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WINDY A.

MALAPIT
obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because neither
OBLICON CASE DIGEST has completed their part in their reciprocal obligation. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default,
such that it is as if no one is guilty of delay.
Cortes argument would have been correct if he actually surrendered the Deed and the TCTs to the
Corporation. With such delivery, the Corporation would have been placed in default if it chose not
to pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment
CORTES vs CA one of the parties fulfills his obligation, delay by the other begins.
(G.R. No. 126083) The Court of Appeals therefore correctly ordered the parties to perform their respective obligation
in the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
FACTS: This is a petition for reversal of decision made by the Court of Appeals setting aside the Corporation and for the latter to pay in full, not only the down payment, but the entire purchase
decision of Trial Court to rescind the contract between Antonio Cortes and Villa Ezperenza price.
Development Corporation for the contract of sale of land amounting to 3.7 million pesos located at
Baclaran, Metro Manila with the following terms:
 The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver
the TCT for the 3 lots.
 The balance of 1.5M shall be payable within a year from the date of the execution.
The Corporation paid the partial the amount of P1,213,000.00 as downpayment but Cortes failed
to deliver the CTC and the original copy of the Deed of Sale arising resulting to the filing of this HEIRS OF GAITE vs THE PLAZA, INC.
instant case by the Corporation praying for specific performance to deliver the CTC and the Deed ( G.R. No. 177685)
of sale from the petitioner.
Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the FACTS: This is a petition for review seek to reverse and set aside the decision of CA terminating
Corporation and it is the latter which refused to pay in full the agreed down payment. the Construction contract between Gaite and Plaze Corporation.
RTC ruled rescinding the contract of sale and return the downpayment with interest for the The Plaze Corporation thru Jose Reyes (President) contracted Rhogen Buiders represented by
Corporation having failed to pay in full the amount of P2,200,000.00 despite Cortes’ delivery of the Ramon Gaite to construct a restaurant in Makati for 7.6 million. Plaze paid downpayment of 1, 155,
Deed of Absolute Sale and the TCTs, rescission of the contract is proper. 000 and the construction started but the Municipality of Makati ordered Gaite to cease the
On appeal by the respondents, CA reversed the decision of the RTC directed Cortes to execute construction in violation of the National Building Code as follows:
the Deed of Sale simultaneous with the Corporation payment of the full balance of purchase. It 1. No permit for Temporary Structure.
found that the parties agreed that the Corporation will fully pay the balance of the down payment 2. No notice of concrete pouring.
upon Cortes’ delivery of the three TCTs to the Corporation. The records show that no such 3. Some workers have no safety devices.
delivery was made, hence, the Corporation was not remiss in the performance of its obligation and 4. The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage
therefore justified in not paying the balance. dated September 10, 1980.
However, Cortes file a petition praying for the reinstatement of rescinding the contract by RTC 5. Mr. Ramon Gaite [is] questioning the authority of the Building Official’s Inspector.
since the Corporation failed in the performance of their obligation. 6. Construction plans use[d] on the job site is not in accordance to the approved plan.
Gaite communicated with Reyes and the project manager to resolve the following issues but failed
ISSUE: Whether or not there is delay in the performance of the parties’ obligation that would justify to get the needed cooperation instead the Plaza, through Reyes, countered that it will hold Gaite
the rescission of the contract of sale? and Rhogen fully responsible for failure to comply with the terms of the contract and to deliver the
finished structure on the stipulated date.
RULING: NO. There is no doubt that the contract of sale in question gave rise to a reciprocal Plaze Corporation filed suits against Gaite and Rhogen for breach of contract, sum of money and
obligation of the parties. damages and nullification of the project development contract – RTC of Makati granted the
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same decision in favor of Plaze Corporation. The trial court pointed out that Rhogen is not only expected
together with the TCTs, the trial court erred in concluding that he performed his part in the contract to be aware of standard requirements and pertinent regulations on construction work, but also
of sale and that it is the Corporation alone that was remiss in the performance of its expressly bound itself under the General Construction Contract to comply with all the laws, city
and municipal ordinances and all government regulations. Having failed to complete the project PCIC vs PETROLEUM DISTRIBUTORS AND SERVICE
within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of
breaching the Construction Contract and is liable for damages. CORPORATION
Petitioners filed an appeal to CA invoking Article 1191 of the Civil Code, which states that the (G.R. No. 180898)
power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. FACTS: A petition for review seeking to reverse the decision of CA which affirmed the decision of
RTC Pasay with modification on damages.
ISSUES: Petroleum Distributors and Services Corporation (PDSC), through its president, Conrado P.
1. Whether of not the Plaza Corporation has a legal ground in terminating the construction Limcaco, entered into a building contract[3]with N.C. Francia Construction Corporation (FCC),
contract? represented by its president and chief executive officer, Emmanuel T. Francia, for the construction
2. Whether or not the CA gravely erred in not holding that there were valid and legal of a four-story commercial and parking complex located at Domestic Road, Pasay City, known as
grounds for Rhogen to terminate the contract? Park ‘N Fly Building (Park ‘N Fly) for the price of ₱45,522,197.72.
Both parties agreed that the construction work would begin on February 1, 1999 and to finish
RULINGS: October 20, 1999 with stipulations that that in the event FCC failed to finish the project within the
1. YES. According to the CA, The Plaza cannot now be demanded to comply with its period specified, liquidated damages equivalent to 1/10 of 1% of the contract price for every day of
obligation under the contract since Rhogen has already failed to comply with its own delay shall accrue in favor of PDSC.
contractual obligation. Thus, The Plaza had every reason not to pay the progress billing To further ensure compliance, FCC singed Surety Bonds holding themselves personally liable for
as a result of Rhogen’s inability to perform its obligations under the contract. Clearly, the accountabilities and Performance Bonds from PCIC for secure and faithful performance of the
Rhogen cannot blame The Plaza for its own failure to comply with its contractual obligation.
obligations. CA therefore did not err in holding that Rhogen committed a serious breach Since there was behind the schedule of the projected work path, PDSC and FCC likewise
of its contract with The Plaza, which justified the latter in terminating the contract. executed a memorandum of agreement (MOA), wherein the parties agreed to revise the work
Petitioners are thus liable for damages for having breached their contract with respondent schedule of the project was extended up to March 2, 2000.
The Plaza. Article 1170 of the Civil Code provides that those who in the performance of For failure of FCC to accomplish the project within the agreed completion period, PDSC, in a letter
their obligations are guilty of fraud, negligence or delay and those who in any manner dated December 3, 1999, informed FCC that it was terminating their contract based on Article 12,
contravene the tenor thereof are liable for damages. Paragraph 12.1 of the Building Contract. Despite notice, PDSC did not receive any reply from
2. NO. Reciprocal obligations are those which arise from the same cause, and in which either FCC or PCIC, constraining it to file a complaint for damages, recovery of possession of
each party is a debtor and a creditor of the other, such that the obligation of one is personal property and/or foreclosure of mortgage with prayer for the issuance of a writ of replevin
dependent upon the obligation of the other. They are to be performed simultaneously and writ of attachment, against FCC and its officers before the RTC.
such that the performance of one is conditioned upon the simultaneous fulfillment of the FCC claimed that the contract price was reduced because of outsourcing of different materials and
other. Respondent The Plaza predicated its action on Article 1191of the Civil Code, which denied the liability to PDSC since such claim by the latter had been waived, abandoned or
provides for the remedy of “rescission” or more properly resolution, a principal action otherwise extinguished by the execution of the September 10, 1999 MOA.
based on breach of faith by the other party who violates the reciprocity between However, PCIC alleged that its obligation under the performance bond was terminated when it
them. The breach contemplated in the provision is the obligor’s failure to comply with an expired on October 15, 1999 and the extension of the performance bond until March 2, 2000 was
existing obligation. Thus, the power to rescind is given only to the injured party. The not binding as it was made without its knowledge and consent.
injured party is the party who has faithfully fulfilled his obligation or is ready and willing to RTC rendered its Decision in favor of PDSC. The RTC found FCC guilty of delay when it failed to
perform his obligation. The construction contract between Rhogen and The Plaza finish and turn over the project on October 15, 1999. It pronounced FCC and PCIC jointly and
provides for reciprocal obligations whereby the latter’s obligation to pay the contract price severally liable and ordered them to pay PDSC the amount of ₱9,000,000.00 as damages and
or progress billing is conditioned on the former’s performance of its undertaking to ₱50,000.00 as attorney’s fees plus interest.
complete the works within the stipulated period and in accordance with approved plans But CA modified the RTC’s decision. The CA agreed that FCC incurred delay in the construction of
and other specifications by the owner. the project. It, however, found that the computation of the liquidated damages should be based on
the reduced contract price.

ISSUES:
1. Whether or not PCIC is liable for liquidated damages under the performance bond?
2. Whether or not the September 10, 1999 MOA executed by PDSC and FCC extinguished
PCIC’s liability under the performance bond?
3. Whether or not the amounts of ₱2,793,000.00 and ₱662,836.50 are deductible from the obligation be in every point incompatible with each other. Novation of a contract is never
liquidated damages awarded by the CA.? presumed. In the absence of an express agreement, novation takes place only when the
old and the new obligations are incompatible on every point.
No new contract was concluded and perfected between PDSC and FCC. A reading of
RULINGS: the September 10, 1999 MOA reveals that only the revision of the work schedule
originally agreed upon was the subject thereof. The parties saw the need to adjust the
1. YES. Paragraph 2.3 of the Building Contract clearly provides a stipulation for the payment work schedule because of the various subcontracting made by PDSC. In fact, it was
of liquidated damages in case of delay in the construction of the project. Such is in the specifically stated in the MOA that “all other terms and conditions of the Building Contract
nature of a penalty clause fixed by the contracting parties as a compensation or of 27 January 1999 not inconsistent herewith shall remain in full force and effect. There
substitute for damages in case of breach of the obligation. The contractor is bound to pay was no new contract/agreement which could be considered to have substituted the
the stipulated amount without need for proof of the existence and the measures of Building Contract.
damages caused by the breach. 3. YES. The ruling of the CA on the matter is very clear – whether the value of the securities
Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated given as well as the proceeds of the sale of chattels should be deducted from the claim of
damages to be paid in case of breach. It is attached to an obligation in order to insure liquidated damages.
performance and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach. As a general rule, contracts constitute the law between the parties, and
they are bound by its stipulations. For as long as they are not contrary to law, morals,
good customs, public order, or public policy, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient.
By the language of the performance bond issued by PCIC, it guaranteed the full and STRONGHOLD INSURANCE COMPANY vs REPUBLIC-ASAHI GLASS
faithful compliance by FCC of its obligations in the construction of the Park ‘N Fly. In fact, CORPORATION
the primary purpose for the acquisition of the performance bond was to guarantee to (G.R. No. 147561)
PDSC that the project would proceed in accordance with the terms and conditions of the
contract and to ensure the payment of a sum of money in case the contractor would fail in FACTS: A petition for review seeking to reverse the CA’s decisions that SICI’s obligation is not
the full performance of the contract. This guaranty made by PCIC gave PDSC the right to extinguished upon the death of the principal obligor.
proceed against it (PCIC) following FCC’s non-compliance with its obligation. Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with Jose D. Santos,
Thus, suretyship arises upon the solidary binding of a person deemed the surety with the Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage
principal debtor for the purpose of fulfilling an obligation. A surety is considered in law as system in Republic-Asahi’s compound in Barrio Pinagbuhatan, Pasig City amounting to five million
being the same party as the debtor in relation to whatever is adjudged touching the three hundred thousand pesos (P5,300,000.00) to be completed within a period of two hundred
obligation of the latter, and their liabilities are interwoven as to be inseparable. forty (240) days beginning May 8, 1989.
Therefore, as surety, PCIC becomes liable for the debt or duty of FCC although it To guarantee the faithful and satisfactory performance of its undertakings JDS, shall post a
possesses no direct or personal interest over the obligations of the latter, nor does it performance bond of seven hundred ninety five thousand pesos (P795,000.00). JDS executed,
receive any benefit therefrom. jointly and severally with Stronghold Insurance Co., Inc. (SICI).
2. NO. Court also found untenable the contention of PCIC that the principal contract was However, the slowness of construction resulted to fear of respondent that construction will not be
novated when PDSC and FCC executed the September 10, 1999 MOA, without informing finished on the stipulated time and dissatisfied with the performance of JDS, extrajudicially
the surety, which, in effect, extinguished its obligation. rescinded the contract but letters to JDS informing the demands were unheeded.
A surety agreement has two types of relationship: (1) the principal relationship between Respondent then files a complaint against JDS and SICI but report from sheriff stated that Jose
the obligee and the obligor; and (2) the accessory surety relationship between the D. Santos, Jr. died the previous year (1990), and JDS Construction was no longer at its address
principal and the surety. The obligee accepts the surety’s solidary undertaking to pay if and its whereabouts were unknown.
the obligor does not pay. Such acceptance, however, does not change in any material SICI filed its answer, alleging that the [respondent’s] money claims against [petitioner and JDS]
way the obligee’s relationship with the principal obligor. Neither does it make the surety have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case,
an active party in the principal obligor-obligee relationship. It follows, therefore, that the [petitioner] SICI had been released from its liability under the performance bond because there
acceptance does not give the surety the right to intervene in the principal contract. was no liquidation, said liquidation was impossible because of the death of Santos, who as such
In order that an obligation may be extinguished by another which substitutes the same, it can no longer participate in any liquidation. And was deprived of Santos’ death and the unilateral
is imperative that it be so declared in unequivocal terms, or that the old and new
rescission of the contract thus deprived the right to protect its interests as surety of the WILLIAM GOLANGCO CONSTRUCTION CORP. vs PHILIPPINE
performance bond – therefore shall be released from all the liability.
Lower court issued an order dismissing the complaint of respondent against JDS and SICI, on the COMMERCIAL INTERNATIONAL BANK
ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos, (G.R. No. 142830)
Jr.
FACTS: William Golangco Construction Corporation (WGCC) and the Philippine Commercial
ISSUE: Whether petitioner’s liability under the performance bond was automatically extinguished International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
by the death of the principal? Tower II including the application of a granitite wash-out finish [3] on the exterior walls of the
building.
RULING: NO. CA ruled that SICI’s obligation under the surety agreement was not extinguished by To answer for any defect arising within a period of one year, WGCC submitted a guarantee bond
the death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the dated July 1, 1992 issued by Malayan Insurance Company, Inc. in compliance with the
bond. construction contract but controversy arose when portions of the granitite wash-out finish of the
Appellate court also found that the lower court had erred in pronouncing that the performance of exterior of the building began peeling off and falling from the walls wherein WGCC made some
the Contract in question had become impossible by respondent’s act of rescission. The Contract minor repairs.
was rescinded because of the dissatisfaction of respondent with the slow pace of work and But PCIB end up hiring another contractor to re-do the entire granitite wash-out finish after WGCC
pursuant to Article XIII of its Contract with JDS. manifested that it was “not in a position to do the new finishing work,” though it was willing to share
As a general rule, the death of either the creditor or the debtor does not extinguish the obligation. part of the cost and filed a request for arbitration with the Construction Industry Arbitration
Obligations are transmissible to the heirs, except when the transmission is prevented by the law, Commission (CIAC) for the reimbursement of its expenses for the repairs made by another
the stipulations of the parties, or the nature of the obligation. Only obligations that are personal or contractor. It complained of WGCC’s alleged non-compliance with their contractual terms on
are identified with the persons themselves are extinguished by death. materials and workmanship.
In the present case, whatever monetary liabilities or obligations Santos had under his contracts CIAC declared WGCC liable for the construction defects in the project. WGCC filed a petition for
with respondent were not intransmissible by their nature, by stipulation, or by provision of review with the Court of Appeals (CA) which dismissed it for lack of merit.
law. Hence, his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out
the obligations under the performance bond. Consequently, petitioner as surety cannot use his ISSUE: Whether or not petitioner WGCC is liable for defects in the granitite wash-out finish that
death to escape its monetary obligation under its performance bond. occurred after the lapse of the one-year defects liability period provided in Art. XI of the
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code articles construction contract?
2047 and 1216.
Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor
and the petitioner herein, in view of the solidary nature of their liability. The death of the principal RULING: NO. We rule in favor of WGCC. As to the Art. XI of construction contract, stated that “the
debtor will not work to convert, decrease or nullify the substantive right of the solidary CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any
creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner defect in materials and workmanship which [becomes] evident within one (1) year after the final
alone, in accordance with the solidary nature of the latter’s liability under the performance bond. acceptance of the work.”
Obligations arising from contracts have the force of law between the parties and should be
complied with in good faith. In characterizing the contract as having the force of law between the
parties, the law stresses the obligatory nature of a binding and valid agreement.
The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the
Philippines for private and government construction contracts. The contract did not specify a
different period for defects in the granitite wash-out finish; hence, any defect therein should have
been brought to WGCC’s attention within the one-year defects liability period in the contract.
The Article 1719 of Civil Code clearly stated that: “Acceptance of the work by the employer relieves
the contractor of liability for any defect in the work, unless: (1) The defect is hidden and the
employer is not, by his special knowledge, expected to recognize the same; or (2) The employer
expressly reserves his rights against the contractor by reason of the defect.
Thus, the lower courts conjectured that the peeling off of the granitite wash-out finish was probably
due to “defective materials and workmanship.” This they characterized as hidden or latent defects
was not tenable.
First, PCIB’s team of experts (who were specifically employed to detect such defects early on) CA ruled, the application with BPI for the approval of the assumption of mortgage would mean that,
supervised WGCC’s workmanship. Second, WGCC regularly submitted progress reports and in case of approval, payment of the mortgage obligation will now be in the name of Velarde. And
photographs. Third, WGCC worked under fair and transparent circumstances. PCIB had access in the event said application is disapproved, Velarde had to pay in full.
to the site and it exercised reasonable supervision over WGCC’s work. Fourth, PCIB issued The disapproval by BPI of the application for assumption of mortgage cannot be used as an
several “punch lists” for WGCC’s compliance before the issuance of PCIB’s final certificate of excuse for Velarde’s non-payment of the balance of the purchase price. As borne out by the
acceptance. Fifth, PCIB supplied the materials for the granitite wash-out finish. And finally, PCIB’s evidence, Velarde had to pay in full in case of BPI’s disapproval of the application for assumption
team of experts gave their concurrence to the turnover of the project. of mortgage and It was likewise agreed that in case of violation of the mortgage obligation, the
Under the circumstances, there were no hidden defects for which WGCC could be held liable. Deed of Sale with Assumption of Mortgage would be deemed ‘automatically cancelled and of no
Neither was there any other defect for which PCIB made any express reservation of its rights further force and effect, as if the same had never been executed or entered into.
against WGCC.
ISSUES:
1. Whether or not The Court of Appeals erred in holding that the non-payment of the
mortgage obligation resulted in a breach of the contract?
2. Whether or not the Court of Appeals erred in holding that the rescission (resolution) of the
contract by private respondents was justified?
3. Whether or not the Court of Appeals erred in holding that petitioners’ January 7, 1987
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF letter gave three ‘new conditions’ constituting mere offers or an attempt to novate
APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO necessitating a new agreement between the parties?
(G.R. No. 108346)
RULINGS:
FACTS: David Raymundo is the absolute and registered owner of a parcel of land, together with 1. NO. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver
the house and other improvements thereon, located at Dasmariñas Village, Makati. George a determinate thing, and the buyer to pay therefor a price certain in money or its
Raymundo who negotiated with plaintiffs Avelina and Mariano Velarde for the sale of said property, equivalent. Private respondents had already performed their obligation through the
which was under lease – and the Deed of Sale was executed by David Raymundo, as vendor, in execution of the Deed of Sale, which effectively transferred ownership of the property to
favor of plaintiff Avelina Velarde, as vendee. petitioner through constructive delivery. Prior physical delivery or possession is not
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the legally required, and the execution of the Deed of Sale is deemed equivalent to delivery.
aforementioned mortgage for three months but on the 4th month, plaintiffs were advised that the Petitioners did not perform their correlative obligation of paying the contract price in the
Application for Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to manner agreed upon. Worse, they wanted private respondents to perform obligations
make any further payment. beyond those stipulated in the contract before fulfilling their own obligation to pay the full
On a letter dated Jan. 7, 1987, plaintiff wrote letter to respondents stating: purchase price.
“willingness to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver 2. NO. The right of rescission of a party to an obligation under Article 1191 of the Civil Code
actual possession of the property to her not later than January 15, 1987 for her immediate is predicated on a breach of faith by the other party who violates the reciprocity between
occupancy; (b) you cause the release of title and mortgage from the Bank of P.I. and make the title them. The breach contemplated in the said provision is the obligor’s failure to comply with
available and free from any liens and encumbrances; and (c) you execute an absolute deed of an existing obligation. When the obligor cannot comply with what is incumbent upon it,
sale in her favor free from any liens or encumbrances not later than January 21, 1987. the obligee may seek rescission and, in the absence of any just cause for the court to
But the defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of determine the period of compliance, the court shall decree the rescission.
the subject property allegedly due to the latter’s failure to comply with the terms and conditions of In the present case, private respondents validly exercised their right to rescind the
the Deed of Sale. contract, because of the failure of petitioners to comply with their obligation to pay the
Petitioners filed on February 9, 1987 a Complaint against private respondents for specific balance of the purchase price. Indubitably, the latter violated the very essence of
performance, nullity of cancellation, writ of possession and damages but was dismissed. In a reciprocity in the contract of sale, a violation that consequently gave rise to private
motion for reconsideration – the decision was reversed ordering the petitioners to pay the balance respondents’ right to rescind the same in accordance with law.
of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute True, petitioners expressed their willingness to pay the balance of the purchase price one
sale. month after it became due; however, this was not equivalent to actual payment as would
However, CA reinstated the former ruling of trial court upholding the validity of rescission made by constitute a faithful compliance of their reciprocal obligation.
the private respondents.
Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed 3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000
upon private respondents new obligations as preconditions to the performance of their after full payment has been made by the defendant.
own obligation.
Rescission creates the obligation to return the object of the contract. It can be carried out 4. The defendant will undertake the renewal and payment of the fire insurance
only when the one who demands rescission can return whatever he may be obliged to policies of the 2 buildings, following the expiration of the current policies, up to the time
restore. To rescind is to declare a contract void at its inception and to put an end to it as the respondent has fully paid the purchase price.
though it never was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the parties to They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank
their relative positions as if no contract has been made. approved on the condition that the petitioner would remain as co-maker of the mortgage obligation.
3. NO. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of Petitioner’s contention: Under their Deed of Conditional Sale, the respondent is obliged to pay a
petitioners to private respondents were not part of the original contract. By that time, it lump sum of P1.2 Million in three fixed installments. Respondent, however defaulted in the
was already incumbent upon the former to pay the balance of the sale price. They had payment of the installments. To compensate for her delayed payments, respondent agreed to pay
no right to demand preconditions to the fulfillment of their obligation, which had become petitioner monthly interest. But again, respondent failed to fulfill this obligation. The petitioner
due. further alleged that despite her success in finding another buyer according to their conditional sale
agreement, respondent refused to cancel their transaction. The respondent also neglected to
*** A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
renew the fire insurance policy of the buildings.
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission
Respondent’s answer: Respondent alleges that the deed of Conditional Sale of Real Property
abrogates the contract from its inception and requires a mutual restitution of benefits received. ***
with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period.
It could not be considered a conditional sale because the performance of the obligation therein did
not depend upon a future and uncertain event. She also averred that she was able to fully pay the
loan and secure the release of the mortgage. Since she also paid more than the P4.2 Million
purchase price, rescission could not be resorted to since the parties could no longer be restored to
their original positions.
REYES vs TUPARAN As the ruling of RTC, also considered the Deed of Conditional Sale of Real Property with
Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell,
(G.R. No. 188064)
and not a contract of sale. It was of the opinion that although the petitioner was entitled to a
rescission of the contract, it could not be permitted because her non-payment in full of the
FACTS: A petition for review on the decision of CA which affirmed with modification an action for
purchase price “may not be considered as substantial and fundamental breach of the contract as
Rescission of Contract with Damages.
to defeat the object of the parties in entering into the contract - which was also affirmed by CA.
Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent,
Victoria Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from being
ISSUE: Whether or not CA was correct in ruling that there was no legal basis for the rescission of
a tenant, respondent also invested in petitioner's financing business. On June 20, 1988, Petitioner
the Deed of Conditional Sale with Assumption of Mortgage?
borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building
and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to liquidate her
RULING: NO. The petition was lack of merit. The Court agrees with the ruling of the courts below
loan and finance her business. Respondent offered to conditionally buy the real properties for P4.2
that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among
Million on installment basis without interest and to assume the bank loan. The conditions are the
the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of
following:
sale.
The title and ownership of the subject properties remains with the petitioner until the respondent
1. Sale will be cancelled if the petitioner can find a buyer of said properties for the fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter,
amount of P6.5 Million within the next three months. All payments made by the FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner
respondent to the petitioner and the bank will be refunded to Tuparan with an shall execute the corresponding deed of absolute sale in favor of the respondent.
additional 6% monthly interest. The petitioner’s obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent’s full payment of the
2. Petitioner Reyes will continue using the space occupied by her drug store without purchase price. Without respondent’s full payment, there can be no breach of contract to speak of
rentals for the duration of the installment payments. because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the
purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code
but rather just an event that prevents the petitioner from being bound to convey title to the LAND BANK OF THE PHILS vs ONG
respondent. (G.R. No. 190755)
As per ruling – explained the difference between contract to sell and contract of sale.
FACTS: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the
CONTRACT OF SALE: [Art. 1458 CC] By the contract of sale, one of the contracting parties amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks,
obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and
pay therefor a price certain in money or its equivalent; would mature on February 28, 1997, while the balance of PhP 10 million would be payable in
Sale, by its very nature, is a consensual contract because it is perfected by mere seven (7) years and any default in payment of amortizations or other charges would accelerate
consent. The essential elements of a contract of sale are the following: the maturity of the loan.
a) Consent or meeting of the minds, that is, consent to Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three (3)
transfer ownership in exchange for the price; of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother,
b) Determinate subject matter; and under a Deed of Sale with Assumption of Mortgage.
c) Price certain in money or its equivalent. Alfredo Ong immediately went to Land Bank to inform it about the sale and assumption of
mortgage and was informed to pay 750, 000 pesos so the assumption of mortgage could easily
CONTRACT TO SELL: may not be considered as a Contract of Sale because the first essential be approved so as the transfer of certificate of title in his name
element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of Alfredo later found out that his application for assumption of mortgage was not approved by Land
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to Bank due to credit investigation and only learned of the foreclosure when he saw the subject
transfer ownership of the property subject of the contract to sell until the happening of an event, mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC
which for present purposes we shall take as the full payment of the purchase price. What the in Tabaco, Albay.
seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the Alfredo Ong filed a case for recovery of sum of money plus damages and said that Land Bank’s
entire amount of the purchase price is delivered to him. In other words, the full payment of the foreclosure without informing him of the denial of his assumption of the mortgage was done in bad
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the faith and that he was made to believed that P750,000 would cause Land Bank to approve his
obligation to sell from arising and, thus, ownership is retained by the prospective seller without assumption to the mortgage.
further remedies by the prospective buyer. RTC held that the contract approving the assumption of mortgage was not perfected as a result of
A contract to sell may thus be defined as a bilateral contract whereby the prospective the credit investigation conducted on Alfredo. It noted that Alfredo was not even informed of the
seller, while expressly reserving the ownership of the subject property despite delivery disapproval of the assumption of mortgage but was just told that the accounts of the spouses Sy
thereof to the prospective buyer, binds himself to sell the said property exclusively to the had matured and gone unpaid. Ordering bank to pay Ong the amount of 750, 000 pesos with 12%
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of interest per annum.
the purchase price. CA affirmed the decision of RTC.
*** In this case, the contract entitled “Deed of Conditional Sale” is actually a contract to ISSUES:
sell and there can be no rescission of an obligation (to turn over title) that did not yet exist 1. Whether or not the Court of Appeals erred in holding that Art. 1236 of the
since the suspensive condition had not taken place. *** Civil Code does not apply and in finding that there is novation?
2. Whether or not the Court of Appeals misconstrued the evidence and the law
when it affirmed the trial court decision’s ordering Land Bank to pay Ong the
amount of Php750,000.00 with interest at 12% annum?

RULINGS:
1. YES. We agree with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredo’s payment, since as far as
the former was concerned, he did not have an interest in the payment of the loan of
the Spouses Sy. However, in the context of the second part of said paragraph,
Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo
made a conditional payment so that the properties subject of the Deed of Sale with
Assumption of Mortgage would be titled in his name. It is clear from the records that
Land Bank required Alfredo to make payment before his assumption of mortgage
would be approved. He was informed that the certificate of title would be transferred petitioner to annul the contract because of breached of obligation.
accordingly. He, thus, made payment not as a debtor but as a prospective Respondent argued that his failure to pay did not amount to breach since the non-
mortgagor. payment of an installment is not a legal ground for annulling a perfected contract of sale.
Novation would have dual functions ─ one to extinguish an existing obligation, the RTC ruled, inasmuch as the non-payment of the purchase price was not considered a breach in a
other to substitute a new one in its place ─ requiring a conflux of four essential contract to sell on installment but only an event that authorized the vendor not to convey title. any
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned attempt by the Atienzas to cancel the contract would have to comply with the provisions of
to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly
valid new obligation. the giving of the required notice of cancellation, that they omitted in this case. The RTC thus
We do not agree, then, with the CA in holding that there was a novation in the declared the contract between the parties valid and subsisting and ordered the parties to comply
contract between the parties. Not all the elements of novation were with its terms and conditions.
present. Novation must be expressly consented to. Moreover, the conflicting CA affirmed the decision of RTC.
intention and acts of the parties underscore the absence of any express disclosure
or circumstances with which to deduce a clear and unequivocal intent by the parties ISSUES:
to novate the old agreement. 1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land
2. NO. Land Bank is still liable for the return of the PhP 750,000 based on the principle which they acquired through land reform under Presidential Decree 27[15] (P.D. 27)?
of unjust enrichment. Land Bank is correct in arguing that it has no obligation as 2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell
creditor to recognize Alfredo as a person with interest in the fulfillment of the they entered into with respondent Espidol on the ground of the latter’s failure to pay
obligation. But while Land Bank is not bound to accept the substitution of debtors in the second installment when it fell due?
the subject real estate mortgage, it is estopped by its action of accepting Alfredo’s 3. Whether or not the Atienzas’ action for cancellation of title was premature absent the
payment from arguing that it does not have to recognize Alfredo as the new debtor. notarial notice of cancellation required by R.A. 6552?
We turn then on the principle upon which Land Bank must return Alfredo’s payment.
Unjust enrichment exists “when a person unjustly retains a benefit to the loss of RULINGS:
another, or when a person retains money or property of another against the 1. YES. The Atienzas’ title shows on its face that the government granted title to them
fundamental principles of justice, equity and good conscience.” [18] There is unjust on January 9, 1990 by virtue of P.D. 27. This law explicitly prohibits any form of
enrichment under Art. 22 of the Civil Code when (1) a person is unjustly benefited, transfer of the land granted under it except to the government or by hereditary
and (2) such benefit is derived at the expense of or with damages to another. succession to the successors of the farmer beneficiary.
Upon the enactment of Executive Order 228 in 1987, however, the restriction ceased
to be absolute. Land reform beneficiaries were allowed to transfer ownership of their
lands provided that their amortizations with the Land Bank of the Philippines (Land
Bank) have been paid in full. In this case, the Atienzas’ title categorically states that
they have fully complied with the requirements for the final grant of title under P.D.
27. This means that they have completed payment of their amortization with Land
Bank. Consequently, they could already legally transfer their title to another.
HEIRS OF PAULINO ATIENZA vs ESPIDOL 2. YES. In the first place, since Espidol failed to pay the installment on a day certain
(G.R. No. 180665) fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the
contract to sell because their obligation to sell under it did not arise. Since the
suspensive condition did not arise, the parties stood as if the conditional obligation
FACTS: Petitioners owned a registered agricultural land at Cabanatuan City which they had never existed.
have acquired under emancipation patent thru land reform program. Secondly, it was not a pure suspensive condition in the sense that the Atienzas made
On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a no undertaking while the installments were not yet due.
contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell Although the Atienzas filed their action with the RTC four months before the last
land with a down payment) covering the property. They agreed on a price of P130.00 per installment of P974,670.00 fell due in June 2003, it cannot be said that the action
square meter or a total of P2,854,670.00, payable in three installments:P100,000.00 upon was premature. Given Espidol’s failure to pay the second installment
the signing of the contract; P1,750,000.00 in December 2002, and the of P1,750,000.00 in December 2002 when it was due, the Atienzas’ obligation to turn
remaining P974,670.00 in June 2003. over ownership of the property to him may be regarded as no longer existing. [24] The
However, respondents failed to pay the second installment resulted to the action of the Atienzas had the right to seek judicial declaration of such non-existent status of that
contract to relieve themselves of any liability should they decide to sell the property CA affirmed the decision of the RTC with modification. The appellate court sustained the trial
to someone else. court’s ruling that Felicidad’s obligation to Agrifina had not been novated by the deeds of
3. NO. Notice of cancellation by notarial act need not be given before the contract assignment and promissory notes executed in the latter’s favor.
between the Atienzas and respondent Espidol may be validly declare non- ISSUE: Whether or not the obligation of respondents to pay the balance of their loans, including
existent. R.A. 6552 which mandated the giving of such notice does not apply to this interest, was partially extinguished by the execution of the deeds of assignment in favor of
case. The cancellation envisioned in that law pertains to extrajudicial cancellation or petitioner?
one done outside of court,[25] which is not the mode availed of here. The Atienzas
came to court to seek the declaration of its obligation under the contract to sell RULING: YES. There is no longer a need for the Court to still resolve the issue of whether
cancelled. Thus, the absence of that notice does not bar the filing of their action. respondents’ obligation to pay the balance of their loan account to petitioner was partially
extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog,
Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner,
she was able to collect the amounts under the notes from said debtors and applied them to
respondents’ accounts.
Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which
obligations are extinguished. Obligations may be modified by changing their object or principal
creditor or by substituting the person of the debtor. The burden to prove the defense that an
AGRIFINA AQUINTEY vs SPOUSES FELICIDAD AND RICO TIBONG obligation has been extinguished by novation falls on the debtor.
(G.R. No. 166704) Novation which consists in substituting a new debtor (delegado) in the place of the original one
(delegante) may be made even without the knowledge or against the will of the latter but not
FACTS: Petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of without the consent of the creditor. Substitution of the person of the debtor may be effected
money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person
alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates who consents to the substitution and assumes the obligation. Thus, the consent of those three
of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, persons is necessary. In this kind of novation, it is not enough to extend the juridical relation to a
amounting to P773,000.00 exclusive of interests. third person; it is necessary that the old debtor be released from the obligation, and the third
Respondents failed to pay the amount of 773, 000 pesos despite of demands. So as the check person or new debtor take his place in the relation. Without such release, there is no novation; the
issued by the respondents for partial payment was dishonored due to insufficient funds. third person who has assumed the obligation of the debtor merely becomes a co-debtor or a
Felicidad presented copies of promissory notes but have lost some of the receipts sigend by the surety. If there is no agreement as to solidarity, the first and the new debtor are considered
respondent. However, Felicidad admitted that they had secured loans from the petitioner and that obligated jointly.
were re-lent to other borrowers for a much higher interest. We find in this case that the CA correctly found that respondents’ obligation to pay the balance of
An assistance of Atty. A-ayo was hired by the petitioner to collect the sum of money and was their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit
advised that respondent debtor’s execute a promissory notes in favor of the petitioner for the executed by respondent Felicidad in favor of petitioner.
purpose of turning over their loans from respondent.
The Deed of Execution in the assignment of credits was transferred and assigned to the petitioner.
However, when he tried to collect the balance on respondents, Felicidad told her to wait until her
debtor’s payment will due.
Petitioner then filed a complaint wherein trial court rendered its Decision in favor of Agrifina. RTC
ruled:
The trial court ruled that Felicidad’s obligation had not been novated by the deeds of assignment
and the promissory notes executed by Felicidad’s borrowers. It explained that the documents did
not contain any express agreement to novate and extinguish Felicidad’s obligation. It declared that
the deeds and notes were separate contracts which could stand alone from the original
indebtedness of Felicidad. Considering, however, Agrifina’s admission that she was able to collect
from Felicidad’s debtors the total amount ofP301,000.00, this should be deducted from the latter’s
accountability. Hence, the balance, exclusive of interests, amounted to P472,000.00.
VILLAMAR vs MANGAOIL Notwithstanding the absence of stipulations in the agreement and absolute deed of sale entered
(G.R. No. 188661) into by Villamar and Mangaoil expressly indicating the consequences of the former's failure to
deliver the physical possession of the subject property and the certificate of title covering the
FACTS: Villamar is the registered owner of a 3.6080 hectares parcel of land in San Francisco, same, the latter is entitled to demand for the rescission of their contract pursuant to Article 1191
Manuel, Isabela covered by Transfer Certificate of Title (TCT) No. T-92958-A. On March 30, 1998, of the NCC.
she entered into an Agreement with Mangaoil for the purchase and sale of said parcel of land for a Article 1191 of the NCC is clear that “the power to rescind obligations is implied in reciprocal ones,
total selling price of 630, 000 pesos. in case one of the obligors should not comply with what is incumbent upon him.” The respondent
The parties executed a Deed of Absolute Sale whereby Villamar transferred the subject parcel of cannot be deprived of his right to demand for rescission in view of the petitioner’s failure to abide
land to Mangaoil for and in consideration of [P]150,000.00. with item nos. 2 and 3 of the agreement. This remains true notwithstanding the absence of express
However, Mangaoil informed Villamar that he was backing out from the sale agreed upon giving stipulations in the agreement indicating the consequences of breaches which the parties may
as one of the reasons that the area is not yet fully cleared by incumbrances as there are tenants commit. To hold otherwise would render Article 1191 of the NCC as useless.
who are not willing to vacate the land without giving them back the amount that they mortgaged Article 1498 of the NCC generally considers the execution of a public instrument as constructive
the land.” – and filed a case before RTC for tne rescission of contract against the petitioner. delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar,
RTC then ordered the rescission of the agreement and the deed of absolute sale executed however, falls among the exceptions to the foregoing rule since a mere presumptive and not
between the respondent and the petitioner. RTC ruled, As such, in a contract of sale, the conclusive delivery is created as the respondent failed to take material possession of the subject
obligation of the vendee to pay the price is correlative of the obligation of the vendor to deliver the property.
thing sold. It created or established at the same time, out of the same course, and which result in RTC and the CA found that the petitioner failed to deliver to the respondent the possession of the
mutual relations of creditor and debtor between the parties. subject property due to the continued presence and occupation of Parangan and Lacaden. We find
The claim of the plaintiff that the LAND has not been delivered to him was not refuted by the no ample reason to reverse the said findings. Considered in the light of either the agreement
defendant. Considering that defendant failed to deliver to him the certificate of title and of the entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking
possession over the LAND to the plaintiff, the contract must be rescinded pursuant to Article 1191 to deliver the subject property to the respondent.
of the Civil Code – RTC further explained.
Petitioner applead to CA but was dismissed.

ISSUE: Whether or not the failure of the petitioner to deliver to the respondent both the physical
possession of the subject property and the certificate of title covering the same amount to a
substantial breach of the former's obligations to the latter constituting a valid cause to rescind the
agreement and deed of sale entered into by the parties?

RULING: NO. The RTC and the CA both found that the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of the subject property and the
certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the
seller to deliver to the buyer the physical possession of the property subject of a contract of sale
and the certificate of title covering the same, the agreement entered into by the petitioner and the
respondent provides otherwise. However, the terms of the agreement cannot be considered as
violative of law, morals, good customs, public order, or public policy, hence, valid.
We agree with the RTC and the CA that the petitioner failed to prove that she delivered the TCT
covering the subject property to the respondent. What the petitioner attempted to establish was
that she gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the transfer
of the title in the respondent's name. Although Atty. Antonio's existence is certain as he was the
petitioner’s counsel in the proceedings before the RTC, there was no proof that the former indeed
received the TCT or that he was commissioned to process the transfer of the title in the
respondent's name.