1. Pay v. Vda.

De Palanca 57 SCRA 618

FACTS: George Pay, petitioner, is the creditor of the late Justo Palanca who died in 1963. The latter and his wife, respondent
Rosa Gonzalez vda. de Palanca, issued a promissory note in 1952, in the amount of P26,900 with interest of 12% per annum.
The PN contained the following: For value received from time to time since 1947, we [jointly and severally promise to] pay to
Mr. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00),with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment
from the Estate of the late Don Carlos Palanca or upon demand'. The wording of the promissory note being "upon demand,"
the obligation was immediately due. Since it was dated January 30, 1952, it was clear that more "than ten years has already
transpired from that time until to date. The action, therefore, of the creditor has definitely prescribed. The result, as above
noted, was the dismissal of the petition.

ISSUE: Whether or not a creditor is barred by prescription in his attempt to collect on a promissory note executed more than
fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon
demand.

HELD: YES, the creditor is barred from collecting. The SC ruling is based on Article 1179 of the Civil Code, which provides:
"Every obligation, whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once." The obligation being due and demandable (payable on demand), it would appear that the
filing of the suit after fifteen years was much too late. For again, according to the Civil Code, which is based on Section 43 of
Act No.190, the prescriptive period for a written contract is that of ten years.

2. Central Phil. University v. CA 246 SCRA 511 (read dissent)

FACTS: In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the following conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of medical college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that land shall be put in the fund to be known
as Ramon Lopez Campus Fund.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment of donation, reconveyance &
damages against CPU for not complying with the conditions. The heirs also argued that CPU had negotiated with the NHA to
exchange the donated property with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.

ISSUE:
1) WON petitioner failed to comply the resolutely conditions annotated at the back of petitioners certificate of title without a
fixed period when to comply with such conditions? YES
2) WON there is a need to fix the period for compliance of the condition? NO

HELD:
1) Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment or loss of those already
acquired shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the land a school is such a resolutory one. The donation had to be
valid before the fulfillment of the condition. If there was no fulfillment with the condition such as what obtains in the instant case,
the donation may be revoked & all rights which the donee may have acquired shall be deemed lost & extinguished.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to
comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed
to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of
suits.
Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of
the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and,
for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.

2) Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can be inferred that
the period was intended, the court may fix the duration thereof because the fulfillment of the obligation itself cannot be de-
manded until after the court has fixed the period for compliance therewith & such period has arrived. However, this general
rule cannot be applied in this case considering the different set of circumstances existing more than a reasonable period of
50yrs has already been allowed to petitioner to avail of the opportunity to comply but unfortunately, it failed to do so. Hence,
there is no need to fix a period when such procedure would be a mere technicality & formality & would serve no purpose than
to delay or load to unnecessary and expensive multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek
rescission before the court unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of compliance there is no more obstacle for the court to decree recission.

3. Lao Lim v. CA 191 SCRA 150

FACTS: Records show that Francisco Lim, entered into a contract of lease with Benito Dy for a period of 3 years, from 1976
to 1979. After the stipulated term expired the respondent refused to leave the premises, so Francisco Lim filed an ejectment
suit against Benito Dy. This case was then taken over by a judicially approved compromise agreement which provides an
automatic increase in rent of 20% every 3 years. On 1985 Dy, informed Lim of his intention to renew the lease up to 1988, Lim
did not agree to the renewal.
In 1987 another ejectment suit was filed by Lim after the failure of Dy to vacate the premises. It was dismissed by the RTC and
later affirmed by the CA for the following reasons: (1) the stipulation in the compromise agreement which allows the lessee
(Benito Dy) to stay on the premises as long as he needs it and can pay rents is valid, being a resolutory condition, and therefore
beyond the ambit of art 1308 of the NCC; and (2) the compromise agreement has the effect of res judicata.

ISSUE: Was the stipulation in the compromise agreement which allows the lessee to stay on the premises as long as
he needs it and can pay rents is valid?

- No, since the stipulation for as long as the defendant needed the premises and can meet and pay said increases is a purely
potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will
of the lessee.
- The continuance, effectivity, and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing payment of the rentals or not, completely depriving the owner of any say
in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the
lessee.

HELD: The decision of the Court of Appeals is REVERSED AND SET ASIDE. Benito Dy is ordered to immediately vacate
and return the possession of the premises and pay the monthly rentals due thereon in accordance with the compromise agree-
ment until he shall have actually vacated the same. This Judgment is immediately executory.

Obligations and Contracts Terms:

Potestative Condition- This can be found in Art 1182 of the NCC. A potestative condition speaks of fulfillment of an
obligation rests solely upon the will of the debtor. An obligation which is subject to a suspensive potestative condition
is non- demandable, hence it is void. If it is the debtor himself who determines the fulfillment of the condition, such an
agreement produces no juridical effect that can be enforced, and thus null

4. Osmena v. Rama 14 Phil 99

FACTS: Doa Cenona Rama entered into a contractt with Don Victoriano Osmena for a sum of money with a stipulated con-
dition that in the event that the former will not be able to pay the amount borrowed, she will sell to the said Seor Osmea all
the sugar that she will harvest and as a guarantee, pledge as security all of her present and future property, and as special
security the house with tile roof and ground floor of stone in which she is currently residing. The following year, defendant
contracted an additional loan from petitioner.
However, even before the said loans can be paid, Don Victoriano Osmena died. As a conseQuence, the said con-
tractual agreements became properties of one of his heirs. When the stipulated payment period came, defendant was not able
to pay for said obligation. This prompted the heir, herein plaintiff, to file a case in the Court of First Instance demanding for the
eXecution and delivery of said contracts. After hearing the evidence presented by both parties, the Court of First Instance
rendered a decision in a favor of the plaintiff. Dissatisfied with the decision, the defendants appealed.

ISSUE: Whether or not the condition that herein defendant relied upon the payment of the obligation
is valid and would thereby preclude her from payment.

HELD: If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition
which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code)
The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the
statute of limitation from barring the action upon the contract.
5. Parks v. Province of Tarlac 49 Phil 142
FACTS: In 1910, Concepcion Cirer and James Hill donated parcels of land to the municipality of Tarlac on the condition that it
be used absolutely and exclusively for the erection of a central school and public parks, the work to commence within six
months. The president of the municipality of Tarlac accepted and registered the donation.
In 1921, Cirer and Hill sold the same property to George L. Parks.
Later on the, the municipality of Tarlac transferred their rights in the property to the Province of Tarlac.
Parks filed a complaint seeking the annulment of the donation and asking that he be declared the absolute owner of
the property. Parks allege that the conditions of the donation were not complied with.

ISSUE: Whether or not the donation was coupled with a condition precedent? W/N the action to revoke has prescribed?

HELD: No. The condition to erect a school within six months is not a condition precedent. The characteristic of a condition
precedent is that the acquisiito of the right is not effected while said condition is mot complied with or is not deemed complied
with. Meanwhile nothing is acquired and there is only an expectancy of a right. Consequently, when a condition is imposed,
the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition
precedent. In the present case the condition that a public school be erected and a public park be made of the donated land
could not be complied with except after giving effect to the donation.
The action to revoke the donation has prescribed. The prescriptive periods are: 5 years for the revocation by the
subsequent birth of children, 1 year if by reason of ingratitude. If no special period is prescribed, 10 years, for an onerous
donation following the law of contracts and general rules on prescriptions. The donation was made in 1910, the cause of action
accrued in 1911, while the action to revoke was filed 1924, twenty three years later.

6. Phil. Amusement Enterprises, Inc. v. Natividad 21 SCRA 284

FACTS: On January 6, 1961 the plaintiff, Philippine Amusement Enterprises, Inc., entered into a contract with the defendant
Soledad Natividad, whereby the former leased to the latter an automatic phonograph, more popularly known as "jukebox".
Sometime thereafter, Natividad wrote a letter to plaintiff requesting for the return of the jukebox to the company. Natividad
reasoned out that said jukebox is defective. The plaintiff however, contended that the stocking up of coins is quite normal in
any coin-operated phonograph. It then rightfully re-installed a new jukebox in replacement of the first one.
On August 4 and October 16, 1961, plaintiff demanded from defendant spouses the compliance to renew the lease
contract. Defendants refused the demand and ordered for the rescission of the contract in their favor by reason of the plaintiff's
failure to perform its obligation to render the automatic phonograph suitable for the purpose for which it was intended.

ISSUE: Is defendant entitled to rescission?

RULING: No. Rescission by judicial action under Article 1191 will be ordered only where the breach complained of is substantial
as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual.
The defendants asked the plaintiff to retrieve its phonograph, claiming that there were times when the coins dropped into the
slot would get stuck, resulting in its failure to play the desired music. But apart from this bare statement, there is nothing in the
evidence which shows the frequency with which the jukebox failed to function properly. The expression "there are times" con-
notes occasional failure of the phonograph to operate, not frequent enough to render it unsuitable and unserviceable.
7. UP v. De Los Angeles 35 SCRA 102
FACTS: On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted exclusive
authority to cut, collect and remove timber from the Land Grant for a period starting from the date of agreement to December
31, 1965, extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands, ALUMCO
still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an instrument
entitled Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president of UP, which stipulated
the following:

3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance outstanding
after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that Creditor shall
have the right to consider the Logging Agreement rescinded, without the necessity of any judicial suit

ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP informed
ALUMCO that it had, as of that date, considered rescinded and of no further legal effect the logging agreement, and that UP
had already taken steps to have another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin UP
from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal.

ISSUE: Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pro-
nouncement to that effect?

RULING: Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right
and the power to consider the Logging Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit.
As to such special stipulation and in connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs.
Pan Oriental Shipping Co:
There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the
injured party to resort to court for rescission of the contract.

8. Angeles v. Calasanz 135 SCRA 323

FACTS: On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura Ange-
les and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus
7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They
promised to pay the balance in monthly installments of P41.20 until fully paid, the installment being due and payable on the
19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment
already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the remittance of
past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs failed to
meet subsequent payments. The plaintiffs letter with their plea for reconsideration of the said cancellation was denied by the
defendants.
The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in their favor
the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out
that they have already paid the total amount including interests, realty taxes and incidental expenses. The defendants alleged
in their answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay
monthly installments corresponding to the month of August, 1966 for more than 5 months, thereby constraining the defendants
to cancel the said contract.
The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal.

ISSUE: Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants?

RULING: No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum of P3,920
plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to the buyer upon
payment of the said price.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. The Supreme Court
agree with the observation of the plaintiffs-appellees to the effect that the terms of a contract must be interpreted against the
party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a
big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phrase-
ology, condemnable in its lopsidedness and injurious in its effect which, in essence, and its entirety is most unfair to the buyers.
 Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid
an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold
the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendant must
immediately execute the final deed of sale in favor of the plaintiffs and execute the necessary transfer of documents, as pro-
vided in par.12 of the contract.

9. Jison v. CA 164 SCRA 339

Facts: Under a Contract to Sell, respondent Robert O. Phillips & Sons, Inc. sold a subdivision lot to
petitioners, spouses Jison for the agreed price of Php 55,000.00 with 8% interest per annum,
payable on installment basis. Pursuant to the contract, the spouses paid the Php 11,000 down
payment on October 20, 1961.
October 27, 1961 May 8, 1965 = spouses paid Php 533.85
Due to failure of petitioners to build a house as provided in the contract, a penalty of Php 5.00/sqm. was imposed. Monthly
amortization increased to Php 707.24
Jan. 1, 1966 ; Feb. 1, 1966; March 1, 1966 = spouses failed to pay on said dates although the spouses subsequently paid
the amounts due and was accepted. (Na-late sa bayad)
From October 1966 January 1967, petitioners failed to pay their loans. On Jan. 11, 1967, respondent sent a letter to
petitioners stating that their account was 4 months overdue. Another letter was sent on Feb. 27, 1967 reminding petitioners of
the automatic rescission clause of the contract.
March 1, 1967 petitioners eventually paid.
Feb. 1967 April 1967, petitioners failed to pay.
On April 6, 1967 respondent sent a letter to the spouses informing them that the contract was cancelled
April 19, 1967 petitioners tendered payment for all the installments already due but tender was refused.
Petitioners filed a complaint for specific performance. Trial court dismissed the case and declared contract cancelled. CA
affirmed trial courts ruling.

Issue: Whether the CA erred in not holding the respondents act of forfeiting all previous payments made by petitioners is
CONTRARY TO LAW, highly iniquitous and unconscionable.

Ruling: In obligations with a penal clause, the judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L-17247, April 28, 1962, 4SCRA
1228].
In this connection, the Court said:
It follows that, in any case wherein there has been a partial or irregular compliance with the provisions in a contract for special
indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction and
against the enforcement in its entirety of the industry.' where it is clear from the terms of the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might be anticipated as a result of a breach
of the terms of the contract; or, in other words, where the indemnity provided for is essentially a mere penalty having for its
principal object the enforcement of compliance with the corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).
This principle was reiterated in Makati Development Corp. v. Empire Insurance Co. [G.R. No. L-21780, June 30, 1967,
20 SCRA 557] where the Court affirmed the judgment of the Court of First Instance reducing the subdivision lot buyer's liability
from the stipulated P12,000.00 to Plaintiffs after finding that he had partially performed his obligation to complete at least fifty
percent (50%) of his house within two (2) years from March 31, 1961, fifty percent (50%) of the house having been completed
by the end of April 1961.

10. Tan v. CA 175 SCRA 656

11. Vermen Realty Development v. CA 224 SCRA 549
FACTS: Under the conditions of the so-called Offsetting Agreement, Vermen Realty (the first party in the contract) and Seneca
Hardware (the second party) were under a reciprocal obligation. Seneca Hardware shall deliver to Vermen Realty construction
materials worth P552,000.00. Vermen Realty's obligation under the agreement is three-fold: he shall pay Seneca Hardware
P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value
of P276,000.00) to Seneca Hardware; upon completion of Vermen Pines Condominiums Phase II, Seneca Hardware shall be
given option to transfer to similar units therein.
As found by the appellate court and admitted by both parties, Seneca Hardware had paid Vermen Realty the amount
of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of
the Vermen Pines Condominiums, Vermen Realty delivered to Seneca Hardware units 601 and 602 at Phase I of the Vermen
Pines Condominiums (Rollo, p. 28). In 1982, the Vermen Realty repossessed unit 602. As a consequence of the repossession,
the officers of the Seneca Hardware corporation had to rent another unit for their use when they went to Baguio on April 8,
1982.
In its reply the Vermen Realty corporation averred that Room 602 was leased to another tenant because Seneca
Hardware corporation had not paid anything for purchase of the condominium unit. Vermen Realty corporation demanded
payment of P27,848.25 representing the balance of the purchase price of Room 601.
On June 21, 1985, Seneca Hardware filed a complaint with the Regional Trial Court of Quezon City (Branch 92) for
rescission of the Offsetting Agreement with damages. In said complaint, Seneca Hardware alleged that Vermen Realty
Vermen Realty Corporation had stopped issuing purchase orders of construction materials after April, 1982, without valid rea-
son, thus resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation of the
Offsetting Agreement.
After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (Sen-
eca Hardware in this petition) to pay defendant (Vermen Realty in this petition) on its counterclaim in the amount of P27,848.25
representing the balance due on the purchase price of condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.

ISSUE:Do the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Seneca Hardware?

RULING: Yes. The Court ruled in favor of Seneca Hardware. There is no controversy that the provisions of the Offsetting
Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out of the same
cause, and which results in a mutual relationship of creditor and debtor between parties. In reciprocal obligations, the perfor-
mance of one is conditioned on the simultaneous fulfillment of the other obligation Under the agreement, Seneca Hardware
shall deliver to Vermen Realty construction materials. Vermen Realty's obligation under the agreement is three-fold: he shall
pay Seneca Hardware P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condo-
miniums (with total value of P276,000.00) to Seneca Hardware; upon completion of Vermen Pines Condominiums Phase II,
Seneca Hardware shall be given option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in
case of reciprocal obligations, where one of the obligors fails to comply with what is incumbent upon him.
In the case at bar, Vermen Realty argues that it was Seneca Hardware who failed to perform its obligation in the
Offsetting Agreement.
Seneca Hardware, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the Vermen
Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums has failed to begin it
has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium
units to it.
It is evident from the facts of the case that Seneca Hardware did not fail to fulfill its obligation in the Offsetting Agree-
ment. The discontinuance of delivery of construction materials to Vermen Realty stemmed from the failure of Vermen Realty
to send purchase orders to Seneca Hardware.
The impossibility of fulfillment of the obligation on the part of Vermen Realty necessitates resolution of the contract
for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement.
12. Alfonso L. Iringan v. CA 366 SCRA 41

FACTS: On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan an undivided portion of Lot
No. 992 of the Tuguegarao Cadastre, located in Poblacion of Tuguegarao.
Parties executed a Deed of Sale on same date with the purchase price of 295K, payable as follows:
a) 10K upon execution of this instrument, and vendor acknowledges having received the amount.
b) 140K on or before April 30, 1985
c) 145K on or before Dec. 31, 1985

When second payment was due, Iringan paid only 40K. On July 18, 1985, Palao sent a letter to Iringan stating that
he would not accept any further payment considering that Iringan failed to comply with his obligation to pay full amount of
second installment.
On August 20, 1985, Iringan replied that they were not opposing the revocation of the Deed of Sale, but asked for the
reimbursement of the ff:
a) 50K - cash received
b) 3,200 - geodetic engineers fee
c) 500 - attorneys fee
d) Interest on 53,700

Palao declared he was not amenable to the reimbursements claimed by Iringan. Iringan then proposed that the 50K
which he paid Palao be reimbursed, or Palao could sell to Iringan an equivalent portion of the land.
Palao replied that Iringans standing obligation had reached 61,600 representing payment of arrears for rentals from
Oct. 1985 to March 1989. Spouses Iringan alleged that the contract of sale was a consummated contract, hence the remedy
for Palao was for collection of the balance of the purchase price and not rescission. In addition, they declared that they had
always been ready and willing to comply with their obligations to Palao.
RTC ruled in favor of Palao and affirmed the rescission of the contract.
Petitioners Claim: That no rescission was effected simply by virtue of the letter sent by respondents stating that he
considered the contract of sale rescinded. That a judicial or notarial act is necessary before one party can unilaterally effect a
rescission.
Respondents Comment: The right to rescind is vested by law on the obligee and since petitioner did not oppose teh
intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of mutually agreed rescission.

ISSUES: W/N the contract of sale was validly rescinded;

W/N the award of moral and exemplary damages is proper

HELD:
1. The Contract of Sale between the parties as far as the prescriptive period applies, can still be validly rescinded.
Art. 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract. A judicial
and notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated.
The phrase even though emphasizes that when no stipulation is found on automatic rescission, the judicial or notarial re-
quirement still applies.
The right to resolve reciprocal obligations (Art. 1191) is deemed implied in case one of the obligors shall fail to comply
with what is incumbent upon him. But the right must be invoked judicially. Even if the right to rescind is made available to the
injured party, the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of rescission. The operative act is the decree of the court.

2. The award of moral and exemplary damages is proper.

Petitioner claimed he was ready to pay but never actually paid respondent, even when he knew that the reason for
selling the lot was that, Palao needed to raise money to pay his SSS Loan.
a) Iringan knew Palaos reason for selling the property, and still, he did not pay Palai
b) Petitioner refused to formally execute an instrument showing their mutual agreement to rescind the contract of sale,
even when it was Iringan who breached the terms of their contract, leaving Palao desperate to find other sources of
funds to pay off the loan.
c) Petitioner did not substantiate by clear and convincing proof that he was ready and willing to pay respondent. It was
more of an afterthought to evade the consequence of the breach.

13. Spouses Mariano Velarde v. CA 361 SCRA 56

Facts: David Raymundo (private respondent) is the absolute and registered owner of a parcel of land, located at 1918 Kamias
St., Dasmarias Village Makati, together with the house and other improvements, which was under lease. It was negotiated by
Davids father with plaintiffs Avelina and Mariano Velarde (petitioners). A Deed of Sale with Assumption of Mortgage was
executed in favor of the plaintiffs. Part of the consideration of the sale was the vendees assumption to pay the mortgage
obligations of the property sold in the amount of P 1,800,000.00 in favor of the Bank of the Philippine Islands. And while their
application for the assumption of the mortgage obligations is not yet approved by the mortgagee bank, they have agreed to
pay the mortgage obligations on the property with the bank in the name of Mr. David Raymundo. It was further stated that in
the event Velardes violate any of the terms and conditions of the said Deed of Real Estate Mortgage, they agree that the
downpayment P800,000.00, plus all the payments made with the BPI on the mortgage loan, shall be forfeited in Favor of Mr.
Raymundo, as and by way of liquidated damages, w/out necessity of notice or any judicial declaration to that effect, and Mr.
Raymundo shall resume total and complete ownership and possession of the property, and the same shall be deemed auto-
matically cancelled, signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest loan for three months but stopped in paying the
mortgage when informed that their application for the assumption of mortgage was not approved. The defendants through a
counsel, wrote plaintiffs informing the latter that their non-payment to the mortgagee bank constituted non-performance of their
obligation and the cancellation and rescission of the intended sale. And after two days, the plaintiffs responded and advised
the vendor that he is willing to pay provided that Mr. Raymundo: (1) delivers actual possession of the property to them not later
than January 15, 1987 for their occupancy (2) causes the release of title and mortgage from the BPI and make the title available
and free from any liens and encumbrances (3) executes an absolute deed of sale in their favor free from any liens and encum-
brances not later than Jan. 21, 1987.
The RTC of Makati dismissed the complaint of the petitioners against Mr. Raymundo for specific performance, nullity
of cancellation, writ of possession and damages. However, their Motion for Reconsideration was granted and the Court in-
structed petitioners to pay the balance of P 1.8 million to private respondent who, in turn were ordered to execute a deed of
absolute sale and to surrender possession of the disputed property to petitioners.
Upon the appeal of the private respondent to the CA, the court upheld the earlier decision of the RTC regarding the
validity of the rescission made by private respondents.

Issue: Whether the rescission of contract made by the private respondent is valid.

Held: There is a breach of contract because the petitioners did not merely stopped paying the mortgage obligations but they
also failed to pay the balance purchase price. Their conditional offer to Mr. Raymundo cannot take the place of actual payment
as would discharge the obligation of the buyer under contract of sale.
Mr. Raymundos source of right to rescind the contract is Art. 1191 of the Civil Code predicated on a breach of faith
by the other party who violates the reciprocity between them. Moreover, the new obligations as preconditions to the perfor-
mance of the petitioners own obligation were repudiation of an existing obligation, which was legally due and demandable
under the contract of sale.
The breach committed by the petitioners was the non-performance of a reciprocal obligation. The mutual restitution
is required to bring back the parties to their original situation prior to the inception of the contract. The initial payment and the
mortgage payments advanced by petitioners should be returned by private respondents, lest the latter unjustly enriched at the
expense of the other. Rescission creates the obligation to return the obligation of contract. To rescind, is to declare a contract
void at its inception and to put an end to it as though it never was.
The decision of the CA is affirmed with modification that private respondents are ordered to return to petitioners, the
amount they have received in advanced payment.
14. Palay, Inc. v. Clave 124 SCRA 638
Facts: That Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Con-
tract to Sell a parcel of Land payable with a downpayment and monthly installments until fully paid. Paragraph 6 of the contract
provided for automatic extrajudicial rescission upon default in payment of any monthly installment 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 installments paid. Private
respondent Dumpit paid the downpayment and several installments. However, Dumpit failed to continue paying the installments
for almost 6 years. Thereafter, Dumpit wrote petitioner offering to update all his overdue accounts with interest, and seeking
its written consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners replied that the Contract to Sell had
long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Consequently, Dumpit
filed a complaint questioning the validity of the rescission with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund. The NHA found the rescission void in the absence of either judicial or notarial demand. Thus, it
ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immedi-
ately to Dumpit the amount paid with 12% interest from the filing of the complaint. On appeal, respondent Clave, the Presidential
Executive Assistant affirmed. Hence, this petition.

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, em-
phasized the indispensability of notice of cancellation to the buyer when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value
to the buyer. (Emphasis supplied).

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

Onstott not personally 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 per-
sonally 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.
15. Roman v. CA 137 SCRA 563

FACTS: On Dec. 12, 1957, a Contract to Sell covering 5 parcels of land in Barrio Dolores, Taytay was executed between
Sarangaya (vendor) and Roman, Belgica, and Yangco (Vendees).
The Contract provided that Sarangaya must, within 1 year secure titles to the lands in his name otherwise the vendees
would be relieved from buying the same; that within 60 days from the issuance of titles, the vendees would pay Sarangaya
P116,243 and in event of failure to comply with the condition, the vendees would be jointly liable to Sarangaya.
On Aug. 5, 1958, Sarangaya was able to obtain titles to the land in his name. On Aug. 12, a notice was received by
Belgica. The contract between parties states that notice served on any of the 3 vendees shall be notice to all of them. On Oct.
11, vendees became obligated to pay the agreed purchase price.
Vendees having defaulted, Sarangaya filed a suit. His complaint was predicated on the tacit rescission of the recipro-
cal obligations to sell and to buy.
Belgica and Yangco was served summons but was declared default. Roman had answered but failed to appear in
trial.
The TC ordered the 3 vendees to pay plaintiff.
Roman filed a Motion for Reconsideration and stated that he had not received a notice that Sarangaya had secured
titles and asked the Court to grant him extension of time under Art. 1191. The Court granted his MR. Sarangaya appealed the
decision to the CA. CA reversed it and ordered Roman to pay.

ISSUE: W/N Roman was liable to pay for the land.

HELD: Considering that the settlement offer and counter offer of the parties were subsequently abandoned by them, the
adjudication of the controversy between Sarangaya and Roman on the basis of those offer and counter offer, was improper.
Also, conceding that the complaint was for rescission and damages under Art. 1191, the TC did not fix a period within
which Roman can comply with his obligation under contract to sell.
Petition is denied.
16. Gregorio Araneta, Inc. v. Phil. Sugar Estates Development Co. 20 SCRA 330
FACTS: J. M. Tuason & Co., Inc. is the owner of Sta. Mesa Heights Subdivision. Through Petitioner Araneta, it sold a portion
thereof (43, 034.4 sq.m) for the sum of Php 430, 514.00 to respondent on July 28, 1950. They agreed on the following stipula-
tions:
1. Respondent will build on the Parcel land the Sto. Domingo Church and Convent; and
2. The seller will construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block
surrounded by streets on all four sides; and the street on the NE side shall be named Sto. Domingo Avenue.

The buyer finished constructing the church and a convent but the seller, Gregorio Araneta, Inc. was unable to finish
constructing the street in the NE side because of Manuel Abundo, who was physically occupying the middle part thereof and
refused to vacate the same.
On May 7, 1958, Respondent filed a complaint against J. M. Tuason & Co., Inc. seeking to compel the latter to comply
with their obligation and/or to pay damages in the event they failed or refused to perform the obligation. Both defendants J. M.
Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter particularly setting up the principal defense that
the action was premature since its obligation to construct the streets in question was without a definite period which needs to
be fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper.
The lower court and the Court of Appeals decided in favor of Respondent, giving Petitioner two years from the date
of finality of the decision to comply with the obligation of constructing and completing the streets.

ISSUE: W/N the fixing of the period by the Trial Court and tha CA was proper

RULING: NO. The application of Art. 1197 of the Civil Code requires a two-step process:
1. The Court must first determine that the obligation does not fix a period (or that the period is made to depend upon the
will of the debtor). but from the nature and circumstances, it can be inferred that a period was intended (Art. 1197 pars.
1 and 2).
2. Once the preliminary point is settled, the Court must then decided what period was probably contemplated by the
parties

Ultimately, the Court cannot fix a period merely because in its opinion, it should be reasonable, but must set the time
that the parties are shown to have intended. In the case at bar, the Trial Court appears to have pulled the two-year period set
in its decision out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil
Code.
The parties were fully aware that the land described therein was occupied by squatters, because the fact is expressly
mentioned in their pleadings. As the parties must have known that they could not take the law into their own hands, but must
resort to legal processes in evicting the squatters, they must have realized that the duration of the suits to be brought would
not be under their control nor could the same be determined in advance. The conclusion is thus forced that the parties must
have intended to defer the performance of the obligations under the contract until the squatters were duly evicted, as contended
by the petitioner Gregorio Araneta Inc. The time for the performance of the obligations of petitioner was fixed at the date that
all the squatters on affected areas are finally evicted therefrom.
17. Ace-Agro Development Corp v. CA 266 SCRA 429
FACTS: Ace-Agro had been cleaning soft drink bottles and repairing wooden shells for Cosmos within its company premises
in San Fernando, Pampanga.
On Apr. 25, 1990, fire broke out in the Cosmos plant. As a result, Ace-Agros work was stopped. On May 15, 1990,
Ace-Agro requested Cosmos to resume its services but they were advised that on account of the fire destroying nearly all the
bottles and shells, Cosmos was terminating their contract. Ace-Agro requested Cosmos to reconsider its decision but upon
receiving no reply, they informed its employees of the termination of their employment, which led the employees to file a
complaint for illegal dismissal before the Labor Arbiter against both Ace-Agro and Cosmos. Ace-Agro sent another letter for
reconsideration to Cosmos, to which they replied that they could resume work but outside company premises. Ace-Agro re-
fused the offer, claiming that to work outside would make them incur additional costs for transportation. Cosmos then advised
Ace-Agro that they could resume work inside the company premises which Ace-Agro rejected citing the pending labor case.
Ace-Agro brought a case against Cosmos for breach of contract and damages in the RTC, complaining that termi-
nation was illegal and arbitrary and stood to lose profits and be held liable to its employees for backwages, damages and
separation pay.
The labor court found Ace-Agro liable for the claims of its employees and they were ordered to reinstate the employ-
ees and pay them backwages. The RTC, however, found Cosmos guilty of breach of contract and ordered it to pay damages
though Ace-Agros claim for reimbursement of what it had paid in the labor case was denied. Cosmos appealed to the CA
which reversed the trial courts decision, finding that the petitioner had been the one to refuse to resume work after failing to
secure an extension of its contract.

Issue: W/N there was valid cause for the termination for Cosmos unilaterally terminating the contract on account of a force
majeure.

Held: The reason given by Cosmos for unilaterally terminating its contract was that the prestation or the object of their
agreement had been lost and destroyed in the fire. What they wanted was for this situation to fall within obligations extin-
guished by the happening of unforeseen events, under whose influence the obligations would never have been contracted,
because in such cases, the very basis upon which the existence of the obligation is founded would be wanting.
However, there were still other bottles and shells; therefore, the suspension of the work is at best temporary. Cos-
mos reconsidered its decision to terminate the decision by trying to accommodate the petitioner albeit outside the company
premises.
However, Ace-Agro unjustifiably refused because it wanted an extension of the contract to make up for the period of
inactivity. They were without legal ground to refuse resumption of work on the basis of it being outside the company premises
and could not legally insist to work inside property it did not own or lease. The second time they refused resumption of work,
in spite of it being inside company premises, was not because of the pending labor case but because Ace-Agro really wanted
an extension of the period or duration of the contract to cover the period of inactivity.
But the suspension of work due to the fire does not merit an automatic extension. 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 it
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. Cosmos withdrew its unilateral termination of its agreement but Ace-Agros re-
fusal to work was a unilateral termination an act without legal basis, which must be construed as a breach of contract.
While Cosmos made efforts towards accommodation, Ace-Agro was unwilling to make adjustments. While the job-
out offer had the effect of varying the terms of the contract, what petitioner does not seem to realize is that the change was
brought about by circumstances not of Cosmos making. When Cosmos advised Ace-Agro that they could work inside the
premises, the latter only thought of its interest by insisting that the contract be extended. Cosmos was justified in insisting
that after the expiration of the contract, the parties must negotiate a new one as they had done every year.