES. Buyer was in fraud because it
allowed the transfer of title knowing it has only paid 32% of purchase price.
Further, SPA did not allow the agent to transfer title. Thus contract is
rescinded. Seller entitled to damages but must return the payments made by
buyer.
Doctrine: As a general rule, "rescission will not be permitted for a slight or
casual breach of the contract, but only for such breaches as are substantial
and fundamental as to defeat the object of the parties in making the
agreement."
Facts:
● Petitioners filed a Complaint for declaration of nullity ab initio of sale,
and recovery of ownership and possession of land with the RTC of
Malaybalay City. The case was raffled to Branch 9 and docketed as
Civil Case No. 2759-98.
● In their Complaint, petitioners alleged that they are the owners of a
parcel of land; that petitioner Aurora is the sister of Reynalda Visitacion
(Reynalda); that on July 23, 1997, Reynalda sold the subject land to her
daughter, Rowena Gay T. Visitacion Lopez (respondent Rowena), that
the subject sale was done without the knowledge and consent of
petitioners.
● Respondents averred that on December 12, 1990, petitioners executed
a special power of attorney (SPA) in favor of Reynalda granting the
latter the power to offer for sale the subject land.
● Petitioners admitted the existence of the SPA but claimed that Reynalda
violated the terms thereof when she (Reynalda) sold the subject land
without seeking the approval of petitioners as to the selling price
● RTC rendered a Decision in favor of petitioners
● CA rendered the assailed Decision reversing the judgment of the trial
court
Issue/s:
● W/N respondent buyer Rowena is in breach of the contract to sell due to
fraud? YESSS
Ratio:
● Sometime in 1994, petitioners and respondent Rowena agreed to enter
into an oral contract to sell over the subject land for the price of
₱800,000.00 to be paid in 10 years through monthly installments.
● Using the aforesaid SPA, Reynalda then transferred the title to the
subject land in respondent Rowena’s name through a deed of sale
dated July 23, 1997 without the knowledge and consent of petitioners.
● Rowena entered into a contract to sell over the subject land.
● Petitioners deny that they agreed to sell the subject land to respondent
Rowena for the price of ₱800,000.00 payable in 10 years through
monthly installments. They claim that the payments received from
respondent Rowena were for safekeeping purposes only pending the
final agreement as to the purchase price of the subject land.
● We are inclined to give credence to the claim of the respondents for the
following reasons.
● First, the payment of monthly installments was duly established by the
evidence on record consisting of money orders and checks payable to
petitioner Aurora.
● Second, in her testimony, petitioner Aurora claimed that the $1,000.00
in cash that she received from respondent Rowena on January 25, 1995
was a mere deposit until the purchase price of the subject land would
have been finally agreed upon by both parties. However, petitioner
Aurora failed to explain why, after receiving this initial sum of $1,000.00,
she thereafter accepted from respondent Rowena 22 intermittent
monthly installments
● Third, it strains credulity that respondent Rowena would make such
monthly installments for a substantial amount of money and for a long
period of time had there been no agreement between the parties as to
the purchase price of the subject land.
● We are, thus, inclined to rule that there was, indeed, a contractual
agreement between the parties for the purchase of the subject land and
that this agreement partook of an oral contract to sell for the sum of
₱800,000.00.
● A contract to sell has been defined as "a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the
purchase price."
● Respondent Rowena was in breach of the contract to sell.
● Although we rule that there was a contract to sell over the subject land
between petitioners and respondent Rowena, we find that respondent
Rowena was in breach thereof because, at the time the aforesaid deed
of sale was executed on July 23, 1997, the full price of the subject land
was yet to be paid. In arriving at this conclusion, we take judicial notice 31
Page 17 of 74
 of the prevailing exchange rates at the time, as published by the Bangko
Sentral ng Pilipinas,
● Thus, as of July 19, 1997 or prior to the execution of the deed of sale
dated July 23, 1997, the total amount of monthly installments paid by
respondent Rowena to petitioners was only ₱260,626.50 or 32.58% 38 of
the ₱800,000.00 purchase price.
● Respondent Rowena tried to justify the premature transfer of title by
stating that she had substantially paid the full amount of the purchase
price and that this was necessary as a security for the installments she
had already paid. However, her own evidence clearly showed that she
had, by that time, paid only 32.58% thereof.
● Verily, she failed to prove that petitioners agreed to amend or novate
the contract to sell in order to allow her to acquire title over the subject
land even if she had not paid the price in full
● Significantly, the evidence on record indicates that the premature
transfer of title in the name of respondent Rowena was done without the
knowledge and consent of petitioners.
● Respondent Rowena’s reliance on the SPA as the authority or consent
to effect the premature transfer of title in her name is plainly misplaced.
The terms of the SPA are clear. It merely authorized Reynalda to sell
the subject land at a price approved by petitioners. The SPA could not
have amended or novated the contract to sell to allow respondent
Rowena to acquire the title over the subject land despite non-payment
of the price in full for the reason that the SPA was executed four years
prior to the contract to sell.
● The contract to sell is rescissible.
● SEE Article 1191 of the Civil Code
● As a general rule, "rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial
and fundamental as to defeat the object of the parties in making the
agreement."
● In the case at bar, we find that respondent Rowena’s act of transferring
the title to the subject land in her name, without the knowledge and
consent of petitioners and despite non-payment of the full price thereof,
constitutes a substantial and fundamental breach of the contract to sell.
● Indeed, it would be highly iniquitous for us to rule that petitioners, as
sellers, should continue with the contract to sell even after the discovery
of the aforesaid breach committed by respondent Rowena, as buyer,
considering that these acts betrayed in no small measure the trust
reposed by petitioners in her and her mother, Reynalda.
● We, thus, rule that petitioners are entitled to the rescission of the subject
contract to sell.
● Petitioners are entitled to moral damages and attorney’s fees while
respondent Rowena is entitled to the reimbursement of the monthly
installments with legal interest.
● Article 1170 of the Civil Code provides: 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.
● Fraud or malice (dolo) has been defined as a "conscious and intentional
design to evade the normal fulfillment of existing obligations" and is,
thus, incompatible with good faith.
● We find that respondent Rowena was guilty of fraud in the performance
of her obligation under the subject contract to sell because (1) she knew
that she had not yet paid the full price (having paid only 32.58% thereof)
when she had the title to the subject land transferred to her name, and
(2) she orchestrated the aforesaid transfer of title without the knowledge
and consent of petitioners.
● Further, under Article 2208(2) of the Civil Code, the award of attorney’s
fees is proper where the plaintiff is compelled to litigate with third
persons or incur expenses to protect his interest because of the
defendant’s act or omission.
● Article 1898 of the Civil Code provides: If the agent contracts in the
name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted
by the principal. In this case, however, the agent is liable if he undertook
to secure the principal’s ratification.
● We rule that (1) Reynalda, as agent, acted beyond the scope of her
authority under the SPA when she executed the deed of sale dated July
23, 1997 in favor of respondent Rowena, as buyer, without the
knowledge and consent of petitioners, and conveyed the subject land to
respondent Rowena at a price not approved by petitioners, as principals
and sellers, (2) respondent Rowena was aware of the limits of the
authority of Reynalda under the SPA, and (3) petitioners did not ratify,
impliedly or expressly, the acts of Reynalda. Under Article 1898 of the
Civil Code, the sale is void and petitioners are, thus, entitled to the
reconveyance of the subject land.
Dispositive:
WHEREFORE, the Petition is GRANTED. The May 19, 2005 Decision and
February 10, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 79029
are ANNULLED and SET ASIDE. The January 6, 2003 Decision of the Regional
Trial Court of Malaybalay City, Branch 9 in Civil Case No. 2759-98 is
REINSTATED and MODIFIED to read as follows:
1. The deed of sale dated July 23, 1997 over the subject land, covered
by TCT No. T-62674, between petitioner Aurora, represented by
Reynalda as her attorney-in-fact, and respondent Rowena is declared
void.
2. The contract to sell over the subject land, covered by TCT No. T-
25334, between petitioners, as sellers, and respondent Rowena, as
buyer, is declared rescinded.
Page 18 of 74
3. The Register of Deeds of Malaybalay City is ordered to cancel TCT
No. T-62674 in the name of respondent Rowena and to reinstate TCT
No. T-25334 in the name of petitioner Aurora.
4. Respondent Rowena is ordered to pay petitioners the sum of
₱100,000.00 as moral damages and ₱50,000.00 as attorney’s fees.
5. Petitioners are ordered to pay respondent Rowena the sum of
₱327,442.00 with legal interest of 6% per annum from May 19, 1998
until finality of this Decision. In case petitioners fail to pay the amount
due upon finality of this Decision, they shall pay legal interest thereon at
the rate of 12% per annum until fully paid.

Page 19 of 74
 Torres-Madrid Brokerage v. FEB Mitsui
G.R. No. 194121 | July 11, 2016 | Brion, J | Culpa Aquilana v. Culpa Contractual
Digest by: Fellone
Petitioners: Torres-Madrid Brokerage, Inc
Respondents: FEB Mitsui Marine Insurance Co. Inc and Benjamin P
Manalastas, doing business under the name of BMT Trucking Services
Recit-ready Digest + Doctrine:
A shipment of electronic goods arrived at the Port of Manila for Sony
Philippines, Inc. Previous to the arrival, Sony had engaged the services of
petitioner Torres- Madrid Brokerage, Inc. (TMBI) to facilitate, process,
withdraw, and deliver the shipment to its warehouse in Biñan, Laguna. It
subcontracted the services of Benjamin Manalastas’ company, BMT Trucking
Services to transport the shipment from the port to Sony’s warehouse in
Biñan. TMBI then notified Sony who had no objections to the arrangement. In
the early morning of October 9, four trucks left BMT’s garage for Laguna.
However, only three trucks arrived at Sony’s warehouse. TMBI’s General
Manager also filed a complaint with the NBI against the missing driver,
Lapesura for “hijacking”.Mitsui meanwhile the Insurer of Sony claims recovery
against BMT, that it breached the contract of carriage through its negligent
handling of the cargo, resulting in its loss.[IMPT]
ISSUE: Whether Mitsui (insurer) can directly hold BMT liable for breach
of contract? (Culpa Contractual) - NO. Mitsui and BMT has no direct
contractual relationship. It could have had a cause of action for quasi-delict but
Mitsui failed to prove any negligence on the part of BMT.
While it is undisputed that the cargo was lost under the actual custody of BMT
(whose employee is the primary suspect in the hijacking or robbery of the
shipment), no direct contractual relationship existed between Sony/Mitsui and
BMT. If at all, Sony/Mitsui’s cause of action against BMT could only arise from
quasi-delict, as a third party suffering damage from the action of another due
to the latter’s fault or negligence, pursuant to Article 2176 of the Civil Code.
In the present case, Mitsui’s action is solely premised on TMBI’s breach of
contract. Mitsui did not even sue BMT, much less prove any negligence on its
part. If BMT has entered the picture at all, it is because TMBI sued it for
reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold BMT
liable to Mitsui for quasi-delict.
Facts:
● On October 7, 2000, a shipment of various electronic goods from
Thailand and Malaysia arrived at the Port of Manila for Sony Philippines,
Inc. (Sony). Previous to the arrival, Sony had engaged the services of
TMBI to facilitate, process, withdraw, and deliver the shipment from the
port to its warehouse in Biñan, Laguna
● TMBI – who did not own any delivery trucks – subcontracted the
services of Benjamin Manalastas’ company, BMT Trucking Services
(BMT), to transport the shipment from the port to the Biñan warehouse.
Incidentally, TMBI notified Sony who had no objections to the
arrangement
● 4 BMT trucks picked the shipment at the port on Oct 7, 2000 however
they could not immediately undertake the delivery because of a truck
ban so BMT scheduled the delivery on Oct 9, 2000.
● In the morning of October 9, 2000, 4 trucks left BMT’s garage for
Laguna but only 3 trucks arrived at Sony’s Biñan warehouse. The truck
who did not make it to the warehouse was found abandoned along the
Diversion Road in Filinvest, Alabang, Muntinlupa, where both the driver
and the shipment were missing.
● Victor Torres filed a complaint with NBi against Lapesura (the driver of
the truck who did not make it to the warehouse) for “hijacking,” but
resulted in a recommendation by NBI to the Manila City Prosecutor’s
Office to prosecute the driver for qualified theft instead.TMBI notified
Sony of the loss through a letter.
● Sony also sent BMT a letter demanding payment for the lost shipment.
BMT refused to pay, insisting that the goods were "hijacked."
● Sony filed an insurance claim with the Mitsui, the insurer of goods, and
paid Sony for the value of lost goods.
● After being subrogated to Sony’s rights, Mitsui sent TMBI a demand
letter for payment of lost foods but TMBi still refused, as a result Mitsui
filed a complaint with the RTC against TMBI impleading as well the
proprietor of BMT, as third-party defendant.
● RTC Decision : TMBI and Benjamin Manalastas jointly and solidarily
liable to pay Mitsui PHP 7,293,386.23 as actual damages, attorney’s
fees equivalent to 25% of the amount claimed, and the costs of the
suit.The RTC held that TMBI and Manalastas were common carriers
and had acted negligently.
● CA affirmed the RTC’s decision.
● Before the Supreme Court
● TMBI insists that:
o the hijacking of the truck was a fortuitous event. It contests the
CA’s finding that neither force nor intimidation was used in the
taking of the cargo. Considering Lapesura was never found,
the Court should not discount the possibility that he was a
victim rather than a perpetrator
o denies being a common carrier because it does not own a
single truck to transport its shipment and it does not offer
transport services to the public for compensation. It
emphasizes that Sony knew TMBI did not have its own
vehicles and would subcontract the delivery to a third-party
o that the service it offered was limited to the processing of
paperwork attendant to the entry of Sony’s goods. It denies
that delivery of the shipment was a part of its obligation
Page 20 of 74
 o TMBI solely blames BMT as it had full control and custody of
the cargo when it was lost .BMT, as a common carrier, is
presumed negligent and should be responsible for the loss.
● BMT’s Comment:
o It observed the required standard of care.
o Like the TMBI, BMT maintains that the hijacking was a
fortuitous event – a force majeure – that exonerates it from
liability.
o It points out that Lapesura has never been seen again and his
fate remains a mystery. BMT likewise argues that the loss of
the cargo necessarily showed that the taking was with the use
of force or intimidation
o If there was any attendant negligence, BMT points the finger
on TMBI who failed to send a representative to accompany the
shipment. BMT further blamed TMBI for the latter’s failure to
adopt security measures to protect Sony’s cargo.
● MITSUI’s comment (INSURER) :
o BMT breached the contract of carriage through its
negligent handling of the cargo, resulting in its loss.[IMPT[
Issue/s:
● Whether a brokerage may be considered a common carrier if it
undertakes to deliver goods to customers? - YES
● Whether TMBI and BMT are solidarily liable to Mitsui? - NO
● MAIN ISSUE: Whether Mitsui (insurer) can directly hold BMT liable
for breach of contract? (Culpa Contractual) - NO.
● Whether BMT is liable to TMBI for breach of their contract of carriage? -
YES
Ratio:
● A brokerage may be considered a common carrier if it also undertakes
to deliver the goods for its customers
○ Common carriers are persons, corporations, firms or
associations engaged in the business of transporting
passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.By the
nature of their business and for reasons of public policy, they
are bound to observe extraordinary diligence in the vigilance
over the goods and in the safety of their passenger.
We have repeatedly distinguished between an action for breach of contract
○ In A.F. Sanchez Brokerage Inc. v. Court of Appeals:
(culpa contractual) and an action for quasi-delict (culpa aquiliana).
i. we held that a customs broker – whose principal
business is the preparation of the correct customs
declaration and the proper shipping documents – is
still considered a common carrier if it also undertakes
to deliver the goods for its customers. The law does
not distinguish between one whose principal business
activity is the carrying of goods and one who
undertakes this task only as an ancillary activity.
○ Despite TMBI’s present denials, we find that the delivery of the
goods is an integral, albeit ancillary, part of its brokerage
services. TMBI admitted that it was contracted to facilitate,
process, and clear the shipments from the customs authorities,
withdraw them from the pier, then transport and deliver them to
Sony’s warehouse in Laguna
○ That TMBI does not own trucks and has to subcontract the
delivery of its clients’ goods, is immaterial. As long as an entity
holds itself to the public for the transport of goods as a
business, it is considered a common carrier regardless of
whether it owns the vehicle used or has to actually hire one.
● TMBI and BMT are not solidarily liable to Mitsui.
○ We disagree with the lower courts’ ruling that TMBI and BMT
are solidarily liable to Mitsui for the loss as joint tortfeasors.
The ruling was based on Article 2194 of the Civil Code:
i. Art. 2194. The responsibility of two or more
persons who are liable for quasi-delict is
solidary.
○ Notably, TMBI’s liability to Mitsui does not stem from a quasi-
delict (culpa aquiliana) but from its breach of contract (culpa
contractual). The tie that binds TMBI with Mitsui is contractual,
albeit one that passed on to Mitsui as a result of TMBI’s
contract of carriage with Sony to which Mitsui had been
subrogated as an insurer who had paid Sony’s insurance
claim. The legal reality that results from this contractual tie
precludes the application of quasi-delict based Article 2194.
● A third party may recover from a common carrier for quasi-delict
but must prove actual negligence [IMPT]
○ We likewise disagree with the finding that BMT is directly
liable to Sony/Mitsui for the loss of the cargo. While it is
undisputed that the cargo was lost under the actual
custody of BMT (whose employee is the primary suspect
in the hijacking or robbery of the shipment), no direct
contractual relationship existed between Sony/Mitsui and
BMT.
○ If at all, Sony/Mitsui’s cause of action against BMT could
only arise from quasi-delict, as a third party suffering
damage from the action of another due to the latter’s fault
or negligence, pursuant to Article 2176 of the Civil Code.
Culpa Contractual Culpa Aquilina
In Culpa Contractual, the plaintiff only On the other hand, the plaintiff in
needs to establish the existence of culpa aquiliana must clearly establish
the contract and the obligor’s failure the defendant’s fault or negligence
to perform his obligation. because this is the very basis of the
action.
Page 21 of 74
 It is not necessary for the plaintiff to Moreover, if the injury to the plaintiff
prove or even allege that the obligor’s resulted from the act or omission of
non-compliance was due to fault or the defendant’s employee or servant,
negligence because Article 1735 the defendant may absolve himself by
already presumes that the common proving that he observed the
carrier is negligent. diligence of a good father of a family
to prevent the damage.
The common carrier can only free
itself from liability by proving that it
observed extraordinary diligence. It
cannot discharge this liability by
shifting the blame on its agents or
servants.

● In the present case, Mitsui’s action is solely premised on TMBI’s breach

of contract. Mitsui did not even sue BMT, much less prove any
negligence on its part.
● If BMT has entered the picture at all, it is because TMBI sued it for
reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.

BMT is liable to TMBI for breach of their contract of carriage:

● TMBI must absorb the loss. By subcontracting the cargo delivery to
BMT, TMBI entered into its own contract of carriage with a fellow
common carrier
● The cargo was lost after its transfer to BMT' s custody based on its
contract of carriage with TMBI. Following Article 1735, BMT is
presumed to be at fault. Since BMT failed to prove that it observed
extraordinary diligence in the performance of its obligation to TMBI, it is
liable to TMBI for breach of their contract of carriage

Dispositive:
WHEREFORE, the Court hereby ORDERS petitioner TorresMadrid Brokerage,
Inc. to pay the respondent FEB Mitsui Marine Insurance Co", Inc. the following: a.
Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the
time the complaint was filed until it is fully paid; b. Attorney's foes in the amount
of PHP 200,000.00; and c. Costs of suit. Respondent Benjamin P. Manalastas is
in turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of the above-
mentioned amounts.

Spouses Estrada v. Phil Rabbit Bus Line

Page 22 of 74
 G.R. No. 203902 | July 19, 2017 | Del Castillo, J. | Culpa
Digest by: GARCIA
Petitioners: Spouses Dionisio Estrada and Jovita R. Estrada
Respondents: Philippine Rabbit Bus Lines, Inc. and Eduardo R. Saylan
Recit-ready Digest + Doctrine:
Petitioner Dionisio is a passenger of the Philippine Bus which figured into a
collision with an Isuzu truck. This resulted in the amputation of Dionisio’s right
arm. Petitioner now claims for moral damages against the bus company.
Issue: WON there can be a claim for moral damages from a breach of
contract? GR: NO.
Moral damages can only be granted when the breach of contract results in
death or when the negligence was attended by bad faith. The petitioners failed
to show any of the above circumstances.
Facts:
● A passenger bus driven by Saylan, owned by Resp. Bus Company was
involved in a mishap with an Isuzu truck driven by Willy Urez owned by
Rogelio Cuyton, Jr.
● This happened on the national highway in Brgy. Alipangpang,
Pozorrubio, Pangasinan
o The Bus was headed north while the truck was headed south
o The collision happened in the left lane or the lane belonging to
the truck
o Right front portion of the truck collided with the right side of the
Bus
● The collision happened in this wise:
o The bus was following closely a jeepney
o The jeepney stopped
o Bus swerved left encroaching the lane of the truck
● Petitioner Dionisio was a passenger of the bus and was injured on the
right arm which was later on amputated
● Petitioner thus filed for damages against the bus company
● Philippine Rabbit averred that it was not negligent and observed the
diligence required of a carrier
o The proximate cause of the accident is the accident was the
negligence of the isuzu truck
● RTC said that the driver of the Bus was negligent in driving. Held that
the bus company and the driver is solidarily liable
o CA held that the Bus company is solely responsible for actual
damages
● Petitioners allege that Philippine Rabbit should be liable for moral
damages for its evasion of liability
o The basis of which is the loss of Dioisio’s right arm
● Respondents allege that there can be no moral damages since the
claim here is based on the breach of contract
Issue/s:
● W/N the bus company can be held liable for moral damages –NO
Ratio:
● Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or omission
● Under Article 2219 of the Civil Code, moral damages are recoverable in
the following and analogous cases:
o (1) a criminal offense resulting in physical injuries;
o (2) quasi-delicts causing physical injuries;
o (3) seduction, abduction, rape or other lascivious acts;
o (4) adultery or concubinage;
o (5) illegal or arbitrary detention or arrest;
o (6) illegal search;
o (7) libel, slander, or any other form of defamation;
o (8) malicious prosecution;
o (9) acts mentioned in Article 309;22 and
o (10) acts and actions referred to in Articles 21,23 26,24 27 ,25
28,26 29,27 30,28 32,29 34,30 and 35.31
● Since breach of contract is not one of the items enumerated under
Article 2219, moral damages, as a general rule, are not recoverable in
actions for damages predicated on breach of contract
● As an exception, such damages are recoverable [in an action for breach
of contract:
o (1) in cases in which the mishap results in the death of a
passenger, as provided in Article 1764, in relation to Article
2206(3) of the Civil Code; and
o (2) in cases in which the carrier is guilty of fraud or bad faith,
as provided in Article 2220
● Moral damages cannot be awarded since Dionisio did not die but merely
suffered an injury
● There was also no showing of any bad faith
● There was also no showing that Philippine Rabbit breached its duty by
some motive, interest, or ill will.
○ No fraud of bad faith can be attributed to the bus company
Dispositive:
WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed
May 16, 2012 Decision and October 1, 2012 Resolution of the Court of Appeals
in CA-G.R. CV No. 95520 are AFFIRMED with MODIFICATIONS as follows: (1)
petitioners are declared entitled to temperate damages of ₱500,000.00; (2) the
award of actual damages is set at the amount of ₱57,658.25; and (3) all
damages awarded are subject to legal interest of 6% per annum from the finality
of this Decision until full satisfaction.
SO ORDERED.
Page 23 of 74
 ● Upon arriving at NAIA, KLM personnel refused to check them in into
their flight. The spouses’ trip entailed an 18-day stay in Europe but their
Ona v. Northstar Intl Travel Inc. Schengen Visas were valid for a 15-day stay only.
G.R. No. 209581 | Jan 15, 2020 | Culpa ● They phoned Secretary of Foreign Affairs Alberto Romulo and they
Digest by: KEE were eventually allowed by KLM personnel to board their flight. KLM
advised the Ona spouses to immediately have their visas extended
Petitioners: Dr. Enrique T. Ona and Dr. Norma M. Ona
upon their arrival in Europe.
Respondents: Northstar International Travel, Inc.
● Spouses Ona boarded the Mediterranean cruise ship but they allegedly
could not enjoy the cruise because of their dilemma. Eventually, they
Recit-ready Digest + Doctrine:
cut their vacation short as they had to disembark at Naples, Italy, a day
Sps Ona were set to attend a congress in Paris. Northstar made
earlier than scheduled, to see Ambassador to France Navarro-Tolentino
arrangements for their 18-day trip by booking their flights with KLM Airline.
for their visa extension. They were constrained to book a hotel in Rome
However, upon arriving at NAIA, KLM refused to check them in because their
and spend on food and lodging.
trip entailed an 18-day stay in Europe but their Schengen Visas were only
● After returning to the Philippines, Spouses Ona filed a complaint against
valid for 15 days. Eventually, they were allowed to board the flight. While on
Northstar demanding payment for costs incurred to have their visa
board the Mediterranean cruise ship, they could not enjoy the cruise because
extended, 1M each as moral damages and P250,000 as attorney’s fees.
of their dilemma. They had to cut their vacation short because they had to
● Northstar: The spouses brought the problem to themselves when in the
meet the Ambassador for their visa extension. They booked hotel reservations
visa application, they indicated “15 days” in the space provided for their
and spent food and lodging in Rome. After returning to the Philippines, Sps.
duration of stay in Europe. This was 3 days short of their 18-day trip. It
Ona filed a complaint against Northstar demanding payment for costs incurred
did not have any obligation to issue them visa. Its only obligation was to
to have their visa extended, moral damages and attorney’s fees. Northstar
assist the spouses in their application, which it did.
argued that the spouses brought the problem to themselves when in the visa
● RTC: awarded Ona spouses actual damages, Northstar negligent in not
application, they indicated “15 days” in the space provided for their duration of
reviewing the visa application forms. No bad faith on Northstar, thus, it
stay in Europe. This was 3 days short of their 18-day trip.
denied the prayer for moral damages and attorney’s fees.
SC said that Northstar is not liable for moral damages as it did not exercise
Issue/s:
bad faith in representing to Sps. Ona that their documents were already in
● W/N Northstar should pay moral damages and attorney’s fees to the
order, despite the apparent mistake in the no. of days of stay that spouses
spouses - No
indicated in their visa applications, nor was there any ill motive on the part of
● [RELEVANT TOPIC] W/N Northstar was grossly negligent in not
Northstar as it would not have gained anything from its omission. However,
examining their Schengen Visa application forms and thus failed to
Northstar was grossly negligent in not examining the application forms.
detect the erroneous entry - Yes
In actions involving contractual negligence, once a breach of contract is
proved, the defendant is presumed negligent and must prove not being at fault
Ratio:
(disputable presumption). Northstar was negligent in failing to call Spouses
W/N Northstar should pay moral damages and attorney’s fees to the
Ona’s attention in the erroneous entry in their visa applications. Had it
spouses
exercised due diligence, it would have rectified the mistake early on, and the
● Northstar did not exercise bad faith when it represented to Spouses
spouses would have secured the appropriate visas.
Ona that their documents were in order, despite the apparent mistake in
the number of days of stay that the spouses indicated in their visa
Doctrine: The test to determine whether negligence attended the
applications. This can be attributed to attendant negligence, but not bad
performance of an obligation is: did the defendant in doing the alleged
faith.
negligent act use that reasonable care and caution which an ordinarily prudent
● Northstar did not impute any ill motive on the spouses, and there could
person would have used in the same situation? If not, then he is guilty of
have been no gains by Northstar from its failure to call spouses’
negligence.
attention to the mistake.

Facts:
● Spouses Ona filed before the RTC a Complaint for Breach of Contract
and Damages against Northstar. In their complaint, they alleged that
they were set to attend the European Society of Organ Transplantation
Congress in Paris. Northstar made arrangements for their 18-day trip by
booking the spouses a flight with KLM Royal Dutch Airline (KLM).
W/N Northstar was grossly negligent in not examining their Schengen Visa
application forms and thus failed to detect the erroneous entry
● The fault or negligence in the performance of obligation, negligence in
culpa contractual, exposes the obligor to liability for damages arising
from the obligee’s loss.
Page 24 of 74
 ● Articles 1170 to 1174 govern negligence in culpa contractual. In actions
involving contractual negligence, once a breach of contract is proved,
the defendant is presumed negligent and must prove not being at fault
(disputable presumption).
● Crisostomo v. CA explained that a travel agency is not a common
carrier that is bound to exercise extraordinary diligence in performing its
obligations. The standard of care required of them is that of a good
father of a family, under Civil Code, Article 1173.
● This connotes reasonable care consistent with that which an ordinarily
prudent person would have observed when confronted with a similar
situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is
guilty of negligence.
● Northstar was negligent in failing to call Spouses Ona’s attention in the
erroneous entry in their visa applications. Had it exercised due
diligence, it would have rectified the mistake early on, and the spouses
would have secured the appropriate visas.
● It is reasonable for clients to expect that the travel agency would
scrutinize the entries in their application forms. Thus, lower courts
correctly awarded actual damages which covered these expenses.

Dispositive:
WHEREFORE, the Petition for Review on Certiorari is DENIED for lack of merit,
and the Court of Appeals’ October 16, 2013 Decision in CA-G.R. CV No. 98935
is AFFIRMED.

Page 25 of 74
 Pantaleon v. American Express Intl
G.R. No. 174269 | Aug. 25, 2010 | Tinga, J. | Mora/ Default
Digest by: Katalina
Petitioners: Polo Pantaleon
Respondents: American Express International, Inc.
Recit-ready Digest + Doctrine:
The Pantaleon family joined an escorted tour of Western Europe. At the last
day of the tour, the whole tour group agreed to see Amsterdam. When the last
day came, they were first brought to Coster Diamond House at 10mins before
9am, with the time allotted for such visit being only until 9:30am. Mrs.
Pantaleon then bought a diamond, pendant, and necklace worth USD 13k. Mr.
Pantaleon presented his Amex card, but it took very long before the purchase
was approved. At 10am, the store manager just allowed the release of the
items even without the Amex’s approval of the purchase. The city tour got
cancelled for lack of time.
Pantaleon went back to Manila and demanded for an apology, to which Amex
responded that the delay in authorizing the purchase was only due to the
same being out of the usual charge pattern. Pantaleon then filed an action
before the RTC, which granted his prayers for damages. The CA reversed.
Hence this case.
The Supreme Court ruled that there was culpable delay.
Under mora solvendi, the three requisites for a finding of default are that the
obligation is demandable and liquidated; the debtor delays performance; and
the creditor judicially or extrajudicially requires the debtor's performance.
One hour appears to be an awfully long, patently unreasonable length of time
to approve or disapprove a credit card purchase. It is long enough time for the
customer to walk to a bank a kilometer away, withdraw money over the
counter, and return to the store.
Notably, Panteleon frames the obligation of Amex as "to approve or
disapprove" the purchase "in timely dispatch", and not "to approve the
purchase instantaneously or within seconds". Certainly, had respondent
disapproved petitioner's purchase "within seconds" or within a timely manner,
this particular action would have never seen the light of day.
Facts:
Spouses Pantaleon and their children joined an escorted tour of Western Europe
organized by Trafalgar Tours of Europe, Ltd. The tour group arrived in
Amsterdam on the second to the last day of the tour. Arriving late, they failed to
engage in any sight-seeing, and have agreed that they would start early the next
day to see the entire city before ending the tour.
At the last day of the tour, the group arrived at the Coster Diamond House
around 10 minutes before 9:00am. The group had agreed that such visit should
end by 9:30am, to allow enough time to take in a guided city tour. After some
lecture on the art of diamond polishing, they were ushered to the showroom to
allow them to select items for purchase.
Mrs. Pantaleon bought a diamond, a pendant, and a chain totaling USD 13, 826.
To pay for these, Mr. Pantaleon presented his Amex credit card together with his
passport to the Coster sales clerk. This was around 9:15am.
The sales clerk took the card, and the charge purchase was referred
electronically to Amex’s Amsterdam office at 9:20am.
10 minutes later, the store clerk informed Mr. Pantaleon that his AmexCard had
not yet been approved. His son who was already in the tour bus went back to
Coster to inform them that the group was waiting for them.
It being 9:40am already, worried about further inconveniencing the tour group,
Mr. Pantaleon asked the store clerk to cancel the sale. The store manager
though asked plaintiff to wait a few more minutes.
15 minutes after, the store manager informed Mr. Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his depositary
banks, then instructed his daughter to return to the bus and apologize to the
group.
At 10:00am, or 45 minutes after the presentation of the AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided
to release the items even with Amex’s approval of the purchase.
They returned to the bus, welcomed with visible irritation from the group when
the tour guide announced that the city tour of Amsterdam was to be canceled.
After coming back to Manila, Mr. Pantaleon demanded an apology from Amex for
the inconvenience, humiliation, and embarrassment he and his family suffered
thereby. Amex however responded that the delay in authorizing the purchase
from Coster was because the purchase was out of the usual charge purchase
pattern.
Mr. Pantaleon then filed an action before the RTC of Makati, praying for 2 million
as moral damages, 500,000 exemplary damages, 100,000 attorney’s fees, and
50,000 as litigation expenses.
Page 26 of 74
RTC ruled in his favor, but the CA reversed. Hence this case.
Before the SC, Pantaleon argued that on the premise that there was an
obligation on the part of respondent "to approve or disapprove with dispatch the
charge purchase, the failure to timely approve or disapprove the purchase
constituted mora solvendi on the part of respondent in the performance of its
obligation.
Amex however characterized the depiction by petitioner of its obligation to him as
"to approve purchases instantaneously or in a matter of seconds."
Issue/s:
Whether Amex, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon in the form of mora– YES
Ratio:
MORA SOLVENDI v. MORA ACCIPIENDI
Pantaleon correctly cites that under mora solvendi, the three requisites for a
finding of default are that the obligation is demandable and liquidated; the debtor
delays performance; and the creditor judicially or extrajudicially requires the
debtor's performance. While the requisites of mora accipiendi are: an offer of
performance by the debtor who has the required capacity; the offer must be to
comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.
The Court saw the possible source of confusion as to which type of mora to
appreciate. Generally, the relationship between a credit card provider and its
card holders is that of creditor-debtor with the card company as the creditor
extending loans and credit to the card holder, who as debtor is obliged to repay
the creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the
depositor is considered as the creditor. Pantaleon asked the Court, not
baselessly, to again shift perspectives and again see the credit card company as
the debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.
Ultimately, Pantaleon's perspective appears more sensible than if we were to still
regard Amex as the creditor in the context of this cause of action. If there was
delay on the part of respondent in its normal role as creditor to the cardholder,
such delay would not have been in the acceptance of the performance of the
debtor's obligation (i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall under mora
accipiendi, which contemplates that the obligation of the debtor, such as the
actual purchases on credit, has already been constituted. Herein, the
establishment of the debt itself (purchases on credit of the jewelry) had not yet
been perfected, as it remained pending the approval or consent of the
respondent credit card company.
AMEX IN CULPABLE DELAY
Notwithstanding the popular notion that credit card purchases are approved
"within seconds", there really is no strict, legally determinative point of
demarcation on how long must it take for a credit card company to approve or
disapprove a customer's purchase, much less one specifically contracted upon
by the parties. Yet this is one of those instances when "you'd know it when you'd
see it", and one hour appears to be an awfully long, patently unreasonable length
of time to approve or disapprove a credit card purchase. It is long enough time
for the customer to walk to a bank a kilometer away, withdraw money over the
counter, and return to the store.
Notably, Panteleon frames the obligation of Amex as "to approve or disapprove"
the purchase "in timely dispatch", and not "to approve the purchase
instantaneously or within seconds". Certainly, had respondent disapproved
petitioner's purchase "within seconds" or within a timely manner, this particular
action would have never seen the light of day. Petitioner and his family would
have returned to the bus without delay — internally humiliated perhaps over the
rejection of his card — yet spared the shame of being held accountable by
newly-made friends for making them miss the chance to tour the city of
Amsterdam.
We do not wish to dispute that respondent has the right, if not the obligation, to
verify whether the credit it is extending upon on a particular purchase was indeed
contracted by the cardholder, and that the cardholder is within his means to
make such transaction. The culpable failure of respondent herein is not the
failure to timely approve petitioner's purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that
respondent's credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why respondent could not have promptly informed
petitioner the reason for the delay, and duly advised him that resolving the same
could take some time. In that way, petitioner would have had informed basis on
whether or not to pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably dangling in the chilly
autumn winds in a foreign land and soon forced to confront the wrath of foreign
folk.
Moral damages avail in cases of breach of contract where the defendant acted
fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due. The findings of the trial court are ample
in establishing the bad faith and unjustified neglect of respondent, attributable in
particular to the "dilly-dallying" of respondent's Manila credit authorizer, Edgardo
Jaurique. The Court cited the RTC’s findings:
Page 27 of 74
 “While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant to
grant authorization for a charge purchase, defendant acknowledged that
the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires "special handling",
meaning with priority. Otherwise, the object of credit or charge cards
would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or traveller's
checks, which can be delivered and accepted quickly. Such right was
not accorded to plaintiff in the instances complained off * for reasons
known only to defendant at that time.”

This, to the Court's mind, amounts to a wanton and deliberate refusal to comply
with its contractual obligations, or at least abuse of its rights, under the contract.

The delay committed by defendant was clearly attended by unjustified neglect

and bad faith, since it alleges to have consumed more than one hour to simply go
over plaintiff's past credit history with defendant, his payment record and his
credit and bank references, when all such data are already stored and readily
available from its computer. This Court also takes note of the fact that there is
nothing in plaintiff's billing history that would warrant the imprudent suspension of
action by defendant in processing the purchase.

It should be emphasized that the reason why petitioner is entitled to damages is

not simply because respondent incurred delay, but because the delay, for which
culpability lies under Article 1170, led to the particular injuries under Article 2217
of the Civil Code for which moral damages are remunerative.

Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit
card transactions with a stopwatch.

The somewhat unusual attending circumstances to the purchase at Coster —

that there was a deadline for the completion of that purchase by petitioner before
any delay would redound to the injury of his several traveling companions —
gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings
and social humiliation sustained by the petitioner, as concluded by the RTC.
Those circumstances are fairly unusual, and should not give rise to a general
entitlement for damages under a more mundane set

Dispositive:
WHEREFORE, the petition is GRANTED. The assailed Decision of
the Court of Appeals is REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is
hereby REINSTATED. Costs against respondent. TCIDSa
SO ORDERED.

Page 28 of 74
 JPlus Asia Dev. V. Utility Assurance Corp
G.R. No. 199650 | JUNE 26, 2013 | VILLARAMA, JR., J. | Default
Digest by: NAME OF DIGESTER
Petitioners: J PLUS ASIA DEVELOPMENT CORPORATION
Respondents: UTILITY ASSURANCE CORPORATION
Recit-ready Digest + Doctrine: J Plus Asia and Mabunay entered into a
Construction Agreement for the construction of a Condotel. The project was
supposed to be completed within a year after the payment of the down
payment or on December 2008. Mabunay also posted the required
Performance Bond issued by Utility Assurance (UTASSCO). In November
2008, it was found out that only 31.39% was complete. J Plus terminated the
contract and filed a complaint before the Construction Industry Arbitration
Commission (CIAC). As a defense, Mabunay claims that the delay was due to
the orders of the Chairman of J Plus. UTASSCO claims that it only secured
the down payment and not the whole obligation.
MABUNAY WAS IN DEFAULT. In order for the debtor to be considered in
default, the following must be shown that: (1) the obligation be
demandable and already liquidated; (2) the debtor delays performance;
and (3) the creditor requires the performance judicially or extrajudicially.
In this case, even if the completion date was supposed to be in December
2008, Mabunay was unable to comply with the schedule of work activities. The
Construction Agreement provides that Mabunay shall be deemed in default if it
had delayed without justifiable cause the completion of the project by more
than 30 calendar days based on official work schedule duly approved by the
OWNER.
In this case, Mabunay was in delay because one month before the intended
date of completion it was only able to finish 31.39% of the project.
Furthermore, Mabunay did nothing to remedy the delays and even reduced
the deployment of workers at the project site. Neither did Mabunay, at
anytime, ask for an extension to complete the project.
Facts:
● J Plus Asia Development Corporation entered into a CONSTRUCTION
AGREEMENT with Martin Mabunay whereby the latter undertook to
build a 72-room Condotel.
● The project was estimated at P42M and was scheduled to be completed
within a year from signing of the Notice of Award and Notice to Proceed
and receipt of the down payment. It was supposed to be done by
December 2008.
● The down payment was fully paid. The remaining balance shall be paid
based on the actual work finished. Mabunay posted the required
Performance Bond issued by Utility Assurance (UTASSCO).
● On January 2008, Mabunay commenced work. J Plus was able to pay
up to 7th monthly progress billing. However, Mabunay was only able to
accomplish 27.5% of the project.
● A Joint Construction Evaluation Result and Status Report found that the
project by November 2008 was only 31.39% complete.
● On November 19, 2008, J Plus terminated the contract and sent
demand letters to Mabunay and UTASSCO. It was unheeded.
● J Plus filed a Request for Arbitration before the Construction Industry
Arbitration Commission and prayed that Mabunay and UTASSCO be
ordered to pay for damages.
● Mabunay claims that the delay was caused by retrofitting and other
revision works ordered by Joo Han Lee, the Chairman of J Plus Asia.
Furthermore, he also claims that he had until April 30, 2009 to finish the
project since the 365 days period of completion started only on May 2,
2008 after clearing the retrofitted old structure. Hence, the termination of
the contract by petitioner was premature
● UTASSCO filed an MTD for failure to state a cause of action. It was
denied. In its Answer, it claims that the performance bond merely
guaranteed the 20% down payment and not the entire obligation of
Mabunay under the Construction Agreement.
● The CIAC ruled in favor of J Plus Asia and ordered both Mabunay and
UTASSCO to jointly and severally pay.
● On appeal, the CA reversed and set aside the decision of the CIAC.
Issue/s:
● W/N Mabunay incurred delay in the performance of his obligations?-
YES
Ratio:
● Default or mora on the part of the debtor is the delay in the fulfillment of
the prestation by reason of a cause imputable to the former. It is the
non-fulfillment of an obligation with respect to time.
● Generally, the one who contracts to complete certain work within a
certain time is liable for the damage for not completing it within such
time, unless the delay is excused or waived.
● In order for the debtor to be considered in default, the following must be
shown:
○ that the obligation be demandable and already liquidated;
○ that the debtor delays performance; and
○ that the creditor requires the performance judicially or
extrajudicially
● The Construction Agreement provides that the work must be completed
within 1 year of 365 days after signing of the Notice of Award and Notice
to Proceed and receipt of down payment.
● However, the work schedule approved by J Pluswas intended also for
evaluation of the progress of work by the contractor. The Construction
Agreement also provides that the contractor shall be deemed in default
if, among others, it had delayed without justifiable cause the completion
of the project “by more than thirty (30) calendar days based on official
work schedule duly approved by the OWNER.
● As early as April 2008, or within four months after Mabunay commenced
work activities, the project was already behind schedule for reasons not
attributable to J Plus. In the succeeding months, Mabunay was still
Page 29 of 74
 unable to catch up with his accomplishment even as petitioner
constantly advised him of the delays.
● Even the joint inspection and evaluation was conducted showed the
same result. Instead of doubling his efforts as the scheduled completion
date approached, Mabunay did nothing to remedy the delays and even
reduced the deployment of workers at the project site. Neither did
Mabunay, at anytime, ask for an extension to complete the project
● The Construction Agreement provided for liquidated damages:
○ “Time is of the essence in this Agreement. Should the
CONTRACTOR fail to complete the PROJECT within the
period stipulated herein or within the period of extension
granted by the OWNER, plus One (1) Week grace period,
without any justifiable reason x x x”
● A stipulation for liquidated damages is attached to an obligation in order
to ensure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of breach.
● The amount agreed upon answers for damages suffered by the owner
due to delays in the completion of the project. As a precondition to such
award, however, there must be proof of the fact of delay in the
performance of the obligation.
● Mabunay was clearly in default considering the dismal percentage of his
accomplishment (32.38%) of the work he contracted on account of
delays in executing the scheduled work activities and repeated failure to
provide sufficient manpower to expedite construction works.
● The Agreement also provides for instances where the contractor is
considered in default, such as:
○ without justifiable cause, has delayed the completion of the
Project by more than thirty (30) calendar days based on official
work schedule duly approved by the OWNER; or
○ despite previous written warning by the OWNER, is not
executing the construction works in accordance with the
Agreement or is persistently or flagrantly neglecting to carry
out its obligations under the Agreement.
● The Agreement further provides, “If the OWNER shall enter and expel
the CONTRACTOR under this clause, the OWNER shall be entitled to
confiscate the performance bond of the CONTRACTOR to compensate
for all kinds of damages the OWNER may suffer.”
● A penalty clause, expressly recognized by law, is an accessory
undertaking to assume greater liability on the part of the obligor in case
of breach of an obligation. It functions to strengthen the coercive force
of obligation and to provide, in effect, for what could be the liquidated
damages resulting from such a breach.
● The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation
does not contravene law, morals, or public order, it is strictly binding
upon the obligor.
● Furthermore, the Performance Bond guaranteed the full and faithful
compliance of Mabunay’s obligations. Nowhere in law or jurisprudence
does it state that the obligation or undertaking by a surety may be
apportioned.
● The bond unequivocally declare that it secures the full and faithful
performance of Mabunay’s obligations under the Construction
Agreement.
● By its nature, a performance bond guarantees that the contractor will
perform the contract, and usually provides that if the contractor defaults
and fails to complete the contract, the surety can itself complete the
contract or pay damages up to the limit of the bond.
● if the language of the bond is ambiguous or uncertain, it will be
construed most strongly against a compensated surety and in favor of
the obligees or beneficiaries under the bond, in this case petitioner as
the Project Owner, for whose benefit it was ostensibly executed.
● UTASSCO is also liable for interest. As held by the SC, if a surety upon
demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The
increased liability is not because of the contract but because of the
default and the necessity of judicial collection.
Dispositive: WHEREFORE, the petition for review on certiorari is GRANTED. The
Decision dated January 27, 2011 and Resolution dated December 8, 2011 of the Court of
Appeals in CA-G.R. SP No. 112808 are hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry
Arbitration Commission is hereby REINSTATED with the following MODIFICATIONS:
“Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby
adjudges, orders and directs:cralavvonlinelawlibrary
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full
amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction
Agreement dated December 24, 2007, with interest at the rate of 6% per annum computed
from the date of the filing of the complaint until the finality of this decision, and 12% per
annum computed from the date this decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent
Utassco will have paid to claimant under this decision, plus interest thereon at the rate of
12% per annum computed from the date he is notified of such payment made by
respondent Utassco to claimant until fully paid, and to pay Utassco P100,000.00 as
attorney’s fees.
SO ORDERED.”
With the above modifications, the Writ of Execution dated November 24, 2010 issued by
the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and
UPHELD.
No pronouncement as to costs.
SO ORDERED.
Page 30 of 74
 Philippine Free Press v. C.A. | GR No. 132864 | Oct 24,2005
G.R. No. | Date | Ponente | Topic/Keywords
Digest by: NAME OF DIGESTER
Petitioners: PHILIPPINE FREE PRESS, INC
Respondents: COURT OF APPEALS (12th Division) and LIWAYWAY
PUBLISHING, INC.
Recit-ready Digest + Doctrine:
Philippine Free Press is a widely known publication in the Philippines. During
the elections of the late President Marcos, the press printed numerous article
regarding the Marcos Administration - exposing its corruption and its plan to
impose a dictatorship in the guise of Martial Law. The late President Marcos
took over the building and ordered for it to be padlocked. The president then,
Locsin, Sr. was arrested. Although no charges were filed against him, he was
“provisionally released” subject to the condition that he will not publish
anything critical of the Marcos Administration through the Philippine Free
Press. Subsequently, several offers were made by the late President Marcos
thru its agents. It was Brig. Gen. Hans Menzi who was able to convince
Locsin, Sr. to sell. In their negotiations, Locsin, Sr. agreed with the purchase
of the land, building, machineries, and other equipment, but not the name
“Philippine Free Press.” The counteroffer was accepted by the late President
Marcos, offering P5,750,000 on a take it or leave it basis. On 23 October
1972, the parties executed 2 notarized deeds of sale. The proceeds were
used by Locsin, Sr to pay out the separation pay due the employees and to
buy out the minority stockholders of the press. Several years after, the
Philippine Free Press filed an action for annulment of the sale on the ground
of vitiated consent and gross inadequacy of the price before the RTC. The trial
court however dismissed the same. The decision was likewise affirmed by the
CA. Before the SC, the Philippine Free Press argued that the duration of the
martial law regime tolled its prescriptive period to file an action for annulment.
It claims that the stretch of the regime must be considered as a fortuitous
event, thus the prescriptive period for it to file an action for annulment only
commenced after the February 25, 1986 or the People Power uprising. The
SC however did not agree with the petitioner’s postulate. The Court found out
that it was not highly impossible for Locsin, Sr. to file an action before the
courts during the martial law regime, for in fact, after he was arrested, he filed
a petition questioning the constitutionality of the imposition of martial law -
which is a case now well known as Aquino v. Enrile. Thus, its action for
annulment has long been prescribed - it being beyond 1977.
Facts:
● Philippine Free Press is a domestic corporation engaged in the
publication of Philippine Free Press Magazine, one of the widely
circulated political magazines in the Philippines.
● During the 1965 presidential elections, Philippine Free press supported
the late President Diosdado Macapagal against then Senate President
Ferdinand Marcos.
● Upon the election of the late President Marcos and prior to the
imposition of Martial law on September 21, 1972, Philippine Free Press
printed numerous articles highly critical of the Marcos administration -
exposing the corruption and abuses of the regime & exposing the plan
of the Marcoses to impose a dictatorship in the guise of Martial Law
● One evening, soldiers surrounded the Free Press Main Office Building,
and forced out its employees at gunpoint. The soldiers likewise
padlocked the building. The soldier in charge informed Teodoro Locsin,
Jr. (son of Teodoro Locsin, Sr., the President of Philippinen Free Press),
that Martial Law had been declared and that they were instructed by the
late President Marcos to take over the building and to close the printing
press.
● Subsequently, Teodoro Locsin, Sr. was arrested. Initially, he was
brought to Camp Crame and was subsequently transferred to the
maximum security bloc at Fort Bonifacio. 2 months later, he was
informed that no charges were filed against him and that he was to be
provisionally released subject to the following condition: (1) he remained
under ‘city arrest’ … and that (5) he was not to publish the Philippine
Free Press nor was he to do, say or write anything critical of the Marcos
administration
● The publication of the Philippine Free Press ceased and its main office
building remained padlocked and under heavy military guard.
● The cessation of its business affairs led to its financial ruin and was
further aggravated when its employees demanded the payment of
separation pay. Its minority stockholders likewise made demands that
Locsin, Sr. buy out their shares.
● Negotiations:
○ On separate occasions, Locsin, Sr. was approached by the
late Atty. Crispin Baizas with offers from then President Marcos
for the acquisition of the Philippine Free Press. These offers
were however refused.
○ The late Secretary Guillermo De Vega likewise approached
Locsin, Sr. reiterating Marcos’s offer to purchase the name and
the assets of the printing press.
○ Brig. Gen. Hans Menzi, the former aide-de-camp of then
President Marcos, likewise contacted Locsin, Sr., concerning
the sale.
■ During their meeting inside the Philippinne Free Press
building, Menzi once more reiterated Marcos’s offer to
purchase both the name and the assets of the printing
press. Menzi added that "Marcos cannot be denied,"
and that Locsin, Sr. would have no choice but to sell.
■ Locsin, Sr. then made a counteroffer that he will sell
the land, the building, and all the machineries and
equipment BUT NOT THE NAME “PHILIPPINE
PRINTING PRESS”
■ Then President Marcos was amenable to his
counteroffer and offered the purchase price of
P5,750,000 for the land, the building, the machineries,
the office on a "take-it-or-leave-it" basis
Page 31 of 74
 ○ Menzi tendered to Locsin, Sr. a check for P1M as
downpayment for the sale. The check was accepted by Locsin,
Sr., subject to the condition that he will refund the same in
case the sale will not push through.
● Consequently, the Board of Directors of Philippine Free Press held a
meeting and reluctantly passed a resolution authorizing Locsin, Sr. to
sell the assets of the printing press to Menzi minus the name.
● On 23 October 1972, the parties thereafter executed 2 notarized Deeds
of Sale, and Menzi paid the balance of the purchase price in the amount
of P4,750,000
● Locsin, Sr. used the proceeds of the sale to pay the separation pay of
the employees and to buy out the shares of the minority stockholders.
● RTC: Several years after, Philippine Printing Press filed a complaint for
Annulment of Sale against Liwayway and the PCGG on the grounds of
vitiated consent and gross inadequacy of purchase price. This was
however dismissed by the RTC.
● CA: The appellate court affirmed the decision of the RTC.
Issue/s: Whether or not the Martial Law has tolled the prescriptive period of an
action of annulment. NO. It was not impossible for Locsin, Sr. to commence an
action during the stretch of the Martial Law Regime
Ratio:
● Philippine Free Press argues that the Martial Law regime tolled the
prescriptive period under Article 1391 of the Civil Code which states
that: The action for annulment shall be brought within four years. This
period shall begin: in cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
● It may be recalled that the deeds of sale sought to be annulled were
both executed on October 23, 1973. It thus had until 1977.
● However, Philippine Free Press contends, however, that the 4-year
prescriptive period could not have commenced to run on October 23,
1973 - Martial law being then in full swing. It likewise avers that the
continuing threats on the life of Mr. Teodoro Locsin, Sr. and his family
and other menacing effects of martial law – which should be considered
as force majeure - ceased only after the February 25, 1986 or the
People Power uprising.
● The Philippine Free Press presently faults the CA for its misapplication
of the doctrinal rule laid down in DBP vs. Pundogar where the SC, citing
and quoting excerpts from the ruling in Tan vs. CA ruled: “We can not
accept the petitioners’ contention that the period during which
authoritarian rule was in force had interrupted prescription and that the
same began to run only on February 25, 1986, when the Aquino
government took power. It is true that under Article 1154 [of the Civil
Code] xxx fortuitous events have the effect of tolling the period of
prescription. However, we can not say, as a universal rule, that the
period from September 21, 1972 through February 25, 1986
involves a force majeure. Plainly, we can not box in the
"dictatorial" period within the term without distinction, and
without, by necessity, suspending all liabilities, however
demandable, incurred during that period, including perhaps those
ordered by this Court to be paid. While this Court is cognizant of acts
of the last regime, especially political acts, that might have indeed
precluded the enforcement of liability against that regime and/or its
minions, the Court is not inclined to make quite a sweeping
pronouncement, . . . . It is our opinion that claims should be taken on a
case-to-case basis. This selective rule is compelled, among others, by
the fact that not all those imprisoned or detained by the past dictatorship
were true political oppositionists, or, for that matter, innocent of any
crime or wrongdoing. Indeed, not a few of them were manipulators and
scoundrels.
● According to the Philippine Free Press, the correct interpretation of the
rule is that: “The prevailing rule, therefore, is that on a case-to-case
basis, the Martial Law regime may be treated as force majeure that
suspends the running of the applicable prescriptive period provided that
it is established that the party invoking the imposition of Martial Law as
a force majeure are true oppositionists during the Martial Law regime
and that said party was so circumstanced that is was impossible
for said party to commence, continue or to even resist an action
during the dictatorial regime.”
● It strains credulity to believe that the Philippine Free Press found it
impossible to commence and succeed in an annulment suit during the
entire stretch of the dictatorial regime.
○ The Court can grant that Mr. Locsin, Sr. and the press, in the
context of DBP and Tan, were "true oppositionists" during the
period of material law. But, the Philippine Free Press has
failed to convincingly prove that Mr. Locsin, Sr., as its
then President, and/or its governing board, were so
circumstanced that it was well-nigh impossible for
him/them to successfully institute an action during the
martial law years.
● Petitioner cannot plausibly feign ignorance of the fact that shortly after
his arrest, Mr. Locsin, Sr., together with several other journalists dared
to file suits against powerful figures of the dictatorial regime and
veritably challenged the legality of the declaration of martial law.
Docketed in this Court as GR No. L-35538, the case, after its
consolidation with 8 other petitions against the martial law regime, is
now memorialized in books of jurisprudence and cited in case studies
as Aquino vs. Enrile.
● In their testimonies before the trial court, both Locsin, Sr. and Locsin, Jr.
claimed that they had not filed suit to recover the properties until 1987
as they could not expect justice to be done because according to
them, Marcos controlled every part of the government, including
the courts.
○ While that situation may have obtained during the early years
of the martial law administration, We could not agree with the
proposition that it remained consistently unchanged until
1986, a span of 14 years. The unfolding of subsequent events
would show that while dissent was momentarily stifled, it was
not totally silenced.
Page 32 of 74
 ○ To say that the Judiciary was not able to render justice to
the persons who sought redress before it during the
Martial Law years is a sweeping and unwarranted
generalization as well as an unfounded indictment.
● Be that as it may, the Locsin’s mistrust of the courts and of judicial
processes is no excuse for their non-observance of the prescriptive
period set down by law.

Dispositive: WHEREFORE, the petition is DENIED, and the challenged decision

of the Court of Appeals AFFIRMED.

Page 33 of 74
Metro Concast Steel Corporation v. Allied Bank GR 177921
Dec 4/2013
G.R. No.177921 | December 4, 2013 | Perlas-Bernabe, J. | Fortuitous Event
Digest by: DON
Petitioners: Metro Concast Steel Corporation, Spouses Jose S. Dychiao and
Tiu Oh Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses Vicente
Filomena Dychiao
Respondent: Allied Bank Corporation
Recit-ready Digest + Doctrine:
Metro had loan obligations to Allied Bank. Metro failed to pay Allied. Demand
letters were made by Allied Bank’s counsel, but to no avail. Thus, Metro was
in default. This prompted Allied to file a complaint of sum of money against the
Metro before the RTC. Metro denied liability. In order to settle the debts,
Allied Bank advised them to sell the equipment and apply the proceeds of the
sale to their outstanding obligations. There were no takers, so the equipment
was reduced into scrap metal over the years. After quite some time, Peakstar
obligated itself, through a MoA, to buy the scrap metal. Allied’s counsel was
part in the making of the MoA. However, Peakstar reneged on its obligation.
Because of this, Metro conveniently argued that its obligations to Allied have
been settled because: Peakstar’s failure to pay must be considered as force
majeure and Allied Bank accepted the terms and conditions in the MoA. RTC
dismissed the complaint. CA reversed and ordered Metro to pay Allied.
W/N the loan obligations have already been extinguished. – NO
Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or
remission of the debt, the confusion or merger of the rights of creditor and
debtor, compensation or novation.
Metro classifies Peakstar's default as a form of force majeure in the sense that
they have, beyond their control, lost the funds they expected to have received
from the Peakstar (due to the MoA) which they would, in turn, use to pay their
own loan obligations to Allied Bank.
The MoA doesn’t have any relevance to the performance of Metro’s'
obligations to Allied Bank. The MoA is a sale of assets contract, while
petitioners' obligations to Allied Bank arose from various loan transactions.
Said contracts should be treated separately and distinctly from each other.
*Doctrine* While it may be argued that Peakstar's breach of the MoA was
unforeseen by petitioners, the same is clearly not "impossible" to foresee or
even an event which is "independent of human will." Neither has it been
shown that said occurrence rendered it impossible for Metro to pay their loan
obligations to Allied Bank and thus, negates the former's force majeure theory
altogether.
Doctrine: To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure of
the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito
or, if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor
to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the
injury or loss.
Facts:
● Metro Concast, a corporation duly organized and existing under and by
virtue of Philippine laws and engaged in the business of manufacturing
steel, through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts.
● By way of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements in favor of
Allied Bank.
● Petitioners failed to settle their obligations under the promissory note
and trust receipts, hence, Allied Bank, through counsel, sent them
demand letters seeking payment of the total amount of P51,064,093.62,
but to no avail. Thus, Allied Bank was prompted to file a complaint for
collection of sum of money (subject complaint) against petitioners
before the RTC.
● In their second Amended Answer, petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and
penalties charged, claiming to have paid the total sum of
P65,073,055.73 by way of interest charges for the period covering 1992
to 1997. In order to settle their debts with Allied Bank, petitioners offered
the sale of Metro Concast's remaining assets, consisting of machineries
and equipment, to Allied Bank, which the latter, however, refused.
Instead, Allied Bank advised them to sell the equipment and apply the
proceeds of the sale to their outstanding obligations. Accordingly,
petitioners offered the equipment for sale, but since there were no
takers, the equipment was reduced into ferro scrap or scrap metal over
the years.
Page 34 of 74
 ● Peakstar Oil Corporation (Peakstar), represented by one Crisanta
Camiling (Camiling), expressed interest in buying the scrap metal.
During the negotiations with Peakstar, petitioners claimed that Atty.
Peter Saw (Atty. Saw), a member of Allied Bank's legal department,
acted as the latter's agent. Eventually, with the alleged conformity of
Allied Bank, through Atty. Saw, a Memorandum of Agreement (MoA)
was drawn between Metro Concast, represented by petitioner Jose
Dychiao, and Peakstar, through Camiling, under which Peakstar
obligated itself to purchase the scrap metal for a total consideration of
P34,000,000.00.
● Unfortunately, Peakstar reneged on all its obligations under the MoA. In
this regard, petitioners asseverated that: (a) their failure to pay their
outstanding loan obligations to Allied Bank must be considered as
force majeure; and (b) since Allied Bank was the party that accepted
the terms and conditions of payment proposed by Peakstar, petitioners
must therefore be deemed to have settled their obligations to Allied
Bank.
● RTC dismissed the subject complaint, holding that the "causes of
action sued upon had been paid or otherwise extinguished."
● The CA reversed and set aside the ruling of the RTC. MR denied.
Issue:
● W/N the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been
extinguished. – NO
Ratio:
● Article 1231 of the Civil Code states that obligations are extinguished
either by payment or performance, the loss of the thing due, the
condonation or remission of the debt, the confusion or merger of the
rights of creditor and debtor, compensation or novation.
● In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due to
Peakstar's failure to perform its own obligations to Metro Concast
pursuant to the MoA.
● Petitioners classify Peakstar's default as a form of force majeure in
the sense that they have, beyond their control, lost the funds they
expected to have received from the Peakstar (due to the MoA)
which they would, in turn, use to pay their own loan obligations to
Allied Bank. They further state that Allied Bank was equally bound by
Metro Concast's MoA with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution of the said
agreement.
● Petitioners' arguments are untenable.
● At the outset, the Court must dispel the notion that the MoA would have
any relevance to the performance of petitioners' obligations to Allied
Bank. The MoA is a sale of assets contract, while petitioners'
obligations to Allied Bank arose from various loan transactions.
● Absent any showing that the terms and conditions of the latter
transactions have been, in any way, modified or novated by the terms
and conditions in the MoA, said contracts should be treated
separately and distinctly from each other, such that the existence,
performance or breach of one would not depend on the existence,
performance or breach of the other.
● Now, anent petitioners' reliance on force majeure, suffice it to state that
Peakstar's breach of its obligations to Metro Concast arising from the
MoA cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v. Jorge:
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must
be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill obligations in a
normal manner; and, (d) the obligor must be free from any
participation in the aggravation of the injury or loss. 40
(Emphases supplied)
● While it may be argued that Peakstar's breach of the MoA was
unforeseen by petitioners, the same is clearly not "impossible" to
foresee or even an event which is "independent of human will." Neither
has it been shown that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank and thus, negates
the former's force majeure theory altogether.
Dispositive:
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007
and Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No.
86896 are hereby AFFIRMED with MODIFICATION reckoning the applicable
interests and penalty charges from the date of the extrajudicial demand or on
December 10, 1998. The rest of the appellate court's dispositions stand. SO
ORDERED.
Page 35 of 74
 Tagaytay Realty v. GacutanGR 160033 July 1/2015
G.R. No. 160033 | Date | Ponente | Fortuitous Event
Digest by: NAME OF DIGESTER
Petitioners: TAGAYTAY REALTY CO., INC.
Respondents: ARTURO G. GACUTAN
Recit-ready Digest + Doctrine:
The respondent entered into a contract to sell with the petitioner for the
purchase on installment of a residential lot with an area of 308 square meters
situated in the Foggy Heights Subdivision then being developed by the
petitioner. Petitioner executed an express undertaking in favor of the
respondent, as follows: We hereby undertake to complete the development of
the roads, curbs, gutters, drainage system, water and electrical systems, as
well as all the amenities to be introduced in FOGGY HEIGHTS SUBDIVISION
xxx It is clearly understood, however, that the period or periods during which
we cannot pursue said development by reason of any act of God, any act or
event constituting force majeure or fortuitous event, or any restriction,
regulation, or prohibition by the government or any of its branches or
instrumentalities, shall suspend the running of said 2-year period and the
running thereof shall resume upon the cessation of the cause of the stoppage
or suspension of said development. In his letter, the respondent notified the
petitioner that he was suspending his amortizations because the amenities
had not been constructed in accordance with the undertaking. Respondent
sued the petitioner for specific performance in the HLURB, praying that the
petitioner be ordered to accept his payment of the balance of the contract
without interest and penalty, and to deliver to him the title of the property.
Petitioner sought to be excused from performing its obligations under the
contract, invoking Article 1267 of the Civil Code as its basis. It contended that
the depreciation of the Philippine Peso since the time of the execution of the
contract, the increase in the cost of labor and construction materials, and the
increase in the value of the lot in question were valid justifications for its
release from the obligation to construct the amenities.
WON the petitioner was released from its obligation to construct the amenities
in the Foggy Heights Subdivision – NO
Its invocation of Article 1267 of the Civil Code, which provides that "(w)hen the
service has become so difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom in whole or in part,"
was factually unfounded. For Article 1267 to apply, the following conditions
should concur, namely: (a) the event or change in circumstances could not
have been foreseen at the time of the execution of the contract; (b) it makes
the performance of the contract extremely difficult but not impossible; (c) it
must not be due to the act of any of the parties; and (d) the contract is for a
future prestation. The requisites did not concur herein because the difficulty of
performance under Article 1267 of the Civil Code should be such that one
party would be placed at a disadvantage by the unforeseen event. Mere
inconvenience, or unexepected impediments, or increased expenses did not
suffice to relieve the debtor from a bad bargain.
● And, secondly, the unilateral suspension of the construction had
preceded the worsening of economic conditions in 1983; hence, the
latter could not reasonably justify the petitioner's plea for release from
its statutory and contractual obligations to its lot buyers, particularly
the respondent.
Facts:
● On September 6, 1976, the respondent entered into a contract to sell
with the petitioner for the purchase on installment of a residential lot with
an area of 308 square meters situated in the Foggy Heights Subdivision
then being developed by the petitioner.
● on June 30, 1976, the petitioner executed an express undertaking in
favor of the respondent, as follows:
We hereby undertake to complete the development of the roads, curbs, gutters,
drainage system, water and electrical systems, as well as all the amenities to be
introduced in FOGGY HEIGHTS SUBDIVISION, such as, swimming pool, pelota
court, tennis and/or basketball court, bath house, children's playground and a
clubhouse within a period of two years from 15 July 1976, on the understanding
that failure on their part to complete such development within the stipulated
period shall give the VENDEE the option to suspend payment of the monthly
amortization on the lot/s he/she purchased until completion of such development
without incurring penalty interest.
It is clearly understood, however, that the period or periods during which we
cannot pursue said development by reason of any act of God, any act or event
constituting force majeure or fortuitous event, or any restriction, regulation, or
prohibition by the government or any of its branches or instrumentalities, shall
suspend the running of said 2-year period and the running thereof shall resume
upon the cessation of the cause of the stoppage or suspension of said
development.
● In his letter, the respondent notified the petitioner that he was
suspending his amortizations because the amenities had not been
constructed in accordance with the undertaking, to which the petitioner
did not reply. Instead, on June 10, 1985, the petitioner sent to him a
statement of account demanding the balance of the price, plus interest
and penalty. He refused to pay the interest and penalty.
● Respondent sued the petitioner for specific performance in the HLURB,
praying that the petitioner be ordered to accept his payment of the
balance of the contract without interest and penalty, and to deliver to
him the title of the property.
● Petitioner sought to be excused from performing its obligations under
the contract, invoking Article 1267 of the Civil Code as its basis. It
contended that the depreciation of the Philippine Peso since the time of
the execution of the contract, the increase in the cost of labor and
construction materials, and the increase in the value of the lot in
Page 36 of 74
 question were valid justifications for its release from the obligation to
construct the amenities.
● HLURB Arbiter ruled m favor of the respondent
● the HLURB Board of Commissioners affirmed the ruling of the HLURB
Arbiter
● OP upheld the decision of the HLURB Board of Commissioners
● CA affirmed the OP
Issue/s:
● WON the petitioner was released from its obligation to construct the
amenities in the Foggy Heights Subdivision – NO
● And, secondly, the unilateral suspension of the construction had
preceded the worsening of economic conditions in 1983; hence, the
latter could not reasonably justify the petitioner's plea for release from
its statutory and contractual obligations to its lot buyers, particularly the
respondent.
● The petitioner had the legal obligation to complete the amenities within
one year from the issuance of the license (under Section 20 of
Presidential Decree No. 957), or within two years from July 15, 1976
(under the express undertaking of the petitioner). Hence, it should have
complied with its obligation by July 15, 1978 at the latest, long before
the worsening of the economy in 1983.

Ratio: Dispositive:
Petitioner was not relieved from its statutory and contractual obligations to WHEREFORE, the Court AFFIRMS the judgment promulgated on May 29, 2003
complete the amenities subject to the MODIFICATIONS, as follows: (1) the respondent shall pay to the
● Under Section 20 of Presidential Decree No. 957, all developers, petitioner the amount of P19,965.60; (2) the petitioner shall execute the deed of
including the petitioner, are mandated to complete their subdivision absolute sale covering the property, and shall deliver the property to the
projects, including the amenities, within one year from the issuance of respondent together with the pertinent certificate of title in accordance with the
their licenses. terms of their contract; and (3) the petitioner shall pay the costs of suit.
● Pursuant to Section 30 of Presidential Decree No. 957, the amenities,
once constructed, are to be maintained by the developer like the
petitioner until a homeowners' association has been organized to
manage the amenities.
● There is no question that the petitioner did not comply with its legal
obligation to complete the construction of the subdivision project,
including the amenities, within one year from the issuance of the
license. Instead, it unilaterally opted to suspend the construction of the
amenities to avoid incurring maintenance expenses. In so opting, it was
not driven by any extremely difficult situation that would place it at any
disadvantage, but by its desire to benefit from cost savings.
● Considering that the petitioner's unilateral suspension of the
construction of the amenities was intended to save itself from costs, its
plea for relief from its contractual obligations was properly rejected
because it would thereby gain a position of advantage at the expense of
the lot owners like the respondent.
● Its invocation of Article 1267 of the Civil Code, which provides that
"(w)hen the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released
therefrom in whole or in part," was factually unfounded.
● For Article 1267 to apply, the following conditions should concur,
namely: (a) the event or change in circumstances could not have been
foreseen at the time of the execution of the contract; (b) it makes the
performance of the contract extremely difficult but not impossible; (c) it
must not be due to the act of any of the parties; and (d) the contract is
for a future prestation.
● The requisites did not concur herein because the difficulty of
performance under Article 1267 of the Civil Code should be such that
one party would be placed at a disadvantage by the unforeseen event.
Mere inconvenience, or unexepected impediments, or increased
expenses did not suffice to relieve the debtor from a bad bargain.
Page 37 of 74
 Spouses Bacolor v. Banco Filipino GR 148491 Feb 8/2007
G.R. No. | Date | Sandoval Gutierrez | Usurious transactions
Digest by: NAME OF DIGESTER
Petitioners: Sps Zacarias and Catherine Bacolor
Respondents: Banco Filipino Savings and Mortgage Bank, Dagupan City
Branch, Marcelino C. Bonuan
Recit-ready Digest + Doctrine:
Petitioner spouses obtained a P244k loan from respondent bank with the
ff terms:
● P5k monthly amortization
● Interest rate at 24%
● Penalty at 3% on the unpaid monthly amortization
● 3% service charge
● 10% Attorneys fees and 15% liquidated damages
Upon their failure to pay, they received a bank statement stating that their
outstanding debt was P840k. The bank then instituted action for
extrajudicial foreclosure on the mortgage. Prior to this case, petitioners
filed complaint for violation of Usury Law against respondent, stating that
while the Usury Law ceiling on interest rates was lifted by Central Bank
Circular 905, there is nothing in the said circular which grants respondent
bank a carte blanch authority to raise interest rates to levels which
enslave the borrower or lead to hemorrhaging of their assets.
The Court ruled that the interest rates are not excessive and
unconscionable. Article 1956 of the CC provides that no interest shall be
due unless it has been expressly stipulated in writing. Here, the parties
agreed in writing that the rate of interest on the loan shall be 24% per
annum. At the time the parties entered into the loan, the Circular in effect
states that: the interest rate on a loan forbearance of any money with a
maturity of more than 730 days shall not be subject to any ceiling. Here,
the term of the loan is for a period of 10 years, which is more than the 730
days provided in the Circular. Thus, the interest rate is not subject to any
ceiling. Therefore, the 24% interest rate agreed upon by the parties did
not violate the Usury Law as amended by PD 116.
Facts:
● 11 Feb 1982: petitioner spouses Zacarias and Catherine Bacolor,
obtained a loan of P244,000.00 from respondent Banco Filipino Savings
and Mortgage Bank, Dagupan City Branch. With the ff terms:
o They executed a promissory note providing that the amount
shall be payable within a period of ten (10) years
o A monthly amortization of P5,380.00 beginning 11 March 1982
and every 11th day of the month thereafter
o Interest rate shall be 24% per annum, with a penalty of 3% on
any unpaid monthly amortization; that there shall be a service
charge of three percent (3%) per annum on the loan;
o In case the respondent bank seeks the assistance of counsel
to enforce the collection of the loan, petitioners shall be liable
for ten percent (10%) of the amount due as attorney's fees and
fifteen percent (15%) of the amount due as liquidated
damages.
o As security, petitioners mortgaged their parcel of land in
Dagupan City, Pangasinan.
● From 11 March 1982 until 10 July 1991, petitioners paid P 412,199.36.
Thereafter, they failed to pay the remaining balance.
● On 7 Aug 1992, petitioners received from the bank a statement of
account stating that their debt as of 31 July 1992, amounts to
P840,845.61. In another letter, the bank informed that should they fail to
pay within 15 days, appropriate actions shall be taken against them.
● Due to petitioners failure to pay, the respondent instituted an action for
extrajudicial foreclosure of mortgage.
● Prior to the filing of the case, petitioners filed a complaint for violation of
the Usury Law against respondent. They allege that the provisions of
the promissory note constitute a usurious transaction considering the
rate of interest, rate of penalties, service charge, attorney fees,
liquidated damages and deductions for surcharges and insurance
premium. The bank also ceased operations, and could not, therefore,
institute any foreclosure proceedings.
● RTC dismissed petitioner’s complaint, stating that the loan and
mortgage are legal and not usurious. CA affirmed.
● Petitioner now contends that while the Usury Law ceiling on interest
rates was lifted by Central Bank Circular 905, there is nothing in the said
circular which grants respondent bank a carte blanch authority to raise
interest rates to levels which enslave the borrower or lead to
hemorrhaging of their assets.
● Respondent bank, in its comment, just said that the petitioner signed the
Deed of Mortgage and PN knowingly and consented to its terms.
Issue/s:
● W/N the interest rate is excessive and unconscionable - NO.
Ratio:
● Article 1956 of the CC provides that no interest shall be due unless it
has been expressly stipulated in writing. Here, the parties agreed in
writing that the rate of interest on the loan shall be 24% per annum.
● At the time the parties entered into the loan, the Usury Law provides
that the rate of interest for the forbearance of money when secured by a
mortgage upon real estate, should not be more than 6% per annum or
the maximum rate prescribed by the Monetary Board of the Central
Bank in force at the time the loan was granted.
○ Central Bank Circ No. 783 removed the ceiling on interest
rates on a certain class of loans
○ Section 2 provides: the interest rate on a loan forbearance of
any money with a maturity of more than 730 days shall not be
subject to any ceiling.
Page 38 of 74
 ● Here, the term of the loan is for a period of 10 years, which is more than
the 730 days provided in the Circular. Thus, the interest rate is not
subject to any ceiling. Therefore, the 24% interest rate agreed upon by
the parties did not violate the Usury Law as amended by PD 116.
● Verily, petitioners cannot now renege on their obligation to comply with
what is incumbent upon them under the loan agreement. A contract is
the law between the parties and they are bound by its stipulations.
● On the closure of the bank, the Court cited the case of Banco Filipino
Savings & Mortgage Bank vs. Monetary Board, where it ruled that the
bank’s closure did not diminish the authority and powers of the
designated liquidator to effectuate and carry on the administration of the
bank

Dispositive:
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs against
petitioners.

Page 39 of 74
 Cabrera v. Isaac
G.R. No. 166790 | November 19, 2014 | Leonen | Suspensive Condition
Digest by: Zabala
Petitioners: JUAN P. CABRERA
Respondents: Henry Ysaac
Recit-ready Digest + Doctrine:
Ysaac co-owned a portion of land in Naga City. He leased it to Cabrera,
who later wanted to buy the same. They agreed that the portion leased
plus two other portions would be sold if the lesses of the other portions
agreed and that the full purchase price will only be paid upon Cabrera’s
retirement. Later, when Cabrera wanted to pay the purchase price, Ysaac
refused. Instead, Ysaac’s lawyer sent a letter of cancellation to Cabrera
for nonpayment of the purchase price. Thus, Cabrera filed a case for
specific performance.
Held: sale was void because property was still co-owned. At most,
agreement was a contract to sell to which Art 1592 does not apply. If non-
payment is enough to cancel the contract, then the letter sent by Atty
General was more than enough. However, Isaac must return sums paid
by Cabrera. Otherwise, unjust enrichment.
Doctrine: A co-owner could enter into a contract to sell a definite portion
of the property. However, such contract is still subject to the
suspensive condition of the partition of the property, and that the
other co-owners agree that the part subject of the contract to sell
vests in favor of the co-owner’s buyer.
Facts:
The heirs of Luis and Matilde Ysaac co-owned a parcel of land located in
Sabang, Naga City. One of the co-owners is respondent, Henry Ysaac.
● Henry Ysaac leased out portions of the property to several lessees. Juan
Cabrera, one of the lessees, leased a 95-square-meter portion of the land
beginning in 1986.
● Other lessees: Borbe Family and Espiritu Family
Thereafter, Henry Ysaac needed money and offered to sell the 95-square-meter
piece of land to Juan Cabrera.
● Since Cabrera said that the land was too small because he needed a
parking space, Henry Ysaac expanded his offer to include the two adjoining
lands being leased by the Borbes and Espiritus. However, Henry Ysaac
warned Juan Cabrera that the sale for those two parcels could only
proceed if the two families agree to it.
● Juan Cabrera accepted the new offer. Henry Ysaac and Juan Cabrera
settled on the price of ₱250.00 per square meter, but Juan Cabrera stated
that he could only pay in full after his retirement in 1992. Henry Ysaac
agreed but demanded for an initial payment which Juan Cabrera paid.
● Later, Cabrera also paid for intial purchase price that the Espiritus earlier
paid to Ysaac, since the Espiritus were no longer interested to purchase
their leased portion.
● They further reduced the area of the land to be sold since it was going to
be made into a barangay walkway, and another part was being occupied by
a family that was difficult to eject.
In 1992, when Cabrera Cabrera tried to pay the balance of the purchase price to
Henry Ysaac. However,at that time, Henry Ysaac was in the United States. The
only person in Henry Ysaac’s residence was his wife. The wife refused to accept
Juan Cabrera’s payment. Payment was against refused by his wife in 1993,
when Ysaac was in Manila.
A year later, Henry Ysaac’s counsel, Atty. Luis Ruben General, wrote a letter
addressed to Atty. Leoncio Clemente, Juan Cabrera’s counsel.
● Atty. General informed Atty. Clemente that his client is formally rescinding
the contract of sale because Juan Cabrera failed to pay the balance of the
purchase price of the land between May 1990 and May 1992.
● The letter also stated that Juan Cabrera’s initial payment of and the
subsequent payment were going to be applied as payment for overdue rent
of the parcel of land Juan Cabrera was leasing from Henry Ysaac.
Juan Cabrera, together with his uncle, Delfin Cabrera, went to Henry Ysaac’s
house to settle the matter. Henry Ysaac told Juan Cabrera that he could no
longer sell the property because the new administrator of the property was his
brother, Franklin Ysaac.
Due to Juan Cabrera’s inability to enforce the contract of sale between him and
Henry Ysaac, he decided to file a civil case for specific performance (execution of
deed of sale and transfer of title of property to his name)
● He tendered the sum of ₱69,650.00 to the clerk of court as payment of the
remaining balance of the original sale price.
● Before the RTC decided the case, the heirs of Luis and Matilde Ysaac,
under the administration of Franklin Ysaac, sold their property to the local
government of Naga City which was later bought by the Borbe Family.
RTC ruled in favor of Ysaac, ruling that the sale was duly rescinded when the
former failed to pay the balance of the purchase price in the period agreed upon.
CA however ruled that the contract of sale between Juan Cabrera and Henry
Ysaac was not validly rescinded. For the rescission to be valid under Article 1592
of the Civil Code, it should have been done through a judicial or notarial act and
not merely through a letter. But the verbal contract cannot be subject to the
remedy of specific performance since the government of Naga City was an
innocent purchaser for value
Issue/s: Whether there was a valid contract of sale between petitioner and
respondent – NO.
Ratio:
Page 40 of 74
There was no valid contract of sale between petitioner and respondent. It
was null ab initio.
If the alienation precedes the partition, the co-owner cannot sell a definite portion
of the land without consent from his or her co-owners. He or she could only sell
the undivided interest of the co-owned property.
Thus, the rules allow respondent to sell his undivided interest in the coownership.
However, this was not the object of the sale between him and petitioner.
The object of the sale was a definite portion.
● Even if it was respondent who was benefiting from the fruits of the lease
contract to petitioner, respondent has "no right to sell or alienate a
concrete, specific or determinate part of the thing owned in common,
because his right over the thing is represented by quota or ideal portion
without any physical adjudication."
● There was no showing that respondent was authorized by his coowners to
sell the portion of land occupied by Juan Cabrera, the Espiritu family, or the
Borbe family. Without the consent of his co-owners, respondent could not
sell a definite portion of the co-owned property.
At best, the agreement between petitioner and respondent is a contract to
sell, not a contract of sale.
● A contract to sell is a promise to sell an object, subject to
suspensive conditions. Without the fulfillment of these suspensive
conditions, the sale does not operate to determine the obligation of
the seller to deliver the object.
● A co-owner could enter into a contract to sell a definite portion of the
property. However, such contract is still subject to the suspensive
condition of the partition of the property, and that the other co-
owners agree that the part subject of the contract to sell vests in
favor of the co-owner’s buyer. Hence, the co-owners’ consent is an
important factor for the sale to ripen.
A non-existent contract cannot be a source of obligations, and it cannot be
enforced by the courts
The absence of a contract of sale means that there is no source of obligations for
respondent, as seller, or petitioner, as buyer. Rescission is impossible because
there is no contract to rescind.
The rule in Article 1592 that requires a judicial or notarial act to formalize
rescission of a contract of sale of an immovable property does not apply. This
court does not need to rule whether a letter is a valid method of rescinding a
sales contract over an immovable property because the question is moot and
academic.
Even if we assume that respondent had full ownership of the property and that he
agreed to sell a portion of the property to petitioner, the letter was enough to
cancel the contract to sell. Generally, "[t]he power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent on him.
Art 1592 not applicable
Art 1592 contemplates:
(1) a contract of sale of an immovable property and
(2) a stipulation in the contract that failure to pay the price at the time agreed
upon will cause the rescission of the contract.
Hence, this provision does not apply if it is not a contract of sale of an
immovable property and merely a contract to sell an immovable property.
The law does not prescribe a form to rescind a contract to sell immovable
property. In a previous case, the non-payment operated to cancel the contract. If
mere non-payment is enough to cancel a contract to sell, the letter given to
petitioner’s lawyer is also an acceptable form of rescinding the contract.
The law does not require notarization for a letter to rescind a contract to sell
immovable property. Notarization is only required if a contract of sale is being
rescinded.
Petitioner argued that he was willing to comply with the suspensive condition on
the contract to sell because he was ready to pay the balance of the purchase
price on June 15, 1992. However, his argument is unmeritorious. As ruled by the
Regional Trial Court, petitioner should have resorted to the various modes of
consignment when respondent’s wife refused to accept the payment on
respondent’s behalf.
Therefore, even if we assumed that the contract between petitioner and
respondents were perfected, the strict requisites in Article 1592 did not apply
because the only perfected contract was a contract to sell, not a contract of sale.
The courts cannot enforce the right of petitioner to buy respondent’s property.
We cannot order the execution of a deed of sale between petitioner and
respondent.
The question of double sale also becomes moot and academic.
We rule that petitioner is entitled to the return of the amount of money because
he paid it as consideration for ownership of the land. Since the ownership of the
land could not be transferred to him, the money he paid for that purpose must be
returned to him. Otherwise, respondent will be unjustly enriched.
Dispositive:
WHEREFORE, the petition is DENIED. The Court of Appeals' decision dated
June 19, 2003 in CA-G.R. CV No. 65869 is SET ASIDE. The contract between
petitioner and respondent is DECLARED invalid and, therefore, cannot be
subject to specific performance. Respondent is ORDERED to return ₱10,600.00
to petitioner, with legal interest of 12% per annum from September 20, 1995 until
June 30, 2013 and 6% per annum from July 1, 2013 ·until fully paid. The award
of attorney's fees and litigation expenses is DELETED
Page 41 of 74
 Sps Domingo v. Sps Manzano
GR 201883 Nov 16, 2016
G.R. No. 201883 | Nov. 16, 2016 | J. Del Castillo | Conditional Obligations
Digest by: ANTE
Petitioners: SPOUSES DESIDERIO and TERESA DOMINGO
Respondents: SPOUSES EMMANUEL and TITA MANZANO,
FRANKLIN ESTABILLO, and CARMELITA AQUINO
Recit-ready Digest + Doctrine:Respondents Emmanuel and Tita
Manzano (the Manzanos) were the registered owners of a 35,281-square
meter parcel of land with improvements in Bagong Barrio, Caloocan City
(subject property), covered by Transfer Certificate of Title (TCT) No.
160752. On June 1, 2001, the Manzanos, through their duly appointed
attorney-in-fact and herein co-respondent Franklin Estabillo (Estabillo),
executed a notarized agreement with petitioners Desiderio and Teresa
Domingo. Petitioners paid the ₱100,000.00 reservation fee upon the
execution of the agreement. Thereafter, they also made payments on
several occasions, amounting to ₱160,000.00. However, they failed to
tender full payment of the balance when the March 2001 deadline came.
Petitioners discovered that respondent Carmelita Aquino (Aquino) bought
the subject property on May 7, 2002, and a new title – TCT No. C-359293
– had been issued in her name. Their adverse claim was nevertheless
carried over to Aquino's new title. Upon examination of the contract, CA
ruled that the contract between the Domingos and the Manzanos is a
contract to sell, and not a contract of sale, it being subject to the condition
that the title will only be transferred upon full payment of purchase price.
Hence, “Under a contract to sell, the title of the thing to be sold is
retained by the seller until the purchaser makes full payment of the
agreed purchase price. Such payment is a positive suspensive
condition, the non-fulfillment of which is not a breach of contract
but merely an event that prevents the seller from conveying title to
the purchaser. The non-payment of the purchase price renders the
contract to sell ineffective and without force and effect. Thus, a
cause of action, for specific performance does not arise.' As regards
a subsequent 'buyer in bad faith' affecting prior contracts to sell, the
peculiarities of a contract to sell, emphasized above, culminate in
the unique doctrine that in case a third person purchases a property
subject of a prior contract to sell, such buyer is protected from the
taint of bad faith under Article 1544.” SC: it is precisely for the above
reason that Article 1544 of the Civil Code cannot apply. Since failure to
pay the price in full in a contract to sell renders the same ineffective and
without force and effect, then there is no sale to speak of. Even
petitioners' posture that their annotation of an adverse claim on TCT No.
160752 is equivalent to registration or claim of ownership necessarily
fails, on account of the fact that there was never a sale in their favor - and
without a sale in their favor, they could not register or claim ownership of
the subject property. Thus, as between the parties to the instant case,
there could be no double sale which would justify the application of Article
1544. Petitioners failed to pay the purchase price in full, while Aquino did,
and thereafter she was able to register her purchase and obtain a new
certificate of title in her name. As far as this Court is concerned, there is
only one sale - and that is, the one in Aquino's favor. "Since there is only
one valid sale, the rule on double sales under Article 1544 of the Civil
Code does not apply."
Doctrine: BOLD PORTION
Facts:
● Respondents Emmanuel and Tita Manzano (the Manzanos) were the
registered owners of a 35,281-square meter parcel of land with
improvements in Bagong Barrio, Caloocan City (subject property),
covered by Transfer Certificate of Title (TCT) No. 160752. On June 1,
2001, the Manzanos, through their duly appointed attorney-in-fact and
herein co-respondent Franklin Estabillo (Estabillo), executed a notarized
agreement with petitioners Desiderio and Teresa Domingo
● Petitioners paid the ₱100,000.00 reservation fee upon the execution of
the agreement. Thereafter, they also made payments on several
occasions, amounting to ₱160,000.00. However, they failed to tender
full payment of the balance when the March 2001 deadline came. Even
then, Estabillo advised petitioners to continue their payments; thus, they
made additional payments totaling ₱85,000.00. All in all, as of
November 2001, petitioners had made payment in the amount of
₱345,000.00.
● In December 2001, petitioners offered to pay the remaining
₱555,000.00 balance, but Estabillo refused to accept payment; instead,
he advised petitioners to await respondent Tita Manzano' s (Tita) arrival
from abroad. When Tita arrived, petitioners tendered payment of the
balance, but the former refused to accept it. Instead, she told them that
the property was no longer for sale and she was forfeiting their
payments. For this reason, petitioners caused the annotation of an
affidavit of adverse claim
● Soon thereafter, petitioners discovered that respondent Carmelita
Aquino (Aquino) bought the subject property on May 7, 2002, and a new
title – TCT No. C-359293 – had been issued in her name. Their adverse
claim was nevertheless carried over to Aquino's new title.
● Petitioners filed a Complaint for specific performance and damages with
injunctive relief against respondents. The case was docketed as Civil
Case No. C-20102 and assigned to Branch 128 of the RTC of Caloocan
City. Petitioners sought to compel the Manzanos to accept payment of
the remaining balance, execute a deed of sale over the subject property
in their favor, and restrain the sale in favor of Aquino.
Page 42 of 74
● In their respective Answers, Aquino and Estabillo alleged essentially
that there was no sale between petitioners and the Manzanos, but a
mere offer to buy from petitioners, which was refused due to late
payment
● RTC issued a Decision declaring that, as against Aquino, petitioners
have a prior right over the subject property. It held that the agreement
between petitioners and the Manzanos was a contract of sale. Applying
Article 1544 of the Civil Code, the RTC held that Aquino was a buyer in
bad faith, as she knew of petitioners’ prior purchase and registered
adverse claim – and such knowledge was equivalent to registration, and
thus, the registration of her sale was done in bad faith.
● The crux of the instant petition is whether the agreement between the
spouses Manzano and appellees13 is a contract of sale, as the RTC
ruled, or a contract to sell, as appellant proposed. If it is a contract of
sale, then Article 1544 of the Civil Code applies, and the RTC’s
Decision stands on firm ground. However, if the contract is merely a
contract to sell, the propriety of applying Art. 1544 falters, and
appellant’s principal thrust in her Brief deserves discussion. Thus, the
resolution of this issue is decisive.
● CA: We have applied the distinctions above and examined the contract
between the parties. In this regard, We differ from the RTC and find that
the Manzanos and appellees entered into a mere contract to sell.
We quote the following provision from the contract, which is particularly
revealing of the contract's true nature:
'Ayon sa aming napagkasunduan, ililipat lamang ang Titulo ng lupa na
may no. 160752 at bahay pag nabayaran ko ng lahat ng (₱900,000.00)
Nine Hundred thousand pesos hanggang Marso ng 2001.'
[Translated as: According to our agreement, the title of the land with no.
160752 and the house shall only be transferred when I have completely
paid the ₱900, 000. 00 by March 2001.]
The above passage clearly indicates that first, the ownership is
reserved to the vendors, and second, that the title of the subject
property passes to the buyers only upon full payment of Php900,000.00
[in] March 2001.
In contracts to sell, specific performance is therefore an improper
remedy to compel the seller to execute the deed of sale before full
payment of the purchase price. Thus, in the Nabus case, the Court
held:
Evidently, before the remedy of specific performance may be availed of,
there must be a breach of the contract.
Under a contract to sell, the title of the thing to be sold is retained by the
seller until the purchaser makes full payment of the agreed purchase
price. Such payment is a positive suspensive condition, the non-
fulfillment of which is not a breach of contract but merely an event that
prevents the seller from conveying title to the purchaser. The non-
payment of the purchase price renders the contract to sell ineffective
and without force and effect. Thus, a cause of action, for specific
performance does not arise.'
As regards a subsequent 'buyer in bad faith' affecting prior contracts to
sell, the peculiarities of a contract to sell, emphasized above, culminate
in the unique doctrine that in case a third person purchases a property
subject of a prior contract to sell, such buyer is protected from the taint
of bad faith under Article 1544.
In rendering Our pronouncement, We clarify that We are not unmindful
of Filinvest Development Corporation v. Golden Haven Memorial Park
which appellees invoked in their Brief. In the Filinvest case, where rights
from a contract to sell clashed with those from a contract of sale over
the same realty, indeed the Court applied the principle of a "bad faith
buyer" in a manner closely resembling an application of Art. 1544.
However, the facts of that case present a crucial difference. In Filinvest,
no titles were yet issued in the subsequent buyer’s name; the
subsequent buyer merely sought to annotate his sales. As such, the
holding in Spouses Cruz v. Fernando, i.e., that title to the property will
transfer upon registration without the third person purchaser being held
in bad faith, has not yet, so to speak, locked in place against the
intending buyer in the earlier contract to sell. Thus, before registration of
the sale, the vendee may still be held in bad faith and the sale to him
annulled; but after registration, title will issue and the slighted intending
buyer can only recover damages from the seller, because, as the
Spouses Cruz v. Fernando case emphasized, the owner-seller’s title
suffers no defect per se.
This is not, however, to say that appellees are deprived of remedies. As
found in the Nabus case, appellees are entitled to the reimbursement of
the sums they have paid, if only to prevent the defendants' unjust
enrichment.
Issue/s:
● Whether the contract between the the Domingos and the Manzanos is a
contract to sell or a contract of sale. --Contract to sell
Ratio:
● This Court, however, agrees with the CA' s pronouncement that Article
1544 cannot apply to the present case. The appellate court' s
disquisition is succinct; nothing more can be added to what it has said.
Page 43 of 74
 Just the same, the treatment and disposition of cases of this nature is
quite settled.

● This ponente has had the occasion to rule that in a contract to sell,
payment of the price is a positive suspensive condition, failure of which
is not a breach of contract warranting rescission but rather just an event
that prevents the prospective buyer from compelling the prospective
seller to convey title. In other words, the non-fulfillment of the condition
of full payment renders the contract to sell ineffective and without force
and effect.

x x x A contract to sell is one where the prospective seller reserves the

transfer of title to the prospective buyer until the happening of an event,
such as full payment of the purchase price. What the seller obliges
himself to do is to sell the subject property only when the entire amount
of the purchase price has already been delivered to him. 'In other
words, the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer'. x x x

● And it is precisely for the above reason that Article 1544 of the Civil
Code cannot apply. Since failure to pay the price in full in a contract to
sell renders the same ineffective and without force and effect, then there
is no sale to speak of. Even petitioners' posture that their annotation of
an adverse claim on TCT No. 160752 is equivalent to registration or
claim of ownership necessarily fails, on account of the fact that there
was never a sale in their favor - and without a sale in their favor, they
could not register or claim ownership of the subject property. Thus, as
between the parties to the instant case, there could be no double sale
which would justify the application of Article 1544. Petitioners failed to
pay the purchase price in full, while Aquino did, and thereafter she was
able to register her purchase and obtain a new certificate of title in her
name. As far as this Court is concerned, there is only one sale - and
that is, the one in Aquino's favor. "Since there is only one valid sale, the
rule on double sales under Article 1544 of the Civil Code does not
apply."

Dispositive:
WHEREFORE, the Petition is DENIED. The January 4, 2012 Decision and May
18, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 93662 are
AFFIRMED with MODIFICATION, in that the monetary awards shall earn
interest at the rate of 12% per annum up to June 30, 2013; thereafter, the rate of
interest shall be 6% per annum until judgment is fully satisfied

Page 44 of 74
 Sagun v. ANZ Global Services and Operations GR 220399
Aug 22, 2016
G.R. No. 220399 | 8/22/2016 | Perlas-Bernabe, J. | Conditional Employment
Contract
Digest by: NAME OF DIGESTER
Petitioners: ENRIQUE Y. SAGUN
Respondents: ANZ GLOBAL SEVICES AND OPERATIONS (MANILA),
INC., GAY CRUZADA, and PAULA ALCARAZ
Recit-ready Digest + Doctrine:
Petitioner was employed at Hongkong and Shanghai Banking Corporation
Electronic Data Processing (Philippines), Inc. (HSBC-EDPI) when he
applied online for the position of Payments and Cash Processing Lead at
respondent ANZ Global Services and Operations (Manila), Inc. (ANZ), a
domestic corporation whose businesses involve a full range of banking
products and services. The terms and conditions of his employment
required, among others, a satisfactory result of his pre-employment
screening. Petitioner was instructed to report to ANZ and was handed a
letter of retraction signed by ANZ's Human Resources Business Partner,
Paula Alcaraz (Alcaraz), informing him that the job offer had been
withdrawn on the ground that the company found material inconsistencies
in his declared information and documents provided after conducting a
background check with his previous employer, particularly at Siemens.
Petitioner filed a complaint for illegal dismissal with money claims against
ANZ, Cruzada, and Alcaraz (respondents) before the NLRC, National
Capital Region, docketed as NLRC NCR Case No. 08-11752-11.
DOCTRINE: See BOLD portion of Ratio.
Facts:
● Petitioner was employed at Hongkong and Shanghai Banking
Corporation Electronic Data Processing (Philippines), Inc. (HSBC-EDPI)
when he applied online for the position of Payments and Cash
Processing Lead at respondent ANZ Global Services and Operations
(Manila), Inc. (ANZ), a domestic corporation whose businesses involve
a full range of banking products and services.
● After passing the interview and online examination, ANZ, through its
Senior Vice President for Operations, Cruzada, offered petitioner the
position of Customer Service Officer, Payments and Cash Resolution,
which the latter accepted.
● The terms and conditions of his employment required, among others, a
satisfactory result of his pre-employment screening. The pertinent
portions of which read as follows:
● “13. Pre-employment screening & ongoing screening
○ In accordance with its legal and regulatory obligations, and in
accordance with ANZ policy, you may be required to undergo a
police record check prior to commencing work with ANZ, or at
other times during your employment.
○ You may also be required to undergo other checks (e.g.
bankruptcy checks, sanctions screening, reference
checks, etc.
○ Your initial and ongoing employment is conditional on ANZ
being satisfied that the results of:
■ a police record check are compatible with the
inherent requirements of your position; and
■ any other required background or other checks are to
the satisfaction of ANZ (keeping in mind your position
and ANZ's role as a financial institution).
○ ANZ may use any information you provide to conduct
reference checks and any other background checks.
○ Your employment is also conditional upon you holding all
necessary visas and meeting all immigration requirements
necessary for you to work in Philippines in this position.
○ If, in the opinion of ANZ, any of your background checks,
reference checks or visas are not satisfactory, ANZ may
choose not to commence your employment, or where you have
already started, to end your employment immediately, with no
liability to pay compensation to you. 11 (Emphases supplied)”
● The Schedules, which likewise formed part of the employment
agreement, provided that petitioner was to be placed on a probationary
status for a period of six (6) months and that his appointment would take
effect from the date of reporting, which was to be not later than July 11,
2011.
● Petitioner tendered his resignation at HSBC-EDPI and the
acknowledged copy thereof was transmitted to ANZ together with his
other pre-employment documentary requirements.
● Petitioner was instructed to report to ANZ and was handed a letter of
retraction signed by ANZ's Human Resources Business Partner, Paula
Alcaraz (Alcaraz), informing him that the job offer had been withdrawn
on the ground that the company found material inconsistencies in his
declared information and documents provided after conducting a
background check with his previous employer, particularly at Siemens.
● Petitioner filed a complaint for illegal dismissal with money claims
against ANZ, Cruzada, and Alcaraz (respondents) before the NLRC,
National Capital Region, docketed as NLRC NCR Case No. 08-11752-
11.
● NLRC Ruling: affirmed the findings of the LA, ruling that no employer-
employee relationship existed between petitioner and respondents.
○ It held that petitioner's employment with ANZ never took effect
since its effectivity was dependent on his reporting for work on
or before July 11, 2011, which he admittedly failed to comply.
○ The NLRC added that the withdrawal of job offer was valid and
reasonable, there being substantial evidence to show that
petitioner committed misrepresentations in his job application.
Page 45 of 74
 ● CA Ruling: found no grave abuse of discretion to have been committed
by the NLRC in upholding the dismissal of the complaint.
○ The CA distinguished between the perfection of an
employment contract and the commencement of the employer-
employee relationship, citing the case of Santiago v. CF Sharp
Crew Management, Inc. (Santiago).
○ It held that the contract was perfected on June 8, 2011 when it
was signed by the parties.
○ However, it ruled that the employment contract did not
commence since respondents did not allow petitioner to begin
work due to the misrepresentations, he made in his application
form.
○ The CA also pointed out that since the employment offer was
conditioned on the satisfactory completion of his background
check, his failure to comply with the same rendered the
withdrawal of the offer justified. Hence, no employer-employee
relationship was created between the parties.
○ Lastly, relying on the Santiago case, it clarified that even if
there was no employer-employee relationship, the NLRC still
had jurisdiction over the complaint since the LA's jurisdiction
was not limited to claims arising from employer-employee
relationship.
Issue/s:
W/N the CA erred in not finding grave abuse of discretion on the part of the
NLRC in holding that no employer-employee relationship existed between
petitioner and respondent. – NO.
Ratio:
● A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service.
● There is no contract unless the following essential requisites concur:
○ (a) consent of the contracting parties;
○ (b) object certain which is the subject matter of the contract;
and
○ (c) cause of the obligation which is established.
● In general, contracts undergo three distinct stages:
○ Negotiation,
○ Perfection or birth, and
○ Consummation.
● Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of their
agreement.
● Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract.
● Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof.
● An employment contract, like any other contract, is perfected at the
moment the parties come to agree upon its terms and conditions, and
thereafter, concur in the essential elements thereof.
○ In this relation, the contracting parties may establish such
stipulations, clauses, terms, and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.
● In this case, there was already a perfected contract of employment
when petitioner signed ANZ's employment offer and agreed to the
terms and conditions that were embodied therein.
○ Nonetheless, the offer of employment extended to
petitioner contained several conditions before he may be
deemed an employee of ANZ.
○ Petitioner's employment with ANZ depended on the
outcome of his background check, which partakes of the
nature of a suspensive condition, and hence, renders the
obligation of the would-be employer, i.e., ANZ in this case,
conditional.
● Article 1181 of the Civil Code provides:
○ Art. 1181. In conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which
constitutes the condition.
● A condition is defined as "every future and uncertain event upon
which an obligation or provision is made to depend.
● Jurisprudence states that when a contract is subject to a
suspensive condition, its effectivity shall take place only if and
when the event which constitutes the condition happens or is
fulfilled.
● A perfected contract may exist, although the obligations arising
therefrom - if premised upon a suspensive condition - would yet to be
put into effect.
● Here, the subject employment contract required a satisfactory
completion of petitioner's background check before he may be deemed
an employee of ANZ.
● Petitioner failed to explain the discrepancies in his declared information
and documents that were required from him relative to his work
experience at Siemens, namely:
○ (a) that he was only a Level 1 and not a Level 2 Technical
Support Representative that conducts troubleshooting for both
computer hardware and software problems; and
○ (b) that he was found to have been terminated for cause and
not merely resigned from his post, that rendered his
background check unsatisfactory, ANZ's obligations as a
would-be employer were held in suspense and thus, had yet to
acquire any obligatory force.
Page 46 of 74
 ● Until and unless petitioner complied with the satisfactory background
check, there exists no obligation on the part of ANZ to recognize and
fully accord him the rights under the employment contract.
○ In fact, records also show that petitioner failed to report for
work on or before July 11, 2011, which was also a suspensive
condition mandated under sub-paragraph 4 of Schedule 1 of
the contract.
● No employer-employee relationship was said to have been created
between petitioner and ANZ under the circumstances, and the
dismissal of the farmer's complaint for illegal termination from
work, as held by the NLRC, was correctly sustained by the CA.

Dispositive:

WHEREFORE, the petition is DENIED. The Decision dated May 25, 2015 and
the Resolution dated August 27, 2015 of the Court of Appeals in CA-G.R. SP No.
127777 are hereby AFFIRMED.

Page 47 of 74
 Danan v. Spouses Serrano
GR 195072 | Aug 1, 2016 | Peralta, J. | Resolutory Condition
Digest by: Capacite
Petitioners: Bonifacio Danan
Respondents: Sps Gregorio Serrano and Adelaida Reyes
Recit-ready Digest + Doctrine: Gregorio sold to Bonifacio and Artemio
the 400-square-meter portions that they were initially allowed to possess
through an "Agreement in Receipt Form." While Bonifacio and Artemio
paid the P2,000 upon the signing of the Agreement, they were both
unable to pay the balance. Sps Serrano filed for ejectment but it was
dismissed for lack of jurisdiction. Bonifacio and Artemio filed a Complaint
for Specific Performance for the Sps to execute and deliver the proper
deed of sale and the titles, which the RTC granted. CA reversed as the
agreement was a conditional sale: compliance with the stipulated
payments was a suspensive condition and the failure by Bonifacio and
Artemio thereof prevented the obligation of the Sps Serrano to convey the
title from acquiring binding force.
W/N the Sps are obligated to transfer the titles of the subject properties –
NO, agreement was merely a contract to sell and such obligation to
transfer title did not arise as a result of Bonifacio's failure to fully pay
SC: In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold whereas in a contract to sell, the
ownership is, by agreement, retained by the vendor and is not to pass to
the vendee until full payment of the purchase price. In a contract of sale,
the vendee's non-payment of the price is a negative resolutory condition,
while in a contract to sell, the vendee's full payment of the price is a
positive suspensive condition to the coming into effect of the agreement.
The agreement is a contract to sell and not a contract of sale. As
expressly stipulated therein, the parties "agreed that in June 1978, upon
the completion of the full payment of the agreed price, the herein vendor
will deliver to the vendee a title corresponding to the lot or portion sold." If
the agreement was one of absolute sale, Bonifacio would not have prayed
in his complaint that a proper deed of sale, with the corresponding title
over the subject properties, be signed, executed and delivered.
Notwithstanding the failure by the spouses to comply with the cancellation
requirements under RA No. 6552, Bonifacio's action for specific
performance must nonetheless fail on the ground of prescription.
Facts:
● Sps Serrano are the registered owners of a parcel in Lubao, Pampanga.
● When the property was still co-owned by respondent Gregorio and his
siblings, Gregorio's sisters, Marciana and Felicidad, gave petitioner
Bonifacio Danan and a certain Artemio Vitug permission to possess 400
square meters each of the total estate and to build their homes thereon
in exchange for one cavan of palay every year.
o Later, Gregorio sold to Bonifacio and Artemio their respective
portions through an "Agreement in Receipt Form."
o While Bonifacio and Artemio paid the P2,000.00 upon the
signing of the Agreement, they were both unable to pay the
balance of the purchase price.
o But, they remained in possession of their respective lots.
● Sps Serrano filed for ejectment against Bonifacio and Artemio, claiming
that they are the owners and that the latter were mere caretakers.
o MTC dismissed on the ground of lack of jurisdiction.
● Bonifacio and Artemio filed a Complaint for Specific Performance for
Sps Serrano to sign, execute, and deliver the proper deed of sale,
together with the corresponding titles over the portions of land in their
favor:
o That their failure to pay was due to the continuous absence of
Sps Serrano.
o That despite their ability and willingness to pay the aforesaid
amount, Bonifacio and Artemio were shocked to have found
that Sps Serrano had already obtained the title over the subject
properties in their names.
o That Gregorio intentionally deceived them into signing the
documents purportedly intended to facilitate the processing
and issuance of their titles but which turned out to be a
declaration that they were merely caretakers of the same.
● RTC: in favor of Bonifacio and Artemio, stating that the acceptance of a
down payment means that the contract is no longer executory but partly
executed.
● CA reversed.
o The provisions of the "Agreement in Receipt Form" clearly
show that the parties agreed on a conditional sale and not an
absolute sale as Bonifacio and Artemio would like to believe.
o By the express terms of the agreement, the title was reserved
and remained with the Sps Serrano, to be transferred only
when Bonifacio and Artemio paid the last installment of the
purchase price.
o If it were indeed an absolute sale, Bonifacio and Artemio would
not have prayed in their complaint that a proper deed of sale,
together with the corresponding title over the subject
properties, be signed, executed and delivered.
o Indeed, compliance with the stipulated payments was a
suspensive condition and the failure by Bonifacio and Artemio
thereof prevented the obligation of the Sps Serrano to convey
the title from acquiring binding force.
o Thus, the parties now stand as if the conditional obligation
never existed.
Issue: W/N the Sps are obligated to transfer the titles of the subject properties –
NO, agreement was merely a contract to sell and such obligation to transfer title
did not arise as a result of Bonifacio's failure to fully pay the purchase price
Page 48 of 74
Ratio:
● In a contract of sale, the title to the property passes to the vendee upon
the delivery of the thing sold whereas in a contract to sell, the ownership
is, by agreement, retained by the vendor and is not to pass to the
vendee until full payment of the purchase price.
● In a contract of sale, the vendee's non-payment of the price is a
negative resolutory condition, while in a contract to sell, the vendee's full
payment of the price is a positive suspensive condition to the coming
into effect of the agreement.
○ In the first case, the vendor has lost and cannot recover the
ownership of the property unless he takes action to set aside
the contract of sale.
○ In the second case, the title simply remains in the vendor if the
vendee does not comply with the condition precedent of
making payment at the time specified in the contract.
○ Verily, in a contract to sell, the prospective vendor binds
himself to sell the property subject of the agreement
exclusively to the prospective vendee upon fulfilment of the
condition agreed upon which is the full payment of the
purchase price but reserving to himself the ownership of the
subject property despite delivery thereof to the prospective
buyer.
● A cursory reading of the "Agreement in Receipt Form" would readily
reveal that the same is a contract to sell and not a contract of sale.
○ As expressly stipulated therein, the parties "agreed that in June
1978, upon the completion of the full payment of the agreed
price, the herein vendor will deliver to the vendee a title
corresponding to the lot or portion sold."
○ Clearly, the title to the property was to remain with the Sps
Serrano, to pass only to Bonifacio until his full payment of the
purchase price.
○ As pointed out by the CA, if the agreement was one of
absolute sale, Bonifacio would not have prayed in his
complaint that a proper deed of sale, together with the
corresponding title over the subject properties, be signed,
executed and delivered.
Dispositive: WHEREFORE, premises considered, the instant petition is
DENIED…
Notes:
● In view of the nature of the agreement herein, a contract to sell real
property on installment basis, the provisions of RA No. 6552 must be
taken into account.
○ In conditional sales of all kinds of real estate (industrial,
commercial, residential), RA No. 6552 not only recognizes the
right of the seller to cancel the contract upon nonpayment of an
installment by the buyer, an event that prevents the obligation
of the seller to convey title from acquiring binding force, it also
provides for the rights of the buyer in case of such cancellation.
● Sec. 4. In cases where less than two years of installments were paid,
the seller shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a
notarial act.
● Essentially, the said provision provides for three (3) requisites before
the seller may actually cancel the subject contract:
○ first, the seller shall give the buyer a sixty (60)-day grace
period to be reckoned from the date the installment became
due;
○ second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the buyer
fails to pay the installments due at the expiration of the said
grace period; and,
○ third, the seller may actually cancel the contract only after thirty
(30) days from the buyer's receipt of the said notice of
cancellation/demand for rescission by notarial act.
● Bonifacio was only able to pay the first P2,000.00 installment upon the
signing of their agreement, thereafter, failing to pay the balance of the
purchase price when they fell due.
○ It is, therefore, Section 4 of RA No. 6552 that applies herein.
● There is no showing that the Spouses Serrano complied with the
requirements prescribed by RA No. 6552.
○ Spouses Serrano filed their Complaint for unlawful detainer,
attaching therewith the May 1992 document (Agreement) as
well as a Notice to Vacate.
○ None of these documents constitutes as the requisite "notice of
cancellation or demand for rescission by notarial act"
mandated by law.
○ Nowhere in the said documents was the sale or its rescission
ever mentioned.
● Notwithstanding the failure by the spouses to comply with the
cancellation requirements under RA No. 6552, however, Bonifacio's
action for specific performance must nonetheless fail on the ground of
prescription.
○ Not only did Bonifacio fail to pay the last two (2) installments, it
took him twenty (20) years from the last due date on June 30,
1978 to assert his rights over the property subject of the
contract to sell.
○ As borne by the records, Bonifacio filed the instant Complaint
for Specific Performance only on November 3, 1998.
○ Such action to enforce said written contract herein prescribes
in ten (10) years reckoned from the nonfulfillment of the
obligation to pay on the last due date.
Page 49 of 74
 Catungal v. Rodriguez
right of way shall be negotiated.
G.R. No. 146839 | March 23, 2011 | Ponente | Potestative, Casual or Mixed
Digest by: V. Chang
Facts:
Petitioners: Rolando T. Catungal, Jose T. Catungal, Jr., Carolyn T.
Catungal And Erlinda Catungal-Wessel
Respondents: Angel S. Rodriguez
Recit-ready Digest + Doctrine:
Angel Rodriguez filed a Complaint for Damages against the spouses
Catungal. It was alleged that Agapita Catungal owned a parcel of land
and entered into a Contract to Sell with Rodriguez. The contract to sell
was upgraded to that of a Conditional Deed of Sale where 500,000 Php
was the downpayment. Sps. Catungal then demanded payment of 5M
instead, due to personal reasons. When Rodriguez refused because this
was not part of their contract, Rodriguez found out that Sps. Catungal
were offering the property for sale to other people. Rodriguez then
received a letter from Atty. Catungal, stating that the contract had been
cancelled and terminated. Contending that the Catungals' unilateral
rescission of the Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez filed a complaint in RTC.
RTC ruled in favor of Rodriguez. CA Affirmed.
Issue: WON the provisions of the Conditional Deed of Sale (c and e, 3rd
bullet of facts) violated the principle of mutuality of contracts under Art.
1308 CC? No.
Petitioners rely on Art. 1308 of the Civil Code to support their conclusion
regarding the claimed nullity of the aforementioned provisions. Art. 1308
states that "[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
But Art. 1182 provides: When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person, the obligation
shall take effect in conformity with the provisions of this Code.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent
shall pay the balance of the purchase price when he has successfully
negotiated and secured a road right of way, is not a condition on the
perfection of the contract nor on the validity of the entire contract or
its compliance as contemplated in Article 1308.
It is a condition imposed only on respondent’s obligation to pay the
remainder of the purchase price. In our view and applying Article 1182,
such a condition is not purely potestative as petitioners contend.
It is not dependent on the sole will of the debtor but also on the will
of third persons who own the adjacent land and from whom the road
● On April 23, 1990, Agapita, with the consent of her husband
Jose, entered into a Contract to Sell with Rodriguez. Then the
Contract to Sell was purportedly "upgraded" into a Conditional
Deed of Sale dated July 26, 1990 between the same parties.
Both the Contract to Sell and the Conditional Deed of Sale were
annotated on the title.
● Details of Conditional deed of sale:
a. P25M Total purchase price.
b. P500,000 down payment,
c. Remaining balance will be paid thru 5 checks: (1) P4.5M
and (4) P5M, upon respondent’s negotiation of Road
Right of Way [note: suspensive condition depending
partly between respondent and third party (owners of
right of way)].
d. The Road Right of Way and any expenses related
thereto will be borne by Rodriguez. He will be accorded
with enough time necessary for the success of his
endeavor, granting him a free hand in negotiating for the
passage.
e. Rodriguez has the option to rescind the sale provided he
notify the Sps. Catungal by way of a written notice
relinquishing his rights over the property.
● In accordance with the Conditional Deed of Sale, Rodriguez
secured the necessary surveys and plans and the property was
reclassified from agricultural to residential land which
substantially increased the property's value. He likewise alleged
that he actively negotiated for the road right of way as stipulated
in the contract.
● Rodriguez further claimed that the spouses Catungal requested
an advance of P5M on the purchase price for personal reasons.
a. Rodriquez refused on the ground that the amount was
substantial and was not due under the terms of their
agreement.
● Shortly after his refusal to pay the advance, he learned that the
Catungals were offering the property for sale to third parties.
● Rodriguez received a letter from Atty. Catungal, stating that the
contract had been cancelled and terminated.
● Contending that the Catungals' unilateral rescission of the
Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez filed a complaint in RTC.
Page 50 of 74

Sps. Catungal: Alleged that they had the right to rescind the contract in
view of: (1) Rodriguez’s failure to negotiate the road right of way despite
the lapse of several months since the signing of the contract, and (2) his
refusal to pay the additional amount of ₱5M asked by the Catungals,
which to them indicated his lack of funds to purchase the property. The
Catungals contended that Rodriguez did not have an exclusive right to
rescind the contract and that the contract, being reciprocal, meant both
parties had the right to rescind.
RTC: Ruled in favor of Rodriguez, finding that: (a) under the contract it
was Rodriguez that had the option to rescind the sale; (b) Rodriguez’s
obligation to pay the balance of the purchase price arises only upon
successful negotiation of the road right of way; (c) he proved his diligent
efforts to negotiate the road right of way; (d) the Sps. Catungal were
guilty of misrepresentation which defeated Rodriguez’s efforts to acquire
the road right of way; and (e) the Catungals’ rescission of the contract
had no basis and was in bad faith. Made the injunction permanent.
● The Catungals appealed to the CA.
● From the filing of the appellants’ brief in 1994 up to now, Sps.
Catungal were represented by Atty. Jose Catungal himself.
However, a new counsel for the Catungals, Atty. Borromeo
entered his appearance before the CA.
● During pendency in the CA, Agapita died and was substituted by
her children.
CA: Affirmed RTC.
● In a Motion for Reconsideration, Atty. Borromeo, argued for the
first time that paragraphs 1(b) and 5 of the Conditional Deed of
Sale (c and e, 3rd bullet of facts), whether taken separately or
jointly, violated the principle of mutuality of contracts under Art.
1308 of the Civil Code and thus, said contract was void ab initio.
● Jose Catungal died and was substituted by his heirs.
Rodriguez argues: (a) petitioners were raising new matters that cannot
be passed upon on appeal; (b) the validity of the Conditional Deed of
Sale was already admitted and petitioners cannot be allowed to change
theories on appeal; (c) the questioned paragraphs of the Conditional
Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for
not having come to court with clean hands.
Issue/s:
1. Are petitioners allowed to raise their theory of nullity of the Conditional
Deed of Sale for the first time on appeal? NO.
2. [Impt] Do paragraphs 1(b) and 5 of the Conditional Deed of Sale
violate the principle of mutuality of contracts under Article 1308 of the
Civil Code? NO.
Ratio:
1. When a party adopts a certain theory in the trial court, he will not be
permitted to change his theory on appeal, for to permit him to do so
would not only be unfair to the other party but it would also be
offensive to the basic rules of fair play, justice and due process.
● Verily, the first time petitioners raised their theory of the nullity of
the Conditional Deed of Sale in view of the questioned provisions
was only in their Motion for Reconsideration of the CA’s’
Decision, affirming the trial court’s judgment.
2. No violation of mutuality of contracts.
● Even assuming for the sake of argument that this Court may
overlook the procedural misstep of petitioners, we still cannot
uphold their belatedly proffered arguments.
● At the outset, it should be noted that what the parties entered
into is a Conditional Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez agreed to buy Lot 10963
conditioned on the payment of a certain price but the payment of
the purchase price was additionally made contingent on the
successful negotiation of a road right of way.
● It is elementary that "in conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which
constitutes the condition."
● Petitioners rely on Art. 1308 of the Civil Code to support their
conclusion regarding the claimed nullity of the aforementioned
provisions. Art. 1308 states that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the
will of one of them."
● But Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
Page 51 of 74
● In the past, this Court has distinguished between a condition period was intended, the courts may fix the duration
imposed on the perfection of a contract and a condition imposed thereof.
merely on the performance of an obligation. While failure to
comply with the first condition results in the failure of a contract, Dispositive:
failure to comply with the second merely gives the other party the
option to either refuse to proceed with the sale or to waive the WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30,
2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No.
condition. 27565 are AFFIRMED with the following modification:
● Paragraph 1(b) of the Conditional Deed of Sale, stating that
respondent shall pay the balance of the purchase price when he If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from
has successfully negotiated and secured a road right of way, is the finality of this Decision to negotiate a road right of way. In the event no road right of way
is secured by respondent at the end of said period, the parties shall reassess and discuss
not a condition on the perfection of the contract nor on the
other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
validity of the entire contract or its compliance as purpose, they are given a period of thirty (30) days to agree on a course of action. Should
contemplated in Article 1308. the discussions of the parties prove futile after the said thirty (30)-day period, immediately
● It is a condition imposed only on respondent’s obligation to pay upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to
rescind the contract, subject to the return of his downpayment, in accordance with the
the remainder of the purchase price. In our view and applying
provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road
Article 1182, such a condition is not purely potestative as right of way and pay the balance of the deducted purchase price as determined in the RTC
petitioners contend. Decision dated May 30, 1992.
● It is not dependent on the sole will of the debtor but also on
the will of third persons who own the adjacent land and No pronouncement as to costs.
from whom the road right of way shall be negotiated.
SO ORDERED.
● In a manner of speaking, such a condition is likewise dependent
on chance as there is no guarantee that respondent and the third
party-landowners would come to an agreement regarding the
road right of way. This type of mixed condition is expressly
allowed under Article 1182 of the Civil Code.
● We share the opinion of the CA that the undertaking required
of Rodriguez does not constitute a "potestative condition
dependent solely on his will" that might, otherwise, be void
in accordance with Article 1182 of the Civil Code but a
"mixed" condition "dependent not on the will of the vendor
alone but also of third persons like the squatters and
government agencies and personnel concerned." We must
hasten to add, however, that where the so-called "potestative
condition" is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the
obligation itself.
● What the Catungals should have done was to first file an action
in court to fix the period within which Rodriguez should
accomplish the successful negotiation of the road right of way
pursuant to the above quoted provision. Thus, the Catungals’
demand for Rodriguez to make an additional payment of ₱5M
was premature and Rodriguez’s failure to accede to such
demand did not justify the rescission of the contract.
○ Art. 1197. If the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a
Page 52 of 74

Andal v. PNB GR 194201 Nov
27/2013
G.R. No. | Date | Ponente | Topic/Keywords
Digest by: NAME OF DIGESTER
Petitioners: Sps. Bayani and Gracia Andal
Respondents: PNB Register of Deeds Batangas City
Recit-ready Digest + Doctrine:
Petitioners obtained a loan from respondent with stipulated interest rates
varying from 17.5% to 27%. Respondent advised the petitioner to pay the
same otherwise they will be foreclosed the mortgage. Despite payment,
respondent foreclosed the real estate mortgage. The issue is WON the
petitioner must pay interest based on the stipulated interest rates and the
SC ruled that the interest rates are illegal arbitrary and unconscionable
and therefore must be voided but it does not mean that the petitioners
shall not pay interest.
WON petitioners are in default? No
[petitioners-spouses] cannot be considered in default for their inability to
pay the arbitrary, illegal and unconscionable interest rates and penalty
charges unilaterally imposed by [respondent] bank." This is precisely the
reason why the foreclosure proceedings involving petitioners-spouses’
properties were invalidated. As pointed out by the CA, "since the interest
rates are null and void, [respondent] bank has no right to foreclose
[petitioners-spouses’] properties and any foreclosure thereof is illegal. x x
x. Since there was no default yet, it is premature for [respondent] bank to
foreclose the properties subject of the real estate mortgage contract."
For the computation of interest, see last three bullets.
Facts:
● On September 7, 1995, [petitioners-spouses] obtained a loan from
[respondent bank] in the amount of ₱21,805,000.00, for which they
executed twelve (12) promissory notes x x x [undertaking] to pay
[respondent bank] the principal loan with varying interest rates of 17.5%
to 27% per interest period.
● It was agreed upon by the parties that the rate of interest may be
increased or decreased for the subsequent interest periods, with prior
notice to [petitioners-spouses], in the event of changes in interest rates
prescribed by law or the Monetary Board x x x, or in the bank’s overall
cost of funds.
● To secure the payment of the said loan, [petitioners-spouses] executed
in favor of [respondent bank] a real estate mortgage using as collateral
five (5) parcels of land including all improvements therein, all situated in
Batangas City and covered by Transfer Certificate of Title (TCT) Nos. T-
641, T-32037, T-16730, T-31193 and RT 363 (3351) of the Registry of
Deeds of Batangas City, in the name of [petitioners-spouses].
● Subsequently, [respondent bank] advised [petitioners-spouses] to pay
their loan obligation, otherwise the former will declare the latter’s loan
due and demandable.
● On July 17, 2001, [petitioners-spouses] paid ₱14,800,000.00 to
[respondent bank] to avoid foreclosure of the properties subject of the
real estate mortgage. Accordingly, [respondent bank] executed a
release of real estate mortgage over the parcels of land covered by TCT
Nos. T-31193 and RT-363 (3351).
● However, despite payment x x x, [respondent bank] proceeded to
foreclose the real estate mortgage, particularly with respect to the three
(3) parcels of land covered by TCT Nos. T-641, T-32037 and T-16730 x
x x.
● x x x [A] public auction sale of the properties proceeded, with the
[respondent bank] emerging as the highest and winning bidder.
● Accordingly, on August 30, 2002, a certificate of sale of the properties
involved was issued.
● [Respondent bank] consolidated its ownership over the said properties
and TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu of
the cancelled TCT[s] x x x.
● This prompted [petitioners-spouses] to file x x x a complaint for
annulment of mortgage, sheriff’s certificate of sale, declaration of nullity
of the increased interest rates and penalty charges plus damages, with
the RTC of Batangas City.
● In their amended complaint, [petitioners-spouses] alleged that they tried
to religiously pay their loan obligation to [respondent bank], but the
exorbitant rate of interest unilaterally determined and imposed by
the latter prevented the former from paying their obligation.
● [Petitioners-spouses] also alleged that they signed the promissory notes
in blank, relying on the representation of [respondent bank] that they
were merely proforma [sic] bank requirements.
● Further, [petitioners-spouses] alleged that the unilateral increase of
interest rates and exorbitant penalty charges are akin to unjust
enrichment at their expense, giving [respondent bank] no right to
foreclose their mortgaged properties. x x x.
● On August 27, 2004 [respondent bank] filed its answer, denying the
allegations in the complaint. x x x [respondent bank] alleged that: the
penalty charges imposed on the loan was expressly stipulated under
the credit agreements and in the promissory notes; although
[petitioners-spouses] paid to [respondent bank] ₱14,800,000.00 on July
10, 2001, the former was still indebted to the latter in the amount of
₱33,960,633.87; assuming arguendo that the imposition was improper,
the foreclosure of the mortgaged properties is in order since
[respondent bank’s] bid in the amount of ₱28,965,100.00 was based on
the aggregate appraised rates of the foreclosed properties. x x x
● After trial, the RTC rendered judgment in favor of petitioners-spouses
and against respondent bank,.7
● The foregoing disposition of the RTC was based on the following
findings of fact:
Page 53 of 74
 - [respondent] bank have (sic) not complied with the said orders
as to the interest rates it had been using on the loan of
[petitioners-spouses] and the monthly computation of interest
vis a vis (sic) the total shown in the statement of account as of
Aug 30, 2002. Such refusal amounts to suppression of
evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of
the [petitioners-spouses]/borrower as required by law and
Central Bank Circular No. 1171.
- The latter circular provides that any increase of interest in a
given interest period will have to be expressly agreed to in
writing by the borrower.
- The mortgaged properties were subject of foreclosure and
were sold on August 30, 2002 and the [respondent] bank’s
statement of account as of August 30, 2002 x x x shows
unpaid interest up to July 17, 2001 of ₱12,695,718.99 without
specifying the rate of interest for each interest period of thirty
days.
- Another statement of account of [respondent bank] x x x as [of]
the date of foreclosure on August 30, 2002 shows account
balance of ₱20,505,916.51 with a bid price of ₱28,965,100.00
and showing an interest of ₱16,163,281.65. Again, there are
no details of the interest used for each interest period from the
time these loans were incurred up to the date of foreclosure.
These statements of account together with the stated interest
and expenses after foreclosure were furnished by the
[respondent] bank during the court hearings.
- The central legal question is that there is no agreement in
writing from the [petitioners-spouses]/borrowers for the
interest rate for each interest period neither from the data
coming from the Central Bank or the cost of money which
is understood to mean the interest cost of the bank
deposits form the public. Such imposition of the increased
interest without the consent of the borrower is null and void
pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and
C.B. Circular No. 1191 that the interest rate for each re-pricing
period under the floating rate of interest is subject to mutual
agreement in writing. Art. 1956 states that no interest is due
unless it has been expressly stipulated and agreed to in
writing.
● Any stipulation where the fixing of interest rate is the sole
prerogative of the creditor/mortgagee, belongs to the class of
potestative condition which is null and void under Art. 1308 of the
New Civil Code. The fulfillment of a condition cannot be left to the
sole will of [one of] the contracting parties.
● Since the interest imposed is illegal and void only the rate of 6% interest
per month shall be imposed as liquidated damages under Art. 2209 of
the Civil Code.
● Forms used by the bank are pre- printed forms and therefore contracts
of adhesion and x x x any dispute or doubt concerning them shall be
resolved in favor of the x x x borrower.
● Since [petitioners-spouses] are not and cannot be considered in default
for their inability to pay the arbitrarily, illegally, and unconscionably
adjusted interest rates and penalty charges unilaterally made and
imposed by [respondent] bank.
● The [petitioners-spouses] submitted to the court certified copies of the
weighted average of Selected Domestic Interest Rates of the local
banks obtained from the Bangko Sentral ng Pilipinas Statistical Center
and it shows a declining balance of interest rates
● There is no showing by the [respondent bank] that any of the foregoing
rate was ever used to increase or decrease the interest rates charged
upon the [petitioners-spouses’] mortgage loan for the 30 day re- pricing
period subsequent to the first 30 days from [the] dates of the promissory
notes. These documents submitted being certified public documents are
entitled to being taken cognizance of by the court as an aid to its
decision making. x x x.8
● Respondent bank appealed the above judgment of the trial court to the
CA saying that the stipulation on the interest rates of 17.5% to 27%,
subject to periodic adjustments, was voluntarily agreed upon by the
parties; hence, it was not left to the sole will of respondent bank. Thus,
● The CA partly agree with [respondent bank’s] contention.
● Settled is the rule that the contracting parties are free to enter into
stipulations, clauses, terms and conditions as they may deem
convenient, as long as these are not contrary to law, morals, good
customs, public order or public policy. Pursuant to Article 1159 of the
Civil Code, these obligations arising from such contracts have the force
of law between the parties and should be complied with in good faith. x
x
● [Respondent bank] insists that [petitioner-spouses] agreed to the
interest rates stated in the promissory notes since the latter voluntarily
signed the same. However, we find more credible and believable the
version of [petitioners-spouses] that they were made to sign the said
promissory notes in blank with respect to the rate of interest and penalty
charges, and subsequently, [respondent] bank filled in the blanks,
imposing high interest rate beyond which they were made to understand
at the time of the signing of the promissory notes.
● [Respondent bank’s] act converted the loan agreement into a contract of
adhesion where the parties do not bargain on equal footing, the weaker
party’s participation, herein [petitioners-spouses], being reduced to the
alternative to take it or leave it. [Respondent] bank tried to sidestep this
issue by averring that [petitioners-spouses], as businessmen, were on
equal footing with [respondent bank] as far as the subject loan
agreements are concerned. That may be true insofar as entering into
the original loan agreements and mortgage contracts are concerned.
However, that does not hold true when it comes to the unilateral
determination and imposition of the escalated interest rates imposed by
[respondent] bank.
Page 54 of 74
 ● CA further notes that in the case at bar, [respondent] bank imposed
different rates in the twelve (12) promissory notes: interest rate of 18%
in five (5) promissory notes; 17.5% in two (2) promissory notes; 23% in
one (1) promissory note; and 27% in three (3) promissory notes.
Obviously, the interest rates are excessive and arbitrary. Thus, the
foregoing interest rates imposed on [petitioners-spouses’] loan
obligation without their knowledge and consent should be
disregarded, not only for being iniquitous and exorbitant, but also
for being violative of the principle of mutuality of contracts.
● However, it did not agree with the trial court in fixing the rate of interest
of 6%. It is well-settled that when an obligation is breached and consists
in the payment of a sum of money, i.e., loan or forbearance of money,
the interest due shall be that which may have been stipulated in writing.
In the absence of stipulation, the rate of interest shall be 12% interest
per annum to be computed from default, i.e., from judicial or extra-
judicial demand and subject to the provisions of Article 1169 of the Civil
Code. Since the interest rates printed in the promissory notes are void
for the reasons above-stated, the rate of interest to be applied to the
loan should be 12% per annum only
Issue/s:
● WON the petitioners can stop paying interest on their loan obligations?
Only the interest rate is void but the interest itself must be paid.
Ratio
● We cannot subscribe to the contention of petitioners-spouses that no
interest should be due on the loan they obtained from respondent bank,
or that, at the very least, interest should be computed only from the
finality of the judgment declaring the foreclosure sale null and void, on
account of the exorbitant rate of interest imposed on their loan.
● It is clear from the contract of loan between petitioners-spouses
and respondent bank that petitioners-spouses, as borrowers,
agreed to the payment of interest on their loan obligation. That the
rate of interest was subsequently declared illegal and unconscionable
does not entitle petitioners-spouses to stop payment of interest.1âwphi1
● It should be emphasized that only the rate of interest was declared void.
The stipulation requiring petitioners-spouses to pay interest on
their loan remains valid and binding. They are, therefore, liable to
pay interest from the time they defaulted in payment until their
loan is fully paid.
● It is worth mentioning that both the RTC and the CA are one in saying
that "[petitioners-spouses] cannot be considered in default for their
inability to pay the arbitrary, illegal and unconscionable interest rates
and penalty charges unilaterally imposed by [respondent] bank." This is
precisely the reason why the foreclosure proceedings involving
petitioners-spouses’ properties were invalidated. As pointed out by the
CA, "since the interest rates are null and void, [respondent] bank has no
right to foreclose [petitioners-spouses’] properties and any foreclosure
thereof is illegal. x x x. Since there was no default yet, it is premature for
[respondent] bank to foreclose the properties subject of the real estate
mortgage contract."
● Thus, for the purpose of computing the amount of liability of petitioners-
spouses, they are considered in default from the date the
Resolution of the Court in G.R. No. 194164 (Philippine National
Bank v. Spouses Bayani H. Andal and Gracia G. Andal) – which is
the appeal interposed by respondent bank to the Supreme Court
from the judgment of the CA – became final and executory. Based
on the records of G.R. No. 194164, the Court denied herein respondent
bank’s appeal in a Resolution dated 10 January 2011. The Resolution
became final and executory on 20 May 2011.
● In addition, pursuant to Circular No. 799, series of 2013, issued by the
Office of the Governor of the Bangko Sentral ng Pilipinas on 21 June
2013, and in accordance with the ruling of the Supreme Court in the
recent case of Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,
effective 1 July 2013, the rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum. Accordingly, the rate of interest
of 12% per annum on petitioners-spouses’ obligation shall apply from 20
May 2011 – the date of default – until 30 June 2013 only. From 1 July
2013 until fully paid, the legal rate of 6% per annum shall be applied to
petitioners-spouses’ unpaid obligation
Dispositive:
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the
Court of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the
MODIFICATION that the 12% interest per annum shall be applied from the date
of default until 30 June 2013 only, after which date and until fully paid, the
outstanding obligation of petitioners-spouses shall earn interest at 6% per
annum. Let the records of this case be remanded to the trial court for the proper
computation of the amount of liability of petitioners Spouses Bayani H. Andal and
Gracia G. Andal, in accordance with the pronouncements of the Court herein and
with due regard to the payments previously made by petitioners-spouses.
Page 55 of 74
Forest Hills Golf v. Vertex Sales GR 202205
Mar 6/2013
G.R. No. 202205 | March 6, 2013| J. Brion | Reciprocal Obligations -
Nature; Effect
Digest by: PADIERNOS
Petitioners: FOREST HILLS GOLF & COUNTRY CLUB
Respondents: VERTEX SALES AND TRADING, INC.
Recit-ready Digest + Doctrine:
Forest Hills is a domestic non-profit corporation that operates and
maintain a golf and country club in Antipolo. Kings and FEGDI owned
the shares of stock of Forest Hills. FEGDI sold to RSACC one(1)
Class "C" common share of Forest Hills for ₱1.1 million. Prior to the
full payment of the purchase price, RSACC transferred its interests
over FEGDI's Class "C" common share to Vertex. Despite the sale of
FEGDI's Class "C" common share to Vertex, the share remained in the
name of FEGDI, prompting Vertex to demand for the issuance of a
stock certificate in its name. As its demand went unheeded, Vertex
filed a complaint for rescission with damages against defendants.
It prayed for the rescission of the sale, return of the sums it paid, and
payment of actual damages for the defendants’ unjustified refusal to
issue the stock certificate. Forest Hills denied transacting business
with Vertex and claimed that it was not a party to the sale of the share.
RTC dismissed Vertex's complaint after finding that the failure to issue
a stock certificate did not constitute a violation of the essential terms of
the contract of sale that would warrant its rescission. CA reversed the
RTC and rescinded the sale of share.
W/N rescission of the sale of the share should be allowed? YES.
The rescission of the sale does not in any way prejudice Forest Hills in
such a manner that its interest in the subject matter (the share of
stock) is injuriously affected. Forest Hills is in no position to appeal the
ruling rescinding the sale of the share. Since FEGDI, as party to the
sale, filed no appeal against its rescission, we consider as final the
CA’s ruling on this matter. A necessary consequence of rescission
is restitution: the parties to a rescinded contract must be brought
back to their original situation prior to the inception of the
contract; hence, they must return what they received pursuant to
the contract. Not being a party to the rescinded contract, Forest Hills
is under no obligation to return the amount paid by Vertex by reason of
the sale. Forest Hills should be allowed to retain the ₱150,000.00 from
Vertex as membership fee since for 3 years prior to the rescission of
the sale, Vertex enjoyed membership privileges and amenities of
Forest Hills.
Facts:
● Forest Hills Golf & Country Club is a domestic non-profit stock
corporation that operates and maintains a golf and country club
facility in Antipolo City. It was created as a result of a joint
venture agreement between Kings Properties Corporation
(Kings) and Fil-Estate Golf and Development, Inc. (FEGDI).
● FEGDI sold to RS Asuncion Construction Corporation (RSACC)
one (1) Class "C" common share of Forest Hills for ₱1.1 million.
● Prior to the full payment of the purchase price, RSACC
transferred its interests over FEGDI's Class "C" common share
to respondent Vertex Sales and Trading, Inc.
● The share remained in the name of FEGDI, prompting Vertex to
demand for the issuance of a stock certificate in its name.
● As its demand went unheeded, Vertex filed a complaint for
rescission with damages against defendants
● Vertex averred that the defendants defaulted in their obligation
as sellers when they failed and refused to issue the stock
certificate covering the Class "C" common share.
● It prayed for the rescission of the sale, the return of the sums it
paid and actual damages for the defendants’ unjustified refusal
to issue the stock certificate.
● Forest Hills denied transacting business with Vertex and claimed
that it was not a party to the sale of the share;
● RTC dismissed Vertex's complaint after finding that the failure
to issue a stock certificate did not constitute a violation of the
essential terms of the contract of sale that would warrant its
rescission. It noted that sale was already consummated
notwithstanding the non-issuance of the stock certificate.
● CA reversed the RTC. It declared that "in the sale of shares of
stock, physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the stocks
purchased" basing its ruling on Section 63 of the Corporation
Code, which requires for a valid transfer of stock.
● Hence, the CA rescinded the sale of the share and ordered the
defendants to return the amount paid by Vertex by reason of the
sale.
● Forest Hills filed the present petition for review on certiorari
to assail the CA rulings. It argues that rescission should be
allowed only for substantial breaches that would defeat the very
object of the parties making the agreement.
Page 56 of 74
 ● The delay in the issuance of the stock certificate could not be
considered as a substantial breach, considering that Vertex was
recognized as, and enjoyed the privileges of, a stockholder.
● Forest Hills also objects to the CA ruling that required it to return
the amount paid by Vertex for the share of stock. It claims that it
was not a party to the contract of sale; hence, it did not receive
any amount from Vertex which it would be obliged to return on
account of the rescission of the contract.
● Vertex disagrees and claims that its compliance with its
obligation to pay the price and the other fees called into action
the defendants’ compliance with their reciprocal obligation to
deliver the stock certificate, but the defendants failed to
discharge this obligation.
Issue/s:
● W/N rescission of the sale of the share should be allowed - YES,
the question of rescission of the sale of the share is a settled
matter that the Court can no longer review in this petition. Forest
Hills is in no position to appeal the ruling rescinding the sale of
the share. Since FEGDI, as party to the sale, filed no appeal
against its rescission, we consider as final the CA’s ruling on this
matter.
Ratio:
● While Forest Hills questioned and presented its arguments
against the CA ruling rescinding the sale of the share in its
petition, it is not the proper party to appeal this ruling.
● As correctly pointed out by Forest Hills, it was not a party to the
sale even though the subject of the sale was its share of stock.
In the present case, the parties to the sale of the share were
FEGDI as the seller and Vertex as the buyer (after it succeeded
RSACC). As party to the sale, FEGDI is the one who may appeal
the ruling rescinding the sale.
● The remedy of appeal is available to a party who has "a present
interest in the subject matter of the litigation and is aggrieved or
prejudiced by the judgment. A party, in turn, is deemed
aggrieved or prejudiced when his interest, recognized by law
in the subject matter of the lawsuit, is injuriously affected by
the judgment, order or decree." The rescission of the sale
does not in any way prejudice Forest Hills in such a manner that
its interest in the subject matter – the share of stock – is
injuriously affected. Thus, Forest Hills is in no position to appeal
the ruling rescinding the sale of the share. Since FEGDI, as party
to the sale, filed no appeal against its rescission, we consider as
final the CA’s ruling on this matter.
● A necessary consequence of rescission is restitution: the
parties to a rescinded contract must be brought back to
their original situation prior to the inception of the contract;
hence, they must return what they received pursuant to the
contract. Not being a party to the rescinded contract,
however, Forest Hills is under no obligation to return the
amount paid by Vertex by reason of the sale. Indeed, Vertex
failed to present sufficient evidence showing that Forest Hills
received the purchase price for the share or any other fee paid
on account of the sale (other than the membership fee) to make
Forest Hills jointly or solidarily liable with FEGDI for restitution.
● Although Forest Hills received ₱150,000.00 from Vertex as
membership fee, it should be allowed to retain this amount. For
three years prior to the rescission of the sale, the nominees of
Vertex enjoyed membership privileges and used the golf course
and the amenities of Forest Hills. We consider the amount paid
as sufficient consideration for the privileges enjoyed by Vertex's
nominees as members of Forest Hills.
Dispositive:
WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS
the petition for review on certiorari. The decision dated February 22,
2012 and the resolution dated May 31, 2012 of the Court of Appeals in
CA-G.R. CV No. 89296 are hereby MODIFIED. Petitioner Forest Hills
Golf & Country Club is ABSOLVED from liability for any amount paid by
Vertex Sales and Trading, Inc. by reason of the rescinded sale of one (1)
Class "C" common share of Forest Hills Golf & Country Club.
Page 57 of 74
The Wellex Group v. U-Land Airlines GR 167519
Jan. 14, 2015
G.R. No. 167519 | Jan. 14, 2015 | Leonen, J. | RECIPROCAL OBLIGATIONS
Digest by: PELONGCO
Petitioners: The Wellex Group, Inc.
Respondents: U-Land Airlines, Co., Ltd.
Recit-ready Digest + Doctrine:
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). While 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.
Wellex and U-land entered into a Memorandum of Agreement (MOA) by virtue
of which they both agreed to develop a long-term business relationship
through the creation of joint interest in (1) airline operations and (2) property
development projects in the Philippines. The MOA would be implemented
through (1) the acquisition of shares by the U-Land from the Wellex, of the
shares of stocks of APC and PEC ; (2) by another joint development
agreement between U-Land and PEC; (3) Option for U-Land to acquire shares
of ESB.
Part of the agreement provides that within 40 days from the date of said
agreement unless extended by mutual agreement, U-Land and WELLEX shall
execute a Share Holder Purchase Agreement (SHPA) covering the acquisition
by U-Land of the APIC and PEC shares.
Accordingly, Wellex and U-Land agreed that if they were unable to agree on
the terms of the SPHA and the joint development agreement within 40 days
from the signing, then the first MOA would cease to be effective. And if in case
no agreements were executed, the parties would be released from their
respective undertakings, except that Wellex would be required to refund within
three days the $3 Million given as initial funding by U-Land for their
development projects. If Wellex was unable to refund the $3 Million dollars to
U-Land, then U-Land would have the right to recover on the 57,000,000 PEC
shares that would be delivered to it.
Facts:
The 40-day period lapsed. Wellex and U-Land were not able to enter into any
SHPA although drafts were exchanged between the two. Despite the absence
of a SHPA, U-Land remitted to Wellex $7.5 Million Dollars which was
acknowledged by Wellex.
According to Wellex, the parties agreed to enter into a security arrangement. If
the sale of the shares of stock failed to push through, the partial payments or
remittances U-Land made were to be secured by these shares of stock and
parcels of land.50 This meant that U-Land could recover the amount it paid to
Wellex by selling these shares of stock of 60,770,000 and 72,601,000 and
land titles or using them to generate income. Despite these transactions,
Wellex and U-Land still failed to enter into the SHPA and the Joint
Development Agreement. So 10 months after the last formal communication
between the two parties, U-Land demanded the refund for the amount it
remitted.
Due to failure of Wellex to heed the demand, U-Land filed a complaint for
rescission of the First Memorandum of Agreement and damages against
Wellex.
The issue is whether or not U-Land is praying for rescission or resolution
under Art. 1191, and not rescission under Article 1381. The SC ruled that it
was under 1191. Contrary to petitioner Wellex’s 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.
DOCTRINE: For Article 1191 to be applicable, 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. 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.
Reciprocity arises from identity of cause, and necessarily the two obligations
are created at the same time.
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.
(Sorry ang haba ng case! You can skip to main issue and ignore other
subsidiary ones)
● Petitioner 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
Page 58 of 74
 Bank (ESB). Wellex alleges that it owns all shares of stock of Air
Philippines Corporation (APC).
● Respondent U-Land is a corporation organized and existing under the
laws of Taiwan and registered to do business in the Philippines. It is
engaged in the business of air transportation in Taiwan and other Asian
countries.
● On May 16, 1988, both entered into a MOA (1st MOA) to expand their
respective airline operations in Asia
● In the First Memorandum of Agreement, 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 through the following:
o U-LAND to acquire from WELLEX shares of Air Philippines
International Corp. (APIC) equivalent to at least 35% of the
outstanding capital stock of APIC
o U-LAND to acquire from WELLEX shares of Philippine Estates
Corp (PEC) equivalent to at least 35% of the outstanding
capital stock of PEC
o U-LAND to enter into a JVA with PEC
o U-LAND given option to acquire from WELLEX shares of
Express Savings Bank (ESB) up to 40% of the outstanding
capital stock of ESB
● Wellex and U-Land agreed to an initial purchase price of P0.30 per
share of APIC and 0.65 per share of PEC. However, they likewise
agreed that the final price of the shares of stock would be reflected in
the actual share purchase agreement.
● Both parties agreed that the purchase price of APIC shares and PEC
shares would be paid upon the execution of the share purchase
agreement and Wellex’s delivery of the stock certificates covering the
shares of stock. The transfer of APIC shares and PEC shares to U-Land
was conditioned on the full remittance of the final purchase price as
reflected in the share purchase agreement. Further, the transfer was
conditioned on the approval of the Securities and Exchange
Commission of the issuance of the shares of stock and the approval by
the Taiwanese government of U-Land’s acquisition of these shares of
stock.
● U-Land was "entitled to a proportionate representation in the Board of
Directors of APIC and PEC in accordance with Philippine law."
perational control of APIC and APC would be exercised jointly by Wellex
and U-Land "on the basis of mutual agreement and consultations." The
parties intended that U-Land would gain primary control and
responsibility for the international operations of APC. Wellex manifested
that APC is a subsidiary of APIC in the second preambular clause of the
First Memorandum of Agreement.
● Wellex and U-Land also agreed to enter into a joint development
agreement simultaneous with the execution of the share purchase
agreement. The joint development agreement shall cover housing and
other real estate development projects.
● U-Land agreed to remit the sum ofUS$3 million not later than May 22,
1998. This sum was to serve as initial funding for the development
projects that Wellex and U-Land were to undertake pursuant to the joint
development agreement. In exchange for the US$3 million, Wellex
would deliver stock certificates covering 57,000,000 PEC shares to U-
Land.
● In case of conflict between the provisions of the First Memorandum of
Agreement and the provisions of the share purchase agreement or its
implementing agreements, the terms of the First Memorandum of
Agreement would prevail, unless the parties specifically stated
otherwise or the context of any agreement between the parties would
reveal a different intent.
● Finally, Wellex and U-Land agreed that if they were unable to agree on
the terms of the share purchase agreement and the joint development
agreement within 40 days from signing, then the First Memorandum of
Agreement would cease to be effective.
● In case no agreements were executed, the parties would be released
from their respective undertakings, except that Wellex would be
required to refund within three (3) days the US$3 million given as initial
funding by U-Land for the development projects. If Wellex was unable to
refund the US$3 million to U-Land, U-Land would have the right to
recover on the 57,000,000 PEC shares that would be delivered to it.
● Attached and made an integral part of the First Memorandum of
Agreement was Annex "A," as stated in the second preambular clause.
It is a document denoted as a "Memorandum of Agreement" entered
into by Wellex, APIC, and APC.
o This Second Memorandum of Agreement was allegedly
incorporated into the First Memorandum of Agreement as a
"disclosure to [U-Land] [that] . . . [Wellex] was still in the
process of acquiring and consolidating its title to shares of
stock of APIC." It "included the terms of a share swap whereby
[Wellex] agreed to transfer to APIC its shareholdings and
advances to APC in exchange for the issuance by APIC of
shares of stock to [Wellex]."
o The Second Memorandum of Agreement was signed by Mr.
Gatchalian, APIC President Salud, and APC President
Augustus C. Paiso. It was not dated, and no place was
indicated as the place of signing. It was not notarized either,
and no other witnesses signed the document.
● The 40-day period lapsed on June 25, 1998. Wellex and U-Land were
not able to enter into any share purchase agreement, although drafts
were exchanged between the two. Despite this, U-Land remitted to
Wellex USD 7,499,945.00 through post dated checks.
● Wellex acknowledged the receipt of these remittances in a confirmation
letter addressed to U-Land dated September 30, 1998.
● According to Wellex, the parties agreed to enter into a security
arrangement. If the sale of the shares of stock failed to push through,
the partial payments or remittances U-Land made were to be secured
by these shares of stock and parcels of land. This meant that U-Land
Page 59 of 74
 could recover the amount it paid to Wellex by selling these shares of
stock and land titles or using them to generate income.
● Thus, after the receipt of US$7,499,945.00, Wellex delivered to U-Land
stock certificates representing 60,770,000 PEC shares and 72,601,000
APIC shares. These were delivered to U-Land on July 1, 1998,
September 1, 1998, and October 1, 1998..
● Wellex also delivered TCTs to U-Land covering properties owned by
Westland Pacific Properties Corporation in Bulacan and also properties
owned by Rexlon Realty Group, Inc. On October 1, 1998, U-Land
received a letter from Wellex, indicating a list of stock certificates that
the latter was giving to the former by way of "security."
● Despite these transactions, Wellex and U-Land still failed to enter
into the share purchase agreement and the joint development
agreement.
● 10 months after last formal communication between the two, U-
Land sent letter to Wellex demanding the return of USD 7,499,945.
This letter was sent 14 months after 1st MOA signing.
● Counsel for U-Land claimed that "[Wellex] ha[d] unjustifiably refused to
enter into the. . . Share Purchase Agreement." As far as U-Land was
concerned, the First Memorandum of Agreement was no longer in
effect, pursuant to Section 9. As such, U-Land offered to return all the
stock certificates covering APIC shares and PEC shares as well as the
titles to real property given by Wellex as security for the amount
remitted by U-Land.
● Wellex sent U-Land a letter refuting U-Land’s claims. Counsel for
Wellex stated that the two parties carried out several negotiations that
included finalizing the terms of the share purchase agreement and the
terms of the joint development agreement. Wellex asserted that under
the joint development agreement, U-Land agreed to remit the sum of
US$3 million by May 22,1998 as initial funding for the development
projects.
● Wellex averred that, "[s]ave for a few items, [Wellex and U-Land]
virtually agreed on the terms of both [the share purchase agreement
and the joint development agreement.]" Wellex believed that the parties
had already "gone beyond the ‘intent’ stage of the [First Memorandum
of Agreement] and [had already] effected partial implementation of an
over-all agreement."
● Thus, Wellex maintained that "the inability of the parties to execute the
[share purchase agreement] and the [joint development agreement]
principally arose from problems at [U-Land’s] side, and not due to
[Wellex’s] ‘unjustified refusal to enter into [the] [share purchase
agreement][.]’"
● U-Land filed complaint praying for rescission of 1st MOA and
damages against Wellex and for the issuance of a Writ of
Preliminary Attachment. rom U-Land’s point of view, its primary
reason for purchasing APIC shares from Wellex was APIC’s
majority ownership of shares of stock in APC (APC shares). After
verification with the Securities and Exchange Commission, U-Land
discovered that "APIC did not own a single share of stock in APC."
● In its Answer with Compulsory Counterclaim, Wellex countered
that U-Land had no cause of action. Wellex maintained that under
the First Memorandum of Agreement, the parties agreed to enter
into a share purchase agreement and a joint development
agreement. t claimed that U-Land was fully aware that the former
"still ha[d] to consolidate its title over these shares." This was the
reason for Wellex’s attachment of the Second Memorandum of
Agreement to the First Memorandum of Agreement.
● RTC Makati held that rescission was proper.
o RTC said that “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. [D]efendant 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.”
● CA affirmed the RTC
o CA said that: “Records show that in the answer filed by
defendant-appellant, the latter itself asked for the rescission of
the MOA. Thus, in effect, it prays for the return of what has
been given or paid under the MOA, as the law creates said
obligation to return the things which were the object of the
contract, and the same could be carried out only when he who
demands rescission can return whatever he may be obliged to
restore. The law says:
o "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."
o Appellant, therefore, cannot ask for rescission of the MOA and
yet refuse to return what has been paid to it.”
Issue/s:
● W/N CA erred in affirming the RTC which granted the rescission of the
1st MOA prayed for by U-Land – NO
Ratio:
● Civil code applies here, especially Art. 1370: “If the terms of a contract
are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.”
● Section 2 of the First Memorandum of Agreement clearly provides
that the execution of a share purchase agreement containing
mutually agreeable terms and conditions must first be
accomplished by the parties before respondent U-Land purchases
Page 60 of 74
 any of the shares owned by petitioner Wellex. A perusal of the
stipulation on its face allows for no other interpretation.
● The need for a share purchase agreement to be entered into before
payment of the full purchase price can further be discerned from the
other stipulations of the First Memorandum of Agreement.
● The use of the terms "at least 35% of the outstanding capital stock of
APIC, but in any case, not less than 1,050,000,000 shares" and "at least
35% of the outstanding capital stock of PEC, but in any case, not less
than 490,000,000 shares" means that the parties had yet to agree on
the number of shares of stock to be purchased.
● Petitioner Wellex argues that the use of "upon" in Section 21 of the First
Memorandum of Agreement means that respondent U-Land must pay
the purchase price of the shares of stock in its entirety when they are
transferred. This argument has no merit.
● Article 1373 of the Civil Code provides: “If some stipulation of any
contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual.”
● It is necessary for the parties to first agree on the final purchase
price and the number of shares of stock to be purchased before
respondent U-Land is obligated to pay or remit the entirety of the
purchase price. Thus, petitioner Wellex’s argument cannot be
sustained since the parties to the First Memorandum of Agreement
were clearly unable to agree on all the terms concerning the share
purchase agreement. It would be absurd for petitioner Wellex to expect
payment when respondent U-Land did not yet agree to the final amount
to be paid for the totality of an indeterminate number of shares of stock.
● The First Memorandum of Agreement was, thus, an agreement to enter
into a share purchase agreement. The share purchase agreement
should have been executed by the parties within 40 days from May 16,
1998, the date of the signing of the First Memorandum of Agreement.
When the 40-day period provided for in Section 9 lapsed, the efficacy of
the First Memorandum of Agreement ceased. The parties were
"released from their respective undertakings." Thus, from June 25,
1998, the date when the 40-day period lapsed, the parties were no
longer obliged to negotiate with each other in order to enter into a share
purchase agreement.
● There was also no express or implied novation of the 1st MOA.
○ Requisites for novation:
○ 1. There must be a previous valid obligation
○ 2. Parties concerned must agree to a new contract
○ 3. Old contract must be extinguished
○ 4. There must a valid new contract
● Because novation requires that it be clear and unequivocal, it is never
presumed. After the 40-day period, the parties did not enter into any
subsequent written agreement that was couched in unequivocal terms.
The transaction of the First Memorandum of Agreement involved large
amounts of money from both parties. The parties sought to participate in
the air travel industry, which has always been highly regulated and
subject to the strictest commercial scrutiny. Both parties admitted that
their counsels participated in the crafting and execution of the First
Memorandum of Agreement as well as in the efforts to enter into the
share purchase agreement. Any subsequent agreement would be
expected to be clearly agreed upon with their counsels’ assistance and
in writing, as well. Given this, there was no express novation.
● Also no implied novation. 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.
● Applying Article 1185 of the Civil Code, the parties are obligated to
return to each other all they have received.
● Article 1185 provides that if an obligation is conditioned on the
nonoccurrence of a particular event at a determinate time, that
obligation arises (a) at the lapse of the indicated time, or(b) if it has
become evident that the event cannot occur.
● At the lapse of the 40-day period, the parties failed to enter into a share
purchase agreement. This lapse is the first circumstance provided for in
Article 1185 that gives rise to the obligation. Applying Article 1185, the
parties were then obligated to return to each other all that they had
received in order to be freed from their respective undertakings.
● Respondent U-Land is praying for rescission or resolution under
Article 1191, and not rescission under Article 1381 (MAIN ISSUE)
● Rescission, as defined by Article 1385, mandates that the parties must
return to each other everything that they may have received as a result
of the contract. This pertains to rescission or resolution under Article
1191, as well as the provisions governing all forms of rescissible
contracts.
● For Article 1191 to be applicable, 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. 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. Reciprocity
arises from identity of cause, and necessarily the two obligations
are created at the same time.
● 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.
● While Article 1191 uses the term "rescission," the original term
which was used in the old Civil Code, from which the article was
Page 61 of 74
 based, was "resolution." Resolution is a principal action which is SO ORDERED.
based on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under
Article 1381 of the New Civil Code.
● 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.
● Contrary to petitioner Wellex’s 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.
● 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.
● Petitioner Wellex not guilty of fraud but of violating Art. 1159 of the
Civil Code
● As held in Tankeh, there must be clear and convincing evidence of
fraud. Based on the established facts, respondent U-Land was unable
to clearly convince this court of the existence of fraud.
● However, the absence of fraud does not mean that petitioner Wellex is
free of culpability. By failing to inform respondent U-Land that APC was
not yet a subsidiary of APIC at the time of the execution of the First
Memorandum of Agreement, petitioner Wellex violated Article 1159 of
the Civil Code.
● It was incumbent upon petitioner Wellex to negotiate the terms of the
pending share purchase agreement in good faith. This duty included
providing a full disclosure of the nature of the ownership of APIC in
APC. Unilaterally compelling respondent U-Land to remit money to
finalize the transactions indicated in the Second Memorandum of
Agreement cannot constitute good faith.
● Respondent U-Land was not bound to pay the USD 3 million under
the joint development agreement
● Respondent U-Land was not obligated to exhaust the “securities”
given by petitioner Wellex

Dispositive:
WHEREFORE, the petition is DENIED. The Decision of the Regional Trial Court
in Civil Case No. 99-1407 and the Decision of the Court of Appeals in CA-G.R.
CV No. 74850 are AFFIRMED. Costs against petitioner The Wellex Group, Inc.
Page 62 of 74
 Spouses Lam v. Kodak Philippines GR 167615 Jan
11/2016
G.R. No. | Date | Leonen| Topic/Keywords
Digest by: NAME OF DIGESTER
Petitioners: SPOUSES ALEXANDER AND JULIE LAM, Doing Business
Under the Name and Style "COLORKWIK LABORATORIES" AND
"COLORKWIK PHOTO SUPPLY"
Respondents: KODAK PHILIPPINES, LTD.
Recit-ready Digest + Doctrine:
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered
into an agreement (Letter Agreement) for the sale of three units of the Kodak
Minilab System 22XL (Minilab Equipment) in the amount of ₱1,796,000.00 per
unit. Kodak delivered one unit of the Minilab Equipment in Tagum, Davao
Province and the Lam Spouses issued postdated checks amounting to
₱35,000.00 each for 12 months as payment for the first delivered unit, with the
first check due on March 31, 1992. The depository bank honored the first two
checks, but the ten other checks were subsequently dishonored after the Lam
spouses ordered the bank to stop payment. Kodak Philippines, Ltd. canceled
the sale and demanded that the Lam Spouses return the unit. The Lam
Spouses ignored the demand but also rescinded the contract because of
failure to deliver the two other Minilab Equipment units. The issues in this case
are WoN the contract between the parties is an obligation that is severable,
divisible, and susceptible of partial performance and WoN rescission of the
contract was correctly ordered.
The SC held that the Letter Agreement contained an indivisible obligation
since the intention of the parties shows that there be a single transaction
covering all three units of the Minilab Equipment. Moreover, since Kodak failed
to deliver the remaining Minilab Equipment and Spouses Lam stopped their
payments, rescission was correctly applied since the obligors did not comply
with what was incumbent upon them. Rescission under Article 1191 has the
effect of mutual restitution as if the contract was never entered into. Hence,
petitioners must relinquish possession of the delivered Minilab Equipment unit
and accessories, while respondent must return the amount tendered by
petitioners as partial payment or the unit received.
Facts:
● On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd.
entered into an agreement (Letter Agreement) for the sale of three (3)
units of the Kodak Minilab System 22XL6 (Minilab Equipment) in the
amount of ₱1,796,000.00 per unit, with the following terms:
“This confirms our verbal agreement for Kodak Phils., Ltd. To provide
Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab System
22XL . . . for your proposed outlets in (Manila), Tagum (Davao del
Norte), and your existing Multicolor photo counter in Cotabato City
under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple
order discount based on prevailing equipment price provided said
equipment packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of the
contract. * Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12 months; the balance shall
be re-amortized for the remaining 36 months and the prevailing interest
shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992
is at ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND
PESOS.
6. Price is subject to change without prior notice. *Secured with PDCs;
1st monthly amortization due 45 days after installation.”
● Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment
in Davao Province. The delivered unit was installed by Noritsu
representatives. The Lam Spouses issued postdated checks amounting
to ₱35,000.00 each for 12 months as payment for the first delivered
unit, with the first check due on March 31, 1992.
● The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate
the check dated March 31, 1992 allegedly due to insufficiency of funds.
The same request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak Philippines, Ltd. and
were honored by the depository bank. The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the depository
bank to stop payment.
● Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit. The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November 18, 1992 on
account of Kodak Philippines, Ltd.’s failure to deliver the two (2)
remaining Minilab Equipment units.
● Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of
sum of money. The Lam Spouses failed to appear during the pre-trial
conference. Thus, they were declared in default.
● The trial court issued the Decision in favor of Kodak Philippines, Ltd.
ordering the seizure of the Minilab Equipment. Based on this Decision,
Kodak Philippines, Ltd. was able to obtain a writ of seizure for the
Minilab Equipment installed at the Lam Spouses’ outlet in Davao
Province. The writ was enforced and Kodak Philippines, Ltd. gained
possession of the Minilab Equipment unit, accessories, and the
generator set.
● The Lam Spouses then filed before the CA a Petition to Set Aside the
Orders issued by the trial court. These Orders were subsequently set
aside by the CA, and the case was remanded to the trial court for pre-
trial.
Page 63 of 74
 ● In its Decision, the RTC dismissed the case and ordered the plaintiff to
pay Lam Spouses
● However, the CA dismissed it for Kodak Philippines, Ltd.’s failure to file
its appellant’s brief, without prejudice to the continuation of the Lam
Spouses’ appeal. The Resolution became final and executory.
● CA modified the decision of the RTC.
Issue/s:
● (1) Whether the contract between petitioners Spouses Alexander
and Julie Lam and respondent Kodak Philippines, Ltd. pertained to
obligations that are severable, divisible, and susceptible of partial
performance under Article 1225 of the New Civil Code -NO.
● (2) Upon rescission of the contract, what the parties are entitled to
under Article 1190 and Article 1522 of the New Civil Code. -
Ratio:
Ratio to Issue 1 : The Letter Agreement contained an indivisible obligation.
● Petitioners argue that letter agreement it executed with respondent for 3
Minilab equipment units was not severable, divisible and susceptible of
partial performance and that respondent’s recovery of the delivered unit
was therefore unjustified.
● The intention of the parties is for there to be a single transaction
covering all three (3) units of the Minilab Equipment. Respondent’s
obligation was to deliver all products purchased under a "package," and,
in turn, petitioners’ obligation was to pay for the total purchase price,
payable in installments.
● The intention of the parties to bind themselves to an indivisible
obligation can be further discerned through their direct acts in relation to
the package deal. There was only one agreement covering all three (3)
units of the Minilab Equipment and their accessories. The Letter
Agreement specified only one purpose for the buyer, which was to
obtain these units for three different outlets. If the intention of the parties
were to have a divisible contract, then separate agreements could have
been made for each Minilab Equipment unit instead of covering all three
in one package deal. Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all three acquired
units. The "no downpayment" term contained in the Letter Agreement
was also applicable to all the Minilab Equipment units. Lastly, the fourth
clause of the Letter Agreement clearly referred to the object of the
contract as "Minilab Equipment Package."
● In ruling that the contract between the parties intended to cover divisible
obligations, the Court of Appeals highlighted: (a) the separate purchase
price of each item; (b) petitioners’ acceptance of separate deliveries of
the units; and (c) the separate payment arrangements for each unit.
However, through the specified terms and conditions, the tenor of the
Letter Agreement indicated an intention for a single transaction. This
intent must prevail even though the articles involved are physically
separable and capable of being paid for and delivered individually,
consistent with the New Civil Code: Article 1225.
● For the purposes of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall
be deemed to be indivisible. When the obligation has for its object the
execution of a certain number of days of work, the accomplishment of
work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible. However, even
though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.
● In Nazareno v. Court of Appeals, the indivisibility of an obligation is
tested against whether it can be the subject of partial performance: An
obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. In the
present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners are
therefore mistaken in basing the indivisibility of a contract on the
number of obligors.
● There is no indication in the Letter Agreement that the units petitioners
ordered were covered by three (3) separate transactions. The factors
considered by the Court of Appeals are mere incidents of the execution
of the obligation, which is to deliver three units of the Minilab Equipment
on the part of respondent and payment for all three on the part of
petitioners. The intention to create an indivisible contract is apparent
from the benefits that the Letter Agreement afforded to both parties.
Petitioners were given the 19% discount on account of a multiple order,
with the discount being equally applicable to all units that they sought to
acquire. The provision on "no down payment" was also applicable to all
units. Respondent, in turn, was entitled to payment of all three Minilab
Equipment units, payable by installments.
Ratio to Issue 2: 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. With both parties opting for rescission of the contract
under Article 1191, the Court of Appeals correctly ordered for restitution.
● The injured party may choose between the fulfilment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfilment, 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 under Article 1191 has the effect of mutual restitution. In
Velarde v. Court of Appeals: Rescission abrogates the contract from its
inception and requires a mutual restitution of benefits received.
● The Court of Appeals correctly ruled that both parties must be restored
to their original situation as far as practicable, as if the contract was
never entered into. Petitioners must relinquish possession of the
delivered Minilab Equipment unit and accessories, while respondent
must return the amount tendered by petitioners as partial payment for
the unit received. Further, respondent cannot claim that the two (2)
monthly installments should be offset against the amount awarded by
Page 64 of 74
 the Court of Appeals to petitioners because the effect of rescission
under Article 1191 is to bring the parties back to their original positions
before the contract was entered into.
● When rescission is sought under Article 1191 of the Civil Code, it need
not be judicially invoked because the power to resolve is implied in
reciprocal obligations. The right to resolve allows an injured party to
minimize the damages he or she may suffer on account of the other
party’s failure to perform what is incumbent upon him or her. When a
party fails to comply with his or her obligation, the other party’s right to
resolve the contract is triggered. The resolution immediately produces
legal effects if the non-performing party does not question the
resolution. Court intervention only becomes necessary when the party
who allegedly failed to comply with his or her obligation disputes the
resolution of the contract. Since both parties in this case have exercised
their right to resolve under Article 1191, there is no need for a judicial
decree before the resolution produces effects.

Dispositive:
WHEREFORE,WHEREFORE, the Petition is DENIED. The Amended Decision
dated September 9, 2005 is AFFIRMED with MODIFICATION. Respondent
Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie Lam:

(a) P270,000.00, representing the partial payment made on the Minilab

Equipment;

(b) P130,000.00, representing the amount of the generator set, plus legal interest
at 12% .per annum from December 1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its
standard accessories to respondent.

Page 65 of 74
 Nissan Car Lease Phils v. Lica Management
G.R. No. 176986 | January 13, 2016 | J. JARDELEZA | Rescission
Digest by: REYES
Petitioners: NISSAN CAR LEASE PHILS., INC.
Respondents: LICA MANAGEMENT, INC. AND PROTON PILIPINAS, INC.
Recit-ready Digest + Doctrine:
LMI (owner) entered into a contract with NCLPI (lessee) for the latter to lease
the property located at Pasong Tamo Extension, Makati for a term of ten (10)
years. NCLPI became delinquent. Nissan and LMI verbally agreed to convert
the arrearages into a debt but NCLPI failed to sign the promissory note and
pay the checks for June to October. LMI informed NCLPI that it was
terminating their Contract of Lease due to arrears in the payment of rentals. It
also demanded that NCLPI pay for the unpaid rentals and vacate the
premises. In the meantime, Proton sent NCLPI a request to temporarily use
the premises. NCLPI entered into a MOA with Proton prior to the execution of
the contract of sublease but LMI already entered into a contract of lease with
Proton over the subject premises. NCLPI ordered Proton to vacate the
premises but Proton replied that it was occupying the property based on a
lease contract with LMI. NCLPI asserted that its failure to pay rent does not
automatically result in the termination of the Contract of Lease nor does it give
LMI the right to terminate the same. Issue: WON the contract can be
rescinded extra-judicially despite the absence of a special contractual
stipulation? YES. Art. 1191 provides that the power to rescind is implied in
reciprocal obligations, in cases where one of the obligors should fail to comply
with what is incumbent upon him.
DOCTRINE: An aggrieved party is not prevented from extra-judicially
rescinding a contract to protect its interests, even in the absence of any
provision expressly providing for such right.
Facts:
● Lica Management (LMI) is the absolute owner of a property located at
Pasong Tamo Extension, Makati City. It entered into a contract with
NCLPI for the latter to lease the property for a term of ten (10) years
with a monthly rental of ₱308,000.00. Subsequently, NCLPI became
delinquent in paying the monthly rent.
● Nissan and Lica verbally agreed to convert the arrearages into a debt to
be covered by a promissory note and twelve (12) postdated checks
each amounting to ₱162,541.95 as monthly payments starting June
1996 until May 1997. While NCLPI was able to deliver the post dated
checks per its verbal agreement with LMI, it failed to sign the promissory
note and pay the checks for June to October 1996. Thus, in a letter
dated October 16, 1996, LMI informed NCLPI that it was terminating
their Contract of Lease due to arrears in the payment of rentals. It also
demanded that NCLPI (1) pay the amount of ₱2,651,570.39 for unpaid
rentals and (2) vacate the premises within five (5) days from receipt of
the notice.
● In the meantime, Proton sent NCLPI an undated request to use the
premises as a temporary display center for "Audi" brand cars for a
period of ten (10) days. NCLPI entered into a Memorandum of
Agreement with Proton whereby the former agreed to allow Proton "to
immediately commence renovation work even prior to the execution of
the Contract of Sublease. LMI entered into a Contract of Lease with
Proton over the subject premises. NCLPI demanded Proton to vacate
the leased premises. However, Proton replied that it was occupying the
property based on a lease contract with LMI. In a letter of even date
addressed to LMI, NCLPI asserted that its failure to pay rent does not
automatically result in the termination of the Contract of Lease nor does
it give LMI the right to terminate the same.
Issue/s:
● W/N the contract can be rescinded extra-judicially despite the absence
of a special contractual stipulation therefor? – YES
Ratio:
● It is clear from the records that NCPLI committed substantial breaches
of its Contract of Lease with LMI.
● Aside from non-payment of rentals, it appears that NCLPI also breached
its obligations under Paragraphs 4th and 5th of the Contract of Lease
which prohibit it from subleasing the premises or introducing
improvements or alterations thereon without LMI’s prior written consent.
As revealed from the evidence presented by PROTON however, even
before NCLPI represented that it would try to negotiate a possible sub-
lease of the premises, it had, without any semblance of authority from
LMI, already effectively subleased the subject premises to PROTON
and allowed the latter not only to enter the premises but to renovate the
same. It is true that NCLPI and LMI’s Contract of Lease does not
contain a provision expressly authorizing extrajudicial rescission. LMI
can nevertheless rescind the contract, without prior court approval,
pursuant to Art. 1191 of the Civil Code.
● Art. 1191 provides that the power to rescind is implied in reciprocal
obligations, in cases where one of the obligors should fail to comply with
what is incumbent upon him. Otherwise stated, an aggrieved party is not
prevented from extra-judicially rescinding a contract to protect its
interests, even in the absence of any provision expressly providing for
such right. The rationale for this rule was explained in the case of
University of the Philippines v. De los Angeles wherein this Court held:
○ The law definitely does not require that the contracting party
who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the
pendency of the suit until the final judgment of rescission is
Page 66 of 74
 rendered when the law itself requires that he should exercise
due diligence to minimize its own damages (Civil Code, Article
2203).
● An extrajudicial rescission based on grounds not specified in the
contract would not preclude a party to treat the same as rescinded. The
rescinding party, however, by such course of action, subjects himself to
the risk of being held liable for damages when the extrajudicial
rescission is questioned by the opposing party in court. In other words,
the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law.

Dispositive:
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision
dated September 27, 2006 and the Resolution dated March 8, 2007 rendered by
the CA in CA-G.R. CV No. 75985 are, however, MODIFIED as follows:

(1) NCLPI is ordered to pay LMI and Proton exemplary damages of P50,000.00
and attorney's fees of P50,000.00, each;
(2) NCLPI is ordered to pay the amount of P2,365,569.61 unpaid rentals, with
interest at the rate of six percent (6%) per annum computed from October 18,
1996 until the date of finality of this judgment. The total amount shall thereafter
earn interest at the rate of six percent (6%) per annum from the finality of
judgment until its satisfaction;
(3) LMI is ordered to return to NCLPI the balance of the security deposit
amounting to P883,253.72, with interest at the rate of six percent (6%) starting
March 25, 2003 until the finality of this Decision, after which the total amount
shall earn interest at the rate of six percent (6%) from the finality of this Decision
until satisfaction by LMI.
SO ORDERED

Page 67 of 74
 Nunez v. Moises-Palma
G.R. No. 224466 | March 27, 2019 | CAGUIOA, J | Resolution/Rescission
Digest by: SAN DIEGO
Petitioners: KAREN NUÑEZ * VITO, LYNETTE ** NUÑEZ MASINDA,
WARREN NUÑEZ, and ALDEN *** NUÑEZ
Respondents: NORMA MOISES-PALMA
Recit-ready Digest + Doctrine:
*note: I’m very very confused with this case. Konti lang discussion on
resolution vs. rescission. It’s not even the ratio decidendi :( *
Vicentico mortgaged his land to Norma for payment of loan he borrowed from
Rosita using the funds of Norma.The Heirs of Vicentico, except Alden, sold to
Norma the land through a Deed of Adjudication and Sale (DAS). Norma
despite not paying the consideration, registered the land under a TCT. The
heirs filed a case before the MTC to declare null and void the DAS and to
annul the TCT. MTC ruled in favor of the heirs. RTC reversed it. The CA ruled
in favor of Norma ruling that the transaction was a Dation en pago. 1 The heirs
seek to declare the DAS null and void ab initio and non-existent since Norma,
the vendee, did not pay the purchase price to them pursuant to the doctrine
that where the price which appears in the contract of sale to have been paid
but has in fact not or never been paid, the contract is void. The SC said that
the heirs impliedly has the remedy of resolution since this remedy could be
implied when they sought the nullification of Norma's TCT, the reconveyance
to them of the subject lot and the return of the possession to them.
Facts:
● Vicentico Nuñez, was the original owner of Lot located in Capiz.
Vicentico, who was then suffering from diabetes, borrowed P30k from
Rosita Moises (Rosita) and as security, executed a real estate mortgage
over his property. Since Rosita had no money, the funds came from
Norma Moises-Palma (Norma), Rosita's daughter. According to heirs of
Vicentico, the P30k loan of Vicentico was subsequently paid as
evidenced by an Affidavit Authorizing Release of Mortgage (AARM)
● Upon Vicentico's death the subject lot was transmitted to his heirs
(petitioners) including Vicente's wife, Placida until her death.
● Norma and the heirs (except for Alden, one of the heirs) executed a
deed of adjudication and sale (DAS) where the heirs purportedly sold to
Norma their shares in the lot. Norma immediately took possession of the
subject lot thereafter.
● Instead of paying cash, Norma executed a Promissory Note in favor of
petitioners whereby she obligated herself to pay P50k, representing the
cost of land Norma bought from them. Upon prodding of the heirs,
Norma executed an Acknowledgment of Debt admitting that she owed
petitioners P50k, representing the purchase price
1 Did not include the super long discussion on dacion en pago.
● Despite non-payment of the purchase price and the absence of Alden's
signature on the DAS, Norma was able to cause the registration of the
document with the Register of Deeds of Capiz
● Alden instituted a case against Norma for Annulment of Title,
Reconveyance and Recovery of Possession with Damages before the
MTC but they were able to enter into a Compromise Agreement
whereby Alden agreed to respect Norma's ownership and possession of
a portion of the subject lot, the share being claimed by him.
● The other heirs however filed against Norma a case for Declaration of
Nullity of Deed of Adjudication and Sale, Cancellation of Transfer
Certificate of Title, Recovery of Ownership and/or Possession and
Damages before the MTC, where the MTC ruled in favor of the heirs.
● Norma appealed where the RTC reversed the MTC decision. CA
affirmed the RTC decision. The heirs filed an MR presenting the
Affidavit Authorizing Release of Mortgage (AARM)
Issue/s:
● Whether the DAS is/can be resolved - YES
Ratio:
● Considering the DAS is a contract of sale, what then is the legal effect
of the non-payment of the purchase price of P50,000.00 by Norma to
petitioners?
● Pursuant to Article 1458 of the Civil Code, a contract of sale is a
reciprocal obligation to give; and the prestation or obligation of the seller
or vendor is "to transfer the ownership of and to deliver a determinate
thing" while the prestation or obligation of the buyer or vendee is "to pay
therefor a price certain in money or its equivalent." The full payment of
the purchase price is the buyer's prestation.
● The non-payment of the purchase price by the buyer after the seller has
delivered the object of the sale to the buyer constitutes a breach of the
buyer's prestation in a contract of sale. The buyer has contravened the
very tenor of the contract.
● One remedy is provided in Article 1595, 1596,1525 and 1526 of the Civil
Code. With respect to the sale of immovable properties, the remedies of
the vendor are provided in Arts. 1591,1592, and 2242 of the Civil Code
● With respect to reciprocal obligations, rescission or more appropriately
resolution is another remedy pursuant to Article 1191 of the Civil Code.
● To recall, reciprocal obligations are those which are created or
established at the same time, out of the same cause, and which result in
mutual relationships of creditor and debtor between the parties; and
their outstanding characteristic is reciprocity arising from identity of
cause by virtue of which one obligation is a correlative of the other.
● A reciprocal obligation has been defined as that where each of the
parties is a promisee of a prestation and promises another in return as a
counterpart or equivalent of the other. Article 1191 refers to this kind of
obligation. The most salient feature of this obligation is reciprocity. In
order that there be reciprocity, it is not sufficient that two persons be
mutually debtor and creditor of each other; the reciprocity must be so
perfect as to cause both relations to arise from the same source; each
Page 68 of 74
 obligation being correlative with the other, it not being possible to
conceive one without the other.
● In a contract of sale, as in the DAS in this case, the obligation of the
vendee to pay the price is a correlative of the obligation of the vendor to
deliver the thing sold.
● Proceeding from the fact that the obligation of one party is the
correlative of the obligation of the other in reciprocal obligations, the
Civil Code in the first paragraph of Article 1191 has established the
principle that if one of the parties fails to comply with what is incumbent
upon him, there is a right on the part of the other to rescind (or "resolve"
in accordance with accepted translations of the Spanish Civil Code) the
obligation. Since this condition, which is implied as a general rule in all
reciprocal obligations, has the effect of extinguishing rights which are
already acquired or vested, it is resolutory in character, thus a tacit
resolutory condition.
● Article 1191 provides for the implied or tacit resolutory condition even if
there is no corresponding agreement between the parties, unlike in
unilateral obligations where the right to resolve the obligation must
always be express. Although the said Article uses the term "rescind" the
same should be understood in the sense of "resolve"
● Between the two terms, there are several differences:
○ (1) resolution can only be availed of by a party to the obligation
while rescission may be availed of by a third person (creditor);
○ (2) resolution can be obtained only on the ground of non-
performance by the other party while rescission may be based
on fraud, lesion, etc.;
○ (3) resolution may be refused by the court on valid grounds
while rescission may not be refused by the court if all requisites
are present;
○ (4) resolution is a primary remedy while rescission is
subsidiary, available only when there is no other remedy; and
○ (5) resolution is based on mutuality of the parties while
rescission is based on prejudice or damage suffered.
● To summarize, the remedies of the unpaid seller, after ownership of the
real property not covered by Republic Act No. 6552 or the Maceda Law,
has been vested to the buyer, are:
○ 1. To compel specific performance by filing an action against
the buyer for the agreed purchase price; or
○ 2. To rescind or resolve the contract of sale either judicially or
by a notarial act; and
○ 3. In either (1) or (2), to recover damages for the breach of the
contract.
● Based on the amended complaint, the heirs seek to declare the DAS
null and void ab initio and non-existent since Norma, the vendee,
did not pay the purchase price to them pursuant to the doctrine
that where the price which appears in the contract of sale to have
been paid but has in fact not or never been paid, the contract is
void; and the absence of Alden's signature in the DAS showed that he
did not sign the same and it lacked his consent.
● Since the cause of action of Alden had been finally and fully settled in
the Compromise Agreement in Civil Case No. 499, he no longer has a
cause of action against Norma with respect to his pro indiviso right in
the subject lot.
● What is clear from the amended complaint is that the remedy of
specific performance was not availed of by petitioners. They do
not seek to collect from Norma the purchase price of P50,000.00.
● While they have not expressly sought the resolution of the DAS on
account of Norma's non-payment of the purchase price, such
remedy could be implied when they sought the nullification of
Norma's TCT, the reconveyance to them of the subject lot and the
return of the possession to them.
● When the remedy of resolution of reciprocal obligations, as in
rescission, is sought, "the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interests" is created pursuant to Article 1385 of the
Civil Code.
● As to the ruling of the MTC, it erred when it concluded that the DAS
could be considered as not consummated because no consideration
was effected or given by Norma; and, thus, it is void and non-
existent.The sale was partly consummated on account of the
transfer of ownership by the vendors to Norma. The DAS is not
void for lack of consideration, but it has been extinguished by the
happening of the tacit resolutory condition, which is judicial
resolution or rescission of the sale.
● Likewise, the RTC erred in ruling that the DAS is valid, notwithstanding
the non-payment of the consideration, because there was delivery
pursuant to Article 1477 in relation to Article 1498 of the Civil Code.
● It further erred when it ordered Norma to pay the P50,000.00 with
interest at the legal rate of 12% per annum starting on June 28, 1995
(DAS' date of execution) until the full amount is paid. The error is
because, firstly, the remedy availed of by the vendors is not specific
performance, and secondly, under Article 1592 of the Civil Code, the
court may not grant the buyer a new term when a demand for rescission
of the contract has been made upon him judicially.
● For the sale of immovable property, the following provision governs its
rescission:
○ Article 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by
notarial act. After the demand, the court may not grant him a
new term.
● This provision contemplates
○ (1) a contract of sale of an immovable property and
○ (2) a stipulation in the contract that failure to pay the price at
the time agreed upon will cause the rescission of the contract.
The vendee or the buyer can still pay even after the time
Page 69 of 74
 agreed upon, if the agreement between the parties has these
requisites. This right of the vendee to pay ceases when the
vendor or the seller demands the rescission of the contract
judicially or extrajudicially. In case of an extrajudicial demand
to rescind the contract, it should be notarized.
● Hence, this provision does not apply if it is not a contract of sale of an
immovable property and merely a contract to sell an immovable
property. A contract to sell is "where the ownership or title is retained by
the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is
not a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force."
● It is nevertheless clear that a distinction must be made between a
contract of sale in which title passes to the buyer upon delivery of the
thing sold and a contract to sell (or of "exclusive right and privilege to
purchase," as in this case) where by agreement the ownership is
reserved in the seller and is not to pass until the full payment of the
purchase price is made:
● In the first case, nonpayment of the price is a negative resolutory
condition; in the second place, full payment is a positive suspensive
condition. Being contraries, their effect in law can not be identical. In the
first case, the vendor has lost and can not recover the ownership
of the land sold until and unless the contract of sale is itself
resolved and set aside. In the second case, however, the title
remains in the vendor if the vendee does not comply with the
condition precedent of making payment at the time specified in the
contract.
● Hence, when the seller, because of noncompliance with the suspensive
condition stipulated, seeks to eject the buyer from the land object of the
agreement, said vendor is enforcing the contract and is not resolving the
same. That article 1504 [(of the Civil Code of Spain or old Civil Code,
now Article 1592 of the new Civil Code)] refers to nonpayment as a
resolutory condition and does not contemplate an agreement to sell in
which title is reserved by the vendor until the vendee has complied first
with conditions specified, is clear from its terms:
○ "ART. 1504. In the sale of real property, even though it may
have been stipulated that in default of the payment of the price
within the time agreed upon, the resolution of the contract shall
take place ipso jure, the purchaser may pay even after the
expiration of the period, at any time before demand has been
made upon him either by suit or by notarial act. After such
demand has been made the judge cannot grant him further
time."
● Since the non-payment of the purchase price in a contract of sale
is a negative resolutory condition, the happening or fulfillment
thereof will extinguish the obligation or the sale pursuant to Article
1231 of the Civil Code, which provides that fulfillment of a
resolutory condition is another cause of extinguishment of
obligations.
● Despite its extinguishment, since the vendor has lost ownership of
the land, the contract must itself be resolved and set aside. It is
noted, however, that the resolution of the sale is the tacit
resolutory condition under Article 1191, as discussed above,
which is implied in reciprocal obligations.
● Consequently, the Court rules that the sale transaction in the DAS is
deemed resolved.
Dispositive:
WHEREFORE, the Petition is hereby GRANTED. The Court of Appeals (Visayas
Station) Decision dated July 31, 2015 and Resolution dated March 15, 2016 in
CA-G.R. SP No. 07390 are hereby REVERSED and SET ASIDE. Likewise, the
Decision dated December 11, 2012 of the Regional Trial Court, 6th Judicial
Region, Branch 21, Mambusao, Capiz in Civil Case No. M-12-0360-07 AP is
hereby REVERSED and SET ASIDE. The Decision dated June 8, 2012 of the
Municipal Trial Court, 6th Judicial Region, Mambusao, Capiz in Civil Case No.
515 is REINSTATED and AFFIRMED with MODIFICATION as follows:
WHEREFORE, preponderance of evidence points in favor of plaintiffs and
against defendant, judgment is hereby rendered:
1.) DECLARING the Deed of Adjudication and Sale dated June 28, 1995
RESOLVED in so far as the sale in favor of Norma Moises-Palma is concerned;
2.) ORDERING the proper Register of Deeds to CANCEL Transfer Certificate of
Title No. T-35460 in the name of defendant Norma Moises-Palma and, in lieu
thereof, to ISSUE a new Transfer Certificate of Title in the names of Placida
Hisole Nuñez, Karen Nuñez, Warren Nuñez, Lynette Nuñez and Norma Moises-
Palma, as co-owners to the extent of 1/5 pro indiviso each or 85.8 square meters
undivided portion;
3.) DECLARING plaintiffs as the rightful co-owners of Lot No. 2159-A subject to
the co-owner's right of defendant Norma Moises-Palma with respect to the share
of Alden Nuñez in the total area of 85.8 square meters;
4.) ORDERING defendant Norma Moises-Palma to recognize and respect the
rights of ownership and possession of Placida Hisole Nuñez, Karen Nuñez,
Warren Nuñez and Lynette Nuñez as co-owners of Lot No. 2159-A;
5.) ORDERING defendant Norma Moises-Palma to pay plaintiffs the following:
a.) Ten Thousand (Php10,000.00) pesos per year from 1995 up to the actual
turnover of possession of Lot No. 2159-A to plaintiffs except the share of Alden
Nuñez with an area of 85.8 square meters;
b.) Fifty Thousand (Php50,000.00) pesos as attorney's fees;
c.) Five Thousand (Php5,000.00) pesos as litigation expenses;
Page 70 of 74
d.) Seventy-Five Thousand (Php75,000.00) pesos as moral damages; and

e.) Fifteen Thousand (P15,000.00) pesos as exemplary damages;

with the foregoing amounts bearing legal interest at 6% per annum from finality
of this Decision until full payment; and

6.) ORDERING defendant to pay the cost of the suit.

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 Pryce Properties Corp v. Nolasco GR 203990
Aug 24, 2020
G.R. No. | Date | Ponente | Topic/Keywords
Digest by: NAME OF DIGESTER
Petitioners: Pryce Properties
Respondents: Narciso Nolasco, Jr,
Recit-ready Digest + Doctrine:
Seller (Pryce) rescinded the contract to sell over 3 lots in CDO with the buyer
(Nolasco) because of the latter’s non-payment of installments. Nolasco wants
a refund of his installment payments so he filed a collection suit. RTC and CA
ruled in favor of buyer.
Did the seller properly rescind the contract to sell in accordance with the
Maceda Law?-- NO
4 conditions before the seller may actually cancel the contract thereunder:
-first, the defaulting buyer has paid less than two (2) years of installments;
(complied)
-second, the seller must give such defaulting buyer a sixty (60)-day grace
period, reckoned from the date the installment became due; (complied)
-third, if the buyer fails to pay the installments due at the expiration of the said
grace period, the seller must give the buyer a notice of cancellation and/or a
demand for rescission by notarial act (ie notarial rescission); and (not
complied)
-fourth, the seller may actually cancel the contract only after the lapse of thirty
(30) days from the buyer's receipt of the said notice of cancellation and/or
demand for rescission by notarial act. (not complied)
Should the installments be refunded?-- YES
Facts:
● Nolasco bought 3 lots in Cagayan de Oro City from Pryce. The parties
entered into an unsigned written contract to sell. Nolasco deposited
Php 393,435 through check payments in favor of Pryce.
● Eventually, Nolasco was unable to pay the installments due since he
was unable to secure a loan from Land Bank. Nolasco received a
demand letter from Pryce, giving him 60 days from 5 Dec 1998 within
which to pay the installments, otherwise the contract will be rescinded.
● Since Nolasco still failed to pay, Pryce rescinded the contract. Nolasco
wants a refund of his installment payments so he filed the present
collection suit.
● RTC and CA ruled in favor of Nolasco, hence the present petition filed
by Pryce.
● Pryce maintains that Nolasco impliedly agreed to the unsigned Contract
to Sell and harks on the applicability of RA 6552 or the Maceda Law. It
posits that Nolasco is not entitled to a refund of his installment
payments because there was a valid rescission of the Contract to Sell
when Pryce sent Nolasco its December 5, 1998 letter and raised the
affirmative defense to deny Nolasco's claim for refund in its Answer with
Counterclaims to the Complaint before the RTC. Pryce thus maintains
that Nolasco has forfeited his deposit payments in favor of Pryce.
● Nolasco, on the other hand, admits that he entered into a contract to sell
with Pryce but asserts that CA correctly found that he did not sign a
written Contract to Sell and that he is entitled to a refund of the down
payments he made to Pryce.
Issues: Whether the contract between Pryce and Nolasco was rescinded in
accordance with RA 6552 (Maceda Law)— NO
Whether petitioner Pryce should refund respondent Nolasco.— YES
On whether Pryce properly rescinded the contract to sell in accordance
with the Maceda Law—NO
● Section 4 of RA 6552 requires four (4) conditions before the seller may
actually cancel the contract thereunder:
o first, the defaulting buyer has paid less than two (2) years of
installments; (complied)
o second, the seller must give such defaulting buyer a sixty (60)-
day grace period, reckoned from the date the installment
became due; (complied)
o third, if the buyer fails to pay the installments due at the
expiration of the said grace period, the seller must give the
buyer a notice of cancellation and/or a demand for rescission
by notarial act (ie notarial rescission); and (not complied)
o fourth, the seller may actually cancel the contract only after the
lapse of thirty (30) days from the buyer's receipt of the said
notice of cancellation and/or demand for rescission by notarial
act. (not complied)
● In claiming that the contract was validly rescinded, Pryce relies on
o (1) the contract to sell which contains an automatic
cancellation stipulation2 in case of default and
2 14. AUTOMATIC CANCELLATION FOR FAILURE TO PAY ANY MONTHLY
INSTALLMENT TOGETHER WITH INTEREST, TAXES OR ASSESSMENT. Without
prejudice to the rights of the SELLER to consider this contract as automatically cancelled
under Paragraph 16 hereof, it is herein stipulated that should the BUYER fail for any reason
to make payment of any of the monthly installments together with the interest, taxes and
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 o (2) its Answer with Counterclaims against Nolasco's Complaint
before the RTC which contained its denial of the refund
● As to the contract with the automatic cancellation provision, SC said it
does not bind Nolasco because it is contrary to the Maceda Law. 3
Moreover, it was not signed by Nolasco. Even if so signed, the Contract
to Sell was not worded to effect its automatic cancellation upon
Nolasco's default. While the word automatic cancellation implies
unconditionality, the body of the above contractual stipulation betrays its
title.
● While Pryce complied with the first 2 req, the last 2 were not met.
● There was no notice of notarial rescission served on Nolasco (3rd req
not met), hence the 30 days could not have lapsed from a non-existent
service of such notice (4th req not met).
o A notarial rescission contemplated under RA 6552 is a
unilateral cancellation by a seller of a perfected contract
thereunder acknowledged by a notary public and accompanied
by competent evidence of identity. This notarial notice of
rescission has peculiar technical requirements. Pryce violated
all of them.
o The notarial rescission requires an acknowledgment. In this
case, however. Pryce’s Answer with counterclaims (which
accdg to Pryce can be considered the notarial rescission)
was notarized through a jurat.
o A notarial act converting the private notice of cancellation into
a public one must be an acknowledgment. An acknowledgment
is the act of one who has executed a deed in going before
assessments thereon as provided in this contract, the rights and obligations of the parties
hereto shall be as follows:
(A) Where the BUYER shall have paid less than two years of installments prior to his
default, he shall have a grace period of sixty (60) days from the date the monthly
installment become due. Should the SELLER not actually receive payment within the Sixty
(60)-day grace period, this contract shall be considered automatically cancelled thirty (30)
days after service by SELLER to the BUYER of a notarized notice of cancellation or
rescission, in which event any and all sums of money paid under this contract together with
all the improvements made on the premises shall become rentals of the property. The
sending of such notice by registered mail to the BUYER's above address shall be deemed
sufficient service thereof for the purpose, irrespective of whether or not it was personally or
actually received by the BUYER.
3 the highlighted conditions in the Contract to Sell conflict with RA 6552, which dictates
"receipt" and not "service" of the notice of rescission to the buyer as the reckoning point of
the thirty (30)-day period before actual cancellation. Pryce's Contract to Sell even
dispensed with this legal requirement of receipt by deeming mere service by registered mail
as sufficient proof of service and constructive receipt. For being contrary to Section 4 of RA
6552, these stipulations are rendered null and void, 16 and the general provisions
governing a contract to sell under RA 6552 shall govern.
some competent officer or court and declaring it to be his[/her]
act or deed.
o Rescission is an act or a deed, directly or impliedly done,
where a contract is cancelled, annulled, or abrogated by the
parties, one of them, or by the court. An act or a deed of
rescission is distinct and separate from an allegation of
rescission, an allegation being an assertion, declaration, or
statement of a party to an action, contained generally in an
affidavit or a legal pleading, setting out what is yet to be
proven. Under notarial rules, acknowledgments cover written
deeds and acts, whereas jurats confirm affidavits and
pleadings.
o The foregoing thus defined, a deed of rescission notarized via
acknowledgment is already a piece of evidence all on its own.
On the other hand, an allegation of rescission contained in an
affidavit or a pleading and confirmed by a notarial jurat still
remains to be proved; it merely implies that the signatory
thereof sets out to prove the fact of the rescission before a
notary public.
o Here, Pryce only alleged the fact of rescission in its Answer
with Counterclaims without further evidence that would
adequately determine its truth. It is not the independent notarial
rescission contemplated by RA 6552.
o Even if these formal delinquencies were to be overlooked, the
mode of rescission itself as claimed by Pryce remains
questionable. As earlier discussed, the allegations contained in
Pryce's Answer with Counterclaims cannot constitute as
substantial notice of rescission of its contract to sell with
Nolasco.Rescission unmakes a contract. Necessarily, the
rights and obligations emanating from a rescinded contract are
extinguished. Being a mode of nullifying contracts and their
correlative rights and obligations, rescission thus must be
conveyed in an unequivocal manner and couched in
unmistakable terms. This is so as not to restrict the parties
therein to mere guesswork in determining their contractual
status, in mapping out their causes of action, if any, against
each other, in deciding on their remedies should they be
aggrieved by the rescission and find the need for redress, and
in estimating the prescriptive periods of such legal remedies.
Basic fairness empowers this rule.
o Here, both Nolasco and Pryce were left in a legal haze due to
the vagueness of their standing under the contract to sell.
o
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On whether the installments should be refunded-- YES fails to pay the installments due at the expiration of the said
grace period; and
● A defaulting buyer of real property on installments, whether or not she o (c) The seller may actually cancel the contract only after thirty
or he has paid two (2) years of installments has three (3) common legal (30) days from the buyer's receipt of the said notice of
remedies in the absence of a valid rescission, granted by Section 6 of cancellation/demand for rescission by notarial act.
RA 6552 and jurisprudence:
o (a) Pay in advance any installment at any time, necessarily Dispositive: WHEREFORE, the Petition for Review on Certiorari is DENIED.
without interest; The assailed May 30, 2012 Decision and the September 26, 2012 Resolution of
o (b) Pay the full unpaid balance of the purchase price at any the Court of Appeals in CA-G.R. CV No. 76091-MIN are AFFIRMED with
time without interest, and to have such full payment of the MODIFICATION in that the amount of P393,435.00 shall be subject to legal
purchase price annotated in the certificate of title covering the interest at the rate of twelve percent (12%) per annum reckoned from the date of
real property subject of the transaction under RA 9552; or judicial demand on January 22, 1999 until June 30, 2013; and six percent (6%)
o (c) Claim an equitable refund of prior payments and/or deposits per annum from July 1, 2013 until fully paid.
made by the defaulting buyer to the seller pertinent to their
transaction under RA 9552, if any.
● A defaulting buyer enjoys other rights in addition to the foregoing,
depending on the status of her or his payments and of the contract.
● Under Section 3 of RA 6552, a defaulting buyer that has paid at least
two years of installments has the following options:
o (a) To pay, without additional interest, the unpaid installments
due within the total grace period earned by him, which is
hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this
right shall be exercised by the buyer only once in every five
years of the life of the contract and its extensions, if any.
o (b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty per cent of the total payments made
and, after five years of installments, an additional five per cent
every year but not to exceed ninety per cent of the total
payments made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
● Under Section 4 of RA 6552, a defaulting buyer that has paid less than
two years of installments is entitled to the following:
o (a) The seller shall give the buyer a sixty-day grace period of
not less than sixty (60) days to be reckoned from the date the
installment became due;
o (b) The seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the buyer

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