3.

DELTA MOTOR CORPORATION, petitioner,

vs.
EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN
S. GENUINO, and The COURT OF APPEALS, respondents.

Legal Action: Petition for review by certiorari

Doctrine: Rescission 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. Further, the question of
whether a breach of a contract is substantial depends upon the attendant circumstances.

Facts:
 Private respondents are owners of an iceplant and cold storage who ordered black iron pipes from Delta Motors,
for which the latter provided two letter quotations indicating the selling price and delivery of said pipes. Terms of
payment are also included. Genuino made initial payments on both contracts but delivery of pipes was not made
by Delta, thus, Genuino did not made subsequent payments notwithstanding agreed terms of payment. On July
1972, Delta offered to deliver the pipes but Genuino refused because construction of ice plant building where
pipes were to be installed was not yet finished.
 Three years later, Genuino asked Delta to deliver the iron pipes within 30 days upon receipt of request. Delta is
unwilling to deliver unless Genuino agree to a new quotation price set by former. Respondent rejected new
quoted price ad instead filed a complaint for specific performance with damages seeking Delta to deliver the
pipes. Meanwhile, Delta in its answer prayer for rescission of contract pursuant to Art. 1191 of NCC.
 After trial the Court of First Instance ruled in favor of Delta. On appeal, the Court of Appeals reversed CFI
decision. MR was filed but was denied. Hence, this petition.

ISSUES HELD RATIO

W/N Genuinos' non- No. In construing Art. 1191, the Supreme Court has stated that, "[r]escission will
performance of its obligations be ordered only where the breach complained of is substantial as to defeat
was a substantial breach, let the object of the parties in entering into the agreement. It will not be granted
alone a breach of contract, as where the breach is slight or casual." [Phil. Amusement Enterprises, Inc. v.
would warrant rescission Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.]
under Art. 1191 of NCC. Further, "[t]he question of whether a breach of a contract is substantial
depends upon the attendant circumstances." [Universal Food Corporation v.
Court of Appeals, G. R. No. L-29155, May 13,1970,33 SCRA 1, 18].

In the case at bar, the conduct of Delta indicates that the Genuinos' non-
performance of its obligations was not a substantial breach, let alone a
breach of contract, as would warrant rescission.

First, Delta did not do anything when Genuinos refused to accept the delivery
of the pipes two months after the execution of contract.

Secondly, three (3) years later when the Genuinos offered to make payment
Delta did not raise any argument but merely demanded that the quoted prices
be increased. Moreover, the power to rescind under Art. 1191 is not
absolute. "[T]he act of a party in treating a contract as cancelled or resolved
on account of infractions by the other contracting party must be made known
to the other and is always provisional, being ever subject to scrutiny and
review by the proper court." In the instant case, Delta made no manifestation
whatsoever that it had opted to rescind its contracts with the Genuinos. It only
raised rescission as a defense when it was sued for specific performance by
private respondents.

Further, it would be highly inequitable for petitioner Delta to rescind the two
(2) contracts considering the fact that not only does it have in its possession
and ownership the black iron pipes, but also the P15,900.00 down payments
private respondents have paid. And if petitioner Delta claims the right to
rescission, at the very least, it should have offered to return the P15,900.00
down payments [See Art. 1385, Civil Code and Hodges v. Granada, 59 Phil.
429 (1934)].
4. SSS vs. Moonwalk Development and Housing CorporationFACTS:

Facts:
Plaintiff SSS approved the application of Defendant Moonwalk fora loan of P30,000,000 for the purpose of developing and
constructing a housing project.
Out of P30,000,000 approved loan, the sum of P9,595,000 wasreleased to defendant Moonwalk.
A third Amendment Deed of Mortgage was executed for thepayment of the amount of P9,595,000.
Moonwalk made a total payment of P23,657,901.84 to SSS for theloan principal of P12,254,700.
After settlement of the account, SSS issued to Moonwalk the release of Mortgage for Moonwalk’s Mortgaged properties.
In letter to Moonwalk, SSS alleged that it committed an honestmistake in releasing defendant.
That Moonwalk has still 12% penalty for failure to pay on time theamortization which is in the penal clause of the contract.
Moonwalk’s counsel told SSS that it had completely paid its obligation to SSS and therefore there is no recovery of any penalty.

ISSUE:
Is the penalty demandable even after the extinguishment of the principal obligation?

HELD:
No. There has been a waiver of the penal clause as it was not demanded before the full obligation was fully paid and
extinguished.
Default begins from the moment the creditor demands the performance of the obligation. In this case, although there were late
amortizations there was no demand made by SSS for the payment of the penalty hence Moonwalk is not in delay in the payment
of the penalty. No delay occurred and there was no occasion when the penalty became demandable and enforceable.
Since there was no default in the performance of the main obligation-payment of the loan- SSS was never entitled to recover any
penalty.
If the demand for the payment of the penalty was made prior tothe extinguishment of the obligation which are: 1. e principal
obligation 2. The interest of 12% on the principal obligation 3.The penalty of 12% for late payment for after demand, Moonwalk
would be in delay and therefore liable for the penalty.

5. J PLUS ASIA DEVELOPMENT CORPORATION V. UTILITY ASSURANCE CORPORATION GR NO. 199650 JUNE 26, 2013

TOPIC: Default or mora, INTERPRETATION of Contracts, PENAL CLAUSE/ LIQUIDATED DAMAGES

FACTS:
J Plus Asia, represented by its chairman Joo Han lee, and Martin Mabunay, entered into a CONSTRUCTION AGREEMENT whereby
Mabunay undertook to build the former’s Condominium/hotel in Boracay. The project was to be completed within 1 yr from the
siigning of the NOTICE OF AWARD and receipt of 20% down payment (8.4 milllion) The down payment was fully paid on January 14,
2008. Per the agreed work schedule, the completion date of the project was December 31, 2008. Mabunay also submitted the
required Performance Bond issued by Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or
P8.4 million.

Mabunay commenced work on January 7, 2008. However, as evidenced by the Joint Construction Evaluation Result and Status,
signed by both parties, the project was only 31.39 % complete as of November 14, 2008. Thus, J PLUS ASIA terminated the contract
and sent demand letters to Mabunay and the surety. J Plus Asia filed a request for arbitration before the Construction Industry
Arbitration Commission (CIAC) and prayed that MAbunay and Surety be ordered to pay 8.9 Million as liquidated damages and 2.3
Million to the unrecouped down payment or overpayment made to Mabunay.

Mabunay’s answer alleged that the delay was caused by retrofitting and other revision works ordered by Joo Han Lee. The surety on
the other hand filed a MTD for lack of cause of action. The surety argued that the performance bond merely guaranteed the 20%
down payment and not the entire obligation of Mabunay. THE CIAC ruled in favor of JPLUS ASIA. THE CA ruled that Mabunay has not
yet incurred delay and that obligation was not yet demandable because the contract was terminated prior to completion date.

ISSUES:
w/n the Mabunay had incurred delay? (YES)
w/n the delay should be reckoned only after the lapse of the 1 year contract period, and consequently w/n Mabunay’s liability for
liquidated damages arises only upon the happening of such condition (DELAY MUST BE RECKONED FROM FILING OF COMPLAINT)

HELD:
Mabunay already incurred delay at the time the contract was terminated.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the
former. It is the nonfulfillment of an obligation with respect to time. Article 1169 of the Civil Code provides that those obliged to
deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation. One who contracts to complete certain work within a certain time is liable for the damage for not completing it
within such time, unless the delay is excused or waived. The following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.

Mabunay was already in delay. Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Here, the work schedule
approved by petitioner was intended, not only to serve as its basis for the payment of monthly progress billings, but also for
evaluation of the progress of work by the contractor. The Construction Agreement provided that the contractor shall be deemed in
default, if among others, it had delayed without justifiable cause the completion of the project by more than 30 calendar days based
on official work schedule duly approved by the owner.

The Construction Agreement authorizes petitioner to confiscate the Performance Bond to answer for all kinds of damages it may
suffer as a result of the contractor’s failure to complete the building. Having terminated the contract, petitioner is entitled to the
proceeds of the bond as indemnification for damages it sustained due to the breach committed by Mabunay. Such stipulation
allowing the confiscation of the contractor’s performance bond partakes of the nature of a penalty clause, which is an accessory
undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. The Performance Bond
guaranteed not only the 20% down payment but the full and faithful compliance of Mabunay’s obligations under the Construction
Agreement. Nowhere in law or jurisprudence does it state that the obligation or undertaking by a surety may be apportioned.

The imposition of interest on the claims of petitioner is in order. If a surety upon demand fails to pay, he can be held liable for
interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the
contract but because of the default and the necessity of judicial collection.

6. Megaworld v. Tanseco

Facts:

1. Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco)entered into a Contract to Buy and Sell
of a condominium unit: 30 equal monthly installments and the balance on the stipulated delivery date of the unit.
2. Tanseco paid all installments. Megaworld, however, failed to deliver the unit within the stipulated period.
3. A few days shy of three years later, Megaworld, informed Tanseco that the unit was ready for inspection preparatory to
delivery. Tanseco replied that in view of Megaworld’s failure to deliver the unit on time, she was demanding the return of
total installment payment she had made, with interest at 12% per annum.
4. Her demand having been unheeded, Tanseco filed on June 5, 2002 with the HLURB a complaint against Megaworld for
rescission of contract, refund of payment, and damages.
5. Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had
not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of
turnover.

Issue: Whether or not the defense of fortuitous events stands

Held: NO.

Ratio: Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not before seen, or which, though foreseen, were inevitable. The Court cannot generalize the 1997 Asian
financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-
selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business
risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an
instance of caso fortuito. Megaworld’s excuse for its delay does not thus lie.

The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the
time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco
with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the
contract, it is liable therefor. That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund does not
abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on
the agreed date.

7. LAWYERS COOPERATIVE PUBLISHING COMPANY V. PERFECTO A. TABORA

G.R. No. L-21263 April 30, 1965

Facts:
 Perfecto A. Tabora(buyer) bought from the Lawyers Cooperative Publishing Company(seller) one complete set of American
Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American Jurisprudence, General Index,
consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of
P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books were duly delivered and
receipted for by Tabora on May 15, 1955 in his law office in Naga City.
 However, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block
including at the law office and library of Tabora.
 As a result, the books bought from the company as above stated, together with Tabora's important documents and papers,
were burned during the conflagration.
 This unfortunate event was immediately reported by Tabora to the company in a letter he sent on May 20, 1955. On May 23,
the company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the Philippine
Reports.
 As Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price notwithstanding the long
time that had elapsed, the company demanded payment of the installments due, and having failed, to pay the same, it
commenced the present action before the CFI of Manila for the recovery of the balance of the obligation.
 Defendant, in his answer, pleaded force majeure as a defense. He alleged that the books bought from the plaintiff were
burned during the fire that broke out in Naga City on May 15, 1955, and since the loss was due to force majeure he cannot be
held responsible for the loss.
 CFI rendered judgment for the plaintiff. It ordered Tabora to pay the sum of P1,382.40, with legal interest thereon from the
filing of the complaint, plus a sum equivalent to 25% of the total amount due as liquidated damages, and the cost of action.
 Tabora appealed to the CA, but the case was forwarded to the SC by virtue of a certification issued by the CA that the case
involves only questions of law.

Issue:
W/N respondent Tabora should bear the loss and pay the unpaid purchase price.

Ratio:
YES.
 It was provided in the contract that "title to and ownership of the books shall remain with the seller until the purchase
price shall have been fully paid. Loss or damage to the books after delivery to the buyer shall be borne by the
buyer."

 General Rule: the loss of the object of the contract of sale is borne by the owner, or in case of force majeure the one under
obligation to deliver the object is exempt from liability. BUT, this rule does not apply in this case because the parties clearly
agreed to the abovementioned contrary stipulation.

 Although the seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully
paid, such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure
the performance by the buyer of his obligation but in the very contract it was expressly agreed that the "loss or
damage to the books after delivery to the buyer shall be borne by the buyer."

Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part provides:
 (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under
the contract, the goods are at the buyer's risk from the time of such delivery

 Force majeure will not exempt Tabora from his liability. This is because this only holds true when the obligation consists
in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event.
 Here these qualifications are not present. The obligation does not refer to a determinate thing, but is pecuniary in
nature(money), and the obligor bound himself to assume the loss after the delivery of the goods to him.
Obligor(Tabora) agreed to assume any risk concerning the goods from the time of their delivery.

WHEREFORE, the decision appealed from is modified by eliminating that portion which refers to liquidated damages. No costs.

8. Nissan Car Lease Phils. V Lica Management (2016)

GR No. 176986, January 13, 2016

Nissan Car Lease Phils Inc (Petitioner) v LICA Management and Proton (Respondents)

Nature of Action: Petition for Review on Certiorari assailing the decision of the Court of Appeals in ruling for the validity of extra-
judicial rescission.

FACTS:

LMI is the absolute owner of a property located at Pasong Tamo Extension, Makati City. It entered into a contract with NCLPI for the
latter to lease the property for a term of ten (10) years with a monthly rental of ₱308,000.00. Subsequently, NCLPI became
delinquent in paying the monthly rent. Nissan and Lica verbally agreed to convert the arrearages into a debt to be covered by a
promissory note and twelve (12) postdated checks each amounting to ₱162,541.95 as monthly payments starting June 1996 until
May 1997. While NCLPI was able to deliver the postdated checks per its verbal agreement with LMI, it failed to sign the promissory
note and pay the checks for June to October 1996. Thus, in a letter dated October 16, 1996, LMI informed NCLPI that it was
terminating their Contract of Lease due to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the amount of
₱2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5) days from receipt of the notice. In the meantime, Proton
sent NCLPI an undated request to use the premises as a temporary display center for "Audi" brand cars for a period of ten (10) days.
NCLPI entered into a Memorandum of Agreement with Proton whereby the former agreed to allow Proton "to immediately
commence renovation work even prior to the execution of the Contract of Sublease. LMI entered into a Contract of Lease with
Proton over the subject premises. NCLPI demanded Proton to vacate the leased premises. However, Proton replied that it was
occupying the property based on a lease contract with LMI. In a letter of even date addressed to LMI, NCLPI asserted that its failure
to pay rent does not automatically result in the termination of the Contract of Lease nor does it give LMI the right to terminate the
same.

ISSUE:

Whether the contract can be rescinded extra-judicially despite the absence of a special contractual stipulation therefor.

RULING:

Yes. Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one of the obligors should fail to
comply with what is incumbent upon him.

It is clear from the records that NCLPI committed substantial breaches of its Contract of Lease with LMI. Aside from non-payment of
rentals, it appears that NCLPI also breached its obligations under Paragraphs 4th and 5th of the Contract of Lease which prohibit it
from subleasing the premises or introducing improvements or alterations thereon without LMI’s prior written consent. As revealed
from the evidence presented by PROTON however, even before NCLPI represented that it would try to negotiate a possible sub-
lease of the premises, it had, without any semblance of authority from LMI, already effectively subleased the subject premises to
PROTON and allowed the latter not only to enter the premises but to renovate the same. It is true that NCLPI and LMI’s Contract of
Lease does not contain a provision expressly authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without
prior court approval, pursuant to Art. 1191 of the Civil Code.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one of the obligors should fail to
comply with what is incumbent upon him. Otherwise stated, an aggrieved party is not prevented from extra-judicially rescinding a
contract to protect its interests, even in the absence of any provision expressly providing for such right. The rationale for this rule
was explained in the case of University of the Philippines v. De los Angeles wherein this Court held:
The law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment
before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

An extrajudicial rescission based on grounds not specified in the contract would not preclude a party to treat the same as rescinded.
The rescinding party, however, by such course of action, subjects himself to the risk of being held liable for damages when the
extrajudicial rescission is questioned by the opposing party in court. In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in
law.

Rule: “Even when there are no contractual grounds, extrajudicial rescission shall be recognized as long as the opposing party doesn’t
question the same. However, even if there were contractual grounds for extrajudicial rescission, the opposing party may still dispute
it with the courts as to whether or not the rescission was proper.”

Ratio: While NCLPI and LMI’s lease contract doesn’t contain a provision expressly authorizing extrajudicial rescission, LMI can
nevertheless rescind the contract, without prior court approval.