ART. 1171-1173

Saludaga vs FEU30 April 2008

Facts:Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy’s President, to indemnify them for whatever would be adjudged in favour of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. On November 10, 2004, the trial court rendered a decision in favour of petitioner, the dispositive portion of which reads: Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts, And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs. Respondents appealed to the Court of Appeals which rendered the assailed Decision, and reverses the RTC by dismissing the claim of Saludaga. Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition.

Issue:W/N the shooting was an FE

W/N the CA erred in holding that FEU not liable for its breach of contractual obligation to petitioner as their student

W/N the 3rdparty complaint is valid

Held: When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets

are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb . Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip its students with the necessary skills to pursue higher education or a profession . At the same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus. It is settled that in Culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, corresponding right of relief . In the instant case, we find that, when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee; [16] and that they complied with their obligation to ensure a safe learning environment frothier students by having exercised due diligence in selecting the security services of Galaxy. After a thorough review of the records, we find that respondent failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered. Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. Consequently, respondents' defense of force majeure must fail. Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. In the instant case, it was

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established that petitioner spent P35,298.25 for his hospitalization and other medical expenses. While the trial court correctly imposed interest on said amount, however, the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint until the finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction. The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts.[21] In the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of theCivil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20, 000.00 as temperate damages is awarded to petitioner. The third-party complaint is, therefore, a procedural device whereby a `third party' who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.[33]Respondents and Galaxy were able to litigate their respective claims and defences in the course of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its employees but also in their supervision. For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Petition Granted, CA decision set aside. Damages awarded to Saludaga. FEU’s 3rd party claim against Galaxy granted.

MANILA ELECTRIC COMPANY vs. MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIERAMOY, OFELIA DURIAN and CYRENE PANADO

G.R. No. 158911 : March 4, 2008

FACTS:

In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case was

Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989 the MTC rendered judgment for MERALCO to demolish or remove the building and structure they built on the land of the plaintiff and to vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting the immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon City. In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all the establishments which are considered under NPC property. In due time, the electric service connection of the plaintiffs was disconnected. During the ocular inspection ordered by the Court, it was found out that the residence of the plaintiffs-spouses was indeed outside the NPC property.

ISSUES: (1) WON the Court of Appeals gravely erred when it found MERALCO negligent when it disconnected the subject electric service of respondents.

(2) WON the Court of Appeals gravely erred when it awarded moral and exemplary damages and attorney’s fees against MERALCO under the circumstances that the latter acted in good faith in the disconnection of the electric services of the respondents.

RULING: (1)No. The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant to Articles 1170 & 1173 of the Civil Code. It was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. Verily, only upon finality of the said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property, thus, are not entitled to the services of MERALCO.

(2)No. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. This is contrary to public policy because, MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in the performance of its obligation. Thus, MERALCO’s failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO’s actions. Furthermore, due to the lack of power supply, the lessees of his four apartments on subject lot left the premises. Clearly, therefore Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. Nevertheless, Leoncio is the sole person entitled to moral damages as he is the only who testified on the witness stand of his wounded feelings. Pursuant to Article 2232 of the Civil Code, exemplary damages cannot be awarded as MERALCO’s acts cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Since the Court does not deem it proper to award exemplary damages in this case then the CA’s award of attorney’s fees should likewise be deleted, as pursuant to Article 2208 of the Civil Code of which the grounds were not present.

ART. 1174

2

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL

MERCHANDISING, Petitioner, vs.COURT OF APPEALS and VICENTE HERCE JR., RespondentsG.R. No. 117190. January 2, 1997

This case involves the proper interpretation of the contract entered into between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J. M. T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration ofP60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment ofP15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place.1

Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent.2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff."3 With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction."4

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The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of

respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty.

His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed.

We reverse the appellate court on the first issue but sustain it on the second.

The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced hereunder -

In connection with your Windmill System and Installation, we would like to quote to you as follows:

One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

The second letter-proposal (Exh. "A") provides as follows:

In connection with your Windmill system Supply of Labor Materials and Installation, operated water pump, we would like to quote to you as follows -

One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.

One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.

One (1) lot - Float valve.

One (1) lot - Concreting materials foundation.

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F. O. B. Laguna

Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and"deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed.

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered.6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him.

Respondent insists that petitioner verbally agreed that the contract price ofP60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig."7

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We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written

commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price ofP60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his possession."8

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Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it,".9 It does not appear from the record that Pili and/or SPGMI was so authorized.

Respondent cannot claim the benefit of the law concerning "payments made by a third person."10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into.

The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify.

The second issue is not a novel one. In a long line of cases11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals,12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was

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a "strong wind." But a strong wind in this case cannot be fortuitous - unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn.

The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee."13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life."14 This presumption has not been rebutted by petitioner.

Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty"16and to complete the same within three (3) months from the finality of this decision.

SO ORDERED.

NAKPIL & SONS ET. AL. VS. COURT OF APPEALSOCTOBER 3, 1986 160 SCRA 334

Facts: The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans and specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. The tenants vacated the building in view of its

precarious condition. As a temporary remedial measure, the building was shored up by United Construction, Inc. at the cost of P13,661.28.

In the RTC of Manila, PBA filed a complaint for damages and thus was appealed to the CA where judgment was modified as what the RTC rendered in favor of the plaintiff. PBA constructed a building whereby the construction was undertaken by United Construction Inc, (UCI). Approved by the president of PBA, the plans and specification were prepared by Nakpil & Sons. August 2, 1968, earthquake hit Manila and thus damaging properties where the building of PBA was one of which November 29 of that same year, plaintiff PBA filed suit for recovery of damages against the UCI. The UCI in turned filed suit against Nakpil & Sons, by which in March 3, 1969 filed their written stipulation. In the RTC, technical issues were submitted to Commissioner Hizon and as for other issues the Court resolved. Commissioner sustained that the building was caused directly by the earthquake and maintained that the specification were not followed.

Issue(SC issue): Whether or not an Act of God-fortuitous event, exempts liability from parties who are otherwise liable because of their negligence?

Held: Although the general rule for fortuitous events stated in Article 1174 of the Civil Code exempts liability when there is an Act of God, thus if in the concurrence of such event there be fraud, negligence, delay in the performance of the obligation, the obligor cannot escape liability therefore there can be an action for recovery of damages. The negligence of the defendant was shown when and proved that there was an alteration of the plans and specification that had been so stipulated among them. Therefore, therefore there should be no question that NAKPIL and UNITED are liable for damages because of the collapse of the building.

Nakpil vs. Court of Appeals,12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

ACE-AGRO V. CA266 SCRA 429

Facts: Cosmos was a soft drinks manufacturer and Ace-Agro cleaned soft drinks bottles and repaired wooden shells for Cosmos in San Francisco, Pampanga. Cosmos and Ace-Agro had a contract of service with a period from January 1, 1990 to December 31, 1990. Cosmos also has a contract of service with Aren Enterprises which was working outside the factory of Cosmos and was also able to cope with Cosmos’ daily production of 8.000 softdrinks. On April 25, 1990, there was a

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fire in Cosmos’ plantation which destroyed even the working area of Ace-Agro. Because of the fire, Ace-Agro’s employees were not able to continue their work. On May 15, 1990, Ace-Agro was asking for the resumption of work but Cosmos declined because the whole area was still recuperating from the fire and asked for the termination of the contract with Ace-Agro. Ace-Agro asked for a Cosmos’ reconsideration regarding the termination and there was no reply from the respondent so the petitioner said that they need to recuperate from the termination of the contract with Cosmos and they had to dismiss the employees. The employees then filed for an illegal dismissal case. Cosmos received another letter of reconsideration from the petitioner regarding the displaced workers. Cosmos then informed Ace-Agro that the contract resumed but the petitioner had to work outside the plantation of Cosmos. Petitioner complained, claiming that the original terms of the contract were not sufficient for such a change. Cosmos then told Ace-Agro that they may resume working on wooden shells in the plantation, but Ace-Agro still complained about the pending illegal dismissal cases against them because of the premature termination of the existing contract with Cosmos.Petitioner filed for damages in the RTC due to breach of contract allegedly committed by the respondent and the RTC ruled in favor of Ace-Agro because it found that Cosmos did commit breach. After filing for an appeal by the respondent, the trial court then reversed the decision of the RTC.

Issues: Whether or not it was justified for Cosmos to terminate the contract due to force majeure (fire)

Whether or not it was the unjustified refusal of Ace-Agro that terminated the contract between the two parties

Held: According to Tolentino, “In some contracts, either because of its indeterminate duration or because of the nature of the prestation which is its object, one of the parties may free himself from the contractual tie by his own will (unilateral extinguishment).”

Cosmos’ termination of the contract was due to the loss of objects of the prestation (soft drinks bottles and wooden shells) because of the fire, which was an unseen event (force majeure). Ace-Agro was expecting an extension of the contract because of the force majeure, however, a force majeure only suspends the obligation of the parties but the period is still running (Tolentiono).

The Court held that there was unjust refusal on the part of Ace-Agro because despite their requests being compromised with by Cosmos, they still refused to their terms. The complaint regarding Aren Enterprises was also found to have no basis since there was no stipulation in the contract of Ace-Agro and Cosmos regarding the latter’s being prohibited to contract the services of other companies.

Oblicon Doctrine: The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not mean that the

happening of any of those events stops the running of the period the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective obligations during that time.

MONDRAGON LEISURE V COURT OF APPEALS15 June 2005

Facts: In February 28, 1994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of what is now known as the Mimosa Leisure Estate.

To finance the project, petitioner, on June 30, 1997, entered into an Omnibus Loan and Security Agreement with respondent banks for a syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, as amended on January 19, 1999, the proceeds of the loan were to be released through advances evidenced by promissory notes to be executed by petitioner in favor of each lender-bank, and to be paid within a six-year period from the date of initial advance inclusive of a one year and two quarters grace period.

To secure the repayment of the loan, petitioner pledged in favor of respondents US$20M worth of MIPI shares of stocks; assigned, transferred and delivered all rights, title to and interest in the pledged shares; and assigned by way of security its leasehold rights over the project and all the rights, title, interests and benefits in, to and under any and all agreements in connection with the project.

On July 3, 1997, petitioner fully availed of and received the full amount of the syndicated loan agreement. Petitioner stopped paying in October of 1998. On January 6 and February 5, 1999, written notices of default, acceleration of payment and demand letters were sent by the lenders to the petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner. Petitioner moved for the dismissal of the complaint on the following grounds alleging forum shopping on the part of plaintiffs as well as force majeure.

The trial court denied the motion and ruled the force majeure baseless. The same are not those provided for under Sec. 1, Article 41 of the loan agreement. As to the allegation of forum shopping, the herein parties Asian Bank Corporation and Far East Bank and Trust Company are not parties to this case in 9510 (sic). The subject matter of Civil Case No. 9527 is not the same with the subject matter in Civil Case No. 9510.

Petitioner moved for the reconsideration of the order and argued that the complaint is premature, since it had not been validly declared in default.6 The trial court denied the motion for reconsideration. Seasonably, petitioner filed a special civil action for certiorari with the Court of Appeals. Before the appellate court, petitioner reiterated its arguments in its

6

motion to dismiss before the trial court, including the failure of the respondents to attach the board resolutions authorizing them to file the complaint.7

The Court of Appeals dismissed the petition and denied the subsequent motion for reconsideration. Hence, this appeal by certiorari.

Issue: w/n petitioner was in default in spite of the six year period available for the loan

w/n petitioner was liable in spite of the FE of the Asian Financial Crisis?

Held: Petitioner contends the subject obligation of the instant case is not yet due and demandable because the Omnibus Agreement allows a full six-year term of payment. Even if it failed to pay some installments, petitioner insists it is not in default because respondents merely sent collection and demand letters, but failed to give the written notice of default required under their agreement.

Moreover, petitioner avers that the provisions on default in the Omnibus Agreement have been rendered inapplicable and unenforceable by fortuitous events, namely the Asian economic crisis and the closure of the Mimosa Regency Casino, which was petitioner’s primary source of revenues.

Respondents counter that the Omnibus Agreement defines, as an event of default, the failure of petitioner to pay when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. Since petitioner is also required to pay interest, respondents posit that non-payment thereof constituted a clear and unmistakable case of default. Respondents add that they had properly advised the petitioner that it had been declared in default, referring to the January 6 and February 5, 1999 letters as their compliance with the notice requirement.

On this issue, we are unable to agree with the petitioner.

Section 2.06 (a) of Part B of the Omnibus Agreement provides that the borrower shall pay interest on the advances outstanding from time to time on each interest payment date, while Section 6 of Part A reads

6.01 Events of Default

Each of the following events shall constitute an Event of Default under this Omnibus Agreement:

(a) Payment Default – The BORROWER defaults in the payment when due at stated maturity, by acceleration or otherwise, of any amount payable under the Loan Documents.

. . .

Clearly, under the foregoing provisions of the Agreement, petitioner may be validly declared in default for failure to pay the interest. As a consequence of default, the unpaid amount shall earn default interest, and the respondent-banks have four alternative remedies without prejudice to the application of

the provisions on collaterals and any other steps or action which may be adopted by the majority lender.

The four remedies are alternative, with the right of choice given to the lenders, in this case the respondents. Under Article 1201 of the Civil Code, the choice shall produce no effect except from the time it has been communicated. This is the reason why a written notice is required under Section 6.02 of the Omnibus Agreement.

In the present case, we find that the letter clearly indicated the choice of remedy by the respondents, pursuant to the Omnibus Agreement. It should be noted that the agreement also provides that the choice of remedy is without prejudice to the action on the collaterals.

Petitioner’s claim, that the respondents could not be held in default because of a fortuitous event, is untenable. Said event, the Asian financial crisis of 1997, is not among the fortuitous events contemplated under Article 1174 of the Civil Code. To exempt the obligor from liability for a breach of an obligation by reason of a fortuitous event, the following requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.

As pointed out by the respondents, the loan agreement was entered into on June 30, 1997, or when the Asian economic crisis had already started. Petitioner, as a long established corporation, should have been well aware of the economic environment at that time, yet it still took the risk to expand operations. Likewise, the closure of the Mimosa Regency Casino was not an unforeseeable or unavoidable event, in the context of the contract of lease between petitioner and CDC. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business.

Worthy of note, risk is an exception to the general rule on fortuitous events. Under the law, these exceptions are: (1) when the law expressly so specifies; (2) when it is otherwise declared by the parties; and (3) when the nature of the obligation requires the assumption of risks.21 We find that in the Omnibus Agreement, the parties expressly agreed that any enactment, official action, act of war, act of nature or other force majeure or other similar circumstances shall in no way affect the obligation of the borrowers to make payments.

In sum, the appellate court did not err in dismissing petitioner’s action for certiorari and in denying the motion for reconsideration. It committed no reversible error, much less any grave abuse of discretion amounting to lack or excess of jurisdiction, contrary to petitioner’s contentions.

Petition denied. CA affirmed.

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Art. 179 and 1181

DE LEON VS ONG2 February 2010

Facts: De Leon sold 3 parcels of land to Ong. The properties were mortgaged to Real Savings and Loan Association. The parties executed a notarized deed of absolute sale with assumption of mortgage. The deed of Assumption of mortgage shall be executed in favor of Ong after the payment of 415K. Ong complied with it. De Leon handed the keys of to Ong and informed the loan company that the mortgage has been assumed by Ong. Ong made some improvements in the property. After sometime, Ong learned that the properties were sold to Viloria and changed the locks to it. Ong went to the mortgage company and learned that the mortgage was already paid and the titles were given to Viloria. Ong filed a complaint for the nullity of second sale and damages. De Leon contended that Ong does not have a cause of action against him because the sale was subject to a condition which requires the approval of the loan company and that he and Ong only entered a contract to sell.

Issue: Whether or not the parties entered into a contract of sale

Ruling: Yes, the parties entered into a contract of sale. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. The non-payment of the price is a negative resolutory condition. Contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. In the present case, the deed executed by the parties did not show that the owner intends to reserve ownership of the properties. The terms and conditions affected only the manner of payment and not the immediate transfer of ownership. It was clear that the owner intended a sale because he unqualifiedly delivered and transferred ownership of the properties to the respondent

REYES v. TUPARANG.R. No. 188064; June 1, 2011

FACTS:In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioner’s financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. to secure a loan of ₱2,000,000.00 payable in installments. On November 15, 1990, petitioner’s outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioner’s real properties for ₱4,200,000.00 payable on installment basis without interest and to assume the bank loan.

On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as unpaid accumulated interest. Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. On September 2, 1992, respondent offered the amount of ₱751,000.00 only payable on September 7, 1992, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale.On September 10, 1992, Mila A. Reyes filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan before the RTC. ISSUE: Whether or not petitioner has the right to rescind of the Deed of Conditional Sale with Assumption of Mortgage.

HELD: The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. Based on the stipulations of the parties,the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioner’s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent’s full payment of the purchase price. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent.

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GREAT ASIAN SALES CENTER CORP. V. C.A. & BANCASIA FINANCEG.R. No. 105774 April 25, 2002

FACTS: Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. Its board of directors approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. to secure a loan from Bancasia in an amount not to exceed P1M. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan.

Later, the board approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2M. The second board resolution also designated Arsenio as the authorized signatory.

Tan Chong Lin signed 2 Surety Agreements in favour of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia.

Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of Receivables, assigning to Bancasia 15 post-dated checks. Arsenio endorsed all the 15 checks by signing his name at the back of the checks. 8 of the dishonoured checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales Center", while the rest of the dishonoured checks just bore the signature of Arsenio. The drawee banks dishonoured the 15 checks on maturity when deposited for collection.

Bancasia sent by registered mail to Tan Chong Lin a letter notifying him of the dishonour and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonoured checks.

Great Asian filed for insolvency. Attached to the verified petition was a "Schedule and Inventory of Liabilities and Creditors," listing Bancasia as one of the creditors of Great Asian for P1.2M.

Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed infavor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.

ISSUE: WON TAN CHONG LIM IS LIABLE?

HELD: YES. Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the following common condition: "Upon failure of the Principal to pay at maturity, with or

without demand, any of the obligations above mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes."Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lin’s obligation hinged had happened. As surety, Tan ChongLin automatically became liable for the entire obligation to the same extent as Great Asian. Tan Chong Lin maintains that the warranties in the Deeds of Assignment materially altered his obligations under the Surety Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a "novation, compensation, confusion or remission of the debt" made by the creditor with any of the solidary debtors. These warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety Agreements, written on the letter head of "Bancasia Finance& Investment Corporation," uniformly state that "Great Asian Sales Center has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from" Bancasia. Tan ChongLin was clearly on notice that he was holding himself as surety of Great Asian which was discounting post-dated checks issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asian’s business activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety. In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties. Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonoured checks, including penalty and attorney’s fees in accordance with the Deeds of Assignment.

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AGAPITO B. DUCUSIN V. C.A. & VIRGILIO S. BALIOLAG.R. No. L-58286 May 16, 1983

FACTS: Petitioner Agapito Ducusin leased to private respondent, Virgilio S. Baliola married to Lilia Baliola a one-door apartment unit. The contract of lease provides: 2. the term of this contract shall be in a month to month basis commencing on February19, 1975 until terminated by the lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for in accordance with law.

The Baliola spouses occupied the apartment for almost 2years when Ducusin sent a "Notice to Terminate Lease Contract," terminating the lease and giving them until March 15,1977 within which to vacate the premises for the reason that his two children were getting married and will need the apartment for their own use and residence. A second letter was thereafter sent by Ducusin to respondents Baliolas making an inquiry on any action the latter had taken on the previous notice to terminate the lease contract. Respondents made no reply to the “Notice to Terminate Lease Contract".

So petitioners filed an action for ejectment against the Baliola spouses, alleging that having constructed the apartment complex for the use and residence of his children (each to unit) if and when they decide to marry and live independently and that the apartment unit having been allotted to his son, Agapito Ducusin, Jr., the said unit is now needed by Agapito, Jr. who is getting married in the month of May, 1977 and that saidAgapito, Jr. has decided to live independently. The complaint for eviction further alleged that the lessees have violated the terms of the contract by subleasing the premises; that the lessees have not used the premises solely for residential purposes but have used the same as factory and/or manufacturing premises for their commercial goods; and that they have neglected to undertake repairs of the apartment and the premises according to their agreement.

The lessees denied the allegations of the lessor and claimed in their Answer that the ejectment suit "is a well-planned scheme to rid the defendants and family out of their apartment, and to circumvent the law prohibiting raising the rental of apartments and houses."

Court decided in favour of the lessor Ducusin on the ground that the "defendants' contract with the plaintiff has already terminated with the notice of termination sent by the plaintiff to the defendants on the ground that he needs the premises for his own children."

ISSUE: WON THE LEASE CONTRACT WAS SUBJECT TO ARESOLUTORY CONDITION?

HELD: YES. We find for the petitioners. We do not agree with the holding of the respondent court that the petitioners have not proved by a preponderance of evidence the alleged need of the immediate members of his family for the use of the leased premises. The contention of the petitioner that the contract of lease in questions for a definite period, being on a month-to-month basis beginning February 19, 1975 and is, therefore, not covered by P.D. No. 20, iscorrect.Period relates to "length of existence; duration" or even a "series

of years, months or days in which something is completed" Definite means "having distinct or certain limits; determinate in extent or character; limited fixed." A definite period, therefore, refers to a portion of time certain or ascertainable as to its beginning, duration and termination. In one case, it was held: “As to the duration and termination of the aforementioned contractual relations, the parties used the phrase "on a month to month basis" in the Agreement with reference to the length of time during which petitioner Rantael would have use and occupancy of the leased premises. And month here should be construed, in like manner as in the interpretation of laws pursuant to the provisions of Article 12 of the Civil Code of the Philippines, there being no reason to deviate there from, as a period composed of thirty days. The contractual relations between petitioner Rantael and respondent Llave ceased after the expiration of the first thirty days reckoned from August 1, 1974 but continued for the next thirty-day period and expired after the last day thereof, repeating the same cycle for the succeeding thirty-day periods, until the Id respondent Llave exercised her express prerogative under the agreement to terminate the same. Xxx However, by express exception of P.D. No.20, judicial ejectment lies "when the lease is for a definite period “or when the fixed or definite period agreed upon has expired. The lease in the case at bar having a definite period, it indubitably follows that the exception, rather than the general rule, applies and, therefore, respondent Llave's right to judicially eject petitioner Rantael from the premises may be duly enforced. This has been the consistent administrative interpretation of the Office of the President.”As to the holding of the respondent court that petitioner Ducusin, Sr."did not show that the one-door apartment leased to the petitioners was the only place available for the use of his son, Agapito Ducusin,Jr.," on the contrary, We find in the records evidence that out of the eight doors apartment building belonging to the petitioner DucusinSr., three doors, now 31 years old, became untenantable due to wear and tear and the remaining five doors were all occupied by tenants; first door, 3319, is occupied by Mr. Coluso, 3319-A by the Baliola spouses, 3319-B by Mr. & Mrs. Magsano, 3319-C by Mr. & Mrs. delos Santos, and 3319-D by Videz. From this evidence may be deduced that there is no other place available for the use and residence of petitioner's son, Agapito Ducusin, Jr. Assuming that Agapito Ducusin, Sr. informed his tenant Virgilio Baliola thatanother apartment unit No. 3319, would soon be vacated, the allegedvacancy is nearly speculative and there is no showing that it actually became vacant and available.

Art. 1180

PACIFICA MILLARE V. HON. HAROLD M. HERNANDO G.R. No. L-55480 June 30, 1987

FACTS: A five-year Contract of Lease was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement, lessor-petitioner agreed to rent out to the lessee at a monthly rate of P350 the "People's Restaurant." Paragraph 13 of the Contract of Lease reads as follows: 13. This contract of lease is subject to the laws and regulations of the government; and that his contract of lease may be renewed

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after a period of 5 years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal.

According to the Co spouses, sometime during the last week of May 1980, the lessor informed them that they could continue leasing the People's Restaurant so long as they were amenable to paying increased rentals of P1, 200 a month. In response, a counteroffer of P700 a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us", which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. In contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the Contract of Lease.

Mrs. Millare then requested the Co spouses to vacate the leased premises as she had no intention of renewing the

Contract of Lease which had, in the meantime, already expired. In reply, the Co spouses reiterated their unwillingness to pay the Pl, 200 monthly rentals supposedly sought by Mrs. Millare which they considered "highly excessive, oppressive and contrary to existing laws". They also signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to accept their counter-offer.

CO spouses then filed a complaint seeking renewal of the Contract of Lease at a rental rate of P700/month and for a period of 10 years, and damages.

ISSUE: WON THE CO SPOUSES MAY CLAIM RENEWAL OF THE CONTRACT

HELD: NO. The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of five years, which had expired. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the will of the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of which could have been fixed.

Article 1670 of the Civil Code reads thus: “If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given. It is understood that there is an implied new lease, not for the period of the original contract but for the time established in Articles 1682 and 1687. The ther terms of the original contract shall be revived.”

The respondents themselves, public and private, do not pretend that the continued occupancy of the leased premises after the date of expiration of the contract was with the acquiescence of the lessor. Even if it be assumed that tacite

reconduccion had occurred, the implied new lease could not possibly have a period of 5 years, but rather would have been a month-to-month lease since the rentals (under the original contract) were payable on a monthly basis. At the latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served by the petitioner upon the private respondents to vacate the previously leased premises.

It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact. Save in the limited and exceptional situations envisaged in Articles ll97 and 1670 of the Civil Code, which do not obtain here, courts, have no authority to prescribe the terms and conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. PLDT: “[P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation or undue influence.”

Contractual terms and conditions created by a court for two parties are a contradiction in terms. If they are imposed by a judge who draws upon his own private notions of what morals, good customs, justice, equity and public policy" demand, the resulting "agreement “cannot, by definition, be consensual or contractual in nature. It would also follow that such coerced terms and conditions cannot be the law as between the parties themselves. Contracts spring from the volition of the parties. That volition cannot be supplied by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily and in excess of his jurisdiction.

Art. 1182

SECURITY BANK & TRUST CO. V. C.A. & YSMAEL FERRER G.R. No. 117009 October 11, 1995

FACTS: Private respondent Ysmael C. Ferrer was contracted by herein petitioners SBTC and Rosito C. Manhit to construct the building of SBTC in Davao City for the price of P1.7M. The contract provided that Ferrer would finish the construction in 200 working days. Respondent Ferrer was able to complete the construction of the building within the contracted period but he was compelled by a drastic increase in the cost of construction materials to incur additional expenses of about P300k. The additional expenses were made known to SBTC and Supervising Architect Rudy de la Rama early on. Respondent Ferrer made timely demands for payment of the increased cost. Said demands were supported by receipts, invoices, payrolls and other documents proving the additional expenses.

SBTC and a representative of an architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A recommendation was then made to settle Ferrer's claim but only for P200k. SBTC, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original contract price. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract.

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Ferrer then filed a complaint for breach of contract with damages. RTC ruled for Ferrer and ordered SBTC and Rosito C. Manhit to pay damages.

ISSUE: WON SBTC IS LIABLE FOR THE ADDITIONAL EXPENSES?

HELD: YES. In the present case, petitioners' arguments to support absence of liability for the cost of construction beyond the original contract price are not persuasive. Under Article IX of the construction contract, petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor (private respondent).

Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank's sole will, since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an increased cost. Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

RUSTAN PULP & PAPER MILLS, INC. V. I.A.C. & ILIGAN DIVERSIFIED PROJECTS, INC. G.R. No. 70789 October 19, 1992

FACTS: Petitioner Rustan established a pulp and paper mill in Lano del Norte, to which Respondent Lluch, who is a holder of a forest products license, supplies wood materials. The contract provides: “That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessarily provided, however, that the SELLER is given sufficient notice.”

In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners to private respondents.

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination of the contract of sale was intended, but the query was not answered by petitioners. This alleged ambiguity

notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch. A complaint for contractual breach was then filed.

ISSUE: WON THE STOPPAGE OF DELIVERIES WAS PROPER?

HELD: NO. Insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage, We feel that there is cogent basis for private respondent's apprehension on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the will of petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as determined likewise by petitioners. This is our simple understanding of the literal import of paragraph 7 of the obligation in question. A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception. It is, of course, a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor like what this Court said in Taylor vs. Uy Tieng Piao and Tan Liuan. But the conclusion drawn from the Taylor case, which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila, is certainly inappropriate for application to the case at hand because the factual milieu in the legal tussle conveys that the proviso relates to the birth of the undertaking and not to the fulfillment of an existing obligation.

Petitioners are of the impression that they acted well within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by petitioners to be a temporary suspension of deliveries. There is no doubt that the contract speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the condition attached to it which, as aforesaid, is dependent exclusively on their will for which reason, We have no alternative but to treat the controversial stipulation as inoperative (Article 1306, New Civil Code). It is for this same reason that We are not inclined to follow the interpretation of petitioners that the suspension of delivery was merely temporary since the nature of the suspension itself is again conditioned upon petitioner's determination of the sufficiency of supplies at the plant.

Neither are We prepared to accept petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of the New Civil Code, because petitioners continued accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the breakdown of the machinery line was an extraordinary obstacle to their compliance to the prestation. It was indeed incongruous 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.

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Art. 1190-1192

UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELESL-28602 September 29, 1970

FACTS: UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber there from but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP. ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged.That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effects the logging agreement that they had entered in 1960.That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, and the concession was awarded to Sta. Clara Lumber Company, Inc.

ISSUE: Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect.

RULING: Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966. apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." "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."In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured

must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages.

AGUSTINA LIQUETTE TAN V. C.A. & SPS. SINGSON G.R. No. 80479 July 28, 1989

FACTS: Private respondents Singsons are the owners of a house and lot which were then for sale. Petitioner Tan together with her agent went to see said spouses at their residence regarding the property. After Singsons had shown Tan around the house and had conversation about the encumbrances and/or liens on the property, the parties finally agreed on the price of Pl.8M, with Tan to advance earnest money of P200k to enable Singsons to secure the cancellation of the mortgage and lien annotated on the title of the property and the balance of the price to be paid by Tan on June 21, 1984. Forthwith, Tan handed to Singsons a check for P200k.

In turn, appellants handed to appellee a xerox copy of the title and other papers pertaining to the property as well as an inventory of the furnishings of the house that are included in the sale. 3 days thereafter, Tan returned to Singsons' house together with her daughter Corazon and one Ines, to ask for a reduction of the price to Pl.75M and Singson spouses agreed, and so another receipt entitled "Agreement" was signed by the parties.

The very same day that Singsons received the earnest money of P 200k, they started paying their mortgage loan with the DBP to clear up the title of the subject property. DBP then executed a cancellation of mortgage, which was registered with the Registry of Property. Spouses also paid all the taxes due and in arrears on the property.

Appellee accompanied by her daughter Corazon and her lawyer, Atty. Vicente Quitoriano, went to Baguio City to inquir about the status of the property and Singsons told her that the DBP was taking some time processing their payments and preparing the deed of cancellation of the mortgage. On that occasion, the parties agreed on an extension of 2 weeks for the execution of the deed of sale. Here, the parties' respective versions on the matter parted ways. According to appellants, it was appellee who asked for the extension because she was not yet ready to pay the balance of P l.55M. On the other hand, appellee said that it was appellants who asked for it because the title of the property was not yet cleared. The court below believed appellee because on said date the DBP had not yet executed the deed of cancellation of mortgage, and no title has yet been issued for the driveway although already fully paid for.

Immediately, upon execution by the DBP of the deed of cancellation of mortgage, Singsons tried to contact Tan and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to no avail. Instead, appellants received a telegram from Atty. Quitoriano cancelling the sale and demanding the return of the P200k earnest

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money. Appellants countered with a letter of their lawyer, Atty. Tiofisto Rodes, calling on appellee to perform her part of the contract because "the title to the house and lot right now suffers no imperfection or doubt.

Tan then filed a case for recovery of sum of money with damages,

ISSUE: WON THERE WAS SUBSTANTIAL BREACH BY THE SPOUSES, MERITING RESCISSION OF THE CONTRACT?

HELD: NO. That the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him is clear from a reading of the Civil Code provisions. However, it is equally settled that, in the absence of a stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind it without resort to the courts, the petitioner's action in unilaterally terminating the contract in this case is unjustified.

Petitioner, in rescinding the sale, claims that a substantial breach of the obligation has been committed by the private respondents.

Nevertheless, the alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in clearing the title to the property, cannot be considered substantial enough to warrant rescission of the contract.

A thorough review of the records clearly indicates that private respondents had substantially complied with their undertaking of clearing the title to the property. It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the contract but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A court, in determining whether rescission is warranted, must exercise its discretion judiciously considering that the question of whether a breach of a contract is substantial depends upon the attendant circumstances.

In this case, it is true that as of the date set for the execution of the final deed of sale, the mortgage lien in favor of DBP annotated in the title has not yet been cancelled as it took DBP some time in processing the papers relative thereto. However, just a few days after, the cancellation of the DBP mortgage was entered by the Register of Deeds and duly noted on the title. Time not being of the essence in the agreement, a slight delay on the part of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the agreement, more so when the delay was not totally attributable to them.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. It is basic that the breach of a contract gives the aggrieved party under the law and even under general principles of fairness, the right to rescind the contract or to ask

for specific performance. Petitioner having failed to comply with her obligation of paying the balance of the purchase price despite demands by private respondents, private respondents were clearly entitled to their counterclaim for specific performance, as correctly adjudged by the respondent court.

One final point, the decision of the respondent Court of Appeals ordered execution by private respondents of the absolute deed of sale conveying the subject property to petitioner and payment by petitioner of the balance of the purchase price immediately upon finality of such judgment. However, under the third paragraph of Article 1191 of the Civil Code, the Court is given a discretionary power to allow a period within which a person in default may be permitted to perform his obligation. Considering the huge amount of money involved in this sale, the Court, in the exercise of its sound discretion, hereby fixes a period of 90 days within which petitioner shall pay the balance of the purchase price amounting to Pl.55M plus interest thereon at the legal rate from finality of this judgment until fully paid. After such payment has been made, the private respondents are ordered to sign and execute the necessary absolute deed of sale in favor of petitioner.

SPOUSES HENRY AND ELIZABETH CO V. C.A & ADORACION CUSTODIO

[G.R. No. 112330. August 17, 1999]FACTS: Mrs. Adoracion Custodio entered into a verbal contract with the Spouses Co for her purchase of the latter’s house and lot, for and in consideration of the sum of $100k. One week thereafter, and shortly before she left for the US, Custodio paid to the Spouses Co the amounts of $1,000 and P40k as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100k is payable in 2 payments $40k on December 4, 1984 and the balance of $60k on January 5, 1985. On January 25, 1985, although the period of payment had already expired, Custodio paid to the other petitioner Melody Co in the United States, the sum of $30k, as partial payment of the purchase price. Co’s counsel wrote a letter to Custodio demanding that she pay the balance of $70k and not receiving any response thereto, said lawyer wrote another letter to Custodio, informing her that she has lost her ‘option to purchase’ the property subject of this case and offered to sell her another property.

Counsel for Custodio then wrote Co’s counsel, informing him that Custodio ‘is now ready to pay the remaining balance to complete the sum of $100k, the agreed amount as selling price.’On October 24, 1986, plaintiff filed the instant complaint.”

RTC ruled in favor of Custodio and ordered the petitioner spouses Henry and Elizabeth Co to refund the amount of $30k in Custodio’s favor, and ordered that the earnest money of $1k and P40k be forfeited in favor of the Sps. Co.

ISSUE: WON THE ORDER TO RETURN THE $30K PAID BY CUSTODIO PURSUANT TO THE “OPTION” GRANTED, WAS PROPER?

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HELD: YES. The COs’ main argument is that CUSTODIO lost her “option” over the Beata property and her failure to exercise said option resulted in the forfeiture of any amounts paid by her.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.

An option contract conforms with the second paragraph of Article 1479 of the Civil Code which reads: “An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.”

However, the letter sent by the Cos through their lawyer to Custodio reveals that the parties entered into a perfected contract of sale and not an option contract. A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.

From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts.

The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. Custodio’s offer to purchase the Beata property, subject of the sale at a price of $100k was accepted by the Cos. Even the manner of payment of the price was set forth in the letter. Earnest money in the amounts of US$1k and P40k was already received by the Cos. Under Article 1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase price and proof of the perfection of the sale.

Despite the fact that CUSTODIO’s failure to pay the amounts of $40k and $60k on or before December 4, 1984 and January 5, 1985 respectively was a breach of her obligation under Article 1191, the Cos did not sue for either specific performance or rescission of the contract. The Cos were of the mistaken belief that Custodio had lost her “option” over the Beata property when she failed to pay the remaining balance of $70k. In the absence of an express stipulation authorizing the sellers to extrajudicially rescind the contract of sale, the Cos cannot unilaterally and extrajudicially rescind the contract of sale. Accordingly, Custodio acted well within her rights when she attempted to pay the remaining balance of $70k to complete the sum owed of $100k as the contract was still subsisting at that time. When the Cos refused to accept said payment and to deliver the Beata property, Custodio immediately sued for the rescission of the contract of sale and prayed for the return of the $30k she had initially paid.

Under Article 1385 of the Civil Code, rescission creates the obligation to return the things which were the object of the contract but such rescission can only be carried out when the one who demands rescission can return whatever he may be obliged to restore. This principle has been applied to rescission

of reciprocal obligations under Article 1191 of the Civil Code. The Court of Appeals therefore did not err in ordering the COS to return the amount of $30k to Custodio after ordering the rescission of the contract of sale over the Beata property.

Since it has been shown that Custodio was not in default, was willing to perform part of the contract while the Cos were not, rescission of the contract is in order. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him, (Article 1191). Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest (Article 1385). In the case at bar, the property involved has not been delivered to the appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be returned to the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in their former situations.

PALAY INC. V. CLAVEG.R. No. L-56076 September 21, 1983

Facts: On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned by the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The sale price was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and monthly instalments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly instalment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all instalments paid.

Respondent Dumpit paid the down payment and several instalments amounting to P13,722.50 with the last payment was made on December 5, 1967 for instalments up to September 1967. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts and sought consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold.

Respondent filed a letter complaint with the National Housing Authority (NHA) questioning the validity of the rescission. The NHA held that the rescission is void in the absence of either judicial or notarial demand. Palay, Inc. and Onstott in his capacity as President of the corporation, jointly and severally, was ordered to refund Dumpit the amount paid plus 12% interest from the filing of the complaint. Petitioners' MR was denied by the NHA. Respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the present petition.

Issue: W/N demand is necessary to rescind a contract

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Ruling: As held in previous jurisprudence, the judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. A written notice is indispensable to inform the defaulter of the rescission. Hence, the resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution (as held in the U.P. vs. Angeles case). The act of a party in treating a contract as cancelled should be made known to the other. Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Instalment Payments,” emphasized the indispensability of notice of cancellation to the buyer when it specifically provided:Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. (Emphasis supplied).

Moreover, there was no waiver on the part of the private respondent of his right to be notified under paragraph 6 of the contract since it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. Finally, it is a matter of public policy to protect buyers of real estate on instalment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on instalment payments.As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot but since the property had already been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the refund of instalments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another.

Onstott not personally liableOnstott was made liable because he was then the President of the corporation and the controlling stockholder but there was no sufficient proof that he used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. Finally, there are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold it to a third person.Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.

CANNU vs. GALANGG.R. No. 139523 May 26, 2005

Facts: Respondent spouses Gil and Fernandina Galang agreed to sell their house and lot subject to mortgage with the National Home Mortgage Finance Corp (NHMFC).

Petitioner Leticia Cannu agreed to buy the property for 120K & to assume the mortgage obligations with the NHMFC. A deed of sale & assumption of mortgage was executed & petitioners immediately took possession & occupied the house & lot.

Despite requests from Adelina R. Timbang (attorney-in-fact) and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so.

Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233K as full payment of her remaining mortgage loan with NHMFC.

8 yrs had already elapsed and petitioners have not yet complied with the obligation.

The RTC ordered the deed of sale with Assumption of Mortgage as rescinded as well as ordered mutual restitution.

Issue:1. WON the breach of obligation is substantial? YES2. WON respondent waived their right of rescission? NO3. WON rescission is subsidiary? NO

Held:

1. We consider this breach to be substantial. Cannu failed to comply with her obligation to pay the monthly amortizations due on the mortgage. Also, the tender made by Cannu only after the filing of this case cannot be considered as an effective mode of payment.

Resolution of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. In the case at bar, Cannu’s failure to pay the remaining balance of 45K to be substantial. To give petitioners additional time to comply with their obligation will be putting premium on their blatant non-compliance of their obligation. They had all the time to do what was required of them (i.e., pay the P45,000.00 balance and to properly assume the mortgage loan with the NHMFC), but still they failed to comply. Despite demands for them to pay the balance, no payments were made.

Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement.

2. The fact that Galang accepted payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Galang accepted the installment payments as an accommodation to

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petitioners since they kept on promising they would pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price was not yet fully paid, Galang exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners stopped paying that respondents-spouses moved to exercise their right of rescission.

3. The provision that applies in the case at bar is Article 1191. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 138148 of the Civil Code.

The rescission in this case is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action. The rescission in 1191 is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his.

MARGARITA SURIA V. I.A.C.G.R. No. 73893 June 30, 1987

FACTS: Respondents are the owners of a parcel of land. They entered into a contract denominated as DEED OF SALE WITH MORTGAGE, with herein petitioner Suria. They allege that the petitioners violated the terms and conditions of the contract by failing to pay the stipulated instalments and in fact only one installment due in July 1975 (paid very late in the month of September, 1975) was made. Respondents claim that repeated verbal and written demands were made by them upon the petitioners for the payment of the installments, but petitioner for no justifiable reason failed to comply. Petitioners filed a motion to disniiss complaint, alleging that respondents are not entitled to the subsidiary remedy of rescission because of the presence of remedy of foreclosure in the Deed of Sale with Mortgage

ISSUE: WON RESCISSION IS PROPER?

HELD: NO. The respondent court rejected the petitioners' reliance on paragraph (H) of the contract which grants to the vendors mortgagees the right to foreclose "in the event of the failure of the vendees-mortgagors to comply with any provisions of this mortgage." According to the appellate court, this stipulation merely recognizes the right of the vendors to foreclose and realize on the mortgage but does not preclude them from availing of other remedies under the law, such as rescission of contract and damages under Articles 1191 and 1170 of the Civil Code in relation to Republic Act No. 6552. The appellate court committed reversible error. Art. 1191 on reciprocal obligations is not applicable under the facts of this case.

REYES Vs TUPARAN1 June 2011

FACTS: Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent, Victoria Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from being a tenant, respondent also invested in

petitioner's financing business. On June 20, 1988, Petitioner borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to liquidate her loan and finance her business. Respondent offered to conditionally buy the real properties for P4.2 Million on installment basis without interest and to assume the bank loan. The conditions are the following:

1. Sale will be cancelled if the petitioner can find a buyer of said properties for the amount of P6.5 Million within the next three months. All payments made by the respondent to the petitioner and the bank will be refunded to Tuparan with an additional 6% monthly interest.

2. Petitioner Reyes will continue using the space occupied by her drug store without rentals for the duration of the installment payments.

3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full payment has been made by the defendant.

4. The defendant will undertake the renewal and payment of the fire insurance policies of the 2 buildings, following the expiration of the current policies, up to the time the respondent has fully paid the purchase price.

They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank approved on the condition that the petitioner would remain as co-maker of the mortgage obligation.

Petitioner's Contention

Under their Deed of Conditional Sale, the respondent is obliged to pay a lump sum of P1.2 Million in three fixed installments. Respondent, however defaulted in the payment of the installments. To compensate for her delayed payments, respondent agreed to pay petitioner monthly interest. But again, respondent failed to fulfill this obligation. The petitioner further alleged that despite her success in finding another buyer according to their conditional sale agreement, respondent refused to cancel their transaction. The respondent also neglected to renew the fire insurance policy of the buildings.

Respondent's Answer

Respondent alleges that the deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the performance of the obligation therein did not depend upon a future and uncertain event. She also averred that she was able to fully pay the loan and secure the release of the mortgage. Since she also paid more than the P4.2 Million purchase price, rescission could not be resorted to since the parties could no longer be restored to their original positions.

ISSUE: Can the transaction or obligation be rescinded given that the conditions were not satisfied?

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RULING(S):

RTC: The deed of conditional sale was a contract to sell. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her non-payment in full of the purchase price “may not be considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the contract.” The RTC believed that respondent showed her sincerity and willingness to settle her obligation. Hence, it would be more equitable to give respondent a chance to pay the balance plus interest within a given period of time. The court ordered the respondent to pay the petitioner the unpaid balance of the purchase price.

CA: The CA agreed with the RTC that the remedy of rescission could not apply because the respondent’s failure to pay the petitioner the balance of the purchase price in the total amount of ₱805,000.00 was not a breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). Since respondent had already paid a substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest.

SC: The SC agrees that the conditional sale is a contract to sell. The title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. The court agrees that a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. The court considered fulfillment of 20% of the purchase price is NOT a substantial breach. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstance. As for the 6% interest, petitioner failed to substantiate her claim that the respondent committed to pay it. Petition is denied.

RELEVANT JURISPRUDENCE

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

In a contract to sell, the seller explicitly reserves the transfer of title to the prospective buyer. The first element (in the contract of sale) is missing. There is no consent yet to the transfer of ownership of the property. (Nabus v Joaquin). The payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. (Chua v CA)

Art. 1191 does not apply in a contract to sell since the breach contemplated in said article is an obligor’s failure to comply with an existing obligation. It does not apply in the failure of a condition to make that obligation arise.

CHUA vs. VICTORIOG.R. No. 157568 May 18, 2004

Facts:

Respondent Mutya Victorio is the owner of the property in Panganiban Street, Santiago, Isabela where petitioners Chua and Yong Tian are lessees.

In 1990, Victorio effected an ejectment suit against the petitioners who were not fulfilling their obligations as lessees, but a compromise agreement supervened this. In 1994, Victorio raised the rentals and petitioners did not comply with such payments. She then again moved for an ejectment suit. The RTC and CA ordered respondents to vacate the property. But this did not happen because respondents agreed as to the new rentals and there again continued occupation of the property.

In 1998, Victorio wanted to increase again the rentals. They again failed to pay such rents and respondent filed again for ejectment suit.

Petitioners impugn such raises in rents, invoking the provisions of the compromise agreement that the two parties executed sometime in 1991. They contend that there can be no increase of more than 25% in a span of 4 years.

Issue:1. WON the petitioners can invoke the provisions of the compromise agreement in order to hold respondent stopped from making raises in leases NO2. WON Victorio may rescind the contract of lease? YES

Held:

1. The compromise agreement executed in 1991 is without moment as to petitioner’s claim.Accordingly, in 1994, the juridical relation between the parties was severed when the CA ordered ejectment of the petitioners. The lessor’s acceptance of the increased rentals in 1996 did not have the effect of reviving the earlier contract of lease. Upon the moment of acquiescence by respondents to the increased amount, an entirely new contract of lease was entered into, forging an entirely new juridical relation. Since payment of rent was made on a monthly basis, and pursuant to Article 1687 of the Civil Code, the period of this lease

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contract was monthly. Upon the expiration of every month, the lessor could increase the rents and demand that the lessee vacate the premises upon non-compliance with increased terms.

2. The right of rescission is statutorily recognized in reciprocal obligations, such as contracts of lease. In addition to the general remedy of rescission granted under Article 1191 of the Civil Code, there is an independent provision granting the remedy of rescission for breach of any of the lessor or lessee’s statutory obligations. Under Article 1659 of the Civil Code, the aggrieved party may, at his option, ask for (1) the rescission of the contract; (2) rescission and indemnification for damages; or (3) only indemnification for damages, allowing the contract to remain in force.

Payment of the rent is one of a lessee’s statutory obligations. The law grants the lessor the option of extrajudicially terminating the contract of lease by simply serving a written notice upon the lessee. This extrajudicial termination has the same effect as rescission. Rescission of lease contracts under Article 1659 of the Civil Code does not require an independent action, unlike resolution of reciprocal obligations under Article 1191 of said Code.

 UY V. COURT OF APPEALS

G.R. No. 120465, 09 September 1999

FACTS: Petitioners Uy and Roxas are agents authorized to sell eight parcels of land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands located in Benguet to respondent NHA to be utilized and developed as a housing project. On February 14, 1989, the NHA Board approved the acquisition of said lands, at the cost of P23.87M, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels, however, only five were paid for by the NHA because of the report it received from the Land Geosciences Bureau of the DENR that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project. In 1991, the NHA cancelled the sale of the 3 parcels of land and subsequently offered the amount of P1.225 million to the landowners as daños perjuicios. On9 March 1992, petitioners filed before the QC RTC a Complaint for Damages. The RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded damages to plaintiffs in the same amount offered by NHA to petitioners as damages. Upon appeal by petitioners, the CA held that since there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages. Hence, this petition.

ISSUES: Was there a legal basis for the rescission of the sale of the 3 parcels of land? And granting arguendo that NHA has legal basis to rescind, does the petitioner have the right to claim for damages

HELD: There was no “rescission” per se. What is involved is a cancellation based on the negation of the cause of the contract.(2) [Irrelevant] No. Petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui

under the contracts of sale, they do not, under substantive law, possess the right they seek to enforce.

RATIO: (1) Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Art. 1191. The right of rescission or, more accurately, resolution, is predicated on a breach of faith by the other party.NHA did not have the right to rescind for the other parties to the contract, the vendors, did not commit any breach of their obligation. The cancellation was based on the negation of the cause arising from the realization that the lands, which were the object of the sale, were not suitable for housing. Cause, which is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a party which does not affect the other party. In a contract of sale of a piece of land, such as in this case, the cause of the vendor (petitioners' principals) in entering into the contract is to obtain the price. For the vendee, NHA, it is the acquisition of the land. The motive of the NHA, on the other hand, is to use said lands for housing. Ordinarily, a party's motives for entering into the contract do not affect the contract. However, when the motive predetermines the cause, the motive may be regarded as the cause. In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the lands not suitable for housing.

In other words, the quality of the land was an implied condition for the NHA to enter into the contract. On NHA’s part, therefore, the motive was the cause for its being a party to the sale. The findings of the Land Geosciences Bureau were sufficient for the cancellation of the sale NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. Article 1318 of the Civil Code enumerates the essential requisites of a contract: (1) Consent of the parties; (2)Subject matter; and (3) Cause of the obligation which is established. Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they would not be entitled to any award of damages.

PRYCE CORP V PAGCOR

6 May 2005

FACTS: Pryce Corp made representations with PAGCOR on the possibility of setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City (CDO). Parties executed a contract of lease on November 11, 1992. The contract had a term of 3 years beginning December 1, 1992 and ending on November 30, 1995. The Sangguniang Panlungsod of CDO passed resolutions and ordinances prohibiting the establishment of a gambling casino in the city. The court subsequently ruled that the ordinances were unconstitutional. Despite the absence of legal obstacles, PAGCOR's operations were interrupted by demonstrations and public rallies. PAGCOR decided to stop its operations upon advice from the Office of the President. PAGCOR asked for a pre-termination of the contract and demanded a refund of the reimbursable rent deposits from Pryce Corp. Pryce Corp is instead demanding damages pursuant to Art 20 of their contract.

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ISSUE: Whether or not Pryce Corp is entitled to the claim of future rentals for the unexpired period of the contract of lease.

RULING: The actions of the petitioner show that it never intended to rescind the lease contract, thus there is not need to mutual restitution. There was termination and not rescission (resolution) of the contract.

Normally, Pryce Corp is not entitled to the collection of future rentals since the termination of the contract releases PAGCOR from its obligations. But Pryce Corp can recover or claim rentals corresponding to the remaining term of the lease pursuant to the contract's penal clause. Such stipulation is valid and since the parties have voluntarily bound themselves to such compliance, the court has no choice but to enforce the contract. However, the court reduced the penalty to Php687,289.50 since the original claim of Php7,037,835.40 is highly iniquitous.

SOLID HOMES vs. TAN465 SCRA 570 (Art. 1169)

Facts: On April 7,1980, Solid Homes sold to spouses Uy a subdivision lot and thereafter spouses Uy sold the same lot to spouses Tan.

From then on, respondents visited their property a number of times, only to find out the sad state of development thereat. There was no infrastructure & utility system of water. Worse, squatters occupy their lot & its surrounding areas.On Dec. 18,1995, respondents demanded on petitioner to provide the needed utility system & clear the area of squatters by the end of January 1996.

Having received no reply from petitioner, Respondent filed with the housing & Land Use Regulatory Board (HLURB) a complaint for specific performance which rendered judgment in favor of respondents.

ISSUE: WON Respondent’s right to bring the instant case against petitioner has already prescribed? NOWON in the event respondents opt to rescind the contract, should petitioner pay them the price they paid for the lot plus interest or the current market value thereof? CURRENT MARKET VALUE.

HELD: Petitioner argued that the 10 yrs prescriptive period should be reckoned from April 7, 1980 when they sold the lot to spouses Uy or at the latest on February 1985. The SC disagree because it is from the time an act is performed or an omission incurred which is violative of plaintiffs right, that signals the accrual of a case of action.

Thus, the period of prescription of any action is reckoned only from the date the cause of action accrued. And a cause of action arises when that which should have been done is not done, or that which should not have been done is done.In law, a cause of action exists when the following requisites concur, to wit: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2)an obligation on the part on the defendant to respect such right;

and (3) an act or omission on the part of such defendant violative of the right of the plaintiff.

In this case, it was only on Dec. 18, 1995 when respondent made a written demand upon petitioner to construct which are unquestionably in the nature of an obligation to do.

Under Art. 1169, party who is under obligation to do something incurs delay only from the time the obligee demands either judicially or extra judicially for the fulfillment of obligation.

In this case, respondent made their written demand upon petitioner to perform what is incumbent upon it only on Dec.18, 1995, it was only from that date when 10 yrs prescriptive period commenced to run.

Equity and justice dictate that the injured party should be paid the market value, otherwise, respondent would enrich themselves at the expense of the lot owners when they sell the same lot at the present market value.

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. 113

Art. 1193-1197

ROXAS vs ALCANTARASCRA 21, March 25, 1982

G.R. No. L-49659

FACTS: This is an ejectment case which commenced in the Municipal Court of Tarlac, Tarlac filed by herein petitioner Ruben Roxas, as lessor, against private respondent Ricardo Sy, as lessee. On October 16, 1967 the petitioner and the respondent entered into a lease contract which the latter agreed to occupy a two storey concrete building for ten (10) years with a monthly rental of P550.00 per month, for his business named U.S. Hardware and Construction Material. In the middle life of the contract the petitioner sent a letter-request to increase the rental of the said building, but the defendant, in strict adherence to the contract, declined to which plaintiff evidently succumbed. On august 11, 1977 wrote again a letter reminding the defendant the upcoming termination of the lease contract and it will expiration or beginning on October 1977 in addition the rental will increase from P550.00 to P4,000.00 a month with three (3) years to be paid in advance together with a yearly increase of 15% of the same rental. With the indecision of the defendant the petitioner sent him again a letter demanding to vacate the premises within five (5) days from receipt.

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On appeal by both parties, the Court of First Instance of Tarlac, Branch I, rendered the decision now before Us for review which modified the judgment of the Municipal Court by ordering herein respondent-lessee Sy to pay to herein petitioner-lessor Roxas "the amount of P1,500.00 monthly rental for ten (10) years effective October, 1977.

ISSUE: Whether or not the petitioner has the right to increase the rental of the said premises.

HELD: The rule is settled that the owner of the land leased has the right not only to terminate the lease at the expiration of the term, but also to demand a new rate of rent. The tenant or lessee has the option either to accept the new rent or vacate the premises. (Iturralde vs. Alfonso 7 Phil. 576; Iturralde vs. Evangelista, 7 Phil., 588; Iturralde vs. Magcauas, 9 Phil. 599; Cortez vs. Ramos, 46 Phil. 189). As (lessees), after the termination of their lease, refused either to pay the new rent or to vacate the lots after the termination of their lease, they have evidently become deforciants, and can be ousted judicially without the need of a demand. (Co Tiamco vs. Diaz, 75 Phil., 672; Art. 1669, new Civil Code).

Macasaet vs Macasaet G.R. 154391 – 92 September 30, 2004

Facts:Petitioners Ismael and Teresita Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives. Ismael is the son of respondents, and Teresita is his wife.

The parents alleged that they were the owners of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-78521 and T-103141, situated in Banay-banay, Lipa City; that by way of a verbal lease agreement, their son and his wife occupied these lots in March 1992 and used them as their residence and the situs of their construction business.

Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that their parents had invited them to construct their residence and business on the subject lots. They added that it was the policy of their parents to allot the the land owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot covered by TCT no. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by TCT-78521 was allegedly given to petitioners as payment for construction materials used in the renovation of their parent’s house.

On December 10, 1997, the parents filed with the MTCC of Lipa City an ejectment suit against their children for failure to pay the agreed rental despite repeated demands.

The MTCC ruled in favor of the parents and ordered the children to vacate the premises. It opined that the children had occupied the lots, not by virtue of a verbal lease agreement but by tolerance of the parents. As their stay was by mere tolerance, the children were necessarily bound by an implied promise to vacate the lots upon demand. The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that succcesional rights were

inchoate. It disbelieved that the other parcel had been given as payment for construction material.

On appeal, the RTC upheld the findings of the MTCC. RTC allowed the parents to appropriate the building and other improvements introduced by the children, after payment by indemnity provided for bt Article 448 in relation to Article 546 and 548 of the Civil Code.

On an appeal by both parties to the CA which were consolidated, the CA sustained the finding of the lower courts that the children had been occupying the subject lots only by the tolerance of their parent. Thus, possession of the subject lots by the children became illegal upon their receipt of letter to vacate it. The CA modified the RTC Decision by declaring that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same Code, the children had the right to be reimbursed for one half of the value of the improvements made.

Not satisfied with the CA’s ruling, the children brought the case to the Supreme Court.

Issues: WON the children can be ejected

Based on the parent’s love reasons for gratuitously allowing the children to use the lots, it can be safely concluded that the agreement subsisted as long as the parents and the children benefitted from the arrangement. Effectively, there is a resolutory condition existing between the parties occurs – like a change of ownership, necessity, death of either party or unresolved conflict or animosity – the agreement maybe deemed terminated. When persistent conflict and animosity overtook the love and solidarity between the parents and the children, the purpose of the agreement ceased. The children had any cause for continued possession of the lots. Their right to use became untenable. It ceased upon their receipt of the notice to vacate. And because they refused to heed the demand, ejectment was the proper remedy against them.

The children had no right to retain possession. The right of the children to inherit from their parents is merely inchoate and is vested only upon the latter’s demise. Rights of succession are transmitted only from the moment of death of the decedent. Assuming that there was an “allotment” of inheritance, ownership nonetheless remained with the parents.

The children’s allegation that the indebtness of their parent to them has been paid through dation cannot be given credence as there were no sufficient proof of a settlement or contract of dation to settle the alleged debt, and is inconsistent of the separate action by the children to recover the same debt.

As a rule, the right of ownership carries with it the right of possession.

Rights of a Builder in Good faith

As applied to the present case, accession refers to the right of owner to everything that is incorporated or attached to the property. Accession industrial – building, planting and sowing

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on an immovable – is governed by Articles 445 to 456 of the Civil Code.

Art. 1207-1222

MARSMAN DRYSDALE LAND, INC., VS PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC.,

June 29, 2010 G.R. No. 183374

Facts: Marsman Drysdale Land Inc & Gotesco Philippines Inc. entered into a joint venture agreement. Marsman is obliged to deliver the property in a buildable condition, which means that the old structures are to be demolished, while Gotesco is obliged to provide cash of P4,200,000. As stipulated in the contract, Masrman shall not be obligated to fund the project and that all funds advanced by the parties (or by 3rd parties) shall be paid by the joint venture (JV). The JV engaged the services of Philippine Geoanalytics Inc (PGI) to provide geotechnical engineering. When PGI billed the JV for its services, the JV failed to pay its obligations. Marsman contends that Gotesco is liable since the latter was solely liable for the monetary expenses. Gotesco protests that PGI had yet to complete its services in the contract. Marsman also failed to clear the property, which prevented PGI from completing its work. The RTC ordered Gotesco and Marsman to pay PGI jointly, while Gotesco is to reimburse Marsman of P535,353.50, representing PGI's claims. The CA affirmed the decision of the lower court but it lowered the reimbursed amount by 50%. The CA stated that the JV cannot avoid payment of 3rd persons (PGI) since contracts cannot favor or prejudice a 3rd person.

Issue: Who bears liabiltiy to pay PGI for its claims?

Ruling: The SC finds Marsman and Gotesco jointly liable. The only time the JVA may be made to apply in the present petitions is when the liability of the JV would set in. The JVA is governed by the rules of partnership, which means that each member or party is proportionately liable according to its share or contribution in the partnership. The contract between the JV and PGI is separate and distinct from the JVA entered by Gotesco and Marsman. PGI was never a party but another party in the grotechnical engineering service contract. The SC finds no need to reimburse the 50% of the sum due to PGI since that would be unjust enrichment on Marsman's part.

EUSEBIO GONZALES Versus PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO and ROBERTO

NOCEDAFeb. 23, 2011 G.R. No. 180257

FACTS: This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision dated October 22, 2007 of the Court of Appeals.

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. In October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes. To secure the loans,

a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans.

However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid.

ISSUE: Whether or not that the liability arising from PROMISSORY NOTES pertained to borrower PANLILIO Spouse and not appellant as recognized and acknowledge by RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK).

HELD: A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three promissory notes. Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. Second, the records of PCIB indeed bear out, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio. The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilio—as shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues—is beside the point. Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, “For value received, the undersigned (the “BORROWER”) jointly and severally promise to pay x x x.” Solidary liability cannot be presumed but must be established by law or contract. Article 1207 of the Civil Code pertinently states that “there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity.” This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good faith.

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PHILIPPINE NATIONAL BANK vs. INDEPENDENT PLANTERS ASSOCIATION, INC., et al

May 16, 1983 G.R. No. L-28046

FACTS: Appeal by PNB from the Order of the defunct Court of First Instance of Manila dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on the ground that one of the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had presented its evidence) and therefore the complaint, being a money claim based on contract, should be prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads: SEC. 6. Solidary obligation of decedent. The obligation of the decedent is solidary with another debtor, the claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution from the other debtor. In a joint obligation of the decedent, the claim shall be confined to the portion belonging to him.

The appellant assails the order of dismissal, invoking its right of recourse against one, some or all of its solidary debtors under Article 1216 of the Civil Code — ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

ISSUE: Whether in an action for collection of a sum of money based on contract against all the solidary debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants.

HELD: It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient for the protection of his interests; and if, after instituting a collection suit based on contract against some or all of them and, during its pendency, one of the defendants dies, the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants.Similarly, in PNB vs. Asuncion, A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor from proceeding against the surviving solidary debtors. Said provision merely sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim against the estate of the deceased solidary, debtor. It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of them simultaneously.' The choice is undoubtedly left to the solidary, creditor to determine against whom he will enforce collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor . . . Section 6, Rule 86 of the

Revised Rules of Court cannot be made to prevail over Article 1216 of the New Civil Code, the former being merely procedural, while the latter, substantive.

MIGUEL PEREZ RUBIO vs. COURT OF APPEALS, ET AL.,153 SCRA 183 (1983)

Before us for reconsideration are the various motions for reconsideration of the March 12, 1986 decision, the dispositive portion of which reads:WHEREFORE, the petition is GRANTED. The decision of the former Court of Appeals is hereby REVERSED and SET ASIDE. The respondents Phillips and Sons and the Phillips spouses are declared to be jointly and severally liable to the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) percent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13, 1963. Costs against the respondents. (p. 869, rollo)

The petitioner asks that the decision be reconsidered insofar as it makes no finding against respondent Phillips for moral and exemplary damages as well as attorney's fees and to the extent that the same decision absolves from joint and solidary liability respondents Manufacturers Bank and Trust Company (hereinafter called MBTC), Hacienda Benito (hereinafter called HB, and Victoria Valley Development Corporation (hereinafter called VVDC).

The petitioner restates his position that the respondents conspired amongst themselves to put the properties of Hacienda Benito beyond his reach and thus make it impossible for him to collect the sum of P4,250,000.00 still unpaid on the purchase price of his shares of stock in Hacienda Benito.

It may be recalled that on June 5, 1965, respondent Hacienda Benito, Inc., represented by Robert O. Phillips, president and Victoria Valley Development Corporation which was in the process of incorporation and represented by Alfonso Yuchengco with the conformity of Manufacturers Bank and Trust Company represented by Galicano Calapatia executed a "MEMORANDUM AGREEMENT. (Exhibit "31" — Miguel Perez Rubio).

The thrust of the agreement is that respondent VVDC will acquire under conditions stated therein 134.1668 hectares of land including account receivables belonging to respondent HBI Moreover, it was specifically provided in the agreement that " ... HB warrants that the properties to be acquired by VVDC are not subject to any other obligations, liens, encumbrances, charges or claims of whatever nature than those mentioned herein, including real estate taxes up to the first semester of 1965." (Memorandum Agreement, supra, pp. 3-4).

Included in this 134.1668 hectares are the 78 hectares mortgaged to MBTC. These parcels of land were mortgaged to MBTC to secure obligation and liabilities incurred by HBI and other affiliate companies owned by the Phillips. Of the P7,419,130.19 amount due from these companies, only P1,456,276.48 was the liability of HBI.

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Under this agreement, MBTC will institute judicial foreclosure of mortgage after which all the companies would confess judgment and enter into a compromise agreement in full satisfaction of the claim of MBTC under the several deeds of mortgage. It was further provided that HBI will convey all the 78 hectares in favor of MBTC after which VVDC will purchase from MBTC the same parcels of land together with the receivables. A final proviso was to the effect that VVDC and HBI will enter into a separate agreement whereby HBI will expressly assign in favor of VVDC its right to redeem the properties foreclosed by MBTC.

The consideration of the agreement amounted to Pl1,621,889.11 which VVDC agreed to assume in order to settle the obligations of HBI and the other Phillips companies.

The Memorandum Agreement was executed under the following factual background: (1) Respondent ROPSI had still to pay its outstanding P4,250.000.00 debt to the petitioner as the result of the latter's sale of his shares of stock of HBI; (2) Negotiations had broken down between the Phillips spouses, ROPSI and Alfonso Yuchengco as regards the sale of the shares of stock of Hacienda Benito, Inc.; and (3) Petitioner had threatened to rescind the contract of sale of his shares of stock of Hacienda Benito.

Obviously, Hacienda Benito through Robert O. Phillips, and VVDC through Alfonso Yuchengco were fully aware of the petitioner's still being unpaid the P4,250,000.00 balance on his shares of stocks of Hacienda Benito sold to ROPSI. MBTC, too, because of the unrebutted evidence that its top officers are also the top officers of VVDC is conclusively presumed to know the petitioner's predicament. These same personalities figures prominently in the negotiations involving the shares of stock of Hacienda Benito including the unpaid P4,250,000.00 collectibles of the petitioner from the ROPSI as full payment for the sale of his shares of stock in Hacienda Benito.

Hence, the scheme provided for in the Memorandum Agreement wherein all the properties of Hacienda Benito will be ultimately transferred to VVDC without any mention at all and completely ignoring the petitioner's interest in said Hacienda placed the petitioner's rightful claim to the payment of his shares of stock in clear jeopardy.

The fact that the Memorandum Agreement was not fully implemented is immaterial. The intent to defraud the petitioner and the damage which led to the filing of this case was present in the execution of the Memorandum Agreement.

Therefore, an award for damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC.

Article 19 of the New Civil Code provides that:

Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

while Article 20 thereof provides that:

Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for the same.

Parenthetically, these respondents did not observe honesty and good faith in dealing with the rightful claim of the petitioner to the still unpaid P4,250,000.00 collectibles from ROPSI. The respondents' acts are tortious pursuant to Articles 19 and 20 of the New Civil Code. Hence, these respondents are obliged to pay for the damage done to the petitioner. (See Article 2176, New Civil Code).

In the case at bar, the tortious and fraudulent scheme of the private respondents made it impossible for the petitioner to collect the P4,250,000.00 still unpaid purchase price of his shares of stock in Hacienda Benito. All the respondents are, therefore, solidarity liable for these actual damages suffered by the petitioner. (See Article 2194 of the New Civil Code).

Consequently, we rule that Hacienda Benito, VVDC and MBTC together with ROPSI and the Phillips spouses are solidarity liable to the petitioner for the outstanding debt of ROPSI in the amount of P14,250,000.00 with interest at the rate of eight (8 % per cent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13,1963.

Also, an award for moral damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC. The planned transfer of all the assets of Hacienda Benito to VVDC which the respondents sought to accomplish through the Memorandum Agreement created further anguish and anxiety on the part of the petitioner who at that time was still trying to collect the P4,250,000.00 full payment of his shares of stock in Hacienda Benito.

Considering the circumstances under which the respondents executed the Memorandum Agreement and the social status of the parties herein, the amount of P100,000.00 as moral damages in favor of the petitioner is awarded.

However, we find no reasonable ground to set aside our findings in the March 12, 1986 decision that respondents Phillips spouses are not liable for moral and exemplary damages and attorney's fees.

Juan Miguel Phillips also filed a motion to intervene in the instant case stating therein that Robert O. Phillips had died leaving as heirs respondent Magdalena Ysmael Phillips and four legitimate children; that he is one of the four (4) children; that as such legal heir, he has a legal interest in the subject matter of the instant case and will be favored or prejudiced in his interest depending on the final outcome of the instant case. He cites Rule 12, Section 2, Rules of Court.

The right of the movant-intervenor proceeds only from the fact of heirship. Hence his interest to specific portions of the property of the deceased is, if not conjectural, stin contingent and expectant. At this point, he cannot specify any property nor segregate any as his own before the liquidation of the estate is completed. This is in accordance with Article 657 of the Civil Code (Article 777, Civil Code) which provides that the rights to succession of a person are transmitted from the moment of death.

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Thus, the heir has the right to impugn the validity of the decedent's transaction only when he is made answerable or when his specific right or property would be affected thereby. The instant case is a personal action against Robert O. Phillips, filed while he was still alive. It is Robert O. Phillips and his estate which are sought to be made liable, not the movant-intervenor or any of his legal heirs.

WHEREFORE, the petitioners motion for reconsideration is GRANTED in that respondent's Hacienda Benito, Victoria Valley Development Corporation and Manufacturers Bank and Trust Company (now Filipinas Bank) together with respondents Robert 0. Phillips & Sons and the Phillips spouses are declared to be jointly and severally liable to the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) per cent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13, 1963; that respondents Hacienda Benito, Inc., Victoria Valley Development Corporation and Manufacturers Bank and Trust Company (now Filipinas Bank) are jointly and severally liable to the petitioner in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages. Juan Miguel Phillips' motion for reconsideration is DENIED for lack of merit. The motions for reconsideration filed by Robert O. Phillips and Sons, Magdalena Ysmael Phillips and the heirs of Robert O. Phillips, Hacienda Benito, Inc., and Manufacturers Bank and Trust Company are DENIED it appearing that no new substantial reasons have been invoked to warrant reconsideration of the said decision as far as these parties' motions are concerned, and this DENIAL is FINAL.

SO ORDERED.

Art. 1226-1230

FILINVEST vs. CAG.R. No. 115902. 27 Sept 1995

Facts: On Aug 26, 1978 FILINVEST awarde to the defendant PACIFIC the development of the residential subdivision consisting of two lands located in Payatas, QC. PACIFIC issued two surety bonds issued by PHILAMGEN. PACIFIC failed to finish the contracted work, FILINVEST intends to take over the project and hold defendant liable for damages.On October 26, plaintiff submitted its claim against PHILAMGEN under its performance and guarantee bond but PHILAMGEN refused to acknowledge its liability for the single reason that its principal, defendant pacific, refused to acknowledge liability therefore. Defendant said that the failure to finish the contracted work was due to the weather, and the grant of extension of the work is a waiver to claim any damages. PHILAMGEN contends that the various amendments made on the principal contract and the deviation in the implementation thereof which were resorted to by plaintiff and PACIFIC w/o its consent have automatically released the latter from any liability. The tc dismissed the complaint, basing on the commissioner report. CA affirmed.

Issue: WON the liquidated damages agrees upon by the parties should be reduced.

Held: Decision of CA AFFIRMED.

Ratio: Art. 1226 in obligations with a penal clause, the penalty of shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit, as long as they are not contrary to law. But the courts may equitably reduce the penalty in two instances, first,if the principal obligation has been irregularly complied with and second, when it is iniquitous or unconscionable.

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