Chapter 3 Different Kinds of Obligations Pure and Conditional Obligations, Obligations, 1179 Smithbell vs. Sotelo Matti, 44 Phil. 875 (1922)
Issue: Whether a creditor is barred by prescription to collect on a promissory note executed more than 15 years earlier this petition Ruling: No, he is barred by prescription. Since the note was dated on January 20, 1952 its clear that more than 10 years has transpired from that time until this date. Thus, the action pf creditor has definitely prescribed. Issue 2: Whether or not a promissory n ote to be paid “upon demand” is immediately due and demandable
FACTS: Plaintiff corporation sold merchandise merchandise to Mr. Sotelo to be delivered in three months, but the period was not guaranteed. Although plaintiff tried its best to fulfill the commitments on time, still transportation and government red tape made delivery possible only after three months. Whereupon Mr. Sotelo refused to accept the goods and to pay for them on the ground that the term had not been complied with.
Ruling: YES. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once (Art. 1179 of the New Civil Code). The obligation being due and demandable in this case, it would appear that the filing of the suit after fifteen years was much too late.
ISSUE: Whether or not Mr. Sotelo should accept and pay
Conditional obligations
RULING: Yes. There was really no term, but a mixed condition. Considering that plaintiff had been faithfully complied with, for here the fulfillment of the condition did not depend purely on its will but on others, like the shipping company and the government. Mr. Sotelo must now comply.
Classification Classification of conditions
Pure obligation Pay vs. Palanca, 57 SCRA 618 FACTS: Petitioner George Pay is a creditor of the Late Justo Palanca. Petitioner’s claim is based on a promissory note dated January 30, 1952— where Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay petitioner the amount amount go 26,900 PHP with interest interest at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand. Petitioner is now seeking his claim to Segundina Chua de Palanca — Palanca — the the surviving spouse of the late Justo Palanca who he appointed as administratrix of a certain piece of property. The surviving surviving spouse refused to be appointed as the administratrix; administratrix; that the property sought to be administered no longer belonged to the debtor and that the right of petitioner has already prescribed.
Gaite vs. Fonacer, 2 SCRA 381 FACTS: By a “Deed of Assignment,” Isabelo Foncier, owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, constituted and appointed Fernando Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P.50 per ton of ore that might be extracted therefrom.
For some reason or another, Isabelo Foncier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. conditions. One of these conditions is that he is to transfer to Fonacier all his right and interests over the “24,00 tons of iron ore, more or less” that he had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000 of which is paid upon the signing of the agreement, and the balance of P65,000 will be paid from and out of the first letter of credit covering the first shipment of Boycillo | 1
iron ores and of the first amount derived from the local sale of iron ore made the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests. To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Fernando Ty as sureties. Gaite testified, however, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Contract", on December 8, 1954, he refused to sign unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954,was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", and made integral parts thereof. When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the
iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. ISSUE: Is the obligation of Fonacier one with a period or term and not one with a suspensive condition, condition, and that the term expired on December 8, 1955? RULING: Yes. The shipment or local sale of the iron ore is not a condition precedent (or suspensive) suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional conditional obligation obligation had never never existed.
The appellant have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: "ART. 1198. The debtor shall lose every right to make use of the period: (1) . . . (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. satisfactory. Boycillo | 2
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A." Songcuan vs. IAC, (191 SCRA28) FACTS: Victoriano Alviar was the owner of two parcels of land located at San Fernando, La Union. On the land stands a building owned by his son, Mariano, and his wife, Belen. On September 29, 1966, the Alviars sold these realties to Saturnino Songcuan for P34,026.09.
They further agreed that the Alviars will have the right of redemption within 10 years from the date of signing of the instrument, and further stipulated in P.S. that in the event of repurchase by the Alviars, Songcuan shall have the right of lease for a period of 25 years for the premises actually occupied by Songcuan. Sometime in March, 1969 the mentioned building was razed by fire and Songcuan erected another at his own expense. When the Alviars wanted to repurchase, Songcuan refused to sell back to the Alviars the properties because the latter was tendering only the price of P34,026.00 whereas Songcuan wanted reimbursement for the cost of the building he erected and also for the cost of the registration registration of the realties. On July 29, 1977, the then Court of First Instance of La Union rendered its decision decreeing that the Alviars had the right to repurchase, giving them one (1) year, 10 months and 18 days from the finality of this decision (Ong Chua v. CARR, 53 Phil. 975) or within the period of 30 days from finality of
this decision as provided for under Art. 1606 of the New Civil Code; the Alviars pay Songcuan the cost of improvements in putting up the building. Songcuan advanced the grounds that the Alviars had forfeited their right to repurchase the subject premises for having failed to exercise it within thirty days from the finality of the decision citing the third paragraph of Article 1606 of the Civil Code, and that the right of the Alviars to repurchase may be rescinded under Article 1191 of the Civil Code. ISSUES:
1. Whether or not the Alviars had forfeited their right to repurchase, or whether the right may be rescinded under the grounds advanced by Songcuan 2. How much area is Songcuan entitled to lease? The trial court, awarded Songcuan the whole premises, based on the "P.S. (Additional Condition)" which speaks of "the premises actually occupied by [Songcuan]." RULING:
1. The Court found merit in Songcuan's argument that the Alviars had forfeited their right to repurchase the subject premises for having failed to exercise it within thirty days from the finality of the decision citing the third paragraph of Article 1606 of the Civil Code. It is noted that the final decision, which became final on March 9, 1981, gave the Alviars two alternative periods within which to exercise the right to repurchase either within 30 days as prescribed in Article 1606, or within 1 year, 10 months and 18 days from March 9, 1981, . . . Accordingly, whichever of the alternative periods the Alviars may avail of, would still constitute constitute a valid exercise of their right. The Court did not agree that the right of the Alviars to repurchase may be rescinded under Article 1191 of the Civil Code. Songcuan asserts that the October 10, 1966 contract he entered into with the Alviars created a reciprocal obligation between them for him to reconvey the subject premises and for the Alviars to lease the realties to him and the refusal of the latter to fulfill their obligation giving him the right, under Article 1191, to rescind "the right of [the Alviars] to repurchase" the realties. Although the parties are each obligor and obligee of the other, their Boycillo | 3
corresponding obligation can hardly be called reciprocal. In reciprocal obligations the obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other party to rescind the contract. In the case at bar, there are two separate and distinct obligations, each independent of the other. The obligation of Songcuan to reconvey the property is not dependent on the obligation of the Alviars to lease the premises to the former. The obligation of the Alviars is not an essential part of the contract. In other words, the obligation of the Alviars to lease to Songcuan the subject premises arises only after the latter had reconveyed the realties to them. 2. The P.S. clause refers to the area Songcuan was actually occupying and not to what he constructively may possess as the owner of the premises at the time of the execution of the October 10, 1966 contract. Further, as pointed out by private respondents, there was no need to present any evidence as to the area Songcuan was actually occupying since at the pre-trial conference in the trial court, Songcuan had admitted that he was occupying only one-third of the single story Alviar building. Coronel vs. CA, GR No. 103577, October 7, 1996 FACTS: On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" in favor of Ramona Patricia Alcaraz (hereinafter referred to as Ramona).
The condons appurtenant to the sale are the following: 1. Ramonaiti will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document;
On the same date, Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos. On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043. On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos. For this reason, Coronels canceled and rescinded the contract with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz. On February 22, 1985, Concepcion filed a complaint for specific performance against the Coronels. On June 5, 1985, a new title over the subject property was issued in the name of Catalina. ISSUES:
1. Was the agreement with Ramona and the Coronels a contract of sale or a contract to sell? 2. Was the contract between the parties subject to a condition? RULING:
2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
1. The agreement between the parties was a contract of sale. The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land in the “Receipt of Downpayment”.
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the Boycillo | 4
subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. 2. Yes. The parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985. Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."
Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. Javier vs. CA, 183 SCRA 171 (1990) FACTS: Private respondent Leonardo Tiro is a holder of an ordinary timber license issued by the Bureau of Forestry covering 2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966 he executed a "Deed of Assignment" in favor of petitioners Jose M. Javier and Estrella F. Javier to assign, transfer and convey his shares of stocks in Timberwealth Corporation in consideration of the sum of Php120,000.00 in which the Php20,000.00
shall be paid upon signing of the said contract and the balance of Php100,000.00 shall be paid in Php10,000.00 for every shipment of export log actually actually produced from the forest concession. At the time the said deed of assignment was executed, private respondent had pending application for an additional 2,000 hectares of forest concession. Hence, private respondent made another agreement on February 28, 1966 with petitioners that in the event that his application will be approved, his rights to the additional forest concession shall be transferred to petitioners in consideration of the sum of Php30,000.00.
On November 18, 1966, private respondent was informed that his forest concession was renewed but since the area is only 2,535 hectares, he was ordered to form an organization with adjoining licensees so as to have a total holding area of 20,000 hectares, otherwise, his license will not be renewed. Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment executed by private respondent in their favor, entered into a Forest Consolidation Agreement.
Thereafter, private respondent filed a civil case for the failure of petitioners to pay the balance of the two deeds of assignment. In petitioners’ answer, they contend that private respondent failed his contractual obligations and the conditions for the enforceability of the obligations did not materialize. Private respondent, then, replied that the deed of assignment did not only transfer his shares of stocks but his rights and interest in the logging concession. Thereafter, the trial court rendered judgment for the petitioners; however, on appeal to the Court o f Appeals, the trial court’s decision was reversed. Hence this petition. ISSUES:
1. Was the deed of assignment dated February 15, 1966 null and void? 2. Was the agreement of February 28, 1966 null and void?
Boycillo | 5
RULING:
1. No. As found by the Court of Appeals, the true cause or consideration of said deed was the transfer of the forest concession of private respondent to petitioners for P120,000.00. Also, the contemporaneous and subsequent acts of petitioners and private respondent reveal that the cause stated in the questioned deed of assignment is false. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable indica of their true intention. Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time of contracting. The parties' practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the proper construction of the agreement. The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one where the parties conceal their true agreement. A contract with a false consideration is not null and void per se. Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
2. Yes. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. If the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the obligation of private respondent to transfer his rights in the forest concession over the
additional area and, on the other hand, the obligation of petitioners to pay P30,000.00. The demandability of the obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the failure of private respondent to comply with his obligation negates his right to demand performance from petitioners. Delivery and payment in a contract of sale are so interrelated and intertwined with each other that without delivery of the goods there is no corresponding obligation to pay. The two complement each other. Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case, since private respondent never acquired any right over the additional area for failure to secure the approval of the Bureau of Forestry, the agreement executed therefore, which had for its object the transfer of said right to petitioners, never became effective or enforceable. Tayag vs. CA , 219 SCRA 480 (1993) FACTS: The heirs of Juan Galicia brought an action for breach of the conditions on the deed of conveyance executed by Juan Galicia in favor of private respondent, Albrigido Leyvaunder the following terms: P3,000.00 is HEREBY acknowledged to have been paid upon the execution of this agreement; P10,000.00 shall be paid within ten days from and after the execution of this agreement; P10,000.00 represents the VENDORS' indebtedness with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and P27,000.00 shall be paid within one year from and after the execution of this instrument.
There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent's assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin. Petitioners asserted that the P27,000.00 was not paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked by their predecessor, private respondent filed the complaint for specific performance. Boycillo | 6
The trial court upheld private respondent's theory on the basis of constructive fulfillment under Article 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the Civil Code. Anent the P10,000.00 specified as second installment, the lower court counted against the vendors the candid statement of Josefina Tayag who and made the admission that the check issued as payment thereof was nonetheless paid on a staggered basis when the check was dishonored. Regarding the third condition, the trial court noted that plaintiff below paid more than P6,000.00 to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77 which circumstance was construed to be a ploy under Article 1186 "for the purpose of withdrawing the title to the lot". The acceptance by petitioners of the various payments even beyond the periods agreed upon, was perceived by the lower court as tantamount to faithful performance of the obligation pursuant to Article 1235 of the Civil Code. Furthermore, the trial court noted that private respondent consigned P18,520.00, an amount sufficient to offset the remaining balance, leaving the sum of P1,315.00 to be credited to private respondent. ISSUE: Were the conditions of the instrument performed by private respondent as vendee? RULING: YES. There is no doubt that the second installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose that "the evidence in the records do not support this conclusion"
Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are the obligees while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, both parties are mutually obligors and also obliges, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment ( Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the
balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter. Kinds of Conditional obligations; suspensive & resolutory, 1181 Jacinto vs. Kaparaz, 209 SCRA 246 (1992) FACTS: Petitioners, Oscar and Librada Franco-Jacinto and private respondents entered into an agreement under which the private respondents agreed to sell and convey to petitioners a six hundred (600) square meter lot located in Matiao, Mati, Davao Oriental, a total consideration of P1,800.00. Down payment of P800.00 was paid upon execution of the Agreement. The balance of P1, 000.00 was to be paid by petitioners on installment at the rate of P100.00 a month to the Development Bank of the Philippines (DBP) to be applied to private respondents' loan accounts. Upon the execution of the agreement, petitioners paid the down payment of P800.00. As to the P1, 000.00 which was to be paid directly to the DBP, petitioners claim that they had even made an excess payment of P100.00.
In view of the refusal of private respondents to execute the deed of sale, petitioners filed against them a complaint for specific performance with the then Court of First Instance of Davao Oriental. In their Answer, private respondents alleged that the sale did not materialize because of the failure of petitioners to fulfill their promise to make timely payments as a result of such failure; private respondents failed to secure the release of the mortgage on the property. They then prayed for the dismissal of the case and a declaration that the agreement is null and void. The lower court rendered judgment in favor of the petitioners; however it was reversed by the court of appeals. The respondent Court was of the opinion that petitioners had not fully discharged their obligation under the agreement considering that their last payments were several months delayed beyond the date/s agreed upon by the parties and that the delay in the payments was not a slight breach. Unable to accept the verdict made, petitioner commenced petition to the SC. ISSUE:
1.
Is it a contract of sale?
2.
Can private respondent be compelled to execute the deed of sale? Boycillo | 7
RULING:
1. Yes. In a contract of sale, ownership is retained by the seller and is not to pass until full payment of the price. Such payment is a positive suspensive condition the failure of which is not a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. In such a situation, to argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory question. There can be no rescission or resolution of an obligation as yet non-existent, because the suspensive condition did not happen. 2. Yes. The delay incurred by petitioners was but a casual or slight breach of the agreement, which did not defeat the object of the parties in entering into the agreement. A mere casual breach does not justify rescission. The prompt payment of the monthly amortizations of the unpaid balance of P1,000.00 was not a condition precedent to the execution of the final deed of sale. Besides, petitioners had already paid P1,400.00 of the total consideration of P1,800.00, or exactly 77.77% of the purchase price within the period stipulated. Moreover, they had in fact overpaid the private respondents by P100.00. Accordingly, We rule that rescission of the agreement was not available to private respondents.
Lichauco vs. Figueras Hermanos, 7 Phil. 339 FACTS: The Quartermaster's Department of the Army of the United States advertises semiannually for proposals to furnish lighterage for its use in the port of Manila. The service required is divided into two classes, regular and emergency. The price paid for emergency service is naturally higher than that paid for regular service wherein the lorcha are steadily employed for the entire contract period of six months.
The defendants submitted a bid for the quartermaster's contract of lighterage for the semiannual period from the 1st of July to the 31st of December, 1905, but when the proposals were opened on the 2d of May, 1905, their bid and all
others were rejected. On the 16th of May, 1905, the letting of the contract was again advertised, and the defendant and other submitted new proposals which were opened on the 27th of May, 1905, and on this occasion the contract was divided and the defendants bid for the emergency service was accepted, while a third party was awarded the contract for the regular service. There were no new negotiations entered into between the plaintiff and the defendants after the failure of defendants to secure the contract at the opening of the bids on May 2, 1905, but on the 1st of July the plaintiff Lorchas Chata and Lolin were furnished to the quartermaster under the defendants' contract for the emergency service, and were thus employed in that service for the first twenty-three and twenty-seven days of August, when they were released by the quartermaster, and the plaintiff immediately notified by the defendants that they were at his disposal. Plaintiff claims that defendants made use of these lorchas, under the terms of the contract of April 20; that is, that the lorchas shall be rented from July 1 to Dec. 31, 1905. ISSUE: Is the respondent obliged to pay the rentals for the days that the lorchas were not used? RULING:
No. It was plainly conditioned upon the defendants' securing the entire contract of lighterage and not upon their securing a part thereof. There is nothing in the contract between the parties to indicate that either one had in mind the division of the lighterage contract and indeed the language of the entire amendment suggests that both parties had in contemplation no other thing that the complete success or the complete failure of defendants to secure the lighterage contract with the Government. In conditional obligations, the acquisition of rights, as well as the extinction or loss of those already acquired, shall depend upon the event constituting the condition. Boycillo | 8
The defendants, by taking and using these lorchas for the purpose of carrying out their contract with the quartermaster without any new agreement the obligation with the plaintiffs, impliedly and tacitly assumed the obligation of the original contract together with the amendment, so that their use of the lorcha was subject to its terms. They required no new contract with the plaintiff, express or implied, to authorize them to do so, and no sufficient reason has been suggested to justify the inference that they assumed an oppressive and dangerous risk when all that they did was in exact compliance with a written contract securing to them the right to use these lorchas on favorable and reasonable terms. Ducusin vs. CA, 122 SCRA 280 (1983) FACTS: On Feb. 1975, petitioner Ducusin leased a one door apartment to the respondents Baliola spouses. The Baliola spouses occupied the apartment for almost 2 years. On Jan. 1977, Ducusin s ent a “Notice to Terminate Lease Contract” for the reason that his two children were getting married and they be the ones to use the property. Respondent Ducusin again sent another letter to the petitioner asking them on their actions regarding the termination of the lease contract.
Soon on April 1977, the respondents filed an action for ejectment alleging that the sole purpose of constructing the apartment was for the eventual use of their children when they will get married and that the Baliola violated their contract by subleasing the premises and using the premises for manufacturing commercial goods. The respondent on the other hand, denied the allegations stating that the ejectment suit is a well-planned scheme to evict them out of the apartment and to raise the rent. Issue: Whether or not the contract of lease can be unilaterally terminated by the lessor/ petitioner? Ruling: According to the Supreme Court and basing on what is stipulated in their contract of lease there are causes that will in effect extinguish the contract: 1. Termination by mutual consent. 2. Lessor elects to terminate the contract on the ground that his children need the premises for their own use.
3. Any cause provided and in accordance with law. Art. 1382: Validity or compliance cannot be left to the will of one them. Art. 1182: If it depends upon chance or hazard or upon the will of a third person, the obligation shall be valid.
Since the happening of the condition depends on the lessor’s/ respondent’s children which are considered third person. Whenever they will require the leased premises, the contract shall be deemed terminated, and this affirmed by Supreme Court. Issue 2: Whether or not the happening of the resolutory condition is established by a preponderance of evidence? Ruling: The Supreme Court concluded that the intention to use the leased premises as the residence of Ducusin, Jr. has been satisfactorily and sufficiently proved by clear, strong and substantial evidence found in the records of the case. Protestative, Casual and Mixed Conditions, 1182 Rustan Pulp vs. IAC, 214 SCRA 662 (1992)
FACTS: Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lanao del Norte. On March 20, 1967, respondent Romeo Lluch, who is a holder of a forest products license and Iligan Diversified Projects, Inc. transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response, petitioner Rustan proposed in the letter reply that the contract to supply is not exclusive because Rustan shall have the option to buy from other qualified suppliers. The prefatory business proposals culminated in the execution, during the month of April 1968, of a contract of sale whereby Romeo Lluch agreed to sell and Rustan Pulp undertook to pay the price of P30.00 per cubic meter of pulp wood materials to be delivered at the buyer’s plant in Baloi, Lanao del Norte. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up. The suppliers Boycillo | 9
were then informed to stop deliveries and the letter of similar advice was sent by petitioner to private respondent. Private respondent then clarified whether the stoppage of delivery or termination of contract was intended, but the query was not answered by petitioner. Despite to that, Lluch and other suppliers resumed deliveries which were still accepted by petitioner. On January 23, 1969, the complaint for contractual breach was filed by private respondent but was dismissed. Petitioner relied on Article 1267 of the Civil Code to defend their position. However, on appeal to the then IAC, the judgment was rendered directing petitioners to pay private respondents, jointly and severally, hence, this appeal for review of the decision of the then IAC.
ISSUE: Was the right of stoppage exercised by Rustan pulp indicative of a breach of contract? RULING: Yes. It was indeed inconsistent for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own advice by accepting the deliveries from the suppliers, and so they cannot rely on Article 1267 of the Civil Code. There is no doubt that the contract speaks loudly about petitioner Rustan Pulp’s prerogative but what diminishes the legal efficacy of such right is the condition attached to it which is independent exclusively on their will. Paragraph 7 of the contract is purely potestative imposition and must be obliterated from the face of the contract without affecting the rest of stipulations. It would also be unjust for the court a quo to rule that the contract of sale be temporarily suspended until Rustan are ready to accept deliveries from the appellants. This would make the resumption of the contract purely dependent on the will of one of the partythe appellees, and they could always claim, as they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they have been accepting the same from other sources. Article 1182 of the Civil Code states that, “When the fulfillment of the condition depends upon the solve will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon will of a third person, the obligation shall take effect in conformity with the provisions of this Code.”
Furthermore, in line with petitioner’s contention, being the President and Manager of the Corporation, they cannot be made liable to pay damages because they merely represent the interest of Rustan Pulp. This is contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. Only petitioner Rustan Pulp and Paper Mills should pay moral damages and attorney’s fees. Hermosa vs. Logara, 49 OG 4287 FACTS: This is an appeal by way of certiorari against a decision of the Court of Appeals, approving certain claims presented by Epifanio Longara against the intestate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely P2, 341 representing credit advances made to the intestate from 1932 to 1944; P12, 924. 12 made to his Francisco Hermosa and P3, 772 made to his grandson, Fernando Hermosa , Jr. The claimant presented evidence and CA, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family “ on condition that their payment should be made from he sale of his property in Spain” claimant had testified without opposition that the credit advances were to be “payable as soon as Fernando Hermosa, Sr.’s property in Spain was sold and he received money derived from the sale.” ISSUE: Is the obligation a condition potestiva? RULING: No. The obligation does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control. If the condition were “if he decides to sell his house,” or “if he likes to pay the sums advanced,” or any other conditions of similar import implying that upon him alone payment would depend, the condition would be potestiva, dependent upon his will or discretion. The condition implies that the obligor had already decided to sell his house, or at least that he made his creditors believe that he had done so, and that all that was needed to make his obligation demandable is that the sale be consummated and the price thereof remitted to the island. The condition of the obligation was not purely potestative one, depending exclusively upon the will of the obligor but a mixed one, depending partly upon the will of the obligor and partly upon Boycillo | 10
chance, i.e., the presence of a buyer of the property for the price under the conditions desired by the obligor. The obligation is clearly governed by the second sentence of Article 1115 of the old Civil Code. The conditions is, besides, a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable. Osmeña vs. Rama, 14 Phil. 99 FACTS: On November 15, 1890, defendant Rama executed and delivered to Victoriano Osmeña a contract. The contract stipulates that Rama received from Victoriano the sum of P200 which defendant will pay Victoriano Osmeña in sugar and pay also an interest at a rate of half a cuartillo per month. Defendant promise that he will sell to Mr. Osmeña all the sugar that he may harvest and as a guarantee pledge as a security all his present and future property and as special security his house in Pagina.
On October 27, 1891, defendant executed another contract with Victoriano Osmeña which states that defendant asked for a loan amounting to P70, P50 of which defendant loaned to Don Peñares, which they will pay in sugar. Sometime after the execution and delivery of the above contracts, Victoriano died. In the settlement and division of the property of his estate the above contracts became the property of one of his heirs, Agustina Rafols. Later, Agustina Rafols ceded to the present plaintiff Tomas Osmeña all of her right and interest in said contracts. On March 15, 1902, plaintiff presented the contracts to the defendant for payment and she acknowledged her responsibility upon said contracts by an endorsement which stipulates: On this date I hereby promise,…that if the house of strong materials in which I live in Pagina is sold, I will pay my indebtedness to Don Tomas Osmeña as set forth in this document. The defendant not having paid the amount due on said contracts, the plaintiff filed an action before the CFI of Cebu. The lower court rendered judgment in favor of the plaintiff for the sum of P200 with interest. From this judgment the defendant appealed.
ISSUE: Is the endorsement made by defendant Rama for payment of said obligation valid? RULING: No. It was suggested during the discussion of the case in this court that, in the acknowledgment above quoted of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract.
Trillana vs. Quezon Colleges, 93 Phil. 383 (1953)
FACTS: Damasa Crisostomo wrote a letter to the Quezon College, Inc. for the subscription of shares of stock of the said college wherein payment was to be made through money she was going to generate from fishing. However, she died and as no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance in her testate proceeding, for the collection of the said sum of money. The claim was dismissed by the trial court on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. appealed. ISSUE: Was Damasa Crisostomo liable for the claim made by Quezon Colleges, Inc? RULING: No. The application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the rules or regulations of the College. In the letter actually sent by Damasa Crisostomo, she not only did not enclose any initial payment, but stated that " babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda. " The acceptance of Quezon College, Inc. was Boycillo | 11
essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation in the absence, as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract. The need for express acceptance on the part of the Quezon College, Inc. imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she had harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code (1182 of NCC). Romero vs. CA, supra, G.R. No. 107207 FACTS: Petitioner Virgilio R. Romero was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters.
Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse.
period stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender. A few days later, private respondent, prompted by petitioner's continued refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash. The Regional Trial Court of Makatirendered its decision holding that private respondent had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to "penalty clauses".
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent.
Private respondent appealed to the Court of Appeals who opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent substantially complied with her obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day period was not a penal clause.
Pursuant to the agreement, private respondent filed a complaint for ejectment against the squatter families. Judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day
ISSUE: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period? Boycillo | 12
RULING: No. From the moment the contract was perfected, the parties were bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent was obligated to evict the squatters on the property. The ejectment of the squatters was a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belonged to petitioner and not to private respondent.
The Court shared the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Codebut 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."The Court had hastened to add, however, that where the so-called "potestative condition" was imposed not on the birth of the obligation, but on its fulfillment, only the obligation was avoided, leaving unaffected the obligation itself. In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner had waived the performance of the condition imposed on private respondent to free the property from squatters. In any case, private respondent's action for rescission was not warranted. She was not the injured party.The right of resolution of a party to an obligation under Article 1191 of the Civil Code was predicated on a breach of faith by the other party that violates the reciprocity between them.It was private respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He had agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith
the execution of the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand was proper under Article 1592of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind thereunder. Naga Telephone vs. CA, 230 SCRA 351 (1994) FACTS: NATELCO is a telephone company rendering local and long distance telephone service in Naga City. While CASURECO is a private corporation established for purpose of operating and electric power service in the same city.
In 1977, the parties entered into a contract for the use of the electric light post of CASURECO by NATELCO in operation of its telephone service. In consideration, NATELCO agreed to install free of charge tentelephone connection for the use of CASURECO. The term of the contract shall be as long as NATELCO has need for the electric light post of the CASURECO, it being understood that the same contract shall be terminated by any reason whatsoever, if CASURECO is forced to stop or abandon its operation as a public service. After 10 years, CASURECO filed a case against NATELCO for the reformation of contract with damages on the ground that it was too-one sided in favor of NATELCO. That after 11 years, the cable strung by NATELCO was much heavier due to the increase in volume of their subscribers, worsened by the fact that their linemen bore holes through the post at which points those post were broken during typhoons. NATELCO used posts in the towns outside Naga without any contract or permission from CASURECO. After filing the complaints, NATELCO had refused to pay despite the demands made. NATELCO’s answered that CASURECO did not sufficiently state the cause of action for the reformation of contract and that it was barred by the prescription because it was filed after 10 years. The trial court ruled in favor of CASURECO, ordering the reformation of contract and ordering NATELCO to pay CASURECO the compensation for the use of their post in Naga. Moreover, CASURECO was ordered to pay the monthly bills for the use of the telephones. Disagreeing with the judgment, NATELCO appealed to the Court of Appeals. The Court of Appeals affirmed the decision. Boycillo | 13
ISSUE:
1.
Was reformation of the contract a proper remedy for NASURECO?
2.
Was the contract subject to potestative condition?
RULING:
1. No. NASURECO cannot correctly invoke reformation of contract as a proper remedy, because there had been no showing of mistake or error in said contract on the part of any of the parties, so as to result in its failure to express their true intent. 2. No. A potestative condition is a condition wherein the fulfillment of which depends upon the sole sill of the debtor, in which conditional obligation is void. Based on the provision in the contract, the term shall be as long as NATELCO had need for the electric post of the CASURECO, which was a potestative condition. But it should be noted that the same provision also stated that the contract shall terminate when for any reason whatsoever, CASURECO was to stop or abandon its operation as a public service and it becomes necessary to remove the electric light post, which were casual condition since they depend on chance, hazard, or the will of the third person. The contract was subject to mixed conditions, depending partly in the will of the debtor and partly on chance or will of a third person that would not invalidate the provision. Smith Bell and Co vs. Sotelo Matti , 44 Phil. 847 Facts: Plaintiff corporation undertook to sell and deliver equipment for Mr. Sotelo but no definite dates were fixed for the delivery. The periods were couched in ambiguous terms such as “within 3 or 4 months”, “in the month of September or as soon as possible”, and “approximate delivery with 90 days-This is not guaranteed.” When the goods arrived, Mr. Sotelo refused to receive them and to pay the prices. Mr. Sotelo then sued for damages because of the delay suffered.
Ruling: No, it did not incur delay. From the record it appears that these contracts were executed at the time of the world war when there existed connection with the tanks and "Priority Certificate, subject to the United States Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were not unmindful of the contingency of the United States Government not allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, as we think it is, the obligation must be regarded as conditional. When the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill .the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality. In connection with this obligation to deliver, occurring in a contract of sale like those in question, the rule in North America is that when the time of delivery is not fixed in the contract, time is regarded unessential. When the contract provides for delivery 'as soon as possible' the seller is entitled to a reasonable time, in view of all the circumstances, such as the necessities of manufacture, or of putting the goods in condition for delivery. The term does not mean immediately or that the seller must stop all his other work and devote himself to that particular order. But the seller must nevertheless act with all reasonable diligence or without unreasonable delay. It has been held that a requirement that the shipment of goods should be the 'earliest possible' must be construed as meaning that the goods should be sent as soon as the seller could possibly send them, and that it signified rather more than that the goods should be sent within a reasonable time.
Issue: Whether Smith Bell incurred delay in the delivery of goods to Sotelo
"The question as to what is a reasonable time for the delivery of the goods by the seller is to be determined by the circumstances attending the particular Boycillo | 14
transaction, such as the character of the goods, and the purpose for which they are intended, the ability of the seller to produce the goods if they are to be manufactured, the facilities available for transportation, and the distance the goods must be carried, and the usual course of business in the particular trade." (35 Cyc., 181-184.) The record shows, as we have stated, that the plaintiff did all within its power to have the machinery arrive at Manila as soon as possible, and immediately upon its arrival it notified the purchaser of the fact and offered to deliver it to him. Taking these circumstances into account, we hold that the said machinery was brought to Manila by the plaintiff within a reasonable time.
papers related to the property is not an essential part of the contract and cannot be an obstacle for the fulfillment thereof. The obligation to buy the property is correlative with the obligation to sell it. The obligation of Borromeo to perfect the papers of the property is not correlative with the obligation to sell the property. These obligations do not arise from the same cause. They create no reciprocal rights between the contracting parties; so that the failure to comply with this stipulation does not give the defendants the right to cancel the obligation which they imposed upon themselves in accordance with Article 1191 of the Civil Code, since no real juridical bilaterality or reciprocity existed between the two obligations. One obligation is entirely independent of the other.
Therefore, the plaintiff has not been guilty of any delay in the fulfillment of its obligation, and, consequently, it could not have incurred any of the liabilities mentioned by the intervenor in its counterclaim or set-off.
Party entitled to rescind; requisites
Rescission in Reciprocal Obligations, 1191-1192
FACTS: On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted exclusive authority to cut, collect and remove timber from the Land Grant for a period starting from the date of agreement to December 31, 1965, extendible for a period of 5 years by mutual agreement.
Unilateral vs. Bilateral Obligations Concept and Definition of Reciprocal Obligation Borromero vs. Franco, 5 Phil. 49 FACTS: On April 19, 1902, the Francos executed a contract to sell their property to Borromeo wherein the latter was given six months from the execution of the instrument to arrange and complete the documents and papers relating to the said property. On January 7, 1903, Borromeo filed a complaint praying that defendants be compelled to sell to him the property in question under the terms of the contract. He had already taken steps to complete the documents and papers relating to the property but he was unable to complete it. The Francos answered and asked that the complaint be dismissed for Borromeo failed to comply with the condition of completing the documents and papers related to the property. ISSUE: Can the petitioner demand fulfillment from the respondent? RULING: The Court held that the contract in question is a bilateral one containing mutual obligations and the fulfillment of which may be demanded. The failure of the petitioner to complete the documents and
UP vs. de los Angeles, 35 SCRA 102
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands, ALUMCO still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an instrument entitled “Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president of UP, which stipulated the following: 3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance outstanding after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965. 4. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that Creditor shall have the right to consider the Logging Agreement rescinded, without the necessity of any judicial suit… ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP informed ALUMCO that it had, as of that Boycillo | 15
date, considered rescinded and of no further legal effect the logging agreement, and that UP had already taken steps to have another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal. ISSUE: Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect? RULING: Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right and the power to consider the Logging Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit. As to such special stipulation and in connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co:
“There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract.” Philippine Amusement Enterprises vs. Natividad, 21 SCRA 284 (1967) FACTS: On January 6, 1961 the plaintiff, Philippine Amusement Enterprises, Inc., entered into a contract with the defendant Soledad Natividad, whereby the former leased to the latter an automatic phonograph, more popularly known as "jukebox". Sometime thereafter, Natividad wrote a letter to plaintiff requesting for the return of the jukebox to the company. Natividad reasoned out that said jukebox is defective. The plaintiff however, contended that the stocking up of coins is quite normal in any coin-operated phonograph. It then rightfully re-installed a new jukebox in replacement of the first one.
On August 4 and October 16, 1961, plaintiff demanded from defendant spouses the compliance to renew the lease contract. Defendants refused the demand and ordered for the rescission of the contract in their favor by reason of the plaintiff's failure to perform its obligation to render the automatic phonograph suitable for the purpose for which it was intended.
ISSUE: Is defendant entitled to rescission?
RULING: No. Rescission by judicial action under Article 1191 will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual. The defendants asked the plaintiff to retrieve its phonograph, claiming that there were times when the coins dropped into the slot would get stuck, resulting in its failure to play the desired music. But apart from this bare statement, there is nothing in the evidence which shows the frequency with which the jukebox failed to function properly. The expression "there are times" connotes occasional failure of the phonograph to operate, not frequent enough to render it unsuitable and unserviceable.
Roque vs. Lapus, 96 SCRA 741 (1980) FACTS: Sometime in 1964, plaintiff and defendant entered into an agreement of sale covering Lots 1, 2 and 9, Block 1, of said property, payable in 120 equal monthly installments at the rate of P16.00, P15.00 per square meter, respectively. In accordance with said agreement, defendant paid to plaintiff the sum of P150.00 as deposit and the further sum of P740.56 to complete the payment of four monthly installments covering the months of July, August, September, and October, 1954.
On January 24, 1955, defendant requested plaintiff that he be allowed to abandon and substitute Lots 1, 2 and 9, the subject with Lots 4 and 12, Block 2 of the Rockville Subdivision, which are corner lots, to which request plaintiff graciously acceded. The evidence discloses that defendant proposed to plaintiff modification of their previous contract to sell because he found it quite difficult to pay the monthly installments on the three lots, and besides the two lots he had chosen were better lots, being corner lots. In addition, it was agreed that the purchase price of these two lots would be at the uniform rate of P17.00 per square meter payable in 120 equal monthly installments, with interest at 8% annually on the balance unpaid. Pursuant to this new agreement, defendant occupied and possessed Lots 4 and 12, and enclosed them, including the portion where his house now stands, with barbed wires Boycillo | 16
and adobe walls. However, aside from the deposit of P150.00 and the amount of P740.56, which were paid under their previous agreement, defendant failed to make any further payment on account of the agreed monthly installments for the two lots in dispute, under the new contract to sell. Plaintiff demanded upon defendant not only to pay the stipulated monthly installments in arrears, but also to make up-to-date his payments, but defendant refused to comply with plaintiff's demands. On or about November 3, 1957, plaintiff demanded upon defendant to vacate the lots in question and to pay the reasonable rentals thereon at the rate of P60.00 per month from August, 1955. On January 22, 1960, petitioner Felipe C, Roque filed the complaint against defendant Nicanor Lapuz for r escission and cancellation of the agreement of sale between them involving the two lots in question and prayed that judgment be rendered ordering the rescission and cancellation of the agreement of sale, the defendant to vacate the two parcels of land and remove his house therefrom and to pay to the plaintiff the reasonable rental thereof at the rate of P60.00 a month from August 1955 until such time as he shall have vacated the premises, and to pay the sum of P2,000.00 as attorney's fees, costs of the suit and award such other relief or remedy as may be deemed just and equitable in the premises. The Court of Appeals rendered its decision that the defendant Nicanor Lapuz is granted a period of ninety (90) days from entry hereof within which to pay the balance. Hence, this appeal. ISSUE: Can private respondent be entitled to the Benefits of the third paragraph of Article 1191, New Civil Code, for the fixing of period? RULING: No. Respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191, NCC Having been in default and acted in bad faith, he is not entitled to the new period of 90 days fr om entry of judgment within which to pay petitioner the balance of P11,434.44 with interest due on the purchase price of P12,325.00 for the two lots. To allow and grant respondent an additional period for him to pay the balance of the purchase price, which balance is about 92% of the agreed price, would be tantamount to excusing his bad faith and sanctioning the deliberate infringement of a contractual obligation that is repugnant and contrary to the stability, security and obligatory force of contracts. Moreover, respondent's failure to pay the succeeding 116 monthly installments after paying only 4 monthly installments is a substantial and material breach on his part, not merely
casual, which takes the case out of the application of the benefits of pa paragraph 3, Art. 1191, N.C.C. Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of damages which the trial court and the appellate court, in the latter's original decision, granted in the form of rental at the rate of P60.00 per month from August, 1955 until respondent shall have actually vacated the premises, plus P2,000.00 as attorney's fees. The Court affirmed the same to be fair and reasonable. The Court also sustained the right of the petitioner to the possession of the land, ordering thereby respondent to vacate the same and remove his house therefrom. Angeles vs Kalasabz, 135 SCRA 741 FACTS: On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installment being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants wrote the plantiffsappellees a letter requesting the remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs failed to meet subsequent payments. The plaintiffs’ letter with their plea for reconsideration of the said cancellation was denied by the defendants. The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount including interests, realty taxes and incidental expenses. The defendants alleged in their answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay monthly installments corresponding to the month of August, 1966 for more than 5 months, thereby constraining the defendants to cancel the said contract. Boycillo | 17
The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal. ISSUE: Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants? RULING: No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum of P3,920 plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to the buyer upon payment of the said price.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. The Supreme Court agree with the observation of the plaintiffs-appellees to the effect that the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and its entirety is most unfair to the buyers. Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendant must immediately execute the final deed of sale in favor of the plaintiffs and execute the necessary transfer of documents, as provided in par.12 of the contract. Boysaw vs. Interphil Promotions, 148 SCRA 635 (1987) FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest,
engage in any other such contest without the written consent of Interphil Promotions, Inc. However, before September 30, 1961, Boysaw entered into a non-title bout on June 19, 1961 and without consent from Interphil, Ketchum assigned to Amado Araneta the managerial rights over Boysaw. Amado Araneta in turn transferred the earlier acquired managerial rights to Alfredo again without the consent from Interphil. Yulo thereafter informed Interphil Boysaw’s readiness to comply with the boxing contract of May 1, 1961. The GAB after a series of conferences of both parties scheduled the ElordeBoysaw fight on November 4, 1961. Yulo r efused to accept the charge in the fight date even after Sarreal offered to advance the fight date to October 28, 1961. However, he changed his mind and decided to accept the fight date on November 4, 1961. While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized. As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latter’s ref usal to honor their commitments under the boxing contract of May 1, 1961. ISSUES:
1.
Was there a violation of the fight contract of May 1, 1961?
2. In reciprocal obligations, who has the power to rescind? RULING: 1. Yes. On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact during the trial. Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. 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. There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same Boycillo | 18
cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other"The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach " On the validity of the fight postponement, the violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate such contract altogether. That they sought to seek an adjustment of one particular covenant of the contract, is under the circumstances, within the appellee's rights. Earth Minerals vs. Macaraig, 194 SCRA 1 FACTS: On September 11, 1980, Zambales Chromite, owner of 10 patentable chromite mining claims, and Philzea, as operator and the herein respondent, entered into a “Contract of Development, Exploitation and Productive Operation” on the ten (10) patentable mining claims. During the lifetime of such contract, Earth Minerals Exploration, Inc., the herein petitioner, submitted a Letter of Intent on to Zambales Chromite whereby the former proposed and the latter agreed to operate the same mining area subject of the earlier agreement between Zambales Chromite and Philzea Mining. Consequently, the same mining property of Zambales Chromite became the subject of different agreements with two separate and distinct operators.
Earth Minerals filed a petition for cancellation of the contract between Zambales Chromite and Philzea Mining to the Bureau of Mines and GeoSciences (BMGS). Earth Minerals alleged that Philzea Mining committed grave and serious violations of the latter’s contract because of failure to produce the agreed volume of chromite ores; failure to pay ad valorem taxes; failure to put up assay buildings and offices, all resulting in the non productivity and non-development of the mining area. Philzea Mining filed a motion to dismiss on the ground that Earth Minerals is not the proper party in interest. BMGS denied the petition, so Philzea
elevated the case to Ministry of Natural Resources (MNR) to dismiss the appeal. MNR on the other hand ordered BMGS to investigate and found out that Philzea grossly violated the terms and conditions of the contract. BMGS rendered a decision canceling the said mining contract. ISSUE: Is Earth Minerals the proper party to seek cancellation of the operating agreement between Philzea Mining and Zambales Chromite? RULING: Yes. Petitioner Earth Minerals seeks the cancellation of the contract between Zambales Chromite and Philzea Mining, not as a party to the contract but because his rights are prejudiced by the said contract. The prejudice and detriment to the rights and interest of petitioner stems from the continued existence of the contract between Zambales Chromite and private respondent Philzea Mining. Unless and until the contract between Zambales Chromite and Philzea Mining is cancelled, petitioner's contract with the former involving the same mining area cannot be in effect and it cannot perform its own obligations and derive benefits under its contract. The Director of Mines and Geo-Sciences in his order denying Philzea Mining's motion to dismiss the petition for cancellation of the operating agreement between Philzea Mining and Zambales Chromite stated:
From the documentary evidence submitted by the petitioner, the Letter of Intent and Operating Agreement between Zambales Chromite and Earth Minerals, it may be gleaned that, at least, there appears some color of right on the part of petitioner to request for cancellation/rescission of the contract dated September 11, 1980 between Zambales Chromite and Philzea Mining. Gimenez vs CA. 195 SCRA 1 FACTS: Spouses Gimenez entered into a conditional contract of sale of a house and lot with Mercado for the price of Php 500,000 subject to the following conditions:
1. A downpayment of the ONE HUNDRED THOUSAND (P100,000.00) PESOS in cash will be paid by Mr. Jose Mercado to Mr. Alfredo Gimenez upon signing of this agreement.
2.
The premises shall be ready for occupancy on July 6, 1975, furnished. Boycillo | 19
3. The balance less the GSIS loan on said property shall be paid by the buyer in two or more equal installments but not later than one year.
4. A deed of absolute sale shall be executed in favor of Mr. Jose Mercado, Jr. upon payment of the 40% of the total selling price. The cost of the preparation of the deed of sale and the cost of the necessary documentary stamps shall be borne by the seller while the cost of the registration fees to be borne by the buyer.
5. However, if the balance is not fully paid within one year period, the total payments received by the seller shall be considered as advance payments to the rental of the house in the amount of P5,000.00.
RULING: Yes. Under the circumstances, and considering how much real estate prices have jumped since 1975, it would be a travesty of justice to deny the seller’s right to cancel the sale under Article 1911 of the New Civil Code. There is not gainsaying Mercado’s breach of the contract to sell. He failed to pay the stipulated purchase price of Php 500,000 within one-year period originally fixed in the agreement which expire on July 5, 1976 nor within the extended period fixed in their supplemental agreement which expired on October 6, 1977,nor within the other extensions he sought thereafter. Such breaches entitled the sellers to ask for the cancellation of the contract to sell with damages. Therefore, the decision of CA was annulled and set aside. The contract to sell and the supplemental agreement were cancelled and annulled. Respondent Mercado was ordered to vacate the property of the Spouses Gimenez and restore its possession to them. He was further ordered to pay the sum of Php 5,000 per month from September 1984 until he vacates the same plus Php 20,000 as attorney’s fees. Jacinto vs. Kaparaz, G.R. No. 81158, May 22, 1992
Mercado was only able to pay Php 20,000. More than two years after, the parties executed another agreement wherein Mercado promise to pay the balance of P370,000 on or before October 6, 1977 plus 1% interest on the balance from July 6, 1976 to September 6, 1977 and the unpaid interest on the GSIS. Five years after the parties executed the contract to sell, Mercado had paid only P343,000 on the price of the Gimenez property. Gimenez demanded that Mercado pay his rents in arrears and vacate the premises. The Metropolitan Trial Court rendered a decision in favor of Spouses Gimenez. However, on appeal, the RTC dismissed the complaint on the ground of prematurity because the conflict arising from the condition Contract of Sale and subsequent agreements relative thereto entered into between the parties should first be resolved and to determine whether or not a cause of action for ejectment exists. On June 20, 1988, the trial court dismissed the petition filed by the spouses for annulment of contract, recovery of possession, and damages based on Article 1191 of the New Civil Code, and ordered them to execute a Deed of Sale with Assumption of Mortgage over the property in favor of Mercado. Upon appeal, CA affirmed with modification the decision of the trial court. ISSUE: Can the Spouses Gimenez still rescind the contract to sell?
FACTS: On 11 March 1966, petitioners and private respondents entered into an agreement under which the private respondents agreed to sell and convey to petitioners a portion consisting of 600 square meters of a lot located in Davao Oriental for a total amount of P1,800.00 with a downpayment of P800.00 upon execution of the Agreement. The balance of P1,000.00 was to be paid by petitioners on installment at the rate of P100.00 a month to the Development Bank of the Philippines to be applied to private respondents' loan accounts. The pertinent portions of the Agreement read as follows:
6. That the PARTY OF THE FIRST PART hereby agrees, promises and binds himself to sell, cede, transfer, and convey absolutely to the PARTY OF THE SECOND PART 600 -square meter portion of the property together with all the improvements thereon… 9. That the PARTY OF THE FIRST PART agrees and binds himself to acknowledge receipt of every and all monthly payments remitted to the Development Bank of the Philippines by the PARTY OF THE SECOND PART and further agrees and binds himself to execute the final deed of absolute sale of the 600 square meters herein above referred to in favor of the PARTY OF THE SECOND PART as soon as the settlement or partition of Boycillo | 20
the estate of the deceased Narcisa Kaparaz shall have been consummated and effected, but not later than March 31, 1967. Upon the execution of the agreement, petitioners paid the downpayment of P800.00 and were placed in possession of the portion described therein. As to the P1,000.00 which was to be paid directly to the DBP, petitioners claim that they had even made an excess payment of P100.00.In view of the refusal of private respondents to execute the deed of sale, petitioners filed against them a complaint for specific performance with the Court of First Instance.Private respondents alleged that the sale did not materialize because of the failure of petitioners to fulfill their promise to make timely payments on the stipulated price to the DBP; as a result of such failure, they (private respondents) failed to secure the release of the mortgage on the property. They then prayed for the dismissal of the case and a declaration that the agreement is null and void. ISSUE: Are respondents entitled to r escind the agreement? RULING: No. Since in a contract of sale, the non-payment of the price is a resolutory condition, 13 the remedy of the seller under Article 1191 of the Civil Code is to exact fulfillment or to rescind the contract. In respect, however, to the sale of immovable property, this Article must be read together with Article 1592 of the same Code:
Art. 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 a notarial act. After the demand, the court may not grant him a new term. In the case at bar, there was non-compliance with the requirements prescribed in there provisions. It is not controverted that private respondents had neither filed an action for specific performance nor demand the rescission of the agreement either judicially or by a notarial act before the filing of the complaint. It is only in their Answer that they belatedly raised the defense of resolution of the contract pursuant to Article 1191 by reason of petitioner’s breach of their obligation. Moreover, the delay incurred by petitioners was but a casual or slight breach of the agreement, which did not
defeat the object of the parties in entering in the agreement. A mere casual breach does not justify rescission. Rescission of the agreement was not available to private respondents. Taguba vs. de Leon, 132 SCRA 722 (1984) FACTS: Berlin Taguba married to Sebastiana Domingo (petitioner) is the owner of a residential lot with an area of 3,129 square meters. Souses |Pedro Asuncion and Marita Lungab (also petitioner) and private respondent Maria Peralta Vda de De Leon, were separately occupying portions of the aforementioned lot as lessees.
Taguba sold a portion of the said lot consisting of 400 square meters to private respondent Maria Peralta Vda de De Leon for P18,000. The portion sold comprises the area occupied by the Asuncions and private respondent Vda de De Leon. The deed evidencing said sale was denominated as “Deed of Conditional Sale,” which included the following term:
“c.) That failure to pay the VENDOR the whole balance on December 31, 1972, the VENDEE shall be given an extension of Six (6) months with interest (legal rate) after which VENDOR may INCREASE the purchase price to P50.00 per square meter which the VENDEE agrees should she fail to pay within said period of time.” Alleging that private respondent had already paid P12,500 and had tendered payment of the balance of P5,500 to complete the stipulated purchase price of P18,000 to petitioner Taguba within the grace period but the latter refused to receive payment; and that since negotiations for settlement with the intervention of Governor Dy failed, private respondent instituted a complaint for Specific Performance. In their answer, spouses Taguba admitted the sale of the property, but claimed that private respondent failed to comply with her obligation under the Deed of Conditional Sale despite the several extensions granted her, by reason of which petitioner was compelled, but with the express knowledge and consent and even upon the proposal of private respondent, to negotiate the sale of a portion of the property sold to the spouses Asuncion who were actually in possession thereof. Boycillo | 21
Bosque vs. Yu Chipco, 14 Phil 95 ISSUE: Did the seller validly rescind the Contract of Conditional Sale? RULING: No. The Court held that nowhere in the said contract in question is there a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price. There is also no stipulation giving the vendor (petitioner Taguba) the right to unilaterally rescind the contract the moment the vendee (private respondent de Leon) fails to pay within a fixed period.
Considering the nature of the transaction between petitioner and private respondent, which is, affirm and sustain to be a contract of sale, absolute in nature the applicable provision is Article 1592 of the New Civil Code, which states: “Art. 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.” In the case at bar, it is undisputed that petitioner Taguba never notified private respondent by notarial act that he was rescinding the contract, and neither had he filed a suit in court to rescind the sale. Finally, it has been ruled that “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. Considering that in the instant case, private respondent had already actually paid the sum of P12,500 of the total stipulated purchase price of P18,000 and had tendered payment of the balance of P5,500 within the grace period of six months, equity and justice mandate that she be given additional period within which to complete payment of the purchase price.
Both parties in breach in reciprocal obligations, 1192 Tan Guat vs. Pamintuan, (CA) 37 OG 3494
FACTS: Plaintiff Juan G. Bosque and defendant Yu Chipco entered into a contract by which the latter was to construct a house for the former and to complete the same within a period of four months after the contract was signed and delivered. Late, Bosque made some changes in and additions to the original plans of the house, which changes were agreed to by the defendant and a new contract was made relating thereto. However, Bosque failed to procure the necessary permit for the additional changes in the construction with proper authorities which prevented Yu Chipco from continuing his work. For the construction of the house Bosque had furnished several pieces of timber, alleged to be worth P132. Yu Chipco, on the other hand, proved that he had expanded in labor and money upon the additions made to the house in the sum of P500. Yu Chipco alleges and proves that by reason of the fact that the Bosque failed to make the payments in accordance with the terms of the contract that he was unable to proceed with the construction of the house. Finally, the house was totally destroyed by a baguio before its completion.
Bosque commenced the present action for the purpose of recovering of the defendant the sum of P132, the value of the said pieces of material furnished by him to Yu Chipco, and the sum of P600 damages for failure of Yu Chipco to complete the house within the period of four months provided for in the first contract. Yu Chipco answered the said complaint, denied really all of the material allegations of the complaint, set out the original contract, alleged the new contract and the fact that Bosque had refused to make payments in accordance with the terms of the contract, and asked for a judgment against Bosque in the sum of P1,928.56. ISSUE: Was Bosque’s action tenable? RULING: No. Bosque claims that the lower court committed an error in not deciding that each of the parties was absolved from any further liability under the said contract, by virtue of the provisions of Article 1124 of the Civil Code(Article 1191 of the New Civil Code). Upon this question, the SC is of the opinion and so holds that while the court did not expressly pronounce that the parties were absolved from any further obligation upon the contract, yet, by the very terms of the judgment the said parties must necessarily be absolved from any further action or liability upon the said contract. Boycillo | 22
It is clear that Bosque did not perform the undertaking which he was bound by the terms of his agreement to perform; consequently he is not entitled to insist upon the performance of the contract by Yu Chipco or to recover damages by reason of his own breach. The SC thinks the judgment of the lower court absolved each party from any further liability upon the said contract. Bosque alleges that the lower court committed an error in not making Yu Chipco, the contractor of the building which was destroyed, liable for the loss and damage which he suffered by such destruction. The building was destroyed by a baguio . The proof is not sufficient to show that the destruction was due to defects in the construction of the building, and until that fact had been established, certainly Bosque would not be entitled to damages under the said article. Definition and Concept of Obligations with a Period, 1193; 1180 GAITE VS FONACIER, 2 SCRA 381 FACTS: Defendant-appellant Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the Dawahan Group. By a “Deed of Assignment”, Fonacier appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a royalty basis. On 19 March 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, owned solely by him after which he embarked upon the development and exploitation of the mining claims.
Subsequently, Isabelo Fonacier decided to revoke the authority granted by him to Gaite, and Gaite assented thereto subject to certain conditions. A document was drawn wherein Gaite transferred to Fonacier all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. Gaite also transferred all his rights and interests over the “24,000 tons of iron ore, more or less” that the former had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance to be paid out of the first
letter of credit covering the first shipment of iron ores or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of the balance, Fonacier promised to execute in favor of Gaite a surety bond; with Fonacier as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. A second bond was executed by the parties to the first bond, on the same day, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000. . On 8 December 1955, the bond with respect to the Far Eastern Surety and Insurance Company expired with no sale of the approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties. Gaite demanded from Fonacier and his sureties payment of said amount. When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed a complaint against them in the CFI Manila for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorney’s fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from 9 December 1955 until full payment, plus costs. From this judgment, defendants jointly appealed to the Supreme Court as the claims involved aggregate to more than P200,000. ISSUE:
Is the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question) one with a suspensive period or term and not a suspensive condition? RULING:
Yes. The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. Boycillo | 23
The contract stipulates that “the balance of Sixty -Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . .” etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. To subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. Such construction of the contract should be avoided.
The contract further added that “this same property will be mortgaged to us to guarantee the unpaid balance, and the same will bear an interest of 8 percent per annum; said interest to be paid monthly in advance.” The terms were complied with, together with some resolved differences, until on Sept. 5, 1944, plaintiff Sadang went to see Araneta to pay the entire balance, including the interest thereon and ask for the cancellation of the mortgage, but Araneta refused to accept the tender of payment. Araneta gave as his reason for his non-acceptance that such payment was not in accordance with the terms of the deed of sale with mortgage. Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta with the CFI of Manila by way of consignation, and at the same time presented the complaint.
Benefit of Term, 1196 MARIA LACHICA VS. GREGORIO ARANETA , 47 OG 5699 August 19, 1949 FACTS: Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land with the improvements thereon. This property was bought by Investment Corporation through Maria Lachica, the wife of the Esteban Sadang who was sales agent of defendant corporation.
The terms of the contract stated that the price was P20,000, of which P8,000 was to be paid in cash and the balance of P12,000 in installments of – P 1,000 on or before December 31, 1943
P 1,000 on or before December 31, 1944
P 10,000 on or before December 31, 1945. What the parties signed was a contract of exact content as stated, which however omitted the words “or before.” Thus, it would appear that the payment of the installments would be “on” and not “on or before” the dates as specified.
The defendant alleges that payment should be on the date specified, not before; the plaintiffs claim that such payment may be made on or before the date specified. ISSUE: Should Araneta be compelled to accept the payment? RULING: Yes. The contract does not prohibit if it is done before (p.5706, no. 2). A term is fixed and “it is presumed to have been established for the benefit of the creditor as sell as that of the debtor, unless from its tenor or from other circumstances it should appear that the terms as established for the benefit of one or the other.” (Art. 1127, now 1196 Civil Code). And the contract specifically provides that “these periods of payment have been agreed for the benefit of the vendor and the vendee.” Such mutual benefit has been interpreted to consist of the time granted a debtor to find means to comply with his obligation, and the fruits, such as interest, accruing to the creditor.
From the SC decision in Villaseñor vs. Javellana, the only impediment to a debtor making payment before the term fixed, is the denial to the creditor of the benefits, such as interests, accruing to the later by reason of the fixed term. This, coupled with the fact that the contract did not prohibit payment before the fixed date, justifies the conclusion that under the terms signed, plaintiffs could do so. To hold otherwise, would be virtually compelling an obligor to assume an obligation later when he offers to, and could very well, Boycillo | 24
discharge it earlier. The law should not be interpreted as to compel a debtor to remain so, when he is in a position to release himself. Further, the acceleration clause in the contract signed by the parties state that “in the event of defaults in payment of any amount due, either for capital or interest, the whole balance shall automatically become due and payable, and the vendor shall have the right to foreclose the mortgage in its entirety.” While the clause is standard one contained in most mortgage deeds where the mortgage loan is payable in several installments, still we cannot escape the conclusion, derived from the clause itself, that payments may be made by the vendee before the dates stated in the contract .
violated the conditions of the morgage which Ponce de Leon has executed in its favor during the Japanese occupation. Syjuco prayed that the mortgage executed by Ponce de Leon in favor of the Bank be declared null and void.
On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint and condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate from May 6, 1949, until fully paid. ISSUE: Is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon in the two promissory notes signed by the plaintiff?
PONCE DE LEON VS SYJUCO , 90 PHIL. 311 FACTS: The appellee, Philippine National Bank, was the owner of two parcels of land in Negros Occidental. On March 9, 1936 the Bank executed a contract to sell the said properties to Jose Ponce de Leon for the total price of P26,300.
Subsequently, Ponce de Leon obtained a loan from Santiago Syjuco, Inc in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from May 5, 1948. It was also provided that the Ponce de Leon could not pay, and Syjuco could not demand, the payment of said note except within the aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged the parcels of land which he agreed to purchase from the Bank. Using the loan, Ponce de Leon was able to pay the Bank and a deed of absolute sale was executed in his name. Ponce de Leon further obtained an additional loan from Syjuco. On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in Japanese military notes in full payment of his indebtedness which was refused by Syjuco which Ponce de Leon deposited with the Clerk of Court of the CFI. He then filed a petition with the CFI for the reconstitution of transfer of the certificates of the lot in the name of the Bank which was granted by the court. Syjuco filed a second amended answer to Ponce de Leon's complaint claiming that Ponce de Leon, by reconstituting the titles in the name of the Bank, by causing the Register of Deeds to have the said titles transferred in his name, and by subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft account, had
RULING: No. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176); (3) that previous notice of the consignation have been given to the person interested in the performance of the obligation (Art. 1177); (4) that the amount due was placed at the disposal of the court (Art 1178); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178). In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the above requirements have not been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the court, failed to give previous notice thereof to the person interested in the performance of the obligation. It also appears that the obligation was not yet due and demandable when the money was consigned, because, as already stated, by the very express provisions of the document evidencing the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was made before this period matured. The failure of these two requirements is enough ground to render the consignation ineffective. And it cannot be contended that plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of its maturity, because, under the law, Boycillo | 25
in a monetary obligation contracted with a period, the presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other circumstances it appears that the period has been established for the benefit of either one of them (Art. 1127). Here no such exception or circumstance exists. It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation because the debtor has offered to pay all the interests up to the date it would become due, but this argument loses force if we consider that the payment of interests is not the only reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other reasons why this cannot be done. One of them is that the creditor may want to keep his money invested safely instead of having it in his hands. Another reason is that the creditor by fixing a period protects himself against sudden decline in the purchasing power of the currency loaned specially at a time when there are many factors that influence the fluctuation of the currency. And all available authorities on the matter are agreed that, unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature tender "included an offer to pay principal and interest in full." When courts may fix a period, 1197 ARANETA VS PHIL. SUGAR ESTATES DEVELOPMENT CO. , 20 SCRA 330 FACTS: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, and on July 28, 1950, [through Gregorio Araneta, Inc.] sold a portion thereof to Philippine Sugar Estates Development Co., Ltd.
The parties stipulated, among in the contract of purchase and sale with mortgage, that the buyer will build on the said parcel land the Sto. Domingo Church and Convent while the seller for its part will construct streets. But the seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction of the street in the Northeast side because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a middle part thereof, refused to vacate the same; Both buyer and seller know of the presence of squatters that may hamper the construction of the streets by the seller. On May 7, 1958, Philippine Sugar
Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale, and/or to pay damages in the event they failed or refused to perform said obligation. The lower court and the appellate court ruled in favor of Phil. Sugar estates, and gave defendant Gregorio Araneta, Inc., a period of two (2) years from notice hereof, within which to comply with its obligation under the contract, Annex "A". Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court. ISSUES: Was there a period fixed? RULING: Yes. The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in its answer that the contract with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to construct and complete the streets." If the contract so provided, then there was a period fixed, a "reasonable time;" and all that the court should have done was to determine if that reasonable time had a lready elapsed when suit was filed if it had passed, then the court should declare that petitioner had breached the contract.
Was it within the powers of the lower court to set the performance of the obligation in two years time? NO. Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the complaint not having sought that the Court should set a period, the court could not proceed to do so unless the complaint included it as first amended; Granting, however, that it lay within the Court's power to fix the period of performance, still the amended decision is defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear that the Boycillo | 26
period can not be set arbitrarily. The law expressly prescribes that “the Court shall determine such period as may under the circumstances been probably contemplated by the parties.” It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must first determine that "the obligation does not f ix a period" (or that the period is made to depend upon the will of the debtor)," but from the nature and the circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to the second step, and decide what period was "probably contemplated by the parties" (Do., par. 3). So that, ultimately, the Court can not fix a period merely because in its opinion it is or should be reasonable, but must set the time that the parties are shown to have intended. As the record stands, the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code. Does “reasonable time” mean that the date of performance would be indefinite? The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. ORIT VS BALDROGAN , 106 SCRA 800 FACTS: On 22 November 1955 the plaintiff brought an action with the CFI to collect from the defendant the sum of P5.000, the balance of an account due to export logs purchased by the latter from the f ormer. On 25 September 1956 the parties, assisted by their respective counsel, entered into a stipulation of facts and submitted it to Court which provided among others that “for failure of the parties to submit to the Court the agreed date of payment on November 6, 1956, they mutually agreed that the Court shall have the full power to fix a reasonable time when the defendant should pay, and a judgment therefor shall issue based upon this stipulation of facts.”
The parties failed to submit to the Court the date when the defendant had to pay its debt to the plaintiff. On 6 November 1956 the plaintiff filed an ex parte motion praying that judgment be rendered upon the stipulation of facts
and that the Court fix the time in which the defendant should pay the sum due to the plaintiff. On 28 November 1956 the Court rendered judgment as prayed for ordering defendant to pay the plaintiff within thirty days from receipt of notice of judgment the sum of P5,000 with legal interest from 8 December 1955 until fully paid and to pay the costs. On 21 January 1957 the Court denied the defendant's motion for reconsideration dated 12 January 1957. The defendant has appealed. Citing article 1196 of the new Civil Code in support of its appeal, the appellant claims that the period of thirty days fixed by the Court rebounded to the benefit only of the creditor, the appellee, and not mutually to the creditor and the debtor. In its brief, the appellant prays that it be granted at least a year within which to pay the appellee. ISSUE: Is the contention meritorious? RULING: No. The article cited by the appellant cannot be applied to the case at bar where the parties entered into a compromise agreement ending a controversy and authorizing the Court to fix a reasonable time within which the appellant should pay its debt to the appellee, if they fail to agree upon a date for payment and submit it to the Court. It applies where the parties to a contract themselves have fixed a period. As they failed to set a date for payment and submit it to the Court on motion on the appellee, the Court rendered judgment upon the stipulation of facts and ordered the appellant to pay the appellee within thirty days from receipt of notice of judgment. The judgment rendered by the Court was but in pursuance of the compromise agreement embodied in the stipulation of facts entered freely and voluntarily by the parties with the assistance of their respective counsel. The appellant cannot now claim and complain that the period fixed by the Court is unreasonable. Facultative Obligations, 1206 QUIZANA VS. GAUDENCIO POSTRADO , 50 OG 2444
REDUGERIOI
AND
JOSEFA
FACTS: Defendant appellants are indebted to plaintiff in the amount of P550.00, which in addition to such, the contract/document stipulated that in case of failure to pay the debt on the day fixed, defendants are to deliver a mortgage on a property of theirs. Boycillo | 27
The main issue raised in this appeal is the nature and effect of the actionable document as mentioned above. The CFI of Marinduque rendered a decision wherein the defendant appellants are ordered to pay the plaintiff appelle the sum of P550.00, with interest from the time of the filing of the complaint. The trial court evidently ignored the second part of defendants- appellants’ written obligation, and enforced its last first part, which fixed payment on Jan. 31, 1949. ISSUE: Whether the second part of the written obligation, in which the obligors agreed and promised to deliver a mortgage over the parcel of land described therein, upon failure to pay the debt on a date specified in the preceding paragraph, is valid and binding and effective upon the plaintiff appellee, the creditor? RULING: This second part of the obligation in question is what is known in law as a facultative obligation, defined in Art. 1206 of the Civil Code of the Philippines. This is a new provision and is not found in the old Spanish Civil Code, which was the one in force at the time of the execution of the agreement.
There is nothing in the agreement which would argue against its enforcement. It is not contrary to law or public morals or public policy, and notwithstanding the absence of any legal provision at the time it was entered into governing it, as the parties had freely and voluntarily entered into governing it, as the parties had freely and voluntarily entered into it, there is no ground why it should into be given effect. It is a new right which should be declare effective at once, in consonance with the provisions of article 2253 of the Civil Code of the Philippines.
On December 13, 1979, the lower court rendered its Decision based on the compromise agreement, which stipulates, among others, that the Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P110,000.00 the amount of P55,000.00 on or before December 24, 1979, the balance of P55,000.00, defendants individually and jointly agree to pay within a period of six months from January 1980, or before June 30, 1980. Upon the defendant’s default, herein private respondent (then plaintiff) filed a Motion for Execution. Ronquillo and another defendant Pilar Tan offered to pay their shares of the 55,000 already due. But on January 22, 1980, private respondent Antonio So moved for the reconsideration and/or modification of the aforesaid Order of execution and prayed instead for the "execution of the decision in its entirety against all defendants, jointly and severally. Petitioner opposed the said motion arguing that under the decision of the lower court being executed which has already become final, the liability of the four (4) defendants was not expressly declared to be solidary, consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable. ISSUE: What is the nature of the liability of the defendants (including petitioner), was it merely joint, or was it several or solidary? RULING: SOLIDARY. In this regard, Article 1207 and 1208 of the Civil Code provides -
Ronquillo vs. CA, 132 SCRA 273 (1984)
"Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
FACTS: Petitioner Ernesto V. Ronquillo was one of four (4)defendants for the collection of the sum of P117,498.98plus attorney's fees and costs. The other defendants were Offshore Catertrade, Inc., Johnny Tan and Pilar Tan.
Art. 1208. If from the law, or the nature or the wording of the obligation to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are
Joint and Solidary Obligations Joint and solidary obligations, 1207-1208
Boycillo | 28
creditors and debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits." Clearly then, by the express term of the compromise agreement, the defendants obligated themselves to pay their obligation "individually and jointly." The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or "severally". An agreement to be "individually liable" undoubtedly creates a several obligation, and a "several obligation" is one by which one individual binds himself to perform the whole obligation. The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one of the numerous obligors.
Right to demand payment, 1216 PNB vs. Conception Mining, 5 SCRA 745 FACTS: The present action was instituted by the plaintiff to recover from the defendants the face of a promissory note the pertinent part of which reads as follows:
NINETY DAYS after date, for value received, I promise to pay to the o rder of the Philippine National Bank . . . .In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and Dishonor Waived . Holder may accept partial payment reserving his right of recourse again each and all indorsers. CONCEPCION MINING COMPANY, INC., By: (Sgd.) VICENTE LEGARDA
President (Sgd.) VICENTE LEGARDA (Sgd.) JOSE S SARTE
The co-maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial determination in Special Proceedings. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as partydefendant. The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the New Civil Code. Defendants presented a petition for relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L. Legarda should have been included as a party-defendant and his liability should be determined in pursuance of the provisions of the promissory note. ISSUE: Is the defendant’s contention valid? RULING: No. In view of Article 1216 of the New Civil Code and as the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note.
Our attention has been attracted to the discrepancies in the printed record on appeal. The title of the complaint set forth in the record on appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L. Legarda as a defendant in the action. The promissory note which is set forth in the record on appeal does not also contain the name of the third maker Jose S. Sarte while the brief sets forth said name of Jose S. Sarte as one of the co-maker of the promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is no one of the co-makers. Jose S. Sarte is orderes to explain why in his record on appeal his own name as one of the defendants does not appear and neither does his name appear as one of the co-signers of the promissory Boycillo | 29
note
in
question.
Solidary Debtor, 1217-1218 Wilson vs. Berkenkotter, 49 OG 1410 FACTS: Plaintiff Samuel J. Wilson, defendant B.H. Berkenkotter, and one Paul A. Gulick jointly and severally signed a promissory note in the amount of P90, 000 in favor of the Chartered Bank of India, Australia and China payable on demand with interest thereon at the rate of 7 per cent per annum payable monthly. After the Philippines had been occupied by the Japanese Forces, the Bank of Taiwan became the liquidator of all enemy banks, among which was the Chartered Bank of India, Australia and China;
Defendant upon demand by the Taiwan Bank paid the promissory note referred to above, plus the corresponding interests which amounted in all, principal and interests to P112, 591.22. After liberation, defendant demanded payment from his co-debtors of their corresponding shares in the obligation contracted by them jointly and severally. For reasons of personal consideration defendant accepted payment from Paul A. Gulick only in the amount of P18, 902, while plaintiff refused to pay to defendant the full amount of P37, 530.40 in Philippine currency, and because of the refusal of defendant to receive from the plaintiff the amount of P625.51 which is the equivalent value as of November, 1944 of the P37, 530.40 in Japanese military notes, said plaintiff consigned with this court the said amount of P625.51. After hearing, the trial court rendered judgment in favor of plaintiff and ordered the defendant to receive from the clerk of court the P625.51 consigned by plaintiff as the just and full payment of the indebtedness. From that decision defendant appealed to the SP on question of law.
1. Yes. The application of the Balantyne schedule this court has held that said schedule is applicable to obligations contracted during the Japanese occupation where said obligations are made payable on demand or during said Japanese occupation but not after the war or at a specified date or period which may indicate that the parties were speculating on the continuation or cessation of the war at the time of the payment. If the obligation on the part of Wilson to pay Berkenkotter the amount paid by the latter to wipe out their debt to the bank was created during the occupation, then the Balantyne schedule is applicable; but if said obligation was created before the war, particularly on the date when plaintiff and defendant signed the promissory not in favor of the bank, then the Balantyne schedule may not be applied. 2. No. According to Article 1145 of the Civil Code (Art. 1217 New Civil Code), payment by one of the solidary debtors entitles him to claim fro his debtors only the share pertaining to each with interest on the amount advanced, and this is what the appellant is doing, only that he wants to collect the whole amount paid by him for Wilson in genuine Philippine currency instead of the equivalent thereof under the Balantyne schedule. When appellant paid the entire loan plus interests in November, 1944, the whole obligation was extinguished. The solidary co-debtors were no longer under any obligation to the bank but a new obligation was created in favor of the appellant and against the appellee. Moreover, on grounds of equity appellant may not be allowed to collect from the appellee more than the real value of what he paid for him specially when the difference between the military notes and the genuine Philippine currency in November, 1944, was so great.
Defenses of the Solidary Debtor, 1222 ISSUES: Ynchausti vs. Yulo, 34 Phil. 978
1. Is the Balantyne schedule of values in determining the amount to be reimbursed by the plaintiff as a co-solidary debtor of the defendant applicable? 2. Is defendant Berkenkotter liable to pay the full amount in Philippine currency? RULING:
Facts: This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of Inchausti & Company with Teodor Yulo and after his death continued by Gregorio Yulo as principal representative of his children. On Aug.12, 1909, Gregorio Yulo, in representation of his 3 siblings, executed a notarial instrument, ratifying all the contents of the prior document of Jan.26, 1908, severally and joint acknowledged their indebtedness for P253,445.42, 10 % per annum, 5 Boycillo | 30
installments. Plaintiff brought an action against a Gregorio for the payment of the said balance due. But on May 12, 1911, 3 siblings executed another instrument in recognition of the debt, reduced to P225,000, interest reduced to 6% per annum, installments increased to 8. Held: The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909, with respect to the other debtors who executed this contract. First, “in order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points(art. 1292). It is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new one.” The obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one.
The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the provision of Art. 1215, 1222, the defendant has the right to enjoy the benefits of the partial remission. At present judgment can be rendered only as to P112,500.
Obligations with a Penal Clause, 1226-1230 Makati Development vs. Empire Insurance, 20 SCRA 557 FACTS: On March 31, 1959, Makati Development Corporation sold a lot to Rodolfo P. Andal, in Urdaneta Village, Makati, Rizal, for P55,615. A socalled "special condition" contained in the deed of sale provides that the vendee shall construct and complete at least 50% of its residence on the property within two (2) years from March 31, 1959 to the satisfaction of the vendor and, in the event of its failure to do so, the bond which the vendee has delivered to the vendor in the sum of P11,123.00 to insure faithful compliance with the above special condition will be forfeited. Andal gave a surety bond on April 10, 1959 wherein he, as principal, and the Empire Insurance Company, as surety, jointly and severally, undertook to pay the Makati Development Corporation the sum of P12,000 in case Andal failed to comply with his obligation under the deed of sale.
Andal sold the lot to Juan Carlos on January 18, 1960. As neither Andal nor Juan Carlos built a house on the lot within the stipulated period, the Makati Development Corporation, on April 3, 1961, after the lapse of the two-year period, sent a notice of claim to the Empire Insurance Co. advising it of Andal's failure to comply with his undertaking. Demand for the payment of P12,000 was refused, whereupon the Makati Development Corporation filed a complaint in the Court of First Instance against the Empire Insurance Co. to recover on the bond in the full amount, plus attorney's fees. In due time, the Empire Insurance Co. filed its answer with a third-party complaint against Andal. It asked that the complaint be dismissed or, in the event of a judgment in favor of the Makati Development Corporation, that judgment be rendered ordering Andal to pay the Empire Insurance Co. whatever amount it maybe ordered to pay the Makati Development Corporation, plus interest at 12%, from the date of the filing of the complaint until said amount was fully reimbursed, and attorney's fees. In his answer, Andal admitted the execution of the bond but alleged that the "special condition" in the deed of sale was contrary to law, morals and public policy. He averred that, at any rate, Juan Carlos had started construction of a house on the lot. The lower court rendered judgment, sentencing the Empire Insurance Co. to pay the Makati Development Corporation the amount of P1,500, with interest at the rate of 12% from the time of the filing of the complaint until the amount was fully paid, and to pay attorney's fees in the amount of P500, and the proportionate part of the costs. The court directed that in case the amount of the judgment was paid by the Empire Insurance Co., Andal should in turn pay the former the sum of P1,500 with interest at 12% from the time of the filing of the complaint to the time of payment and to pay attorney's fees in the sum of P500 and proportionate part of the costs. The Makati Development Corporation appealed directly to this Court. The appellant argues that Andal became liable for the full amount of his bond upon his failure to build a house within the two-year period which expired on March 31, 1961 and that the trial court was without authority to reduce Andal's liability on the basis of Carlos' construction of a house a month after the stipulated period because there was no privity of contract between Carlos and the Makati Development Corporation.
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ISSUE: Is Andal liable for the full amount of his bond upon his failure to comply with the special condition stipulated? RULING: No. While it is true that in obligations with a penal sanction the penalty takes the place of damages and the payment of interest in case of non-compliance and that the obligee is entitled to recover upon the breach of the obligation without the need of proving damages,it is nonetheless true that in certain instances a mitigation of the obligor's liability is allowed. Thus article 1229 of the Civil Code states:
The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Trial court found that Juan Carlos had finished more than 50 per cent of his house by April, 1961, or barely a month after the expiration on March 31, 1961 of the stipulated period. There was therefore a partial performance of the obligation within the meaning and intendment of article 1229. The penal clause in this case was inserted not to indemnify the Makati Development Corporation for any damage it might suffer as a result of a breach of the contract but rather to compel performance of the so-called "special condition" and thus encourage home building among lot owners in the Urdaneta Village. Considering that a house had been built shortly after the period stipulated, the substantial, if tardy, performance of the obligation, having in view the purpose of the penal clause, fully justified the trial court in reducing the penalty. Still it is insisted that Carlos' construction of a house on the lot sold cannot be considered a partial performance of Andal's obligation because Carlos bears no contractual relation to the Makati Development Corporation. Indeed the stipulation in this case to commence the construction and complete at least 50 per cent of the vendee's house within two years cannot be construed as imposing a strictly personal obligation on Andal. To adopt such a construction would be to limit Andal's right to dispose of the lot. There is nothing in the deed of sale restricting Andal's right to sell the lot at least within the two-year period and we think it plain that a reading of such a limitation on one of the rights of ownership must rest on more explicit language in the contract. Cabarroguis vs. Vicente, L-14304, March 24, 1960
FACTS: Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries as a result of an accident when the AC jeepney of which she was a passenger hit another vehicle at a street corner. To avoid court litigation, defendant Vicente, owner and operator of the jeepney entered a compromise agreement with the plaintiff, obligating himself to pay 2,500 as actual and compensatory, exemplary and moral damages suffered by plaintiff. Defendant has paid a total amount of 1,500 leaving a balance of 1,000. It was stipulated in the agreement that should defendant fail to complete payment within 60 days, he would pay an additional amount of 200.00 as liquidated damages.
As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a suit in the Municipal Court of Davao and rendered judgment in favor of plaintiff. Defendant appealed to the Court of First Instance which ordered the defendant to pay the plaintiff the amount of 1,200 with interest at legal rate from the date of the filing of the complaint until full payment. ISSUE: Did the lower court err in sentencing the defendant to pay interest from the date of the filing of the complaint until full payment? RULING: No. As a rule, if the obligation consists in a sum of money, the only damage a creditor may recover, if the debtor incurs in delay, is the payment of the interest agreed upon or the legal interest, unless contrary is stipulated (Article 2209). However, the creditor may also claim other damages. Such as moral or exemplary damages, in addition to interest, the award of which is left to the discretion of the court.
In obligations with a penal clause, as provided in Article 1226 of the Civil Code, the penalty shall substitute the indemnity for damages and the payment of interests. The exceptions to this rule, according to the same article, are: (1) when the contrary is stipulated; (2) when the debtor refuses to pay the penalty imposed in the obligation, in which case the creditor is entitled to interest on the amount of the penalty, in accordance with article 2209; and (3) when the obligor is guilty of fraud in the fulfillment of the obligation. Applying the law, it is evident that no interest can be awarded on the principal obligation of defendant, the penalty of 200.00 agreed upon having Boycillo | 32
taken the place of the payment of such interest and the indemnity for damages. No stipulation to the contrary was made and while defendant was sued for breach of the compromise agreement, the breach was not occasioned by fraud. This case, however, takes a different aspect with respect to the penalty attached to the principal obligation. It has been held that in obligations for the payment of a sum of money when a penalty is stipulated for default, both the principal obligation and the penalty can be demanded by the creditor. Defendant having refused to pay when demand was made by plaintiff, the latter clearly is entitled to interest on the amount of the penalty. It is well observe that Article 2210 of the Civil Code provides that in the discretion of the court, interest may be alleged upon damages awarded for breach of contract. This interest is recoverable from the time of delay that is to say, from the date of demand, either judicial or extrajudicial. And if there is no showing as to when demand for payment was made, plaintiff must be considered to have made such demand only from the filing of the complaint. Wherefore, with the modification that the interest shall be allowed on the amount of the penalty, the decision appealed from is affirmed Chapter 4 Extinguishment of Obligations
(THIRI SETKYA), immediately.” NARIC took the first step to open the letter of credit on July 30, 1952 by forwarding to the PNB its application for commercial letter of credit. Arrieta with the help of a counsel, advised NARIC of the necessity for the opening of the letter because she tender her supplier in Ragoon, Burma of 5 % of the price of 20,000 tons at $180.70 and if she didn’t comply the 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952. PNB informed NARIC that their application of credit letter amounting to $3,614,000.00 was approved with the condition of 50% marginal cash be paid. NARIC does not meet the condition. The allocation of Arrieta’s supplier in Ragoon was cancelled and the 5% deposit was forfeited. ISSUE: Whether or not NARIC is liable for damages for breach of contract due to failure to open the letter of credit? HELD: Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma was the failure of NARIC to open the letter of credit within a specific period of time. One who assumes contractual obligation and fails to perform in which he knew and was aware when he entered in the contract, should be liable for his failure to do what is required by a law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of fraud, negligence or default but also a debtor of every, in general, who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby.
Manner, definition and importance, 1231 Kalalo vs. Luz, 34 SCRA 337 Payment or Performance, 1231-1251 Arrieta vs. NARIC, 10 SCRA 79 FACTS: Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it was the lowest that’s why the contract was awarded to her. On July 1,1952, Arrieta and NARIC entered into contract. Arrieta was obligated to deliver 20,000 metric ton of Burmese rice at $203.00 per metric ton to NARIC. In return, NARIC committed itself to pay for the imported rice “ by means of an irrevocable, confirmed and assignable letter of credit in US currency in favour of Arrieta and/or supplier in Burma
FACTS: On November 17, 1959, Octavio A. Kalalo (appellee) entered into an agreement with Alfredo J . Luz (appellant) whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. Pursuant to said agreement, appellee rendered engineering services to appellant.
On December 11, 1961, appellee sent to appellant a statement of account, to which was attached an itemized statement of defendant-appellant's account, according to which the total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00. Boycillo | 33
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant. amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to accept as full payment of the balance of the fees due him. The appellant further contended that the ap pellee’s services were not complete or were performed in violation of the agreement and otherwise unsatisfactory.
St. Paul vs. McCondray, 70 SCRA 112
In order to settle the dispute, and upon agreement of the parties, the trial court authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant.
The shipment was insured by the shipper against loss and/or damage with the St. Paul Fire & Marine Insurance Company.
ISSUES:
Because consignee failed to receive the whole shipment and as several cartons of medicine were received in bad order condition, Winthrop-Sterns Philippines filed the corresponding claim in the amount of Pl,109.67 representing the C.I.F. value of the damaged drum and cartons of medicine with the carrier and the arrest re.
1. Was the recommendation in the Report that the payment of the amount due to Kalalo in dollars legally permissible? 2. If not, what rate of exchange should it be in pesos? RULING:
1. No. Under the agreement,Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00. Kalalo, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. 2. Under Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred .Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment for such contracts.
FACTS: Winthro p Products, Inc., of New York shipped aboard the SS “Tai Ping”, owned and operated by Wilhelm Wilhelmsen218 cartons and drums of drugs and medicine with Winthrop-Stearns Inc., Manila, Philippines as consignee. Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop Products.
“Tai Ping” arrived at the Port of Manila. The said shipment was discharged complete and in good order with the exception of one (1) drum and several cartons which were in bad condition.
However, both refused to pay. Winthrop-Sterns Philippines filed its claim with the insurer, St. Paul Fire & Marine insurance. The insurance company, on the basis of such claim, paid to the consignee the insured value of the lost and damaged goods, including other expenses in connection therewith, in the total amount of $1,134.46. As subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire & Marine Insurance Co., instituted with the Court of First Instance the present action against the defendants for the recovery of said amount of $1,134.46, plus costs. The Lower court rendered judgment ordering defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to Boycillo | 34
the plaintiff P300.00. It also held defendants Manila Railroad Company and Manila Port Service to pay to plaintiff, jointly and severally, the sum of P809.67.
The stipulation in the bill of lading limiting the common carrier’s liability to the value of the goods appearing in thebill, unless the shipper or owner declares a greater value, is valid and binding.
The Insurer, contending that it should recover the amount of $1,134.46 or its equivalent in pesos (the rate of P3.90,instead of P2.00, for every US$1.00), filed a motion for reconsideration, but this was denied.
This limitation of the carrier’s liability is sanctioned by the freedom of the contracting parties to establish suchstipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary to law,morals, good customs and public policy.
The Insurer argues that, as subrogee of the consignee, it should be entitled to recover from the defendants-appelleesthe amount of $1,134.46 which it actually paid to the consignee and which represents the value of the lost anddamaged shipment as well as other legitimate expenses such as the duties and cost of survey of said shipment, andthat the exchange rate on the date of the judgment, which was P3.90 for every US$1.00. Defendants-appellees countered that: Their liability is limited to the C.I.F. value of the goods, pursuant to contract of sea carriage embodied in the bill of lading that the consignee’s (Winthrop -Stearns Inc.) claim against the carrier (Macondray & Co., Inc.,Barber Steamship Lines, Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port Service and Manila Railroad Company) was only for the sum of Pl,109.67 ISSUE(S):
1.Whether or not, in case of loss or damage, the liability of the carrier to the consignee is limited to the C.I.F value of the goods which were lost or damaged 2.Whether the insurer who has paid the claim in dollars to the consignee should be reimbursed in its peso equivalent on the date of discharge of the cargo or on the date of the decision. RULING: The appeal is without merit and the judgement of the lower court is affirmed.
The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to the contract tocarry.
A stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or deterioration of the goods is valid, provided it is: (a) reasonable and just under the circumstances, and (b) has been fairly and f reely agreed upon. In the case at bar, the liabilities of the defendants- appellees with respect to the lost or damaged shipments are expressly limited to the C.I.F. value of t he goods as per contract of sea carriage embodied in the bill of lading, which reads: Whenever the value of the goods is less than $500 per package or other freight unit, their value in the calculation and adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be deemed to be the invoice value, plus freight and insurance if paid, irrespective of whether any other value is greater or less. PNB vs. Pineda, 197 SCRA 1 (1991) FACTS: In 1963, the Arroyo Spouses, obtained a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock and thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land known as the La Vista property.
TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for Boycillo | 35
