MITH, BELL & CO., LTD VS.

 VICENTE SOTELO MATTI  

G.R. No. L-16570  March 9, 1922

FACTS:

Smith Bell and Co. entered into contract with Mr. Vicente Sotelo in August 1918. Two steel tanks were
to be sold to Sotelo in the amount of P21,000.00; two expellers at P25,000.00 each and two electric
motors at P2,000.00 each. The steel tanks are to be delivered within 3 or 4 months; the expellers to be
delivered in September 1918 or as soon as possible; electric motors approximate delivery within 90 days
and is not guaranteed. The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th
of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the
defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay
the prices stipulated.

            The plaintiff brought suit against the defendant, based on four separate causes of action, 1.)
alleging, among other facts, that it 2.) immediately notified the defendant of the arrival of the goods,
and 3.) asked instructions from him as to the delivery thereof, and that the defendant 4.) refused to
receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the
motors were in good condition.

            In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-
Products Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at
Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their
price, and the good condition of the expellers and the motors, alleging as special defense that Mr. Sotelo
had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-
Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919, that it
notified the intervenor that said tanks had arrived, the motors and the expellers having arrived
incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as a
consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to
use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred
sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the
nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account of
the expellers and the motors not having arrived in due time.

ISSUE:           

Was the condition dependent upon chance or upon will of third persons?

 
RULING:        

            Yes. And as the export of the machinery in question was, as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permission of the United States Government,
subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a
condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the
will of third persons who could in no way be compelled to fulfill the condition. In cases like this, which
are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to
have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.

In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in
his power, was entitled to enforce performance of the obligation. This performance, which is
fictitious � not real � is not expressly authorized by the Code, which limits itself only to declare valid
those conditions and the obligation thereby affected; but it is neither disallowed, and the Code being
thus silent, the old view can be maintained as a doctrine.

BORROMEO VS. FRANCO

5 PHIL 49

FACTS:

On April 19, 1902, the Francos executed a contract to sell their property to Borromeo wherein the latter
was given six months from the execution of the instrument to arrange and complete the documents and
papers relating to the said property. On January 7, 1903, Borromeo filed a complaint praying that
defendants be compelled to sell to him the property in question under the terms of the contract. He had
already taken steps to complete the documents and papers relating to the property but he was unable
to complete it. The Francos answered and asked that the complaint be dismissed for Borromeo failed to
comply with the condition of completing the documents and papers related to the property.

ISSUE:

      Can the petitioner demand fulfillment from the respondent?

RULING:
      The Court held that the contract in question is a bilateral one containing mutual obligations and the
fulfillment of which may be demanded. The failure of the petitioner to complete the documents and
papers related to the property is not an essential part of the contract and cannot be an obstacle for the
fulfillment thereof. The obligation to buy the property is correlative with the obligation to sell it. The
obligation of Borromeo to perfect the papers of the property is not correlative with the obligation to sell
the property. These obligations do not arise from the same cause. They create no reciprocal rights
between the contracting parties; so that the failure to comply with this stipulation does not give the
defendants the right to cancel the obligation which they imposed upon themselves in accordance with
Article 1191 of the Civil Code, since no real juridical bilaterality or reciprocity existed between the two
obligations. One obligation is entirely independent of the other.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES

35 SCRA 102

FACTS:

On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was
granted exclusive authority to cut, collect and remove timber from the Land Grant for a period starting
from the date of agreement to December 31, 1965, extendible for a period of 5 years by mutual
agreement.

On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands,
ALUMCO still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand,
ALUMCO executed an instrument entitled “Acknowledgment of Debt and Proposed Manner of
Payments. It was approved by the president of UP, which stipulated the following:

3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness,
the balance outstanding after the said payments have been applied shall be paid by the debtor in full no
later than June 30, 1965.

5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without
reservation that Creditor shall have the right to consider the Logging Agreement rescinded, without the
necessity of any judicial suit…

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

 
ISSUE:

Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect?

RULING:

Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has
the right and the power to consider the Logging Agreement of December 2, 1960 as rescinded without
the necessity of any judicial suit. As to such special stipulation and in connection with Article 1191 of the
Civil Code, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co:

“There is nothing in the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention. In other words,
it is not always necessary for the injured party to resort to court for rescission of the contract.”

PHILIPPINE AMUSEMENT ENTERPRISES VS. NATIVIDAD

21 SCRA 284

FACTS:

On January 6, 1961 the plaintiff, Philippine Amusement Enterprises, Inc., entered into a contract with
the defendant Soledad Natividad, whereby the former leased to the latter an automatic phonograph,
more popularly known as "jukebox". Sometime thereafter, Natividad wrote a letter to plaintiff
requesting for the return of the jukebox to the company. Natividad reasoned out that said jukebox is
defective. The plaintiff however, contended that the stocking up of coins is quite normal in any coin-
operated phonograph. It then rightfully re-installed a new jukebox in replacement of the first one.

On August 4 and October 16, 1961, plaintiff demanded from defendant spouses the compliance to
renew the lease contract. Defendants refused the demand and ordered for the rescission of the contract
in their favor by reason of the plaintiff's failure to perform its obligation to render the automatic
phonograph suitable for the purpose for which it was intended.

ISSUE:

Is defendant entitled to rescission?

RULING:

No. Rescission by judicial action under Article 1191 will be ordered only where the breach complained of
is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted
where the breach is slight or casual. The defendants asked the plaintiff to retrieve its phonograph,
claiming that there were times when the coins dropped into the slot would get stuck, resulting in its
failure to play the desired music. But apart from this bare statement, there is nothing in the evidence
which shows the frequency with which the jukebox failed to function properly. The expression "there
are times" connotes occasional failure of the phonograph to operate, not frequent enough to render it
unsuitable and unserviceable.

ROQUE VS. LAPUS

96 SCRA 741

FACTS:

Sometime in 1964, plaintiff and defendant entered into an agreement of sale covering Lots 1, 2 and 9,
Block 1, of said property, payable in 120 equal monthly installments at the rate of P16.00, P15.00 per
square meter, respectively. In accordance with said agreement, defendant paid to plaintiff the sum of
P150.00 as deposit and the further sum of P740.56 to complete the payment of four monthly
installments covering the months of July, August, September, and October, 1954.

On January 24, 1955, defendant requested plaintiff that he be allowed to abandon and substitute Lots 1,
2 and 9, the subject with Lots 4 and 12, Block 2 of the Rockville Subdivision, which are corner lots, to
which request plaintiff graciously acceded. The evidence discloses that defendant proposed to plaintiff
modification of their previous contract to sell because he found it quite difficult to pay the monthly
installments on the three lots, and besides the two lots he had chosen were better lots, being corner
lots. In addition, it was agreed that the purchase price of these two lots would be at the uniform rate of
P17.00 per square meter payable in 120 equal monthly installments, with interest at 8% annually on the
balance unpaid. Pursuant to this new agreement, defendant occupied and possessed Lots 4 and 12, and
enclosed them, including the portion where his house now stands, with barbed wires and adobe walls.
However, aside from the deposit of P150.00 and the amount of P740.56, which were paid under their
previous agreement, defendant failed to make any further payment on account of the agreed monthly
installments for the two lots in dispute, under the new contract to sell. Plaintiff demanded upon
defendant not only to pay the stipulated monthly installments in arrears, but also to make up-to-date
his payments, but defendant refused to comply with plaintiff's demands.

On or about November 3, 1957, plaintiff demanded upon defendant to vacate the lots in question and to
pay the reasonable rentals thereon at the rate of P60.00 per month from August, 1955. On January 22,
1960, petitioner Felipe C, Roque filed the complaint against defendant Nicanor Lapuz for rescission and
cancellation of the agreement of sale between them involving the two lots in question and prayed that
judgment be rendered ordering the rescission and cancellation of the agreement of sale, the defendant
to vacate the two parcels of land and remove his house therefrom and to pay to the plaintiff the
reasonable rental thereof at the rate of P60.00 a month from August 1955 until such time as he shall
have vacated the premises, and to pay the sum of P2,000.00 as attorney's fees, costs of the suit and
award such other relief or remedy as may be deemed just and equitable in the premises.

 The Court of Appeals rendered its decision that the defendant Nicanor Lapuz is granted a period of
ninety (90) days from entry hereof within which to pay the balance. Hence, this appeal.

ISSUE:

Can private respondent be entitled to the Benefits of the third paragraph of Article 1191, New Civil
Code, for the fixing of period

RULING:

No. Respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191, NCC Having been in
default and acted in bad faith, he is not entitled to the new period of 90 days from entry of judgment
within which to pay petitioner the balance of P11,434.44 with interest due on the purchase price of
P12,325.00 for the two lots. To allow and grant respondent an additional period for him to pay the
balance of the purchase price, which balance is about 92% of the agreed price, would be tantamount to
excusing his bad faith and sanctioning the deliberate infringement of a contractual obligation that is
repugnant and contrary to the stability, security and obligatory force of contracts. Moreover,
respondent's failure to pay the succeeding 116 monthly installments after paying only 4 monthly
installments is a substantial and material breach on his part, not merely casual, which takes the case out
of the application of the benefits of pa paragraph 3, Art. 1191, N.C.C.

Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of damages
which the trial court and the appellate court, in the latter's original decision, granted in the form of
rental at the rate of P60.00 per month from August, 1955 until respondent shall have actually vacated
the premises, plus P2,000.00 as attorney's fees. The Court affirmed the same to be fair and reasonable.
The Court also sustained the right of the petitioner to the possession of the land, ordering thereby
respondent to vacate the same and remove his house therefrom.

BOYSAW VS. INTERPHIL PROMOTIONS

148 SCRA 635

FACTS:

Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the
junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days thereafter should
a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing
contest, engage in any other such contest without the written consent of Interphil Promotions, Inc.

However, before September 30, 1961, Boysaw entered into a non-title bout on June 19, 1961 and
without consent from Interphil, Ketchum assigned to Amado Araneta the managerial rights over
Boysaw. Amado Araneta in turn transferred the earlier acquired managerial rights to Alfredo       again
without the consent from Interphil. Yulo thereafter informed Interphil Boysaw’s readiness to comply
with the boxing contract of May 1, 1961. The GAB after a series of conferences of both parties scheduled
the Elorde-Boysaw fight on November 4, 1961. Yulo refused to accept the charge in the fight date even
after Sarreal offered to advance the fight date to October 28, 1961. However, he changed his mind and
decided to accept the fight date on November 4, 1961. While an Elorde-Boysaw fight was eventually
staged, the fight contemplated in the May 1, 1961 boxing contract never materialized.

As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latter’s refusal to honor
their commitments under the boxing contract of May 1, 1961.

ISSUES:

1.    Was there a violation of the fight contract of May 1, 1961?

2.    In reciprocal obligations, who has the power to rescind?

RULING:

1.    Yes. On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence
established that the contract was violated by appellant Boysaw himself when, without the approval or
consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo
admitted this fact during the trial. Another violation of the contract in question was the assignment and
transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over
Boysaw without the knowledge or consent of Interphil.
2.    The power to rescind obligations is implied, in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. There is no doubt that the contract in question gave rise to
reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other"The power to rescind is given to the injured
party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the
terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by
the defendant, or recover damages by reason of his own breach "

On the validity of the fight postponement, the violations of the terms of the original contract by
appellants vested the appellees with the right to rescind and repudiate such contract altogether. That
they sought to seek an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.

EARTH MINERALS VS. MACARAIG

194 SCRA 1

FACTS:

On September 11, 1980, Zambales Chromite, owner of 10 patentable chromite mining claims, and
Philzea, as operator and the herein respondent, entered into a “Contract of Development, Exploitation
and Productive Operation” on the ten (10) patentable mining claims. During the lifetime of such
contract, Earth Minerals Exploration, Inc., the herein petitioner, submitted a Letter of Intent on to
Zambales Chromite whereby the former proposed and the latter agreed to operate the same mining
area subject of the earlier agreement between Zambales Chromite and Philzea Mining. Consequently,
the same mining property of Zambales Chromite became the subject of different agreements with two
separate and distinct operators.

Earth Minerals filed a petition for cancellation of the contract between Zambales Chromite and Philzea
Mining to the Bureau of Mines and Geo-Sciences (BMGS). Earth Minerals alleged that Philzea Mining
committed grave and serious violations of the latter’s contract because of failure to produce the agreed
volume of chromite ores; failure to pay ad valorem taxes; failure to put up assay buildings and offices, all
resulting in the non-productivity and non-development of the mining area.

Philzea Mining filed a motion to dismiss on the ground that Earth Minerals is not the proper party in
interest. BMGS denied the petition, so Philzea elevated the case to Ministry of Natural Resources (MNR)
to dismiss the appeal. MNR on the other hand ordered BMGS to investigate and found out that Philzea
grossly violated the terms and conditions of the contract. BMGS rendered a decision canceling the said
mining contract.

ISSUE:

Is Earth Minerals the proper party to seek cancellation of the operating agreement between Philzea
Mining and Zambales Chromite?

RULING:

Yes. Petitioner Earth Minerals seeks the cancellation of the contract between Zambales Chromite and
Philzea Mining, not as a party to the contract but because his rights are prejudiced by the said contract.
The prejudice and detriment to the rights and interest of petitioner stems from the continued existence
of the contract between Zambales Chromite and private respondent Philzea Mining. Unless and until the
contract between Zambales Chromite and Philzea Mining is cancelled, petitioner's contract with the
former involving the same mining area cannot be in effect and it cannot perform its own obligations and
derive benefits under its contract. The Director of Mines and Geo-Sciences in his order denying Philzea
Mining's motion to dismiss the petition for cancellation of the operating agreement between Philzea
Mining and Zambales Chromite stated:

From the documentary evidence submitted by the petitioner, the Letter of Intent and Operating
Agreement between Zambales Chromite and Earth Minerals, it may be gleaned that, at least, there
appears some color of right on the part of petitioner to request for cancellation/rescission of the
contract dated September 11, 1980 between Zambales Chromite and Philzea Mining.

GIMENEZ VS. COURT OF APPEALS

FACTS:

Spouses Gimenez entered into a conditional contract of sale of a house and lot with Mercado for the
price of Php 500,000 subject to the following conditions:

1.       A downpayment of the ONE HUNDRED THOUSAND (P100,000.00) PESOS in cash will be paid by
Mr. Jose Mercado to Mr. Alfredo Gimenez upon signing of this agreement.

2.       The premises shall be ready for occupancy on July 6, 1975, furnished.

3.       The balance less the GSIS loan on said property shall be paid by the buyer in two or more equal
installments but not later than one year.

4.       A deed of absolute sale shall be executed in favor of Mr. Jose Mercado, Jr. upon payment of the
40% of the total selling price. The cost of the preparation of the deed of sale and the cost of the
necessary documentary stamps shall be borne by the seller while the cost of the registration fees to be
borne by the buyer.

5.       However, if the balance is not fully paid within one year period, the total payments received by the
seller shall be considered as advance payments to the rental of the house in the amount of P5,000.00.

Mercado was only able to pay Php 20,000. More than two years after, the parties executed another
agreement wherein Mercado promise to pay the balance of P370,000 on or before October 6, 1977 plus
1% interest on the balance from July 6, 1976 to September 6, 1977 and the unpaid interest on the GSIS.
Five years after the parties executed the contract to sell, Mercado had paid only P343,000 on the price
of the Gimenez property. Gimenez demanded that Mercado pay his rents in arrears and vacate the
premises. The Metropolitan Trial Court rendered a decision in favor of Spouses Gimenez. However, on
appeal, the RTC dismissed the complaint on the ground of prematurity because the conflict arising from
the condition Contract of Sale and subsequent agreements relative thereto entered into between the
parties should first be resolved and to determine whether or not a cause of action for ejectment exists.

On June 20, 1988, the trial court dismissed the petition filed by the spouses for annulment of contract,
recovery of possession, and damages based on Article 1191 of the New Civil Code, and ordered them to
execute a Deed of Sale with Assumption of Mortgage over the property in favor of Mercado. Upon
appeal, CA affirmed with modification the decision of the trial court.

ISSUE:
Can the Spouses Gimenez still rescind the contract to sell?

RULING:

Yes. Under the circumstances, and considering how much real estate prices have jumped since 1975, it
would be a travesty of justice to deny the seller’s right to cancel the sale under Article 1911 of the New
Civil Code. There is not gainsaying Mercado’s breach of the contract to sell. He failed to pay the
stipulated purchase price of Php 500,000 within one-year period originally fixed in the agreement which
expire on July 5, 1976 nor within the extended period fixed in their supplemental agreement which
expired on October 6, 1977,nor within the other extensions he sought thereafter. Such breaches entitled
the sellers to ask for the cancellation of the contract to sell with damages. Therefore, the decision of CA
was annulled and set aside. The contract to sell and the supplemental agreement were cancelled and
annulled. Respondent Mercado was ordered to vacate the property of the Spouses Gimenez and restore
its possession to them. He was further ordered to pay the sum of Php 5,000 per month from September
1984 until he vacates the same plus Php 20,000 as attorney’s fees.

JACINTO VS. KAPARAZ

G.R. No. 81158  May 22, 1992

FACTS:

On 11 March 1966, petitioners and private respondents entered into an agreement under which the
private respondents agreed to sell and convey to petitioners a portion consisting of 600 square meters
of a lot located in Davao Oriental for a total amount of P1,800.00 with a downpayment of P800.00 upon
execution of the Agreement. The balance of P1,000.00 was to be paid by petitioners on installment at
the rate of P100.00 a month to the Development Bank of the Philippines to be applied to private
respondents' loan accounts. The pertinent portions of the Agreement read as follows:

6. That the PARTY OF THE FIRST PART hereby agrees, promises and binds himself to sell, cede, transfer,
and convey absolutely to the PARTY OF THE SECOND PART 600 -square meter portion of the property
together with all the improvements thereon…

9. That the PARTY OF THE FIRST PART agrees and binds himself to acknowledge receipt of every and all
monthly payments remitted to the Development Bank of the Philippines by the PARTY OF THE SECOND
PART and further agrees and binds himself to execute the final deed of absolute sale of the 600 square
meters herein above referred to in favor of the PARTY OF THE SECOND PART as soon as the settlement
or partition of the estate of the deceased Narcisa Kaparaz shall have been consummated and effected,
but not later than March 31, 1967.
Upon the execution of the agreement, petitioners paid the downpayment of P800.00 and were placed in
possession of the portion described therein. As to the P1,000.00 which was to be paid directly to the
DBP, petitioners claim that they had even made an excess payment of P100.00.In view of the refusal of
private respondents to execute the deed of sale, petitioners filed against them a complaint for specific
performance with the Court of First Instance.Private respondents alleged that the sale did not
materialize because of the failure of petitioners to fulfill their promise to make timely payments on the
stipulated price to the DBP; as a result of such failure, they (private respondents) failed to secure the
release of the mortgage on the property. They then prayed for the dismissal of the case and a
declaration that the agreement is null and void.

ISSUE:

Are respondents entitled to rescind the agreement?

RULING:

No. Since in a contract of sale, the non-payment of the price is a resolutory condition, 13 the remedy of
the seller under Article 1191 of the Civil Code is to exact fulfillment or to rescind the contract. In respect,
however, to the sale of immovable property, this Article must be read together with Article 1592 of the
same Code:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure
to pay the price at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court may
not grant him a new term.

In the case at bar, there was non-compliance with the requirements prescribed in there provisions. It is
not controverted that private respondents had neither filed an action for specific performance nor
demand the rescission of the agreement either judicially or by a notarial act before the filing of the
complaint. It is only in their Answer that they belatedly raised the defense of resolution of the contract
pursuant to Article 1191 by reason of petitioner’s breach of their obligation. Moreover, the delay
incurred by petitioners was but a casual or slight breach of the agreement, which did not defeat the
object of the parties in entering in the agreement. A mere casual breach does not justify
rescission. Rescission of the agreement was not available to private respondents.

KALALO VS. LUZ

GR 27782 July 31, 1970

FACTS:

            On November 17, 1959, Octavio A. Kalalo (appellee) entered into an agreement with Alfredo J .
Luz (appellant) whereby the former was to render engineering design services to the latter for fees, as
stipulated in the agreement. Pursuant to said agreement, appellee rendered engineering services to
appellant.

On December 11, 1961, appellee sent to appellant a statement of account, to which was attached an
itemized statement of defendant-appellant's account, according to which the total engineering fee
asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted
the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of
P59,565.00.

On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to
appellant. amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962
appellant sent appellee a check for said amount, which appellee refused to accept as full payment of the
balance of the fees due him. The appellant further contended that the appellee’s services were not
complete or were performed in violation of the agreement and otherwise unsatisfactory. 

In order to settle the dispute, and upon agreement of the parties, the trial court authorized the case to
be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the
amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project
which was twenty percent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the
other projects, less the sum of P69,475.46 which was already paid by the appellant.

ISSUES:

1. Was the recommendation in the Report that the payment of the amount due to Kalalo in dollars
legally permissible?

2. If not, what rate of exchange should it be in pesos?

RULING:

1. No. Under the agreement,Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00.
Kalalo, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received
his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was
enacted on June 16, 1950.
2. Under Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require
payment in a particular kind of coin or currency other than the Philippine currency the same shall be
discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation
was incurred.Republic Act 529 does not provide for the rate of exchange for the payment of obligation
incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange
should be that prevailing at the time of payment for such contracts.

CABARROGUIS VS. VICENTE

107 PHIL 340

FACTS:

Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries as a result of an
accident when the AC jeepney of which she was a passenger hit another vehicle at a street corner. To
avoid court litigation, defendant Vicente, owner and operator of the jeepney entered a compromise
agreement with the plaintiff, obligating himself to pay 2,500 as actual and compensatory, exemplary and
moral damages suffered by plaintiff. Defendant has paid a total amount of 1,500 leaving a balance of
1,000. It was stipulated in the agreement that should defendant fail to complete payment within 60
days, he would pay an additional amount of 200.00 as liquidated damages.

            As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a suit in the
Municipal Court of Davao and rendered judgment in favor of plaintiff. Defendant appealed to the Court
of First Instance which ordered the defendant to pay the plaintiff the amount of 1,200 with interest at
legal rate from the date of the filing of the complaint until full payment.
 

ISSUE:

            Did the lower court err in sentencing the defendant to pay interest from the date of the filing of
the complaint until full payment?

RULING:

            No. As a rule, if the obligation consists in a sum of money, the only damage a creditor may
recover, if the debtor incurs in delay, is the payment of the interest agreed upon or the legal interest,
unless contrary is stipulated (Article 2209). However, the creditor may also claim other damages. Such as
moral or exemplary damages, in addition to interest, the award of which is left to the discretion of the
court.

            In obligations with a penal clause, as provided in Article 1226 of the Civil Code, the penalty shall
substitute the indemnity for damages and the payment of interests. The exceptions to this rule,
according to the same article, are: (1) when the contrary is stipulated; (2) when the debtor refuses to
pay the penalty imposed in the obligation, in which case the creditor is entitled to interest on the
amount of the penalty, in accordance with article 2209; and (3) when the obligor is guilty of fraud in the
fulfillment of the obligation.

            Applying the law, it is evident that no interest can be awarded on the principal obligation of
defendant, the penalty of 200.00 agreed upon having taken the place of the payment of such interest
and the indemnity for damages. No stipulation to the contrary was made and while defendant was sued
for breach of the compromise agreement, the breach was not occasioned by fraud.

            This case, however, takes a different aspect with respect to the penalty attached to the principal
obligation. It has been held that in obligations for the payment of a sum of money when a penalty is
stipulated for default, both the principal obligation and the penalty can be demanded by the creditor.
Defendant having refused to pay when demand was made by plaintiff, the latter clearly is entitled to
interest on the amount of the penalty. It is well observe that Article 2210 of the Civil Code provides that
in the discretion of the court, interest may be alleged upon damages awarded for breach of contract.
This interest is recoverable from the time of delay that is to say, from the date of demand, either judicial
or extrajudicial. And if there is no showing as to when demand for payment was made, plaintiff must be
considered to have made such demand only from the filing of the complaint. 

            Wherefore, with the modification that the interest shall be allowed on the amount of the penalty,
the decision appealed from is affirmed.

 
ARRIETA VS. NARIC

10 SCRA 79

FACTS:

            Paz Arrieta was awarded by NARIC the contract of delivery of 20,000 metric tons of Burmese rice
at $203 per metric ton. On the other hand, the corporation committed itself to pay for the imported rice
by means of an irrevocable, confimed, and assignable letter of credit in US currency in favor of Arrieta or
supplier in Burma immediately. However, the corporation took the first step to open a letter of credit a
full month from the execution of the contract only July 30, 1952. On the same day, Arrieta advised the
corporation of the extreme necessity for the immediate opening of the letter of credit since she had by
then made a tender to her supplier in Ragoon Burma. Consequently, the credit instrument applied for
was opened only on September 8, 1952, since the corporation was not in financial capacity to pay the
50% marginal cash deposit when the credit instrument was approved on August 4, 1952.

            As a result of the delay, the allocation of Arrieta was cancelled and the 5% deposit, approximately
Php 200,000, was forfeited. Arrieta tried to restore the cancelled Burmese rice allocation, but failed.
Arrieta then instead offered to substitute Thailand rice to NARIC, communicating that such was a
solution which should be beneficial for both parties. However, the corporation rejected the substitution.
Hence, Arrieta sent a letter to the corporation, demanding for the compensation for the damages
caused her.

ISSUE:

      1.  Was the failure to open immediately the letter of credit in dispute amounted to a breach of the
contract for which the corporation should be held liable?

      2.  Was there any waiver on the part of Arrieta?

RULING:

      1.   Yes. It was clear from the records that the sole and principal reason for the cancellation of the
allocation contracted by Arrieta in Ragoon, Burma was the failure of the letter of credit to be opened.
The failure, therefore, was the immediate cause for the consequent damage which resulted. It was clear
from the records that the delay in the opening of the letter of credit was due to the inability of the
corporation to meet the condition imposed by the bank for the granting the same.
            Furthermore, the liability of the corporation stemmed not alone from failure or inability to satisfy
the requirements of the bank, but its culpability arose from is willful and deliberate assumption of
contractual obligations even as it was well aware of its financial incapacity to undertake the prestation.
Under Article 1170, “those who in the performance of their obligation are guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor thereof, are liable in damages.” The terms “in
any manner contravene the tenor thereof” includes any illicit act which impairs the strict and faithful
fulfillment of the obligation, or every kind or defective performance. In general also, every debtor who
fails in the performance of his obligation is bound to indemnify for the losses and damages caused
thereby.

            The payment for damages or the award to be given should be converted into the Philippine peso
at the rate of exchange prevailing at the time the obligation was incurred pursuant to RA 527.

      2.   No. The subsequent offer to substitute the Thailand rice for the originally contracted Burmese did
not constitute a waiver. Waivers are not presumed. It must be clearly and convincingly shown either by
express stipulations or acts admitting no other reasonable explanation. In this case, no such intent to
waive had been established.

MAKATI DEVELOPMENT CORP. VS. EMPIRE INSURANCE CO.              

G. R. NO. 21780 JUNE 30, 1967

FACTS:

            On March 31, 1959, Makati Development Corporation sold a lot to Rodolfo P. Andal, in Urdaneta
Village, Makati, Rizal, for P55,615. A so-called "special condition" contained in the deed of sale provides
that the vendee shall construct and complete at least 50% of its residence on the property within two
(2) years from March 31, 1959 to the satisfaction of the vendor and, in the event of its failure to do so,
the bond which the vendee has delivered to the vendor in the sum of P11,123.00 to insure faithful
compliance with the above special condition will be forfeited. Andal gave a surety bond on April 10,
1959 wherein he, as principal, and the Empire Insurance Company, as surety, jointly and severally,
undertook to pay the Makati Development Corporation the sum of P12,000 in case Andal failed to
comply with his obligation under the deed of sale.

            Andal sold the lot to Juan Carlos on January 18, 1960. As neither Andal nor Juan Carlos built a
house on the lot within the stipulated period, the Makati Development Corporation, on April 3, 1961,
after the lapse of the two-year period, sent a notice of claim to the Empire Insurance Co. advising it of
Andal's failure to comply with his undertaking. Demand for the payment of P12,000 was refused,
whereupon the Makati Development Corporation filed a complaint in the Court of First Instance against
the Empire Insurance Co. to recover on the bond in the full amount, plus attorney's fees. In due time,
the Empire Insurance Co. filed its answer with a third-party complaint against Andal. It asked that the
complaint be dismissed or, in the event of a judgment in favor of the Makati Development Corporation,
that judgment be rendered ordering Andal to pay the Empire Insurance Co. whatever amount it maybe
ordered to pay the Makati Development Corporation, plus interest at 12%, from the date of the filing of
the complaint until said amount was fully reimbursed, and attorney's fees.

            In his answer, Andal admitted the execution of the bond but alleged that the "special condition"
in the deed of sale was contrary to law, morals and public policy. He averred that, at any rate, Juan
Carlos had started construction of a house on the lot. The lower court rendered judgment, sentencing
the Empire Insurance Co. to pay the Makati Development Corporation the amount of P1,500, with
interest at the rate of 12% from the time of the filing of the complaint until the amount was fully paid,
and to pay attorney's fees in the amount of P500, and the proportionate part of the costs. The court
directed that in case the amount of the judgment was paid by the Empire Insurance Co., Andal should in
turn pay the former the sum of P1,500 with interest at 12% from the time of the filing of the complaint
to the time of payment and to pay attorney's fees in the sum of P500 and proportionate part of the
costs. The Makati Development Corporation appealed directly to this Court.

            The appellant argues that Andal became liable for the full amount of his bond upon his failure to
build a house within the two-year period which expired on March 31, 1961 and that the trial court was
without authority to reduce Andal's liability on the basis of Carlos' construction of a house a month after
the stipulated period because there was no privity of contract between Carlos and the Makati
Development Corporation.

ISSUE: 

Is Andal liable for the full amount of his bond upon his failure to comply with the special condition
stipulated?

RULING: 

            No. While it is true that in obligations with a penal sanction the penalty takes the place of
damages and the payment of interest in case of non-compliance and that the obligee is entitled to
recover upon the breach of the obligation without the need of proving damages,it is nonetheless true
that in certain instances a mitigation of the obligor's liability is allowed. Thus article 1229 of the Civil
Code states:

The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.

            Trial court found that Juan Carlos had finished more than 50 per cent of his house by April, 1961,
or barely a month after the expiration on March 31, 1961 of the stipulated period. There was therefore a
partial performance of the obligation within the meaning and intendment of article 1229. The penal
clause in this case was inserted not to indemnify the Makati Development Corporation for any damage it
might suffer as a result of a breach of the contract but rather to compel performance of the so-called
"special condition" and thus encourage home building among lot owners in the Urdaneta Village.
Considering that a house had been built shortly after the period stipulated, the substantial, if tardy,
performance of the obligation, having in view the purpose of the penal clause, fully justified the trial
court in reducing the penalty. Still it is insisted that Carlos' construction of a house on the lot sold cannot
be considered a partial performance of Andal's obligation because Carlos bears no contractual relation
to the Makati Development Corporation. Indeed the stipulation in this case to commence the
construction and complete at least 50 per cent of the vendee's house within two years cannot be
construed as imposing a strictly personal obligation on Andal. To adopt such a construction would be to
limit Andal's right to dispose of the lot. There is nothing in the deed of sale restricting Andal's right to
sell the lot at least within the two-year period and we think it plain that a reading of such a limitation on
one of the rights of ownership must rest on more explicit language in the contract.

COMMISSIONER VS. BURGOS

G.R. No. L-36706 March 31, 1980

FACTS:

Private Respondent Victoria Amigable is an owner of a parcel of land in Cebu City that was taken by the
Government sometime in 1924 for road-right-of-way purpose.  In 1959, private respondent filed a
complaint to recover ownership and possession of the said land, damages for illegal occupation of the
Government of the same said land and Php5,000.00 for attorney’s fees.  Petitioner-defendant, in its
answer, alleged that the above-mentioned land was either donated or sold by its owners to the province
of Cebu, also private respondent is already barred by estoppel and statute of limitations, and invoked
the non-suitability of the Government.  Based on the allegations of the petitioner-defendant, the trial
court rendered a decision for the petitioner-defendant.  However, on appeal to the Supreme Court, the
Court reversed the decision and remanded the case to the court of origin for the determination of the
compensation to be made to private respondent and attorney’s fees.

During the hearing for the determination of the compensation, the Government proved the value of the
land through the certification issued by the Bureau of Records Management that the value of the said
land was only Php2.37 per square meter.  On the other hand, private respondent presented a
newspaper clipping of Manila Times showing that the value of peso was Php6.775 to a dollar during the
middle of 1972.  Upon consideration, the trial court rendered a decision directing the Government to
pay private respondent Php49,459.34 for the value of the land with 6% interest per annum and 10%
attorney’s fees of the total amount due, totaling to Php214,356.75.  Thereafter, the Solicitor General,
representing the Government, appealed to the Supreme Court contending that the trial court erred in
applying Article 1250 in the case at bar.

ISSUE:

            Should Article 1250 be applied in determining the compensation for the disputed land?

RULING:

No.  It is clear that Article 1250 applies only to cases where a contract or agreement is involved. It does
not apply where the obligation to pay arises from law, independent of contract. The taking of private
property by the Government in the exercise of its power of eminent domain does not give rise to a
contractual obligation.

Moreover, the law as quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be
the value of the peso at the time of the taking of the property when the obligation of the Government to
pay arises. It is only when there is an "agreement to the contrary" that the extraordinary inflation will
make the value of the currency at the time of payment, not at the time of the establishment of the
obligation, the basis for payment. In other words, an agreement is needed for the effects of an
extraordinary inflation to be taken into account to alter the value of the currency at the time of the
establishment of the obligation which, as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of extraordinary inflation or deflation.

 The correct amount of compensation due private respondent for the taking of her land for a public
purpose would be not P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per
square meter, the actual value of the land of 6,167 square meters when it was taken in 1924. The
interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court
rendered its decision, as was awarded by the said court should accordingly be reduced.

J.M. TUASON & CO., INC. VS. JAVIER

G.R. NO. L-28569 February 27, 1970

 
FACTS:

            On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with
respondent Ligaya Javier a parcel of land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta.
Mesa Heights Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be
payable upon execution of the contract, and an installment of Php43.92 monthly for a period of ten (10)
years.  It was further stipulated in the contract, particularly the sixth paragraph, that upon failure of
respondent to pay the monthly installment, she is given a one month grace period to pay such
installment together with the monthly installment falling on the said grace period.  Furthermore, failure
to pay both monthly installments, respondent will pay an additional 10% interest.  And after 90 days
from the end of the grace period, petitioner can rescind the contract, the payments made by
respondent will be considered as rentals.

            Upon the execution of the contract, respondent religiously paid the monthly installment until
January 5, 1962.  Respondent, however, was unable to the pay the monthly installments within the
grace period which petitioner, subsequently, sent a letter to respondent on May 22, 1964 that the
contract has been rescinded and asked the respondent to vacate the said land.  So, upon failure of
respondent to vacate the said land, petitioner filed an action to the Court of First Instance of Rizal for
the rescission of the contract. The CFI rendered a decision in favor of respondent in applying Article
1592 of the New Civil Code.  Hence, petitioner made an appeal to the Supreme Court alleging that since
Article 1592 of the New Civil applies only to contracts of sale and not in contracts to sell.

ISSUE:

            Did the CFI erroneously apply Article 1592 of the New Civil Code?

RULING:

            Yes.  Regardless, however, of the propriety of applying Article 1592, petitioner has not been
denied substantial justice under Article 1234 of the New Civil Code.  In this connection, respondent
religiously satisfied the monthly installments for almost eight (8) years or up to January 5, 1962.  It has
been shown that respondent had already paid Php4,134.08 as of January 5, 1962 which is beyond the
stipulated amount of Php3,691.20.  Also, respondent has offered to pay all installments overdue
including the stipulated interest, attorney’s fees and the costs which the CFI accordingly sentenced
respondent to pay such installment, interest, fees and costs.  Thus, petitioner will be able recover
everything that was due thereto.  Under these circumstances, the SC feel that, in the interest of justice
and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the New
Civil Code.

LEGARDA VS. SALDAÑA

FACTS:

Saldaña had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda
agreed to sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly
installments with 10% interest per annum.  Saldaña paid for eight consecutive years but did not make
any further payments due to Legarda’s failure to make the necessary improvement on the said lot which
was promised by their representative, the said Mr. Cenon.  Saldaña already paid a total of
Php3,582.06.  The statement of account shows that Saldaña paid Php1,682.28 of the principal and
Php1,889.78 for the interest.  It did not distinguish which of the two said lots was paid.  Petitioner, then,
rescinded the contract based on the stipulation of the contract that payments made by respondent shall
be considered as rentals and any improvements made shall be forfeited in favor of the petitioner.  The
lower court ruled sustaining petitioner’s cancellation of contract.  So respondent appealed and
judgment was reversed in favor of the respondent ordering petitioners to deliver to plaintiff one of the
two lots at the choice of the defendant and execute the deed of conveyance.  Hence this petition.

ISSUE:

Was the cancellation of the sale of contract valid?

RULING: 

No, even though it was stipulated that failure to complete the payment would result to the cancellation
of the contract, it was still not valid.  As clearly shown in the statement of account, Saldaña was able to
pay one of the two said lots.  Under Article 1234 of the New Civil Code, “if the obligation has been
substantially performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee”.  Hence, under the authority of Article 1234
of the New Civil Code, Saladaña is entitled to one of the two lots of his choice and the interest paid shall
be forfeited in favor of the petitioners.

SAURA VS. DBP

G.R. No. L-24968 April 27, 1972

 
FACTS:

Plaintiff Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a
factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase
price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.  It was also
stated in the loan, among others, that China Engineers, Ltd. will be one of the joint signatories of the
loan, and Saura, Inc. will use local raw materials in the manufacture of jute sacks.  Saura, Inc. had
already purchased the jute mill machinery on the strength of the letter of credit extended by Prudential
Bank and Trust Co.  At first, China Engineers, Ltd. did not want to sign the said contract and instead
Saura, Inc. suggested that in lieu of that, Saura, Inc. will put up a bond of Php123,500.00, equivalent to
China Engineers, Ltd.’s subscription.  But later on, agreed to sign the contract.  However, RFC reduced
the said loan from Php500,000.00 to Php300,000.00 despite the formal execution of the loan
agreement.  Then, China Engineers, Ltd. withdrew its signature to the said loan.  Thereafter, Saura, Inc.
demanded the release of the originally approved loan of Php500,000.00 and China Engineers, Ltd. will
reinstate its signature to the said loan.  RFC agreed but the loan was subject to the condition that Saura,
Inc. will get the necessary certification from Department of Agriculture and Natural Resources that there
will be enough supply of raw materials and will there be an increase of production of the said raw
materials in its vicinity.  Saura, Inc. was not able to get the necessary certification and instead requested
to release the loan as follows: (1) P250,000.00 for the payment of the receipt for jute mill machineries
with Prudential Bank &Trust Company , (2) P182,413.91 for the purchase of materials and equipment
per attached list to enable the jute mill to operate 182,413.91, (3) P67,586.09 for raw materials and
labor {(a) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00, (b)
P25,000.00 to be released upon arrival of raw jute, and (c) P17,586.09 to be released as soon as the mill
is ready to operate.}  RFC, afterward, denied such request which prompted Saura, Inc. to execute a deed
of cancellation of the mortgage. 

Due to Saura, Inc.’s failure to proceed with the said loan with RFC, Prudential Bank and Trust Co. sued
them for their failure to pay its obligation with said bank.  After almost nine years, Saura, Inc. filed a suit
alleging that owing to RFC’s failure to release the proceeds of the said loan thereby preventing them
from paying their obligation in regards to the jute mill project.  The trial court rendered judgment for the
plaintiff.  Hence this petition. 

ISSUE:

            Was there a perfected contract between Saura, Inc. and RFC?

RULING:

Yes.  However, when RFC turned down the request in its letter, the negotiations which had been going
on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released
as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by both parties
was in the nature of mutual desistance, what Manresa terms "mutuo disenso", which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can cause its extinguishment.

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged
breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever rights it believed it might have against
RFC for the latter's non-compliance. It was nine years after the loan agreement had been cancelled at its
own request, that Saura, Inc. brought this action for damages.  All these circumstances demonstrate
beyond doubt that the said agreement had been extinguished by mutual desistance, and that on the
initiative of the plaintiff-appellee itself.

GALAR VS. SASI

47 O.G. 6241

FACTS:

            Luis Galar borrowed Php 15,000 from Juan Isasi for which the former drew two promissory notes.
As a payment, Galar paid to PNB on behalf of Aberri Inc., which was controlled by Isasi and his wife, the
outstanding balance of Php 15,848.90. In turn, PNB cancelled the indebtedness of Aberri Inc., released
the mortgage that had been constituted, and delivered the title to Galar. Upon notifying Isasi of the
payment made, Isasi refused to recognize the payment of Galar to PNB. Hence the attorney of Galar
advised Isasi that they would consign in the court the sum of Php 20,000, representing the face value of
the promissory notes. They then filed a case in the court to declare the promissory notes paid and
discharged.

            Isasi, on the other hand, tendered the sum of Php 15,848.90 paid by Galar to the PNB for the
account and in the name of Aberri Inc. Upon refusal by Galar, Isasi, on behalf of the company, consigned
the amount in the CFI of Manila and filed a complaint, praying that Galar be ordered to restore to Aberri
Inc. all documents relative to the obligation formerly due to the PNB and to reimburse the amount paid
by Galar to the bank be considered cancelled in view of the consignation.

ISSUE:

1.    Can Luis Galar legally pay the debt without awaiting the demand on the part of Isasi?
2.    Should Galar’s payment of the debt of Aberri Inc. to the bank be set off against the notes?

RULING:

1. Yes. A demand note was subject neither to suspensive condition nor a suspensive period. The demand
was not a condition precedent since the effectivity and binding effect of the note does not depend upon
the making of the demand. The note was binding even before the demand is made. Neither did the note
constitute an implied suspensive period since there was nothing to prevent the creditor for making
demand at any time. It follows, therefore, that the demand note was strictly a pure obligation as defined
in Article 1179. The periods of 15 and 30 days after demand stipulated in the promissory notes could
have no other purpose but to protect the debtor by giving him sufficient time to raise money to meet
the demand. The period being solely for the debtor’s protection and benefit, the debtor could renounce
it validly at any time. Galar was lawfully entitled to make payment even if no demand had yet been
made by Isasi.

2. Yes. The payment of Galar of the indebtedness of Aberri Inc to the PNB redounded to the benefit of
Isasi who had absolute control of said corporation. Thus, said payment was valid and discharged the
obligation, even if such payment was not authorized by Isasi or Aberri Inc., for which Galar had the right
to demand reimbursement for the amount paid. However, such reimbursement was unnecessary. Such
reimbursement was extinguished by its total absorption in the larger amount due from Galar to Isasi.
The consignation, therefore, of Isasi was invalid since it no longer had any obligation towards Galar.  On
the other hand, the balance of Php 4,151.10 due and owing from Galar to Isasi was extinguished upon
the consignation of Galar in the court the sum of Php 20,000.

FAUSTINO LICHAUCO VS. FIGUERAS HERMANOS

G.R. No. L-3308

FACTS:

The Quartermaster's Department of the Army of the United States advertises semiannually for proposals
to furnish lighterage for its use in the port of Manila. The service required is divided into two classes,
regular and emergency. The price paid for emergency service is naturally higher than that paid for
regular service wherein the lorcha are steadily employed for the entire contract period of six months.

The defendants submitted a bid for the quartermaster's contract of lighterage for the semiannual period
from the 1st of July to the 31st of December, 1905, but when the proposals were opened on the 2d of
May, 1905, their bid and all others were rejected. On the 16th of May, 1905, the letting of the contract
was again advertised, and the defendant and other submitted new proposals which were opened on the
27th of May, 1905, and on this occasion the contract was divided and the defendants bid for the
emergency service was accepted, while a third party was awarded the contract for the regular service.

There were no new negotiations entered into between the plaintiff and the defendants after the failure
of defendants to secure the contract at the opening of the bids on May 2, 1905, but on the 1st of July
the plaintiff Lorchas Chata and Lolin were furnished to the quartermaster under the defendants'
contract for the emergency service, and were thus employed in that service for the first twenty-three
and twenty-seven days of August, when they were released by the quartermaster, and the plaintiff
immediately notified by the defendants that they were at his disposal.

Plaintiff claims that defendants made use of these lorchas, under the terms of the contract of April 20;
that is, that the lorchas shall be rented from July 1 to Dec. 31, 1905.

ISSUE:

Is the respondent obliged to pay the rentals for the days that the lorchas were not used?

RULING:

            No. It was plainly conditioned upon the defendants' securing the entire contract of lighterage and
not upon their securing a part thereof. There is nothing in the contract between the parties to indicate
that either one had in mind the division of the lighterage contract and indeed the language of the entire
amendment suggests that both parties had in contemplation no other thing that the complete success
or the complete failure of defendants to secure the lighterage contract with the Government.

In conditional obligations, the acquisition of rights, as well as the extinction or loss of those already
acquired, shall depend upon the event constituting the condition.
The defendants, by taking and using these lorchas for the purpose of carrying out their contract with the
quartermaster without any new agreement the obligation with the plaintiffs, impliedly and tacitly
assumed the obligation of the original contract together with the amendment, so that their use of the
lorcha was subject to its terms. They required no new contract with the plaintiff, express or implied, to
authorize them to do so, and no sufficient reason has been suggested to justify the inference that they
assumed an oppressive and dangerous risk when all that they did was in exact compliance with a written
contract securing to them the right to use these lorchas on favorable and reasonable terms.

RONQUILLO VS. COURT OF APPEALS

G.R. No. L-55138

FACTS:

Petitioner Ernesto V. Ronquillo was one of four (4) defendants for the collection of the sum of
P117,498.98 plus attorney's fees and costs. The other defendants were Offshore Catertrade, Inc., Johnny
Tan and Pilar Tan.

On December 13, 1979, the lower court rendered its Decision based on the compromise agreement,
which stipulates, among others, that the Plaintiff agrees to reduce its total claim of P117,498.95 to only
P110,000.00 and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00 the amount of P55,000.00 on or
before December 24, 1979, the balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980, or before June 30, 1980.

Upon the defendant’s default, herein private respondent (then plaintiff) filed a Motion for Execution.
Ronquillo and another defendant Pilar Tan offered to pay their shares of the 55,000 already due.

But on January 22, 1980, private respondent Antonio So moved for the reconsideration and/or
modification of the aforesaid Order of execution and prayed instead for the "execution of the decision in
its entirety against all defendants, jointly and severally.
Petitioner opposed the said motion arguing that under the decision of the lower court being executed
which has already become final, the liability of the four (4) defendants was not expressly declared to be
solidary, consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due
and payable.

ISSUE: 

What is the nature of the liability of the defendants (including petitioner), was it merely joint, or was it
several or solidary?

RULING:

SOLIDARY.

In this regard, Article 1207 and 1208 of the Civil Code provides -

"Art. 1207.   The concurrence of two or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestation. There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.

Art. 1208.   If from the law, or the nature or the wording of the obligation to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors and debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits."

Clearly then, by the express term of the compromise agreement, the defendants obligated themselves
to pay their obligation "individually and jointly."

The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively
or "severally". An agreement to be "individually liable" undoubtedly creates a several obligation, and a
"several obligation" is one by which one individual binds himself to perform the whole obligation.

The obligation in the case at bar being described as "individually and jointly", the same is therefore
enforceable against one of the numerous obligors.

VERMEN REALTY DEVELOPMENT CORPORATION VS. COURT OF APPEALS G.R. No. 101762

FACTS:

Under the conditions of the so-called “Offsetting Agreement”, Vermen Realty (the first party in the
contract) and Seneca Hardware (the second party) were under a reciprocal obligation. Seneca Hardware
shall deliver to Vermen Realty construction materials worth P552,000.00. Vermen Realty's obligation
under the agreement is three-fold: he shall pay Seneca Hardware P276,000.00 in cash; he shall deliver
possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00)
to Seneca Hardware; upon completion of Vermen Pines Condominiums Phase II, Seneca Hardware shall
be given option to transfer to similar units therein.

As found by the appellate court and admitted by both parties, Seneca Hardware had paid Vermen Realty
the amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00.
Pending completion of Phase II of the Vermen Pines Condominiums, Vermen Realty delivered to Seneca
Hardware units 601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the
Vermen Realty repossessed unit 602. As a consequence of the repossession, the officers of the Seneca
Hardware corporation had to rent another unit for their use when they went to Baguio on April 8, 1982.

In its reply the Vermen Realty corporation averred that Room 602 was leased to another tenant because
Seneca Hardware corporation had not paid anything for purchase of the condominium unit. Vermen
Realty corporation demanded payment of P27,848.25 representing the balance of the purchase price of
Room 601.

On June 21, 1985, Seneca Hardware filed a complaint with the Regional Trial Court of Quezon City
(Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, Seneca
Hardware alleged that Vermen Realty Vermen Realty Corporation had stopped issuing purchase orders
of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of
deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting
Agreement.

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the
plaintiff (Seneca Hardware in this petition) to pay defendant (Vermen Realty in this petition) on its
counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of
condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

ISSUE:

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

RULING:

Yes. The Court ruled in favor of Seneca Hardware. There is no controversy that the provisions of the
Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or established at
the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous
fulfillment of the other obligation  Under the agreement, Seneca Hardware shall deliver to Vermen
Realty construction materials. Vermen Realty's obligation under the agreement is three-fold: he shall
pay Seneca Hardware P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I,
Vermen Pines Condominiums (with total value of P276,000.00) to Seneca Hardware; upon completion of
Vermen Pines Condominiums Phase II, Seneca Hardware shall be given option to transfer to similar units
therein.

Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where one of the obligors fails to comply with what is
incumbent upon him.

In the case at bar, Vermen Realty argues that it was Seneca Hardware who failed to perform its
obligation in the Offsetting Agreement.

Seneca Hardware, on the other hand, points out that the subject of the Offsetting Agreement is Phase II
of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines
Condominiums has failed to begin it has reason to move for rescission of the Offsetting Agreement, as it
cannot forever wait for the delivery of the condominium units to it.

It is evident from the facts of the case that Seneca Hardware did not fail to fulfill its obligation in the
Offsetting Agreement. The discontinuance of delivery of construction materials to Vermen Realty
stemmed from the failure of Vermen Realty to send purchase orders to Seneca Hardware.

The impossibility of fulfillment of the obligation on the part of Vermen Realty necessitates resolution of
the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial
breach of the Offsetting Agreement.

ROBES-FRANCISCO REALTY & DEVELOPMENT CORP. VS. CFI OF RIZAL

86 SCRA 59

 
FACTS:

            This is an appeal from the decision of the CFI of Rizal rendering judgment against Robes-Francisco
Corporation to register the deed of absolute sale in favor of Millan with the Register of Deeds of
Caloocan City and secure the corresponding title within ten days and if not possible said Corporation
shall pay Millan the total amount she paid P5,193.63 with interest at 4% per annum from June 22, 1972
until fully paid.  In either case Robes Corporation is sentenced to pay Millan nominal damages of
P20,000.00 plus P5,000.00 attorney’s fees.

            Petitioner Corporation questions the award of P20,000.00 nominal damages and P5,000.00
attorney’s fees alleging such to be excessive and unjustified.

            In May 1962, Robes Corporation entered into a contract of sale with Millan for a parcel of land in
the amount of 3,864.00 payable in installments.  Millan complied with her obligation and made her final
payment on December 22, 1971 for a total payment of P5,193.63 including interests and expenses for
registration of title.  On March 2, 1973 the deed of absolute sale was executed but the transfer
certificate of title could not be executed because the parcel of land conveyed to Millan was included
among other properties of the corporation mortgaged to GSIS to secure an obligation of P10 million,
hence, the owner’s duplicate certificate of title of the subdivision was in the possession of the GSIS.

ISSUE:

            Is the 4% interest provision of the contract a penal clause?

RULING:

            No.  Said clause does not convey any penalty, for even without it, pursuant to Article 2209 of the
Civil Code, the vendee would be entitled to recover the amount paid by her with legal rate of interest
which is even more than the 4% provided for in the clause.

            A penal clause is an accessory undertaking to assume greater liability in case of breach.  From this
alone, the 4% provision does not come to be penal in character, hence, Robes Corporation’s contention
that the penalty shall substitute the indemnity for damages and the payment of interest in case of non-
compliance does not hold water.

            Unfortunately, Millan failed to show the actual damages she suffered as a result of the
nonperformance.  Nonetheless, the facts show that the right of the vendee was violated and this entitles
her at the very least to nominal damages.
            “In the situation before Us, We are of the view that the amount of P20,000.00 is excessive.”  Bad
faith can not be presumed.  Petitioner Corporation expected that arrangements were possible for the
GSIS to make partial releases of the subdivision lots from the overall real estate mortgage.  It was only
unfortunate for it not to succeed in that regard.  Hence, the sum of ten thousand pesos by way of
nominal damages is fair and just.

VELASCO VS. MERALCO

42 SCRA 556

FACTS:

Appellee, Manila Electric Company’s substation emitted noise above 50 decibel level. The intensity of
the noise emitted by appelle’s transformers is most objectionable at night, when people are
endeavoring to rest and sleep. The court ordered the appellee to bring down the noise to 50 decibel
level upon complaint of appellant, Velasco. The appellee argued that instead of lowering the noise, wall
barrier will be erected to separate the substation from the property but it was not push thru due to
objections of appellant’s wife. Since Velasco, the appellant was the one who complained his wife’s
objection should not suffice to constitute a waiver of this claim.

            The appellant claimed for damages from the company but was not satisfied with the decision of
the court for he believed that the decision has incorrectly assessed appellant’s damages and
unreasonably reduced the amount of the claim. Appellant urged that the damages awarded him are
inadequate considering the present high cost of living and calls attention to Article 1250 of the New Civil
Code.

ISSUE:

Was the court correct in not applying Article 1250 of the New Civil Code?

RULING:

Yes. In Article 1250, it can be seen that the provision envisages contractual obligations where the parties
selected specific currency as a medium of payment; hence it is not applicable to obligations arising from
tort and not from contract as in the case at bar. Besides, there has been no showing that the factual
assumption of the article has come into existence.

The damages awarded to herein appellant were by no means full compensatory damages, since the
decision makes clear that appellant, by his failure to minimize his damages by means easily within his
reach, was declared entitled only to a reduce award for nuisance sued upon. And the amount granted
him had already taken into account the changed economic circumstances.

PEOPLE’S CAR VS. COMMANDO SECURITY SERVICE AGENCY

51 SCRA 40

FACTS:

            People’s Car Inc. acquired the services of the Commando Security Service Agency to “safeguard
and protect the business premises of the [People’s Car Inc.] from theft, pilferage, robbery, vandalism,
and all other unlawful acts of any person or persons prejudicial to the interest of the [company].”

            On April 5, 1970, the security guard brought out of the compound a client’s car and drove the car
to places unknown without the consent, authority, approval, and knowledge of the company. While
driving the said car, the security guard lost control of the car, which fell into a ditch. As a result of the
incident, the car of the client suffered extensive damages in the total amount of Php 8,489.10, including
the rental value.

            The company claimed that the defendant was liable for the entire amount. On the other hand,
service agency contended that its liability should not exceed Php 1,000.00 as indicated in the contract
agreed upon.

            The trial court ruled in favor of the service agency, hence, the appeal.

ISSUE:

            Should the service agency be liable for the total actual damages incurred?

RULING:

            Yes. The decision of the trial court was erroneous, since it misread the contractual provisions as
agreed upon by the parties. The liability of the service agency falls under the paragraph 5 and not
paragraph 4 of the said contract.

Paragraph 4 of the contract pertains to the liability of the service agency if there is any loss or damage
through the negligence of its guards during watch hours. However, in the case, the security was not
negligent. But rather, he acted unlawfully and wrongfully drove out a client’s car out of the premises.
Therefore, the service agency was held liable for the total actual damages pursuant to paragraph 5 of
the contract.

PERLA COMPANIA DE SEGUROS, INC. VS. COURT OF APPEALS

185 SCRA 741

FACTS:

            Milagros Cayas was an owner of passenger vehicle, which she insured with Perla Compania de
Seguros (PCSI) on February 3, 1978. On December, the vehicle figured in an accident, resulting to the
injury of several passengers.  Three passengers, who were injured in the accident, agreed to a
settlement of Php 4,000.00 each. However, 19 year old Edgardo Perea sued Cayas for damages. The
court rendered a decision in favor of Perea with cost against Cayas of Php 22,000.00. Consequently,
Cayas filed a complaint for a sum of money and damages against PCSI. She sought reimbursement from
PCSI with the contention that her claim was within PCSI’s contractual liability under the insurance policy.
The court rendered judgment in favor of Cayas, ordering PCSI to pay Cayas Php 50,000.00 as
compensation for the injured parties, Php 5,000.00 for moral damages, and Php 5,000.00 attorney’s
fees. PCSI then filed a motion for reconsideration. They sought to limit its liability only to the payment
made by Cayas to Perea and only up to Php 12,000.00 and denied the liability for payments made to
Cayas to the other three injured parties based on the provision of the policy. The decision of the Court of
Appeals was modified. PCSI should pay Cayas the amount of Php 12,000.00 plus the legal interest and
attorney’s fee in the amount of Php 5,000.00

ISSUE:

            Should PCSI be liable to reimburse Cayas the amount ordered by the trial court?

RULING:

            No. PCSI cannot be held liable to pay Cayas the amount ordered by the trial court, because the
insurance policy clearly and categorically placed PCSI’s liability for all damages arising out of death or
bodily injury sustained by one person as a result of any single accident at Php 12,000.00. The said
amount was in compliance with the minimum fixed by the prevailing law. PCSI’s liability under the
insurance contract not being less than Php 12,000.00 was not contrary to law, good morals, good
customs, and public policy. The said stipulation must be upheld as effective, valid, and biding between
parties.

            The condition requiring Cayas to secure a written permission of PCSI before effecting any
payment in settlement of any claims against PCSI was required to safeguard its interest. There was
nothing unreasonable in the stipulation aw would warrant nullification.

PUBLISHING COMPANY VS. PERFECTO

13 SCRA 762

FACTS:

            On May 3, 1955, Perfecto Tabora bought from Lawyers Cooperative Publishing Company one
complete set of American jurisprudence, in an installment basis amounting to Php 1,682.40, including
freight charges. He made a partial payment of Php 300.00. The books were then delivered on May 15,
1955. However, on that same day, a big fire broke out, which destroyed the buildings, including the law
office and library of Tabora. When Tabora reported the incident to the company, they replied in good
will and sent him free books.

            Subsequently, Tabora failed to pay the installments agreed upon,

LIMJOCO v.

CA, ROBERT TAN

In a contract entered into between Angel Limjoco (petitioner) and Robert Tan (private
respondent), the former obligated himself to sell to the latter a parcel of land on the conditions that: 1)
w/n 60 days, petitioner will execute a necessary deed of sale in favor of the respondent; 2) respondent
will assume the mortgage lien in favor of RFC with Limjoco to arrange with said corporation; and 3) the
sum of P5,000, as earnest money paid by respondent to petitioner, will be returned to the former
should the latter fails to comply above-stated agreements.
 At the outset, petitioner failed to consummate such proposed sale, thus, herein respondent
initiate an action against the petitioner wherein, private respondent was given favorable decision by the
lower court ordering petitioner to return back the earnest money as well as pay the liquidated damages.
Hence, this petition, seeking for the reversal of the decision of the court a quo and the CA, contending
that he (petitioner) did not incur any delay in the performance of the contract under the provision laid
by Article 1169 of Civil Code on the reciprocal obligations.

ISSUE: W/N petitioner correctly invoke Article 1169, thus, incurring no delay in the contract entered into
by him with the respondent.

RULING:

NO.