ART.

1171-1173

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.

Saludaga vs FEU
30 April 2008

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.

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), Galaxys 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 abovementioned 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.

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

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

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 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. FEUs 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
attorneys 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.

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

(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, MERALCOs 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 MERALCOs 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
MERALCOs 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 CAs
award of attorneys fees should likewise be
deleted, as pursuant to Article 2208 of the Civil
Code of which the grounds were not present.

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."4chanroblesvirtuallawlibrary

ART. 1174
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., Respondents
G.R. No. 117190. January 2, 1997

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

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

petitioner's claim of force majeure and ordered the

latter to reconstruct the windmill in accordance
with the stipulated one-year guaranty.

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.

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 -

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.

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.

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."7chanroblesvirtuallawlibrary

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.

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

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.
F. O. B. Laguna

the deep well was part of the windmill construction

and that its payment would come from the
contract price of P60,000.00.

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.

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."8chanroblesvirtuallawlibrary

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 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.

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.

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.

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.

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.

parties who are otherwise liable because of

their negligence?

SO ORDERED.

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 & SONS ET. AL. VS. COURT OF

APPEALS

OCTOBER 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.

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. CA
266 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 fire in
Cosmos plantation which destroyed even the
working area of Ace-Agro. Because of the fire, AceAgros 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

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

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.

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.

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).

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.

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). AceAgro 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).

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 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
latters being prohibited to contract the services of
other companies.

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.

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.

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 motion to dismiss
before the trial court, including the failure of the

MONDRAGON LEISURE V COURT OF APPEALS

15 June 2005

respondents to attach the board resolutions

authorizing them to file the complaint.7

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 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

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.

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 sixyear 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.

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.

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 petitioners primary source of
revenues.

Petitioners 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.

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.

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.

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:

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.

(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

In sum, the appellate court did not err in

dismissing petitioners 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 petitioners
contentions.

G.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
petitioners financing/lending business
from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.

Petition denied. CA affirmed.

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, petitioners 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 petitioners 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.

Art. 179 and 1181

DE LEON VS ONG
2 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

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

REYES v. TUPARAN

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.

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.

Accordingly, the petitioners obligation to sell the

subject properties becomes demandable only upon
the happening of the positive suspensive
condition, which is the respondents full payment
of the purchase price. Without respondents full
payment, there can be no breach of contract to
speak of because petitioner has no obligation yet
to turn over the title. Respondents 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.

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 Principals 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 Lins 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

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

10

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 Asians 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
attorneys fees in accordance with the Deeds of
Assignment.

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;

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.

11

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.

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 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

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

12

no contract at all the period of which could have

been fixed.

SECURITY BANK & TRUST CO. V. C.A. &

YSMAEL FERRER G.R. No. 117009 October 11,
1995

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.

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.

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.

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.

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.

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).

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.

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 nonliability 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

Art. 1182

13

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.

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.

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.

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.

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.

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.

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

Art. 1190-1192
UNIVERSITY OF THE PHILIPPINES VS. DELOS
ANGELES
L-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

14

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.

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.

ISSUE: Whether petitioner U.P. can treat its

contract with ALUMCO rescinded, and may
disregard the same before any judicial
pronouncement to that effect.

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.

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.

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

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.

15

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 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.

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.

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.

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.

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.

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 latters 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

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

16

expired, Custodio paid to the other petitioner

Melody Co in the United States, the sum of $30k,
as partial payment of the purchase price. Cos
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.

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 CUSTODIOs 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.

Counsel for Custodio then wrote Cos 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 Custodios 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?
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.

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.

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.

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.

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. Custodios offer to purchase the Beata
property, subject of the sale at a price of $100k

PALAY INC. V. CLAVE

G.R. No. L-56076 September 21, 1983

17

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).

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.

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.

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.

Onstott not personally liable

Onstott 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.

Issue: W/N demand is necessary to rescind a

contract
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:

CANNU vs. GALANG

G.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).

18

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.

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 respondentsspouses moved to exercise their right of rescission.

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.

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.

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.

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.

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.

MARGARITA SURIA V. I.A.C.

G.R. No. 73893 June 30, 1987

Issue:
1. WON the breach of obligation is substantial? YES
2. WON respondent waived their right of
rescission? NO
3. WON rescission is subsidiary? NO

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

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, Cannus 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.

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.

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 petitioners since they kept on

19

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.

REYES Vs TUPARAN
1 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:

ISSUE: Can the transaction or obligation be

rescinded given that the conditions were not
satisfied?
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.

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.

CA: The CA agreed with the RTC that the remedy of

rescission could not apply because the
respondents 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.

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

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 respondents 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

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

20

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.

In 1998, Victorio wanted to increase again the

rentals. They again failed to pay such rents and
respondent filed again for ejectment suit.

RELEVANT JURISPRUDENCE

Issue:
1. WON the petitioners can invoke the provisions
of the compromise agreement in order to hold
respondent stopped from making raises in leases
NO
2. WON Victorio may rescind the contract of lease?
YES

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.

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:

Held:

a) Consent or meeting of the minds, that is,

consent to transfer ownership in exchange for the
price;

1. The compromise agreement executed in 1991 is

without moment as to petitioners claim.
Accordingly, in 1994, the juridical relation between
the parties was severed when the CA ordered
ejectment of the petitioners. The lessors
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 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.

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
obligors failure to comply with an existing
obligation. It does not apply in the failure of a
condition to make that obligation arise.

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 lessees 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.

CHUA vs. VICTORIO

G.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.

Payment of the rent is one of a lessees 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.

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.

UY V. COURT OF APPEALS
G.R. No. 120465, 09 September 1999

21

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 daos 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.

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 NHAs 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.

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.

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

22

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.

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.

SOLID HOMES vs. TAN

465 SCRA 570 (Art. 1169)

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.

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.

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

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 Respondents right to bring the
instant case against petitioner has already
prescribed? NO
WON 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.

Art. 1193-1197
ROXAS vs ALCANTARA
SCRA 21, March 25, 1982
G.R. No. L-49659

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.

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 letterrequest 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

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.

23

demanding to vacate the premises within five (5)

days from receipt.

children for failure to pay the agreed rental despite

repeated demands.

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 petitionerlessor Roxas "the amount of P1,500.00 monthly
rental for ten (10) years effective October, 1977.

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.

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).

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.

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.

Not satisfied with the CAs ruling, the children

brought the case to the Supreme Court.

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 T103141, 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.

Issues: WON the children can be ejected

Based on the parents 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.

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. T103141 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 parents house.

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
latters demise. Rights of succession are

On December 10, 1997, the parents filed with the

MTCC of Lipa City an ejectment suit against their

24

transmitted only from the moment of death of the

decedent. Assuming that there was an
allotment of inheritance, ownership nonetheless
remained with the parents.

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.

The childrens 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.

EUSEBIO GONZALES Versus PHILIPPINE

COMMERCIAL AND INTERNATIONAL BANK,
EDNA OCAMPO and ROBERTO NOCEDA
Feb. 23, 2011 G.R. No. 180257

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

right of possession.
Rights of a Builder in Good faith

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.

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

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.

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.

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).

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

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

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

25

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 Panlilioas shown by the fact that the
proceeds went to the spouses Panlilio who were
servicing or paying the monthly duesis 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.

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.

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

MIGUEL PEREZ RUBIO vs. COURT OF

APPEALS, ET AL.,
153 SCRA 183 (1983)

26

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)

P7,419,130.19 amount due from these companies,

only P1,456,276.48 was the liability of HBI.

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 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.

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 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.

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.

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.

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. 34).

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.

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

27

Therefore, an award for damages in favor of the

petitioner is in order against respondents Hacienda
Benito, VVDC and MBTC.

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.

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.

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.

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).

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.

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).

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.

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.

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

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.

28

warrant reconsideration of the said decision as far

as these parties' motions are concerned, and this
DENIAL is FINAL.

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.

SO ORDERED.
Art. 1226-1230

Issue: WON the liquidated damages agrees upon

by the parties should be reduced.

FILINVEST vs. CA
G.R. No. 115902. 27 Sept 1995

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.

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

29