obli conh w 2 case digest

7/26/2019 Obli Conh w 2 Case Digest

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1. Conditional Obligation

A. HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT

PLAN VS. SPOUSES BEINVENIDO AND EDITHA BROQUEZA (G.R. NO.

178610, 17 NOVEMBER 2010).

DOCTRINE: PURE OBLIGATION IS IMMEDIATELY DEMANDABLE.

FACTS:

XYZ WAS AN EMPLOYEE OF ABC INC. XYZ OBTAINED CAR LOAN. LATER, XYZ

WAS TERMINATED BY ABC INC. ABC INC DEMANDED PAYMENT OF THE BALANCE

OF THE CAR LOAN. XYZ SAID THE LOAN IS NOT YET MATURE BECAUSE IT IS TO

BE PAID BY INSTALLMENT. ABC INC. FILED COLLECTION CASE AT MTC. MTC

RULED XYZ MUST PAY IMMEDIATELY THE BALANCE BECAUSE SHE CAN NOLONGER AVAIL OF THE INSTALLMENT-PAYMENT BENEFIT FOR EMPLOYEES OF

ABC INC. ON APPEAL RTC AFFIRMED MTC DECISION. HOWEVER, C.A. REVERSED

RTC DECISION ON THE GROUND THAT THE LOANS HAVE NOT YET MATURED AND

THUS ABC INC HAS NO CAUSE OF ACTION.

ISSUE:

WHETHER THE BALANCE OF THE LOAN IS IMMEDIATELY DEMANDABLE.

RULING:

THE OBLIGATION TO PAY THE CAR LOAN IS A PURE OBLIGATION BECAUSE THE

PROMISSORY NOTE DOES NOT SPECIFY A PERIOD. WHEN XYZ CEASED BEING

AN EMPLOYEE OF ABC INC, SHE CAN NO LONGER AVAIL OF THE BENEFIT OF

PAYMENT BY INSTALLMENT. THEREFORE, ABC INC CAN DEMAND IMMEDIATE

PMENT.

B. Virgilio R. Romero v CA & Enriqueta Chua Vda. Ongsiong

FACTS:

Romero was engaged in the business of production, manufacture and exportation

of perlite filter aids, permalite insulation and processed perlite ore. In 1988,

petitioner and his foreign partners decided to put up a central warehouse in Metro

Manila on a land area of approximately 2,000 square meters. Alfonso Flores and

his wife, accompanied by a broker, offered a parcel of land measuring 1,952

square meters. Located in Barangay San Dionisio, Paraaque owned by private


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respondent, Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and,

except for the presence of squatters in the area, he found the place suitable for a

central warehouse. Later, the Flores spouses called on petitioner with a proposal

that should he advance the amount of P50,000.00 which could be used in taking

up an ejectment case against the squatters, private respondent would agree to

sell the property for only P800.00 per square meter. Petitioner expressed hisconcurrence. On 09 June 1988, a contract, denominated "Deed of Conditional

Sale," was executed between petitioner and private respondent. 6.

Chua filed an ejectment complaint against Melchor Musa and 29 other squatter

families. Judgment was rendered in favour of Chua.

07 April 1989

Chua sent a letter to Romero saying that she wants to return the P50,000.00

since she could not get rid of the squatters.

Romeros counsel refused and proposed that Romero has taken it upon himself toeject the squatters and that the expenses shall be chargeable to the purchase of

the land.

The court issued a 45-day grace period for the ejection of the squatters.

19 June 1989

Chuas camp advised Romeros camp that the Deed of Conditional Sale had been

rendered null and void because of his clients failure to comply with the 60-day

period of ejecting the squatters.

CAUSE OF ACTION:Chua filed a case to compel Romero to receive the P50,000.00.

ISSUE

Whether or not the vendor may demand the rescission of a contract for the sale

of a parcel of land for a cause traceable to his own failure to have the squatters

on the subject property evicted within the contractually-stipulated period?

HELD:

No.

RATIO

: 1. A sale is at once perfected when a person (the seller) obligates himself, for a

price certain, to deliver and to transfer ownership of a specified thing or right to

another (the buyer) over which the latter agrees. The object of the sale is the

1,952-square meter lot in San Dionisio, Paraaque, Rizal. The purchase price was

fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution

of the document of sale and the balance of P1,511,600.00 payable "45 days after

the removal of all squatters from the above described property."


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2.When the contract is perfected, the parties are bound not only to the fulfillment

of what has been expressly stipulated but also to all the consequences which,

according to their nature, may be in keeping with good faith, usage and law.

a. Chua is obligated to evict the squatters on the property.b. The ejectment of the squatters is a condition the operative act of which sets

into motion the period of compliance by petitioner of his own obligation, i/e to pay

the balance of the purchase price.

c. Chuas failure "to remove the squatters from the property" within the

stipulated period gives Romero the right to either refuse to proceed with the

agreement or waive that condition in consonance with Article 1545 of the Civil

Code. This option clearly belongs to petitioner and not to private respondent.

3. Mixed Condition

a. The condition is not of a potestative nature which is dependent solely on thewill of the debtor" that is be void in accordance with Article 1182 of the Civil Code

but a

"mixed condition "dependent not on the will of the vendor alone but also of third

persons like the squatters and government agencies and personnel concerned.

We must hasten to add, however, that where the so-called"potestative condition"

is imposed not on the birth of the obligation but on its fulfillment, only the

condition is avoided, leaving unaffected the obligation itself.

4.Waiving of the condition

According to the Code, the obligee may choose to proceed with the agreement orwaive the performance of the condition.

A.In the case at bar, Romero has clearly waived the performance of the obligation

by saying that he will be ejecting the squatters.

5. Rescission of the contract by Chua

a. In any case, private respondent's action for rescission is not warranted because

she is not the injured party. The right of resolution of a party to an obligation

under Article 1191 of the Civil Code is predicated on a breach of faith by the other

party that violates the reciprocity between them. It is private respondent who has

failed in her obligation under the contract.

C. SECURITY BANK & TRUST CO. V. C.A. & YSMAELFERRER G.R. No.

117009 October 11, 1995

FACTS

Private respondent Ysmael C. Ferrer was contracted by herein petitioners SBTC

and Rosito C. Manhit to construct the building of SBTC in Davao City for the price


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of P1.7M. The contract provided that Ferrer would finish the construction in200

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 paymentof the increased cost. Said demands were supported by receipts, invoices,

payrolls and other documents proving the additional expenses.

SBTC and a representative of an architectural firm consulted by SBTC, verified

Ferrer's claims for additional cost .A recommendation was then made to settle

Ferrer's claim but only for P200k. SBTC, instead of paying the recommended

additional amount, denied ever authorizing payment of any amount beyond the

original contract price. SBTC likewise denied any liability for the additional cost

based on Article IX of the building contract. Ferrer then filed a complaint for

breach of contract with damages. RTC ruled for Ferrer and ordered SBTC and

Rosito C. Manhit to pay damages.

ISSUE

: WON SBTC IS LIABLE FOR THE ADDITIONAL EXPENSES?

HELD

: YES. In the present case, petitioners' arguments to support absence of liability

for the cost of construction beyond the original contract price are not persuasive.

Under Article IX of the construction contract, petitioners would make the

appropriate adjustment to the contract price in case the cost of the project

increases through no fault of the contractor (private respondent).Under Article1182 of the Civil Code,

a conditional obligation shall be void if its fulfillment depends upon the sole will of

the debtor

. In the present case, the mutual agreement, the absence of which petitioner

bank relies upon to support its non-liability for the increased construction cost, is

in effect a condition dependent on petitioner bank's sole will, since private

respondent would naturally and logically give consent to such an agreement

which would allow him recovery of the increased cost. Further, it cannot be

denied that petitioner bank derived benefits when private respondent completed

the construction even at an increased cost. Hence, to allow petitioner bank to

acquire the constructed building at a price far below its actual construction cost

would undoubtedly constitute unjust enrichment for the bank to the prejudice of

private respondent. Such unjust enrichment, as previously discussed, is not

allowed by law.

D. SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners,


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vs.KALAYAAN DEVELOPMENT & INDUSTRIAL CORPORATION,

Respondent.

G.R. No. 163244 June 22, 2009

Ponente: Peralta, J.

Facts: Kalayaan Development & Industrial Corporation discovered that Spouses

Jose and Gloria Valenzuela had occupied and built a house on a parcel of land it

owned, and demanded that they vacate said property. Upon negotiation,

however, petitioners and Kalayaan entered a Contract to Sell wherein the

petitioners would purchase 236 square meters of the subject property for

P1,416,000 in twelve equal monthly installments. The contract further stated that

upon failure to pay any of said installments, petitioners would be liable for

liquidated penalty at 3% a month compounded monthly until fully paid. Kalayaan

would also execute the deed of absolute sale only upon full payment.Petitioners were only able to pay monthly installments amounting to a total of

P208, 000.00. They then requested Kalayaan to issue a deed of sale for 118

square meters of the lot where their house stood, arguing that since they had

paid half the purchase price, or a total of P708,000.00 representing 118 square

meters of the property. Kalayaan, on the other hand, sent two demand letters

asking petitioners to pay their outstanding obligation including agreed penalties.

Gloria Valenzuelas sister, Juliet Giron, assumed the remaining balance for the

118 square meters of the subject property at P10,000.00 per month to Kalayaan,

which the latter accepted for and in behalf of Gloria. Thereafter, Kalayaan

demanded that petitioners pay their outstanding obligation, but were unheeded.Kalyaan then filed a Complaint fot the Rescission of Contract and Damages

against petitioners. The RTC of Caloocan rendered a Decision in favor of

Kalayaan, rescinding the contract between the parties and ordering petitioners to

vacate the premises.

Petitioners sought recourse from the CA. They aver that the CA failed to see that

the original contract between petitioners and Kalayaan was altered, changed,

modified and restricted as a consequence of the change in the person of the

principal debtor (Sps. Valenzuela to Juliet). When Kalayaan agreed to a monthly

amortization of P10,000.00 per month the original contract was changed, and

that the same recognized Juliets capacity to pay and her designation as the new

debtor. Nevertheless, the CA affirmed the RTC ruling.

Issue: If the original contract was novated and the principal obligation to pay for

the remaining half of the subject property was transferred from petitioners to

Juliet.


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Held: No. Novation is never presumed. Novation is the extinguishment of an

obligation by the substitution or change of the obligation by a subsequent one

which extinguishes or modifies the first, either by changing the object or principal

conditions, or by substituting another in place of the debtor, or by subrogating a

third person in the rights of the creditor. Parties to a contract must expressly

agree that they are abrogating their old contract in favor of a new one. Inabsence of an express agreement, novation takes place only when the old and

new obligations are incompatible on every point.

These are the indispensable requisites of novation:

1) There must be a previous valid obligation;

2) There must be an agreement of the parties concerned to a new contract;

3) There must be the extinguishment of the old contract; and

4) There must be the validity of the new contract.

In the instant case, none of the aforementioned requisites are present, as

Kalayaan never agreed to the creation of a new contract between them or Juliet.Kalayaans acceptance of the late payments made by Juliet is, at best, an act of

tolerance on part of Kalayaan that could not have modified the contract.

The non-fulfillment by petitioners of their obligation to pay, which is a suspensive

condition for the obligation of Kalayaan to sell and deliver the title to the

property, rendered the Contract to Sell ineffective and without force and effect.

The parties stand as if the conditional obligation had never existed; Kalayaan

cannot be compelled to transfer ownership of the property to petitioners.

E. AYALA INC VS. RAY BURTON CORP

GR No. 163075

January 23, 2006

FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp. entered into a

contract denominated as a Contract to Sell, with a Side Agreement of even

date. In these contracts, petitioner agreed to sell to respondent a parcel of land

situated at Muntinlupa City. The purchase price of the land is payable as follows:

On contract date: 26%, inclusive of option money

Not later than 1-6-96: 4%

In consecutive quarterly installments for a period of 5 years: 70%

Respondent paid thirty (30%) down payment and the quarterly amortization.

However in 1998, respondent notified petitioner in writing that it will no longer


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continue to pay due to the adverse effects of the economic crisis to its business.

Respondent then asked for the immediate cancellation of the contract and for a

refund of its previous payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, it filed with the RTC

Makati City, a complaint for specific performance against respondent, demandingfrom the latter the payment of the remaining unpaid quarterly installments

inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting

that it (respondent) notified the latter of its inability to pay the remaining

installments. Respondent invoked the provisions of paragraphs 3 and 3.1 of the

contract to sell providing for the refund to it of the amounts paid, less interest

and the sum of 25% of all sums paid as liquidated damages.

The trial court rendered a Decision in favor of Ayala and holding that respondenttransgressed the law in obvious bad faith. It ordered the defendant ordered to

pay Ayala the unpaid balance, interest agreed upon, and penalties. Defendant is

further ordered to pay plaintiff for attorneys fees and the costs of suit. Upon full

payment of the aforementioned amounts by defendant, plaintiff shall, as it is

hereby ordered, execute the appropriate deed of absolute sale conveying and

transferring full title and ownership of the parcel of land subject of the sale to and

in favor of defendant.

On appeal, the CA rendered a Decision reversing the trial courts Decision.

Hence, the instant petition for review on certiorari.

ISSUE:

1. WON respondents non-payment of the balance of the purchase price gave rise

to a cause of action on the part of petitioner to demand full payment of the

purchase price; and

2. WON Ayala should refund respondent the amount the latter paid under the

contract to sell.

HELD: The petition is denied. The CA decision is affirmed.

At the outset, it is significant to note that petitioner does not dispute that its

December 22, 1995 transaction with respondent is a contract to sell. Also, the

questioned agreement clearly indicates that it is a contract to sell, not a contract

of sale. Paragraph 4 of the contract provides:


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4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property shall

transfer to the PURCHASER upon payment of the balance of the Purchase Price

and all expenses, penalties and other costs which shall be due and payable

hereunder or which may have accrued thereto. Thereupon, the SELLER shall

execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the

SELLERS rights, title and interest in and to the Property to the PURCHASER

1. NO. Considering that the parties transaction is a contract to sell, can

petitioner, as seller, demand specific performance from respondent, as buyer?

Blacks Law Dictionary defined specific performance as (t)he remedy of requiring

exact performance of a contract in the specific form in which it was made, or

according to the precise terms agreed upon. The actual accomplishment of a

contract by a party bound to fulfill it.

Evidently, before the remedy of specific performance may be availed of, theremust be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by the seller

until the purchaser makes full payment of the agreed purchase price. The

non-fulfillment by the respondent of his obligation to pay, which is a suspensive

condition to the obligation of the petitioners to sell and deliver the title to the

property, rendered the contract to sell ineffective and without force and effect;

failure of which is not really a breach, serious or otherwise, but an event that

prevents the obligation of the petitioners to convey title from arising, in

accordance with Article 1184 of the Civil Code .

The parties stand as if the conditional obligation had never existed. Article 1191

of the New Civil Code will not apply because it presupposes an obligation already

extant. There can be no rescission of an obligation that is still non-existing, the

suspensive condition not having happened Thus, a cause of action for specific

performance does not arise.

Here, the provisions of the contract to sell categorically indicate that respondents

default in the payment of the purchase price is considered merely as an event,

the happening of which gives rise to the respective obligations of the parties

mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event of Default

under this contract: the PURCHASER fails to pay any installment on the balance,

for any reason not attributable to the SELLER, on the date it is due, provided,

however, that the SELLER shall have the right to charge the PURCHASER a late

penalty interest on the said unpaid interest at the rate of 2% per month


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computed from the date the amount became due and payable until full payment

thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter, if

any such event shall then be continuing for a period of six (6) months, the

SELLER shall have the right to cancel this Contract without need of courtdeclaration to that effect by giving the PURCHASER a written notice of

cancellation sent to the address of the PURCHASER as specified herein by

registered mail or personal delivery. Thereafter, the SELLER shall return to the

PURCHASER the aggregate amount that the SELLER shall have received as of the

cancellation of this Contract, less: (i) penalties accrued as of the date of such

cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total

amount paid as liquidated damages, and (iii) any unpaid charges and dues on the

Property. Any amount to be refunded to the PURCHASER shall be collected by the

PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such

cancellation, the SELLER shall be free to dispose of the Property covered herebyas if this Contract had not been executed. Notice to the PURCHASER sent by

registered mail or by personal delivery to its address stated in this Contract shall

be considered as sufficient compliance with all requirements of notice for

purposes of this Contract.14

Therefore, in the event of respondents default in payment, petitioner, under the

above provisions of the contract, has the right to retain an amount equivalent to

25% of the total payments. As stated by the CA, petitioner having been informed

in writing by respondent of its intention not to proceed with the contract prior to

incurring delay in payment of succeeding installments, the provisions in thecontract relative to penalties and interest find no application.

2. YES. The CA is correct that with respect to the award of interest, petitioner is

liable to pay interest of 12% per annum upon the net refundable amount due

from the time respondent made the extrajudicial demand upon it to refund

payment under the Contract to Sell, pursuant to our ruling in Eastern Shipping

Lines, Inc. v. Court of Appeals.

NOTES:

1. The real nature of a contract may be determined from the express terms of the

written agreement and from the contemporaneous and subsequent acts of the

contracting parties. In the construction or interpretation of an instrument, the

intention of the parties is primordial and is to be pursued.5 If the terms of the

contract are clear and leave no doubt upon the intention of the contracting

parties, the literal meaning of its stipulations shall control.6 If the words appear

to be contrary to the evident intention of the parties, the latter shall prevail over


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the former.7 The denomination or title given by the parties in their contract is not

conclusive of the nature of its contents.

2. Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the

said case, a contract to sell and a contract of sale were clearly and thoroughly

distinguished from each other.

CONTRACT TO SELL

- the ownership is reserved in the seller and is not to pass until the full

payment of the purchase price is made

- full payment is a positive suspensive condition.

- the title remains in the vendor if the vendee does not comply with the

condition precedent of making payment at the time specified in the contract

CONTRACT OF SALE

- the title passes to the buyer upon the delivery of the thing sold

- non-payment of the price is a negative resolutory condition

vendor has lost and cannot recover the ownership of the property until and unless

the contract of sale is itself resolved and set aside

F. Romulo Coronel vs Court of Appeals , Conception Alcaraz

FACTS:

This case is about a sale of land in Roosevelt Avenue, Quezon City by the vendor

Romulo Coronel to the vendees Conception Alcaraz and her daughter Ramona

Patricia Alcaraz with the following conditions:

The Coronels will immediately transfer the certificate of title in their name upon

receipt of the downpayment which is 50,000.

Upon the transfer in their names of the subject property, the Coronels will

execute the deed of absolute sale in favor of Ramona and then Ramona shall

immediately pay the Coronels the whole balance of 1,190,000.


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On January 15, 1985, Conception paid the downpayment of 50,000 and then on

February 6, 1985, the property was now registered under the name of Coronels.

By Feb. 18, 1985, the Coronels sold the property to Catalina B. Mabanag for

1,580,000 after she made a 300,000 downpayment. This is the reason why theCoronels cancelled and rescind the contract with the Alcaraz by depositing back

the 50,000 to Ramonas bank account.

On Feb. 22, Conception filed a complaint for specific performance against the

Coronels. On April, the Coronels executed a deed of absolute sale over the

subject property to Catalina after which on June Catalina was issued a new title

over the subject property.

ISSUE:

Whether or not the Receipt of Down payment embodied a perfected contract of

sale or just a mere contract to sell?

HELD:

CONTRACT OF SALE- contracting parties obligates himself to transfer the

ownership and to deliver a determinate thing and the other to pay a price certain

in money or its equivalent.

CONTRACT TO SELL- the prospective seller explicitly reserves the transfer of the

title to the prospective buyer, meaning the seller does not yet agree or consent to

transfer the ownership of the property until the happening of a contingent event

like full payment of price.

SUPREME COURT RULING:

When the Receipt of Down Payment document was prepared and

signed by Romulo Coronel, the parties had agreed to a conditional contract of sale

the consummation of the contract is subject only to the successful transfer of the

certificate of Title.


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According to Supreme Court, the receipt of down payment document manifests a

clear intent of the Coronels to transfer the title to the buyer, but since the title is

still in the name effect the transfer even though the buyers are able and willing to

immediately pay the purchase price. The agreement as well could not have been

a contract to sell because the seller or the Coronels made no express reservation

of ownership or the title of the land.

On Feb. 6, 1985, the Contract of Sale between the Coronels and the Alcaraz

became obligatory.

G. PEOPLE vs. HOLY TRINITY REALTY DEVELOPMENT CORP.GR 172410

H. Heirs of Moreno vs. MACTAN

GR- 156273 October 15, 2003

FACTS:

1. MORENO: successors of 2 parcels of land

1. MACTAN wanted to acquire land:

i. Government assured landowners that they

could repurchase their lands once Lahug Airport was closed or its operations

transferred to Mactan Airport

ii. Moreno refused offer.

iii. Civil Aeronautics Administration as thesuccessor agency of the National Airport Corporation filed a complaint with the

Court of First Instance of Cebu, for the expropriation of land.

iv. Trial court promulgated public use upon

payment of just compensation.

v. MORENO were paid; no appeal.

vi. Certificates of title were issued.

2. LAHUG AIRPORT CEASED OPERATIONS, lands not utilized.

1. Moreno plead for repurchase of land.

i. Filed complaint for reconveyance and

damages.

ii. Averred that they have been convinced not

to oppose since they could repurchase.

iii. MCIAA did not object.

3. ENCHUAN FILED FOR MOTION OF TRANSFER


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1. Acquired through deeds of assignment the rights of land.

2. DPWH claimed it leased in good faith from MCIAA to Regional Equipment

Services and Region 7 Office.

4. TRIAL COURT GRANTED RIGHT TO REPURCHASE but subject to the allegedproperty rights of Richard E. Enchuan and the leasehold of DPWH.

5. CA reversed: rights gained by MCIAA were indicative of ownership in fee

simple

ISSUE:

Do they have right to repurchase? Or right to reversion?

HELD:

PETITION GRANTED. CA DECISION REVERSED AND SET ASIDE.

1. Return or repurchase of the condemned properties of petitioners could be readily

justified as the manifest legal effect or consequence of the trial courts underlying

presumption that Lahug Airport will continue to be in operation when it granted

the complaint for eminent domain and the airport discontinued its activities.

2. ARTICLE 1454: If an absolute conveyance of property is made in order to secure

the performance of an obligation of the grantor toward the grantee, a trust byvirtue of law is established. If the fulfillment of the obligation is offered by the

grantor when it becomes due, he may demand the reconveyance of the property

to him.

a. In the case at bar, government obliged itself to use of land for the expansion

of Lahug Airport

i. Failure to keep its bargain: can be compelled to reconvey,

otherwise, petitioners would be denied the use of their properties upon a state of

affairs that was not conceived nor contemplated when the expropriation was

authorized.

3. ARTICLE 1189: If the thing is improved by its nature, or by time, the

improvement shall inure to the benefit of the creditor.

a. CREDITOR: person who stands to receive something as a result of the

process of restitution.


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i. Petitioners must pay MCIAA the necessary expenses in

sustaining the properties and services

ii. Government may keep whatever income or fruits it may have

obtained from the parcels of land.

iii. Petitioners need not account for the interests that the amountsthey received as just compensation may have earned in the meantime.

I. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY v. BENJAMIN

TUDTUD, et al.

571 SCRA 165 (2008), SECOND DIVISION (Carpio Morales, J.)

The former owner reacquires the property expropriated if the expropriation of the

same was subject to condition that when that purpose is ended or abandoned, itshall be returned to the owner.

FACTS: The National Airports Corporation (NAC) filed a complaint for

expropriation in order to expand the Cebu Lahug Airport. It sought to acquire, by

negotiated sale or expropriation, several lots adjoining the then existing airport

which included the parcels of land owned by the predecessors-in-interest of

respondents Benjamin Tudtud et al. NAC assured the owners that they would

reacquire the land if it is no longer needed by the airport. The Court of First

Instance of Cebu granted the expropriation.

No structures related to the operation of the Cebu Lahug Airport were constructed

on the land expropriated. Respondent Lydia Adlawan (Lydia), acting as

attorney-in-fact of the original owners, sent a letter to the general manager of the

petitioner Mactan Cebu International Airport Authority (MCIAA), the new owner of

the lot and demanded to repurchase the lot at the same price paid at the time of

the taking, without interest.

Lydia filed a complaint before the Regional Trial Court (RTC) of Cebu City for

reconveyance and damages against the MCIAA. The RTC of Cebu rendered

judgment in favor of Tudtud et al. MCIAA appealed to the Court of Appeals but it

affirmed the RTC decision. MCIAA then filed a Motion for Reconsideration but was

denied.


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ISSUE: Whether or not Tudtud et al. are entitled for the reconveyance of the land

expropriated

HELD: Tudtud et al.s witness respondent Justiniano Borga declared that the

original owners did not oppose the expropriation of the lot upon the assurance ofthe NAC that they would reacquire it if it is no longer needed by the airport. The

rights and duties between the MCIAA and Tudtud et al are governed by Article

1190 of the Civil Code which provides: When the conditions have for their

purpose the extinguishment of an obligation to give, the parties, upon the

fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration, or improvement of the thing, the provisions

which, with respect to the debtor, are laid down in the preceding article [Article

1189] shall be applied to the party who is bound to return.

While the MCIAA is obliged to reconvey Lot No. 988 to Tudtud et al., they must

return to the MCIAA what they received as just compensation for the

expropriation of Lot No. 988, plus legal interest to be computed from default,

which in this case runs from the time the MCIAA complies with its obligation to

the respondents. Tudtud et al., must likewise pay the MCIAA the necessary

expenses it may have incurred in sustaining Lot No. 988 and the monetary value

of its services in managing it to the extent that Tudtud et al., were benefited

thereby. Following Article 1187 of the Civil Code, the MCIAA may keep whatever

income or fruits it may have obtained from Lot No. 988, and Tudtud et al., neednot account for the interests that the amounts they received as just compensation

may have earned in the meantime.

J. Ong vs. Bognalbal

FACTS:

Ernesto Bogalbal, an architect-contractor doing business under the

name and style of E.B. Bogalbal Construction, entered into an

Owner-Contractor Agreement with Victoria Ong, a businesswoman, for

the construction of a proposed boutique owned by the latter to be known as

Les Galeries de Paris located at the 3rd Floor of the Shangri-La Plaza,Epifanio Delos Santos Avenue corner Shaw Boulevard, Mandaluyong City.

The agreement provides that in consideration of the sum of two

hundred thousand pesos (P200,000.00), the contractor agrees to furnish

labor, tools and equipment to complete the work on the boutique as per

specification within forty-five (45) days excluding Sundays from the date of

delivery of the construction materials. Payment by the owner shall be made


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by progress billing to be collected every two (2) weeks based on the

accomplishment of work value submitted by the contractor to the owner as

certified for payment by the architect assigned on site.

It is with respect to progress billing no. 4 that the present

controversy arose. When [respondent Bogalbal] submitted the fourth

progress billing on March 31, 1995 for the period covering March 4 to 18,1995, in the sum of P30,950.00 equivalent to 15.47% of the total job

refused to pay the same.

Petitioner Ong claims, as a defense against payment of the fourth

progress billing, that the only reason why the fourth billing was not paid

was because [respondent Bogalbal] himself agreed and committed to

collect the fourth progress billing after he completed the Kenzo flooring.

Petitioner Ong claims that, because of this promise, her obligation to pay

respondent Bogalbal has not yet become due and demandable.

The Court of Appeals rejected this argument, ruling that respondent

Bogalbals stoppage of work on the project prior to its completion cannotjustify petitioner Ongs refusal to pay the fourth progress billing and the

value of respondent Bogalbals accomplished work on the Kenzo flooring.

On the contrary, according to the Court of Appeals, respondent Bogalbal

was justified to refuse to continue the project due to petitioner Ongs failure

to pay the fourth progress billing.

ISSUE:

Whether or not there was a novation?

HELD:The Court of Appeals is in error. If the parties indeed had a verbal

agreement that collection of said billing will be held on abeyance until after

respondent Bogalbal finished the work on the Kenzo flooring, there would

have been a novation of petitioner Ongs obligation to pay the price covered

by the fourth billing by changing the principal conditions therefor. This falls

under the first type of novation under Article 1291 of the Civil Code which

provides:

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.

While the subject of novation is, in the Civil Code, included in Book

IV, Title I, Chapter 4, which refers to extinguishment of obligations, the

effect of novation may be partial or total. There is partial novation when

there is only a modification or change in some principal conditions of the

obligation. It is total, when the obligation is completely extinguished. Also,

the term principal conditions in Article 1291 should be construed to include


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a change in the period to comply with the obligation. Such a change in the

period would only be a partial novation, since the period merely affects the

performance, not the creation of the obligation.

Novation is never presumed. Unless it is clearly shown either by

express agreement of the parties or by acts of equivalent import, this

defense will never be allowed.The evidence preponderates in favor of respondent Bogalbal that

there had been no novation of the contract. At best, what was proven was

a grudging accommodation on the part of respondent Bogalbal to continue

working on the project despite petitioner Ongs failure to pay the fourth

progress billing. Respondent Bogalbals fourth partial billing demand

letters dated 21 April 1995 and 15 May 1995, both of which were served

upon petitioner Ong after the alleged 20 April 1995 meeting, is inconsistent

with the theory that the meeting had produced a novation of the petitioner

Ongs obligation to pay the subject billing.

More importantly, assuming that there was indeed a novation of theobligation of petitioner Ong to pay the fourth billing so as to include as

additional condition the completion of the Kenzo flooring, such new

condition would, nevertheless, be deemed fulfilled. This is pursuant to

Article 1186 of the Civil Code, which provides that the condition shall be

deemed fulfilled when the obligor voluntarily prevents its fulfillment. Ongs

obligation has become a pure obligation.

K. Vda. De Misticavs. NaguiatG.R. No. 137909. December 11, 2003

FACTS:

Eulalio Mistica is the owner of a parcel of land located at Malhacan,Meycauayan, Bulacan. A portion thereof was leased to respondent Naguiat.

Consequently, Mistica entered into a contract to sell with respondent over a

portion of lot containing an area of 200 sq. mtrs.

The agreement was reduced to writing in a document entitled

Kasulatan sa Pagbibilihan

P 20k as the total purchase:

P 2k upon signing;

P 18k to be paid within 10yrs;

In case non payment, vendee shall pay an interest of 12% per

annum.

Pursuant to said agreement, respondent gave a downpayment of P2K

& made another partial payment of P1K & thereafter failed to make any

payments. Eulalio Mistica died sometime in Oct. 1986.

Petitioner claims that she is entitled to rescind the Contract under

Article 1191 of the Civil Code, because respondents committed a

substantial breach when they did not pay the balance of the purchase price

within the ten-year period.


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ISSUE:

1. WON the Kasulatan was a contract to sell? NO

2. WON petitioner is entitled to rescind the contract? NO

3. WON the contract is in the nature of a potestative obligation? NO

HELD:

1. The Kasulatan was clearly a Contract of Sale. A deed of sale is

considered absolute in nature when there is neither a stipulation in the

deed that title to the property sold is reserved to the seller until the full

payment of the price; nor a stipulation giving the vendor the right to

unilaterally resolve the contract the moment the buyer fails to pay within a

fixed period.

2. In a contract of sale, the remedy of an unpaid seller is either

specific performance or rescission. Under Article 1191 of the Civil Code, the

right to rescind an obligation is predicated on the violation of the reciprocitybetween parties, brought about by a breach of faith by one of them.

Rescission, however, is allowed only where the breach is substantial and

fundamental to the fulfillment of the obligation.

In the present case, the failure of respondents to pay the balance of

the purchase price within ten years from the execution of the Deed did not

amount to a substantial breach. In the Kasulatan, it was stipulated that

payment could be made even after ten years from the execution of the

Contract, provided the vendee paid 12 percent interest. The stipulations of

the contract constitute the law between the parties; thus, courts have no

alternative but to enforce them as agreed upon and written.Petitioner never made any demand for the balance of the purchase

price. Petitioner even refused the payment tendered by respondents during

her husbands funeral, thus showing that she was not exactly blameless for

the lapse of the ten-year period. Had she accepted the tender, payment

would have been made well within the agreed period.

3. The Kasulatan does not allow the it to be converted to a

potestative obligation. First, nowhere is it stated in the Deed that payment

of the purchase price is dependent upon whether respondents want to pay

it or not. Second, the fact that they already made partial payment thereof

only shows that the parties intended to be bound by the Kasulatan.

L.Tayag v. Court of AppealsG.R. No. 96053 March 3, 1993

FACTS:Siblings Juan Galicia Sr. and Celerina Labuguin entered into a

contract to sell a parcel of land in Nueva Ecija to a certain Albrigido Leyva:o 3K upon agreemento 10K ten days after the agreement


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o 10K representing vendors indebtedness to Phil Veterans Banko 27K payable within one year from execution of contract.Leyva only paid parts of the obligation.But even after the grace period for payment made in the contract

and while litigation of such case, the petitioners still allowed Leyva to make

payments.With regards to the obligation payable to the Phil Veterans bank bythe vendee, as they deemed that it was not paid in full, such obligationthey completed by adding extra amount to fulfill such obligation. This wasfatal in their case as this is Leyvas argument that they constructivelyfulfilled the obligation which is rightfully due to him. (Trivia: It wasCelerina, Juans sister, that paid the bank to complete such obligation).

Petitioners claim that they are only OBLIGEES with regards to thecontract, so the principle of constructive fulfillment cannot be invokedagainst them.

Petitioners, being both creditor and debtor to private respondent, inaccepting piecemeal payment even after the grace period, are barred to

take action through estoppel.

ISSUES:1. WON there was constructive fulfillment in the part of the

petitioners that shall make rise the obligation to deliver to Leyva the deedof sale? YES

2. WON they are still entitled to rescind the contract? NO, barred byestoppel.

HELD:1. In a contract of purchase, both parties are mutually obligors and

also obligees, and any of the contracting parties may, upon non-fulfillmentby the other privy of his part of the prestation, rescind the contract or seekfulfillment (Article 1191, Civil Code).

In short, it is puerile for petitioners to say that they are the onlyobligees under the contract since they are also bound as obligors to respectthe stipulation in permitting private respondent to assume the loan with thePhilippine Veterans Bank which petitioners impeded when they paid thebalance of said loan. As vendors, they are supposed to execute the finaldeed of sale upon full payment of the balance as determined hereafter.

2. Petitioners accepted Leyvas delayed payments not only beyondthe grace periods but also during the pendency of the case for specific

performance. Indeed, the right to rescind is not absolute and will not begranted where there has been substantial compliance by partial payments.By and large, petitioners actuation is susceptible of but one construction that they are now estopped from reneging from their commitment onaccount of acceptance of benefits arising from overdue accounts of privaterespondent.


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1.1. Article 1182

a. Catungal v. Rodriquez

FACTS:

Agapita T. Catungal (Agapita) owned a parcel of land in her name

situated in the Barrio of Talamban, Cebu City. The said property was

allegedly the exclusive paraphernal property of Agapita. Agapita, with theconsent of her husband Jose, entered into a Contract to Sell with

respondent Rodriguez. Subsequently, the Contract to Sell was purportedly

"upgraded" into a Conditional Deed of Sale. It was agreed that

P25,000,000.00 shall be payable in installments after after the VENDEE

have (sic)'successfully negotiated, secured and provided a Road Right of

Way either by widening the existing Road Right of Way or by securing a

new Road Right of Way. If however said Road Right of Way could not be

negotiated, the VENDEE shall give notice to the VENDOR for them to

reassess and solve the problem by taking other options and should the

situation ultimately prove futile, he shall take steps to rescind or cancel theherein Conditional Deed of Sale. the spouses Catungal requested an

advance of P5,000,000.00 on the purchase price for personal reasons.

Shortly after his refusal to pay the advance, he purportedly learned that

the Catungals were offering the property for sale to third parties. Jose

Catungal demanded that the former make up his mind about buying the

land or exercising his "option" to buy the property. Should Rodriguez fail to

exercise his option to buy the land, the Catungals warned that they would

consider the contract cancelled and that they were free to look for other

buyers. Jose cancelled the contract. Rodriquez filed for a restraining order a

writ of preliminary injunction. The Catungals alleged that there wascontractual breach and bad faith on the part of Rodriguez. Rodriguez

alleged that the Catungals were guilty of several misrepresentations which

purportedly induced Rodriguez to buy the property at the price of

P25,000,000.00. RTC ruled in favor of Rodriguez. Hence this petition.

ISSUE:

WON the provisions of the conditional deed of sale constitute a

postative condition

HELD:

No. paragraph 1(b) of the Conditional Deed of Sale, stating that

respondent shall pay the balance of the purchase price when he has

successfully negotiated and secured a road right of way, is not a condition

on the perfection of the contract nor on the validity of the entire contract or

its compliance as contemplated in Article 1308. It is a condition imposed

only on respondent's obligation to pay the remainder of the purchase price.

In our view and applying Article 1182, such a condition is not purely


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potestative as petitioners contend. It is not dependent on the sole will of

the debtor but also on the will of third persons who own the adjacent land

and from whom the road right of way shall be negotiated. Ina manner of

speaking, such a condition is likewise dependent on chance as there is no

guarantee that respondent and the third party-landowners would come to

an agreement regarding the road right of way. This type of mixed conditionis expressly allowed under Article 1182 of the Civil Code. Furthermore, In

sum, Rodriguez's option to rescind the contract is not purely potestative

but rather also subject to the same mixed condition as his obligation to pay

the balance of the purchase price i.e., the negotiation of a road right of

way. In the event the condition is fulfilled (or the negotiation is successful),

Rodriguez must pay the balance of the purchase price. In the event the

condition is not fulfilled (or the negotiation fails), Rodriguez has the choice

either (a) to not proceed with the sale and demand return of his down

payment or (b) considering that the condition was imposed for his benefit,

to waive the condition and still pay the purchase price despite the lack ofroad access. This is the most just interpretation of the parties' contract that

gives effect to all its provisions.

b. Perez v. Court of Appeals

FACTS:

Primitivo Perez had been insured with the BF Lifeman Insurance

Corporation since 1980 for P20,000.00. In October 1987, an agent of

Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply

for additional insurance coverage of P50,000.00, to avail of the ongoing

promotional discount of P400.00 if the premium were paid annually.Primitivo B. Perez accomplished an application form for the additional

insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog.

The receipt issued by Lalog indicated the amount received was a "deposit."

Unfortunately, Lalog lost the application form accomplished by Perez and so

on October 28, 1987, he asked the latter to fill up another application form.

On November 1, 1987, Perez was made to undergo the required medical

examination, which he passed. Lalog forwarded the application for

additional insurance of Perez, together with all its supporting papers, to the

office of BF Lifeman Insurance Corporation in Quezon which office was

supposed to forward the papers to the Manila office. On November 25,

1987, Perez died while he was riding a banca which capsized during a

storm. At the time of his death, his application papers for the additional

insurance were still with the Quezon office. Lalog testified that when he

went to follow up the papers, he found them still in the Quezon office and

so he personally brought the papers to the Manila office of BF Lifeman

Insurance Corporation. It was only on November 27, 1987 that said papers

were received in Manila. Without knowing that Perez died on November 25,


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1987, BF Lifeman Insurance Corporation approved the application and

issued the corresponding policy for the P50,000.00 on December 2, 1987

Virginia went to Manila to claim the benefits under the insurance

policies of the deceased. She was paid P40,000.00 under the first insurance

policy for P20,000.00 (double indemnity in case of accident) but the

insurance company refused to pay the claim under the additional policycoverage of P50,000.00, the proceeds of which amount to P150,000.00 in

view of a triple indemnity rider on the insurance policy. In its letter of

January 29, 1988 to Virginia A. Perez, the insurance company maintained

that the insurance for P50,000.00 had not been perfected at the time of the

death of Primitivo Perez. Consequently, the insurance company refunded

the amount of P2,075.00 which Virginia Perez had paid. Lifeman filed for

the rescission and the declaration of nullity. Perez, on the other hand,

averred that the deceased had fulfilled all his prestations under the contract

and all the elements of a valid contract are present.

RTC ruled in favor of Perez. CA reversed.

ISSUE:

Whether or not there was a perfected additional insurance contract.

HELD:

The contract was not perfected. Insurance is a contract whereby, for

a stipulated consideration, one party undertakes to compensate the other

for loss on a specified subject by specified perils. A contract, on the other

hand, is a meeting of the minds between two persons whereby one binds

himself, with respect to the other to give something or to render someservice.

Consent must be manifested by the meeting of the offer and the

acceptance upon the thing and the cause which are to constitute the

contract. The offer must be certain and the acceptance absolute. When

Primitivo filed an application for insurance, paid P2,075.00 and submitted

the results of his medical examination, his application was subject to the

acceptance of private respondent BF Lifeman Insurance Corporation. The

perfection of the contract of insurance between the deceased and

respondent corporation was further conditioned upon compliance with the

following requisites stated in the application form:

"there shall be no contract of insurance unless and until a policy is issued

on this application and that the said policy shall not take effect until the

premium has been paid and the policy delivered to and accepted by me/us

in person while I/We, am/are in good health."

The assent of private respondent BF Lifeman Insurance Corporation

therefore was not given when it merely received the application form and

all the requisite supporting papers of the applicant. Its assent was given


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when it issues a corresponding policy to the applicant. Under the

abovementioned provision, it is only when the applicant pays the premium

and receives and accepts the policy while he is in good health that the

contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November

25, 1987, his application papers for additional insurance coverage were stillwith the branch office of respondent corporation in Gumaca and it was only

two days later, or on November 27, 1987, when Lalog personally delivered

the application papers to the head office in Manila. Consequently, there was

absolutely no way the acceptance of the application could have been

communicated to the applicant for the latter to accept inasmuch as the

applicant at the time was already dead.

c. Romero v. Court of Appeals

FACTS:Private respondent Chua vda. De Ongsiong offered a parcel of lot to

petitioner Romero. Private respondentasked petitioner that he advance the

amount of P50,000.00 which could be used in taking up an ejectment

caseagainst the squatters, private respondent would agree to sell the

property for only P800.00 per squaremeter. Thereafter, a deed of

conditional sale was contracted.

One of the conditions stipulated is that the petitionercan only pay the

balance of the purchase price after the removal of the squatters in said

property, then the deed ofabsolute sale will be contracted.Thereafter,

private respondent sought to return P50,000 for the reason that shecouldnt get rid of the squatters. A complaint was filed in the trial court for

the rescission of the conditional sale contract but was dismissed.On appeal,

CA reversed the decision and rendered the contract null and void.

ISSUE:

May the vendor demand the rescission of a contract for the sale of a

parcel of land for a cause traceable to his own failure to have the squatters

on the subject property evicted within the contractually-stipulated period?

HELD:

No. The decision of CA is reversed and set aside.

In determining the real character of the contract, the title given to it

by the parties is not as much significant as its substance. For example, a

deed of sale, although denominated as a deed of conditional sale, may be

treated as absolute in nature, if title to the property sold is not reserved in

the vendor or if the vendor is not granted the right to unilaterally rescind

the contract predicated on the fulfillment or non-fulfillment, as the case


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may be, of the prescribed condition. A perfected contract of sale may either

be absolute or conditional depending on whether the agreement is devoid

of, or subject to, any condition imposed on the passing of title of the thing

to be conveyed or on the obligation of a party thereto. When ownership is

retained until the fulfillment of a positive condition the breach of the

condition will simply prevent the duty to convey title from acquiring anobligatory force. If the condition is imposed on an obligation of a party

which is not complied with, the other party may either refuse to proceed or

waive said condition (Art. 1545, Civil Code). Where, of course, the

condition is imposed upon the perfection of the contract itself, the failure of

such condition would prevent the juridical relation itself from coming into

existence.

From the moment the contract is perfected, the parties are bound

not only to the fulfillment of what has been expressly stipulated but also to

all the consequences which, according to their nature, may be in keeping

with good faith, usage and law. Under the agreement, private respondent isobligated to evict the squatters on the property. The ejectment of the

squatters is a condition the operative act of which sets into motion the

period of compliance by petitioner of his own obligation, i.e., to pay the

balance of the purchase price. Private respondent's failure "to remove the

squatters from the property" within the stipulated period gives petitioner

the right to either refuse to proceed with the agreement or waive that

condition in consonance with Article 1545 of the Civil Code. This option

clearly belongs to petitioner and not to private respondent.

1.2. Article 1186a. De Leon vs. Benita T. Ong

GR No. 170405, Feb. 2, 2010 Absolute and Conditional Sales

FACTS:

On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels

of land to Benita T. Ong (respondent). The said properties were mortgaged

to a financial institution; Real Savings & Loan Association Inc. (RSLAI). The

parties then executed a notarized deed of absolute sale with assumption of

mortgage. As indicated in the deed of mortgage, the parties stipulated that

the petitioner (de leon) shall execute a deed of assumption of mortgage in

favor of Ong (respondent) after full payment of the P415,000. They also

agreed that the respondent (Ong) shall assume the mortgage. The

respondent then subsequently gave petitioner P415,000 as partial

payment. On the other hand, de leon handed the keys to Ong and de leon

wrote a letter to inform RSLAI that the mortgage will be assumed by Ong.

Thereafter, the respondent took repairs and made improvements in the

properties. Subsequently, respondent learned that the same properties


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were sold to a certain Viloria after March 10, 1993 and changed the locks,

rendering the keys given to her useless. Respondent proceeded to RSLAI

but she was informed that the mortgage has been fully paid and that the

titles have been given to the said person. Respondent then filed a

complaint for specific performance and declaration of nullity of the second

sale and damages. The petitioner contended that respondent does not havea cause of action against him because the sale was subject to a condition

which requires the approval of RSLAI of the mortgage. Petitioner reiterated

that they only entered into a contract to sell. The RTC dismissed the case.

On appeal, the CA upheld the sale to respondent and nullified the sale to

Viloria. Petitioner moved for reconsideration to the SC.

ISSUE:

Whether the parties entered into a contract of sale or a contract to

sell?

HELD:

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 asale because he unqualifiedly delivered and transferred ownership of the

properties to the respondent.

b. Lim vs. Development Bank of the Philippines

FACTS:

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito,

all surnamed Lim, obtained a loan of P40,000.00 (Lim Account) from

respondent Development Bank of the Philippines (DBP) to finance their

cattle raising business. On the same day, they executed a Promissory Note

undertaking to pay the annual amortization with an interest rate of 9% per

annum and penalty charge of 11% per annum.

On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and

Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez,

Juan S. Chua, and Trinidad D.Chua obtained another loan from DBP in the

amount of P960,000.00 (Diamond L Ranch Account). They also executed a

Promissory Note, promising to pay the loan annually from August 22, 1973


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until August 22, 1982 with an interest rate of 12% per annum and a

penalty charge of 1/3% per month on the overdue amortization.

To secure the loans, petitioners executed a Mortgage in favor of DBP

over several titled real properties. Due to violent confrontations between

government troops and Muslim rebels in Mindanao from 1972 to 1977,

petitioners were forced to abandon their cattle ranch. As a result, theirbusiness collapsed and they failed to pay the loan amortizations.

In 1978, petitioners made a partial payment in the amount of

P902,800.00, leaving an outstanding loan balance of P610,498.30, inclusive

of charges and unpaid interest, as of September 30, 1978.

In 1989, petitioners, represented by Edmundo Lim (Edmundo),

requested from DBP Statements of Account for the "Lim Account" and the

"Diamond L Ranch Account."Edmundo proposed the settlement of the

accounts through dacion en pago, with the balance to be paid in equal

quarterly payments over five years but in a reply-letter DBP rejected the

proposal and informed Edmundo that unless the accounts are fully settledas soon as possible, the bank will pursue foreclosure proceedings.

Several requests and extentions for payment were made by

Edmundo but no compliance was ever made. On December 19, 1993,

Edmundo received the draft of the Restructuring Agreement but

subsequently, the bank cancelled the Restructuring Agreement due to his

failure to comply with the conditions within a reasonable time.

On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking

that he pay the outstanding amount of P6,404,412.92, as of November 16,

1993, exclusive of interest and penalty charges.

On July 11, 1994, the Ex-Officio Sheriff conducted a public auctionsale of the mortgaged properties for the satisfaction of petitioners total

obligations in the amount of P5,902,476.34.DBP was the highest bidder in

the amount of P3,310,176.55.

On July 13, 1994, the Ex- Officio Sheriff issued the Sheriffs

Certificate of Extra-Judicial Sale in favor of DBP covering 11 parcels of land.

In a letter dated September 16, 1994, DBP informed Edmundo that their

right of redemption over the foreclosed properties would expire on July 28,

1995.

On July 28, 1995, petitioners filed before the RTC of General Santos

City, a Complaint against DBP for Annulment of Foreclosure and Damages

with Prayer for Issuance of a Writ of Preliminary Injunction and/or

Temporary Restraining Order.

Petitioners alleged that DBPs acts and omissions prevented them from

fulfilling their obligation; thus, they prayed that they be discharged from

their obligation and that the foreclosure of the mortgaged properties be

declared void. They likewise prayed for actual damages for loss of business


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opportunities, moral and exemplary damages, attorneys fees, and

expenses of litigation.

On the same date, the RTC issued a Temporary Restraining Order

directing DBP to cease and desist from consolidating the titles over

petitioners foreclosed properties and from disposing the same.

In an Order dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction and directed petitioners to post a bond in the

amount of P3,000,000.00.

ISSUE:

1. Whether the obligation of the petitioner is fully discharged and

extinguished.

2. Whether the foreclosure proceedings are null and void.

3. Whether respondent is liable for damages.

HELD:

1. The obligation was not extinguished or discharged.The Promissory Notes subject of the instant case became due and

demandable as early as1972 and 1976. The only reason the mortgaged

properties were not foreclosed in 1977 was because of the restraining order

from the court. In 1978, petitioners made a partial payment

ofP902,800.00. No subsequent payments were made. It was only in 1989

that petitioners tried to negotiate the settlement of their loan obligations.

And although DBP could have foreclosed the mortgaged properties, it

instead agreed to restructure the loan. In fact, from 1989 to 1994, DBP

gave several extensions for petitioners to settle their loans, but they never

did, thus, prompting DBP to cancel the Restructuring Agreement.Article 1186 enunciates the doctrine of constructive fulfillment of

suspensive conditions, which applies when the following three (3) requisites

concur, viz: (1) The condition issuspensive; (2) The obligor actually

prevents the fulfillment of the condition; and (3) He acts voluntarily.

Suspensive condition is one the happening of which gives rise to the

obligation. It will be irrational for any Bank to provide a suspensive

condition in the Promissory Note or the Restructuring Agreement that will

allow the debtor-promissor to be freed from the duty to pay the loan

without paying it.

Besides, petitioners have no one to blame but themselves for the

cancellation of the Restructuring Agreement. It is significant to point out

that when the Regional Credit Committee reconsidered petitioners proposal

to restructure the loan, it imposed additional conditions. In fact, when

DBPs General Santos Branch forwarded the Restructuring Agreement to

the Legal Services Department of DBP in Makati, petitioners were required

to pay the amount ofP1,300,672.75, plus a daily interest of P632.15

starting November 16, 1993 up to the date of actual payment of the said


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amount. This, petitioners failed to do. DBP therefore had reason to cancel

the Restructuring Agreement.

Moreover, since the Restructuring Agreement was cancelled, it could

not have novated or extinguished petitioners loan obligation. And in the

absence of a perfected Restructuring Agreement, there was no impediment

for DBP to exercise its right to foreclose the mortgaged properties.

2. The foreclosure sale is not valid.

While DBP had a right to foreclose the mortgage, we are constrained

to nullify the foreclosure sale due to the banks failure to send a notice of

foreclosure to petitioners. We have consistently held that unless the parties

stipulate, "personal notice to the mortgagor in extrajudicial foreclosure

proceedings is not necessary because Section 3 of Act 3135 only requires

the posting of the notice of sale in three public places and the publication of

that notice in a newspaper of general circulation.

However, no notice of the extrajudicial foreclosure was sent by DBPto petitioners about the foreclosure sale scheduled on July 11, 1994. The

letters dated January 28, 1994 and March11, 1994 advising petitioners to

immediately pay their obligation to avoid the impending foreclosure of their

mortgaged properties are not the notices required in paragraph 11 of the

Mortgage. The failure of DBP to comply with their contractual agreement

with petitioners, i.e.,to send notice, is a breach sufficient to invalidate the

foreclosure sale.

The Act only requires (1) the posting of notices of sale in three public

places, and (2) the publication of the same in a newspaper of general

circulation. Personal notice to the mortgagor is not necessary.Nevertheless, the parties to the mortgage contract are not precluded from

exacting additional requirements.

As to the imposition of additional interest and penalties not stipulated

in the Promissory Notes, this should not be allowed. Article 1956 of the

Civil Code specifically states that "no interest shall be due unless it has

been expressly stipulated in writing." Thus, the payment of interest and

penalties in loans is allowed only if the parties agreed to it and reduced the

is agreement in writing.

In this case, petitioners never agreed to pay additional interest and

penalties. Hence, we agree with the RTC that these are illegal, and thus,

void. Quoted below are the findings of the RTC on the matter, to wit:

Consequently, this case should be remanded to the RTC for the

proper determination of petitioners total loan obligation based on the

interest and penalties stipulated in the Promissory Notes.

3. Finally, as to petitioners claim for damages, we find the same

devoid of merit. DBP did not act in bad faith or in a wanton, reckless, or


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oppressive manner in cancelling the Restructuring Agreement. As we have

said, DBP had reason to cancel the Restructuring Agreement because

petitioners failed to pay the amount required by it when it reconsidered

petitioners request to restructure the loan.

Likewise, DBPs failure to send a notice of the foreclosure sale to

petitioners and its imposition of additional interest and penalties do notconstitute bad faith. There is no showing that these contractual breaches

were done in bad faith or in a wanton, reckless, or oppressive manner.

1.3. Article 1187

a. Coronel vs. Court of Appeals 263 SCRA 15

FACTS:Romulo Coronel executed a document entitled Receipt of

Downpayment in favor of Ramona Patricia Alcaraz for P50,000downpayment of the amount of P1.24M as purchase pricefor an inheritedhouse and lot, without reservation to withhold the transfer of such propertyuntilfull payment. The purpose of such downpayment was for the heirs totransfer the title to their name. Upon the registration of the property toname of the heirs, the Coronels sold the same property to Catalina B.Mabanag for P1.58M. The Coronels rescinded the contract with Alcaraz bydepositing the downpayment amount in a bank account in favor of Alcaraz.Alcaraz filed acomplaint for specific performance, which the trial and theappellate court ruled in her favor.

ISSUE:Whether the receipt of downpayment serves a contract to sell or a

conditional contractof sale.

HELD:The agreement is a contract of sale as there was no express

reservation of ownership or title to the subject parcel of land. Petitionersdid not merely promise to sell the property to private respondent upon thefulfillment of the suspensive condition but on the contrary, havingalreadyagreed to sell the subject property, they undertook to have the certificateof title changedto their names and immediately thereafter, to execute thewritten deed of absolute sale. Thesuspensive condition was fulfilled on 6February 1985 and thus, the conditional contract of sale between the

parties became obligatory, the only act required for the consummationthereof beingthe delivery of the property by means of the execution of thedeed of absolute sale in a publicinstrument, which petitioners unequivocallycommitted themselves to do as evidenced by theReceipt of DownPayment.

b. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY VS

BENJAMIN TUDTUD


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c. MACTAN CEBU INTERNATIONAL AIRPORT & AIR

TRANSPORTATION OFFICE VS BERNARDO LOZADA

FACTS: Subject of this case is a lot (Lot No. 88) located in Lahug, Cebu City. Its

original owner was Anastacio Deiparine when the same was subject to

expropriation proceedings, initiated by Republic, represented by the then CivilAeronautics Administration (CAA), for the expansion and improvement of the

Lahug Airport. During the pendency of the expropriation proceedings, respondent

Bernardo L. Lozada, Sr. acquired Lot No. 88 from Deiparine. The trial court ruled

for the Republic and ordered the latter to pay Lozada the fair market value of the

lot. However, the projected improvement and expansion plan of the old Lahug

Airport, however, was not pursued. The plaintiff-respondents initiated a complaint

for the recovery of possession and reconveyance of ownership the subject lot. On

the other hand, the petitioners asked for the immediate dismissal of the

complaint. They specifically denied that the Government had made assurances to

reconvey Lot No. 88 to respondents in the event that the property would nolonger be needed for airport operations. Petitioners instead asserted that the

judgment of condemnation was unconditional, and respondents were, therefore,

not entitled to recover the expropriated property notwithstanding non-use or

abandonment thereof. The lower court ruled for herein plaintiff-respondents,

which decision was affirmed by the Court of Appeals. In this petition, the

petitioners argued that the judgment in Civil Case No. R-1881 was absolute and

unconditional, giving title in fee simple to the Republic.

ISSUE: Whether or not a constructive trust was constituted in this case, and as

such, the respondents herein are entitled to the restitution of the expropriatedproperty which was not used for a public purpose.

HELD: YES. Art. 1454 of the Civil Code provides: If an absolute conveyance of

property is made in order to secure the performance of an obligation of the

grantor toward the grantee, a trust by virtue of law is established. If the

fulfillment of the obligation is offered by the grantor when it becomes due, he

may demand the reconveyance of the property to him.

Constructive trusts are fictions of equity which are bound by no unyielding

formula when they are used by courts as devices to remedy any situation in which

the holder of legal title may not in good conscience retain the beneficial interest.

In constructive trusts, the arrangement is temporary and passive in which the

trustees sole duty is to transfer the title and possession over the property to the

plaintiff-beneficiary. Of course, the wronged party seeking the aid of a court of

equity in establishing a constructive trust must himself do equity. Accordingly,

the court will exercise its discretion in deciding what acts are required of the


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plaintiff-beneficiary as conditions precedent to obtaining such decree and has the

obligation to reimburse the trustee the consideration received from the latter just

as the plaintiff-beneficiary would if he proceeded on the theory of rescission. In

the good judgment of the court, the trustee may also be paid the necessary

expenses he may have incurred in sustaining the property, his fixed costs for

improvements thereon, and the monetary value of his services in managing theproperty to the extent that plaintiff-beneficiary will secure a benefit from his acts.

The rights and obligations between the constructive trustee and the beneficiary,

in this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are

echoed in Art. 1190 of the Civil Code, When the conditions have for their purpose

the extinguishment of an obligation to give, the parties, upon the fulfillment of

said conditions, shall return to each other what they have received x x x In case

of the loss, deterioration or improvement of the thing, the provisions which, with

respect to the debtor, are laid down in the preceding article shall be applied to the

party who is bound to return x x x.

1.4. Article 1191

A. Solar Harvest, Inc. Vs. Davao Corrugated Carton CorporationGR No.

176858, July 26,:

FACTS:

In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into an

unwritten agreement. SolarHarvest placed orders for customized boxes for its

business of exporting bananas at USD 1.10 each. Petitioner made afull paymentof USD 40,150.00. By Jan. 3, 2001 petitioner had not received any of the ordered

boxes. On Feb. 19, 2001Davao Corrugated replied that as early as April 3, 1998,

order/boxes are completed and Solar Harvest failed to pick themup from their

warehouse within 30 days from completion as agreed upon. Respondent

mentioned that petitioner evenplaced additional order of 24,000.00 boxes, out of

which, 14,000 had already been manufactured without any advancepayment from

Solar Harvest. Davao Corrugated then demanded that Solar Harvest remove

boxes from their warehouse,pay balance of USD 15,400.00 for the additional

boxes and P132,000 as storage fee. On August 17, 2001 Solar harvestfiled

complaint against Davao Corrugated for sum of money and damages claiming

that the agreement was for thedelivery of the boxes, which Davao Corrugated did

not do. They further alleged that whenever repeated follow-up wasmade to Davao

Corrugated, they would only see sample boxes and get promise of delivery. Due

to Davao Corrugatedsfailure to deliver, Solar Harvest had to cancel the order and

demanded payment and/or refund which Davao Corrugatedrefused to pay. Davao

Corrugated counterclaimed that they had already completed production of the

36,500 boxes plusan additional 14,000 boxes (which was part of the additional


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24,000 order that is unpaid). The agreement was for SolarHarvest to pick up the

boxes, which they did not do. They even averred that on Oct. 8, 1998 Solar

Harvestsrepresentative Bobby Que even went to the warehouse to inspect and

saw that indeed boxes were ready for pick up. OnFeb. 20, 1999, Que visited the

factory again and said that they ought to sell the boxes to recoup some of the

costs of the14,000 additional orders because their transaction to ship the bananasdid not materialize. Solar Harvest denies thatthey made the additional order. On

March 20, 2004 the RTC ruled in favor of Davao Corrugated.

ISSUE:

Whether or not Davao Corrugated was responsible for breach of contract as Solar

Harvest had not yet demandedfrom it the delivery of the boxes?

HELD:

NO. The CA held that it was unthinkable that for around 2 years petitioner merely

followed up and did notdemand the delivery of the boxes. Even assuming that theagreement is for delivery by Davao Corrugated, respondentwould not be liable for

breach of contract as petitioner had not yet demanded from it the delivery of the

boxes. There isno error in the decision of the RTC. Furthermore, the claim for

reimbursement is actually one for rescission or resolutionof contract under Article

1191 of the Civ. Code. The right to rescind contracts arises once the party

defaults in theperformance of his obligation. Article 1191 should be taken in

conjunction with Article 1169: Those obliged to deliver orto do something in delay

from the time the obligee judicially or extrajudicially demands form them the

fulfilment of theirobligation. However the demand from creditor shall not be

necessary in order that delay may exist.:1.

When the obligation or the law expressly so declares, or2.

When from the nature and the circumstance of the obligation it appears that the

designation of the timewhen the thing is to be delivered or the service is to be

rendered was a controlling motive for theestablishment of the contract; OR3.

When the demand would be useless, as when the obligor has rendered it beyond

his power to perform. In reciprocal obligations, the general rule is that the

fulfilment of the partiess respective obligations should besimultaneous. No

demand is necessary because once a party fulfills his obligation and the other

party fails to do his, thelatter automatically incurs delay. When dates are set, the

default for each obligation is determined by the rules given inthe 1

st

paragraph of the article. Thus even in reciprocal obligations, if the period for the

fulfilment of the obligation isfixed, demand from the obligee is still necessary

before the obligor can be considered in default and before a cause of action for


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rescission will accrue. In the case of Solar Harvest, merely following up the order

was not the same asdemanding for the boxes. The SC held that Solar Harvests

petition is denied and

that Davao Corrugated did not commitbreach of contract

and may remove the boxes from their premises after petitioner is given a period

of time to removethem from their warehouse as they deem proper (Court gave30day period to comply with this)

B. UFC VS. CA

C. 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).Petitioner Leticia Cannu agreed to buy the property for 120K & to assume the

mortgage obligations with the NHMFC. A deed of sale & assumption of mortgage

was executed & petitioners immediately took possession & occupied the house &

lot.

Despite requests from Adelina R. Timbang (attorney-in-fact) and Fernandina

Galang to pay the balance of P45,000.00 or in the alternative to vacate the

property in question, petitioners refused to do so.

Because the Cannus failed to fully comply with their obligations, respondent

Fernandina Galang, on 21 May 1993, paid P233K as full payment of her remaining

mortgage loan with NHMFC.8 yrs had already elapsed and petitioners have not yet complied with the

obligation.

The RTC ordered the deed of sale with Assumption of Mortgage as rescinded as

well as ordered mutual restitution.

Issue:

1. WON the breach of obligation is substantial? YES

2. WON respondent waived their right of rescission? NO

3. WON rescission is subsidiary? NO

Held:

1. We consider this breach to be substantial. Cannu failed to comply with her

obligation to pay the monthly amortizations due on the mortgage. Also, the

tender made by Cannu only after the filing of this case cannot be

considered as an effective mode of payment.


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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.

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 withAssumption of Mortgage. Galang accepted the installment payments as an

accommodation to petitioners since they kept on promising they would pay.

However, after the lapse of considerable time (18 months from last

payment) and the purchase price was not yet fully paid, Galang exercised

their right of rescission when they paid the outstanding balance of the

mortgage loan with NHMFC. It was only after petitioners stopped paying

that respondents-spouses moved to exercise their right of rescission.

3.

The provision that applies in the case at bar is Article 1191. The subsidiary

character of the action for rescission applies to contracts enumerated in Articles138148 of the Civil Code.

The rescission in this case is not predicated on injury to economic interests of the

party plaintiff but on the breach of faith by the defendant, that violates the

reciprocity between the parties. It is not a subsidiary action. The rescission in

1191 is a principal action retaliatory in character, it being unjust that a party be

held bound to fulfill his promises when the other violates his.

D.UP VS. DE LOS ANGELES

University of the Philippines v. De Los AngelesG.R. No. L-28602 September 29,

1970

Facts:

On November 2, 1960, 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


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five (5) years by mutual agreement, to cut, collect and remove timber from the

Land Grant, in consideration of payment to UP of royalties, forest fees, etc

obli conh w 2 case digest

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