OBLICON DIGEST POOL ( ATTY. CARAMPATANA) FEB.

2024

Article 1159
Title
Perla Compania De Seguros, Inc. vs. Court of Appeals
Case
G.R. No. 78860
Insurance Law; Contracts; The terms of the contract constitute the measure of the
insurer’s liability and compliance therewith is a condition precedent to the insured’s right of
recovering from the insurer.—We have ruled in Stokes vs. Malayan Insurance Co., Inc., that the
terms of the contract constitute the measure of the insurer’s liability and compliance therewith is
a condition precedent to the insured’s right of recovery from the insurer.
Same; Same; Same; Petitioner’s liability under the insurance contract not being less
than P12,000.00 and therefore not contrary to law, morals, good customs, public order or
public policy, said stipulation must be upheld as effective, valid and binding as between the
parties.—In the case at bar, the insurance policy clearly and categorically placed petitioner’s
liability for all damages arising out of death or bodily injury sustained by one person as a result
of any one accident at P12,000.00. Said amount complied with the minimum fixed by the law
then prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.D. No.
1460, the Insurance Code of 1978), which provided that the liability of land transportation
vehicle operators for bodily injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is
P12,000 per passenger. Petitioner’s liability under the insurance contract not being less than
P12,000.00, and therefore not contrary to law, morals, good customs, public order or public
policy, said stipulation must be upheld as effective, valid and binding as between the parties.
Same; Same; Same; Condition requiring private respondent to secure the written
permission of petitioner before effecting any payment in settlement of any claim against her is
valid and binding.—In like manner, we rule as valid and binding upon private respondent the
condition above-quoted requiring her to secure the written permission of petitioner before
effecting any payment in settlement of any claim against her. There is nothing unreasonable,
arbitrary or objectionable in this stipulation as would warrant its nullification. The same was
obviously designed to safeguard the insurer’s interest against collusion between the insured and
the claimants.
Same; Same; Same; Same; Private respondent precluded from seeking reimbursement
of the payments made to del Carmen, Magsar-ili and Antolin in view of the failure to comply
with the condition contained in the insurance policy.—It being specifically required that
petitioner’s written consent be first secured before any payment in settlement of any claim could
be made, private respondent is precluded from seeking reimbursement of the payments made to
del Carmen, Magsarili and Antolin in view of her failure to comply with the condition contained
in the insurance policy.
Same; Same; Civil Law; Fundamental principle that contracts are respected as the law
between the contracting parties finds application in the present case.—Clearly, the
fundamental principle that contracts are respected as the law between the contracting parties
finds application in the present case. Thus, it was error on the part of the trial and appellate
courts to have disregarded the stipulations of the parties and to have substituted their own
interpretation of the insurance policy. In Phil. American General Insurance Co., Inc. vs. Mutuc,
we ruled that contracts which are the private laws of the contracting parties should be fulfilled
according to the literal sense of their stipulations, if their terms are clear and leave no room for
doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what
form they may be, whenever the essential requisites for their validity are present.
Same; Same; Same; Same; The first and fundamental duty of the courts is the
application of the law according to its express terms, interpretation being called for only when
such literal application is impossible.—Moreover, we stated in Pacific Oxygen & Acetylene Co.
vs. Central Bank, that the first and fundamental duty of the courts is the application of the law
according to its express terms, interpretation being called for only when such literal application
is impossible.
, 185 SCRA 741, G.R. No. 78860 May 28, 1990
Article 1168
Title
Chaves vs. Gonzales
Case
G.R. No. L-27454
Civil law; Obligations; Nature and effect of obligations; Obligation of a person obliged
to do something and fails to do it.—Under Article 1167 of the Civil Code, a person who is
obliged to do something and fails to do it shall be liable for the cost of executing the obligation
in a proper manner.
Same; Same; Same; Same; Cost of obligation; Case at bar.—The cost of execution of
the obligation to repair a typewriter is the cost of the labor or service expended in the repair of
the typewriter. In addition, the obligor, under Article 1170 of the Code, is liable for the cost of
the missing parts because in his obligation to repair the typewriter he is bound to return the
typewriter in the same condition it was when he received it.

Same; Same; Obligation with period; Where obligation does not fix a period; When
fixing a period is mere formality.—Where the defendant virtually admitted non-performance by
returning the typewriter he was obliged to repair in a non-working condition, with essential parts,
missing, he cannot invoke Article 1137 of the Civil Code. The time for compliance having
evidently expired, and there being a breach of contract by non-performance, it was academic for
the plaintiff to have first petitioned the court to fix a period for the performance of the contract
before filing his complaint in this case. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay.
Same; Damages; Claims for damages and attorney’s fees must be alleged and proved.
—Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis
thereof must be proved. Where there is no findings of fact on the claims for damages and
attorney’s fees in the lower court’s decision, there is no factual basis upon which to make an
award therefor.

Article 1169
Social Security System vs. Moonwalk Development and Housing Corporation
Case
G.R. No. 73345
Contracts; Penal Clause; Function.—A penal clause is an accessory undertaking to
assume greater liability in case of breach. It 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. From the foregoing, it is clear that a penal clause is
intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if
there should be default, the penalty may be enforced.
Obligations; Requisites in order that debtor may be in default; Necessity of demand.—
To be in default “x x x is different from mere delay in the grammatical sense, because it involves
the beginning of a special condition or status which has its own peculiar effects or results.” In
order that the debtor may be in default it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially and extrajudicially. Default generally
begins from the moment the creditor demands the performance of the obligation. Nowhere in this
case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations.
Neither did it show that petitioner demanded the payment of the stipulated penalty upon the
failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was
that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real
estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push
through upon Moonwalk’s requests and promises to pay in full. The next demand for payment
happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk And in
accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that
Moonwalk was never in default because SSS never compelled performance.
Binalbagan Tech. Inc. vs. Court of Appeals
G.R. No. 100594
Civil Law; Prescription; Prescriptive period to institute action upon written contract
interrupted by issuance of an injunctive writ.—The prescriptive period within which to institute
an action upon a written contract is ten years. xxx. The deed of sale whereby private respondent
Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She filed
Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From May 11,
1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-year
prescriptive period had expired before she brought her action to recover title. However, the
period of 1974 to 1982 should be deducted in computing the prescriptive period for the reason
that, xxx from 1974 to 1982, private respondent Echaus was not in a legal position to initiate
action against petitioner since xxx through no fault of hers, her warranty against eviction was
breached. xxx The execution of the judgment in Civil Case No. 7435 was stopped by the writ of
preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No. 293 was
dismissed that the writ of execution in Civil Case No. 7435 could be implemented and petitioner
Binalbagan restored to the possession of the subject lots. Deducting eight years (1974 to 1982)
from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case No. 1354 was
filed within the 10-year prescriptive period.
Same; Obligations and Contracts; Recriprocal Obligations; A party unable to comply
with own obligations under a contract cannot demand rescission thereof.—The appellants
could not have prospered in any suit to compel performance or payment from the appellees-
buyers, because the appellants themselves were in no position to perform their own
corresponding obligation to deliver to and maintain said buyers in possession of the lots subject
matter of the sale. xxx. A party to a contract cannot demand performance of the other party's
obligations unless he is in a position to comply with his own obligations. Similarly, the right to
rescind a contract can be demanded only if a party thereto is ready, willing and able to comply
with his own obligations thereunder.
Same; Same; Sale of Real Property; Warranty against eviction, Breached thereof;
Corresponding right to demand payment, likewise, suspended.—As afore-stated, petitioner was
evicted from the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293
and reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to
1982, seller private respondent Angelina Echaus' warranty against eviction given to buyer
petitioner was breached though, admittedly, through no fault of her own. It follows that during
that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand
compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her
right to demand payment was suspended during that period, 1974-1982.
Same; Human Relations; Principle against unjust enrichment, applied.—Working
against petitioner's position too is the principle against unjust enrichment which would certainly
be the result if petitioner is allowed to own the 42 lots without full payment thereof.
Binalbagan Tech., Inc. vs. Court of Appeals,, 219 SCRA 777, G.R. No. 100594 March 10, 1993
Agcaoili vs. Government Service Insurance System
G.R. No. L-30056
Contracts; Sale; There being a perfected contract of sale, it was the duty of the GSIS
as seller to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the
purpose contemplated.—There was then a perfected contract of sale between the parties; there
had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in
the GSIS Housing Project at Nangka, Marikina, Rizal at a definite price payable in amortizations
at P31.56 per month, and from the moment the parties acquired the right to reciprocally demand
performance. It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a
condition suitable for its enjoyment by the buyer for the purpose contemplated, in other words, to
deliver the house subject of the contract in a reasonably livable state. This it failed to do.
Same; Same; Same; There can hardly be any doubt that the house contemplated was
one that could be occupied for purposes of residence in reasonable comfort and convenience.
—It sold a house to Agcaoili, and required him to immediately occupy it under pain of
cancellation of the sale. Under the circumstances there can hardly be any doubt that the house
contemplated was one that could be occupied for purposes of residence in reasonable comfort
and convenience. There would be no sense to require the awardee to immediately occupy and
live in a shell of a house, a structure consisting only of four walls with openings, and a roof; and
to theorize, as the GSIS does, that this was what was intended by the parties, since the contract
did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an
absurdity, the creation of an unfair situation. By any objective interpretation of its terms, the
contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a
reasonably habitable dwelling in return for his undertaking to pay the stipulated price.
Same; Same; Same; Same; It is axiomatic that in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him.—Since GSIS did not fulfill that obligation, and was not willing to
put the house in habitable state, it cannot invoke Agcaoili’s suspension of payment of
amortizations as cause to cancel the contract between them. It is axiomatic that “(i)n reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him.
Same; Same; Same; Same; Same; Argument that Agcaoili breached the agreement by
failing to occupy the house must be rejected as devoid of merit.—Nor may the GSIS succeed in
justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied
with the condition of occupying the house within three (3) days. The record shows that Agcaoili
did try to fulfill the condition; he did try to occupy the house but found it to be so uninhabitable
that he had to leave it the following day. He did however leave a friend in the structure, who
being homeless and hence willing to accept shelter even of the most rudimentary sort, agreed to
stay therein and look after it. Thus the argument that Agcaoili breached the agreement by failing
to occupy the house, and by allowing another person to stay in it without the consent of the
GSIS, must be rejected as devoid of merit.
Tanguilig v. Court of Appeals
G.R. No. 117190 January 2, 1997
Tanguilig v. Court of Appeals MAIN TOPIC – Contracts –Interpretation of Contracts - Primacy
of Intention I.
Civil Law; Contracts; Interpretation; Where the terms of the instruments are clear and
leave no doubt as to their meaning, they should not be disturbed.—Notably, nowhere in either
proposal is the installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep well. There is
absolutely no mention in the two (2) documents that a deep well pump is a component of the
proposed windmill system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words “deep well” and “deep well pump”
are mentioned in both, these do not indicate that a deep well is part of the windmill system. They
merely describe the type of deep well pump for which the proposed windmill would be suitable.
As correctly pointed out by petitioner, the words “deep well” preceded by the prepositions “for”
and “suitable for” were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of
petitioner was to include a deep well in the agreement to construct a windmill, he would have
used instead the conjunctions “and” or “with.” Since the terms of the instruments are clear and
leave no doubt as to their meaning they should not be disturbed.
Same; Same; Same; The intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered.—Moreover, it is a cardinal rule in the interpretation of contracts that the
intention of the parties shall be accorded primordial consideration and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. An examination of such
contemporaneous and subsequent acts of respondent as well as the attendant circumstances does
not persuade us to uphold him.

Same; Payments by a Third Person; Civil Code provisions on “payments made by a

third person” do not apply in the instant case as no creditor-debtor relationship has been
established between the parties.—Respondent cannot claim the benefit of the law concerning
“payments made by a third person.” The Civil Code provisions do not apply in the instant case
because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has
been established regarding the construction of the deep well. Specifically, witness Pili did not
testify that he entered into a contract with petitioner for the construction of respondent’s deep
well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.
Same; Civil Code; Obligations; Art. 1174; In order for a party to claim exemption from
liability by reason of fortuitous event should be the sole and proximate cause of the loss or
destruction of the object of the contract.—The second issue is not a novel one. In a long line of
cases this Court has consistently held that in order for a party to claim exemption from liability
by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and
proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of
Appeals, four (4) requisites must concur: (a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from any participation in or aggravation of the
injury to the creditor.
Same; Same; Same; Art. 1167; If a person obliged to do something fails to do it, the
same shall be executed at his cost.—Petitioner’s argument that private respondent was already
in default in the payment of his outstanding balance of P15,000.00 and hence should bear his
own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.
When the windmill failed to function properly it became incumbent upon petitioner to institute
the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot
be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost.

DOCTRINE/LAW ART. 1371 – In order to judge the intention of the contracting parties, their
contemporaneous and subsequesnt acts shall be principally considered.

Ponente: Bellosillo, J. Digest Maker: Balina, Namiel Maverick

Article 1170
Barzaga vs. Court of Appeals
G.R. No. 115129
Civil Law; Obligations; Damages; Respondent Angelito Alviar was negligent and
incurred delay in the performance of his contractual obligation.—An assiduous scrutiny of the
record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the
performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to
be indemnified for the damage he suffered as a consequence of delay or a contractual breach.
The law expressly provides that 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
for damages.
Same; Same; Same; Case is clearly one of non-performance of a reciprocal obligation.
—This case is clearly one of non-performance of a reciprocal obligation. In their contract of
purchase and sale, petitioner had already complied fully with what was required of him as
purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon
respondent to immediately fulfill his obligation to deliver the goods otherwise delay would
attach.
Same; Same; Same; Award of moral damages sustained.—We therefore sustain the
award of moral damages. It cannot be denied that petitioner and his family suffered wounded
feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the
remains of their loved one who could not be laid to rest on the date she herself had chosen. There
is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that
moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his
employees in the performance of an obligation voluntarily entered into.
Same; Same; Same; Grant of exemplary damages affirmed.—We also affirm the grant
of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent
over which he exercised supervisory authority indicates gross negligence in the fulfillment of his
business obligations. Respondent Alviar and his employees should have exercised fairness and
good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead
of commiserating with him, respondent and his employees contributed to petitioner’s anguish by
causing him to bear the agony resulting from his inability to fulfill his wife’s dying wish.
Same; Same; Same; In determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guess-works but must depend on competent proof and
on the best evidence obtainable regarding the actual amount of loss; Award of temperate
damages, deleted.—We delete however the award of temperate damages. Under Art. 2224 of the
Civil Code, temperate damages are more than nominal but less than compensatory, and may be
recovered when the court finds that some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with certainty. In this case, the trial court found
that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990
and expenses incurred during the extra two (2) days of the wake. The record however does not
show that petitioner presented proof of the actual amount of expenses he incurred which seems
to be the reason the trial court awarded to him temperate damages instead. This is an erroneous
application of the concept of temperate damages. While petitioner may have indeed suffered
pecuniary losses, these by their very nature could be established with certainty by means of
payment receipts. As such, the claim falls unequivocally within the realm of actual or
compensatory damages. Petitioner’s failure to prove actual expenditure consequently conduces
to a failure of his claim. For in determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork but must depend on competent proof and on
the best evidence obtainable regarding the actual amount of loss.

CHARLES F. WOODHOUSE v. FORTUNATO F. HALILI, GR No. L-4811, 1953-07-31

Facts:
Plaintiff entered into a written agreement, Exhibit A, with the defendant, the most important
provisions of which are (1) that they shall organize a partnership for the bottling and distribution
of Mission soft drinks, plaintiff to... act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters
of general policy regarding the business, while the plaintiff was to attend to the operation and
development of the... bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks
franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive
30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California... that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a million dollars in the bottling and distribution of the
said beverages, and requested, in order that he may close the deal with... him, that the right to
bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation... plaintiff was given "a thirty days' option on exclusive bottling
and... distribution rights for the Philippines"
The contract was finally signed by plaintiff on December 3, 1947.
On that day plaintiff and defendant went to the United States, and on December 10, 1947, a
franchise... agreement (Exhibit V) was entered into between the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse, granting defendant the exclusive right, license,
and authority to produce, bottle, distribute, and sell Mission beverages in the Philippines. The...
plaintiff and the defendant thereafter returned to the Philippines.
Plaintiff reported for duty in January, 1948, but operations were not begun until the first week of
February, 1948. In January plaintiff was given as advance, on account of profits, the sum of
P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1.000. The
car was withdrawn from plaintiff
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. At first defendant excused himself, saying there was no hurry.
Then he promised to do so after the sales of the products had been increased to
P50,000. As nothing definite was forthcoming, after this condition was atttained, and as
defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up
the matter with defendant with a view to a possible settlement. As none... could be arrived at,
the present action was instituted.
plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a
share thereof of 30 per cent, as well as damages in the amount of P200,000... defendant alleges
by way of defense (1) that defendant's consent... to the agreement, Exhibit A, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise,
but was given to defendant... himself... defendant did not fail to carry out his undertakings, but
that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to
the partnership, but plaintiff failed to do so.
Court of First Instance rendered judgment ordering defendant to render an accounting of the
profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 per
cent... thereof. It held that the execution of the contract of partnership could not be enforced
upon the parties, but it also held that the defense of fraud was not proved.
trial court found that it is improbable that defendant was never shown the letter, Exhibit J,
granting plaintiff the option; that defendant would not have gone to the United States without
knowing what authority plaintiff had... fraud is never presumed and must be proved; that the
parties were represented by attorneys, and that if any party thereto... got the worse part of the
bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as
appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its... execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and
it is, consequently, null and void.
Issues:
whether defendant had falsely represented that he had an exclusive franchise to bottle Mission
beverages, and whether this false representation or fraud, if it existed, annuls the agreement to
form the partnership.
Ruling:
defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that
Woodhouse presented himself as being the exclusive grantee of a franchise... the first draft that
Mr. Laurea prepared, which was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise... trial court did not consider this draft
on the principle of integration of jural acts. We find that the principle invoked is inapplicable,
since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but
to discover the intent of the... parties thereto and the circumstances surrounding the execution of
the contract
Did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or
statements prior to the agreement are essential and relevant to the... determination of said issue.
plaintiff did make the representation can also be easily gleaned from his own letters and his own
testimony.
By virtue of this letter the option on exclusive bottling was given to the plaintiff
If this option for an exclusive franchise was intended by plaintiff as an instrument with which to
bargain with defendant and close the deal... with him, he must have used his said option for the
above-indicated purpose, especially as it appears that he was able to secure, through its use, what
he wanted.
It is improbable and incredible for... him to have disclosed the fact that he had only an option to
the exclusive franchise, which was to last thirty days only, and still more improbable for him to
have disclosed that, at the time of the signing of the formal agreement, his option had already...
expired. Had he done so, he would have destroyed all his bargaining power and authority, and in
all probability lost the deal itself.
Defendant would not have gone into the business unless the franchise was raised in his name, or
at least in the name of the partnership. Plaintiff assured defendant he could get the franchise.
Thus, in the draft prepared by defendant's attorney,... Exhibit HH, the above provision is
inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was
to secure it for the partnership.
To show that the insertion of the above provision does not eliminate the probability of plaintiff...
representing himself as the exclusive grantee of the franchise... defendant believed, or was made
to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,...
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net
profits to one half of that agreed upon. He could not have had such a... feeling had not plaintiff
actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
trial judge reasons in his decision that the assistance of counsel in the making of the contract
made fraud improbable... the alleged representation took place before the conferences were had;
in other words, plaintiff had already... represented to defendant, and the latter had already
believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and
they were assisted by their lawyers only when said formal negotiations actually took place...
plaintiff did actually represent to defendant that he was the holder of the exclusive franchise.
The defendant was made to believe, and he actually believed, that plaintiff had the exclusive
franchise.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the... partnership agreement with plaintiff, was
the ability of plaintiff to get the exclusive franchise
In the corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract
in... its final form retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership.
In the corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract
in... its final form retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership.
In the corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract
in... its final form retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive... franchise, or the option
thereto, at the time the contract was perfected.
the principal obligation that he assumed or undertook was to secure said franchise for the
partnership
We declare, therefore, that if he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led plaintiff to enter into the partnership
agreement.
this supposed ownership of an exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the
partnership business.
Defendant agreed to give plaintiff 30 per... cent share in the net profits because he was
transferring his exclusive franchise to the partnership.
We conclude from the above that while the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words, by pretending that... he had the
exclusive franchise and promising to transfer to defendant, he obtained the consent of the latter
to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270
Having arrived at the conclusion that the agreement may not be declared null and void, the
question that next comes before us is, May the agreement be carried out or executed? We find
no merit in the claim of plaintiff that the partnership was already a fait... accompli from the time
of the operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be carried out at
a later date.
from the time that the franchise from the Mission Dry Corporation was obtained in California,
plaintiff himself had been demanding that defendant comply with the agreement. And...
plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is
both inconsistent with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to
carry out the agreement nor execute the partnership papers.
the defendant has an obligation to do, not to give. The law recognizes the... individual's freedom
or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what
Spanish commentators call a very personal act (acto personalisimo), of which courts may not
compel compliance, as it is considered an act of... violence to do so.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which
he pretended he had and which he had agreed to transfer to the partnership, his spontaneous
reaction was to reduce plaintiff's share from 80 per cent to 15 per cent only, to which... reduction
defendant appears to have readily given his assent. It was under this understanding, which
amounts to a virtual modification of the contract, that the bottling plant was established and
plaintiff worked as Manager
If the contract... may not be considered modified as to plaintiff's share in the profits, by the
decision of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we
may consider the said amount as a fair estimate of the damages plaintiff is entitled to
Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an
admission on the part of each of the reasonableness of this amount as... plaintiff's share. This
same amount was fixed by the trial court. The agreement contains the stipulation that upon the
termination of the partnership, defendant was to convey the franchise back to plaintiff... we
declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while
defendant uses the franchise from the Mission Dry
Corporation.
Principles:
Gutierrez vs. Gutierrez 56 Phil. 177
Facts
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road. The truck was
driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile
was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio’s
father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was
not in the car, but the mother, together will several other members of the Gutierrez family were
accommodated therein. A passenger in the autobus, by the name of Narciso Gutierrez, was en
route from San Pablo, Laguna, to Manila. The collision between the bus and the automobile
resulted in Narciso Gutierrez suffering a fracture right leg which required medical attendance for
a considerable period of time.
Issue
Whether or not, Manuel Gutierrez may be held liable for damages as head of house for acts of
his minor child Bonifacio Gutierrez.
Ruling
The head of a house, the owner of an automobile, who maintains it for the general use of his
family is liable for its negligent operation by one of his children, whom he designates or permits
to run it, where the car is occupied and being used at the time of the injury for the pleasure of
other members of the owner’s family than the child driving it.
Article 1173
Syquia vs. Court of Appeals
G.R. No. 98695
Ponente
CAMPOS, JR., J
Decision Date
Jan 27, 1993
A family sues a cemetery for damages after water seeped into a vault and damaged a coffin, but
the court rules in favor of the cemetery, finding no evidence of negligence and no breach of
contract.
Civil Law; Torts; Negligence; Although a pre-existing contractual relation between the
parties does not preclude the existence of a culpa aquiliana, Supreme Court finds no reason to
disregard the respondent’s Court finding that there was no negligence.—With respect to herein
petitioners’ averment that private respondent has committed culpa aquiliana, the Court of
Appeals found no negligent act on the part of private respondent to justify an award of damages
against it. Although a pre-existing contractual relation between the parties does not preclude the
existence of a culpa aquiliana, We find no reason to disregard the respondent’s Court finding that
there was no negligence.
Same; Same; Same; Had there been actual negligence on the part of the Manila
Memorial Park Cemetery, Inc. it would be held liable not for a quasi-delict or culpa aquiliana
but for culpa contractual as provided by Article 1170 of the Civil Code.—In this case, it has
been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a
contract entitled “Deed of Sale and Certificate of Perpetual Care” on August 27, 1969. That
agreement governed the relations of the parties and defined their respective rights and
obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park
Cemetery, Inc., it would be held liable not for a quasi delict or culpa aquiliana, but for culpa
contractual as provided by Article 1170 of the Civil Code.
Same; Same; Same; Contracts; Well settled is the rule that when the terms of the
contract are clear and leave no doubt as to the intention of the contracting parties, then the
literal meaning of the stipulation shall control.—There was no stipulation in the Deed of Sale
and Certificate of Perpetual Care and in the Rules and Regulations of the Manila Memorial Park
Cemetery, Inc. that the vault would be waterproof. Private respondent’s witness, Mr. Dexter
Heuschkel, explained that the term “sealed” meant “closed.” On the other hand, the word “seal”
is defined as “x x x any of various closures or fastenings x x x that cannot be opened without
rupture and that serve as a check against tampering or unauthorized opening.” The meaning that
has been given by private respondent to the word conforms with the cited dictionary definition.
Moreover, it is also quite clear that “sealed” cannot be equated with “waterproof’. Well settled is
the rule that when the terms of the contract are clear and leave no doubt as to the intention of the
contracting parties, then the literal meaning of the stipulation shall control. Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their obvious
intendment.
Same; Same; Same; In the absence of stipulation or legal provision providing the
contrary, the diligence to be observed in the performance of the obligation is that which is
expected of a good father of a family.—The law defines negligence as the “omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.” In the absence of stipulation or legal
provision providing the contrary, the diligence to be observed in the performance of the
obligation is that which is expected of a good father of a family.
Facts:

● The case involves a dispute between the Syquia family and the Manila Memorial Park
Cemetery, Inc.

● The complaint was filed on March 5, 1979, seeking damages for breach of contract
and/or quasi-delict.

● The complaint alleged that the cemetery failed to provide a waterproof vault as agreed
upon in the contract.

● Water seeped into the vault and damaged the coffin and remains.

Issue:

● Whether the contract and the rules and regulations of the cemetery allowed the flooding
of the vault and the entrance of filth and silt.

● Whether the act of boring a hole in the vault was justifiable and whether it constituted an
act of desecration.

● Whether there was evidence to support a different conclusion than the one reached by the
Court of Appeals.

● Whether the cemetery can be held liable for a tort despite the existence of a pre-existing
contract and the absence of fault or negligence.
● Whether the court should award damages to the Syquia family.

Ruling:

● The Supreme Court affirmed the decision of the Court of Appeals, finding no grounds to
reverse the dismissal of the complaint.

● The court held that there was no evidence of negligence on the part of the cemetery and
that the contract did not guarantee a waterproof vault.

● The court also found that the act of boring a hole in the vault was justified to prevent the
accumulation of water and soil.

● Therefore, the court concluded that the cemetery did not breach its contractual obligation
and was not liable for a tort.

● As a result, the court did not award damages to the Syquia family.

Ratio:

● The court held that a pre-existing contractual relation between the parties does not
preclude the existence of a culpa aquiliana (quasi-delict).

● However, in this case, there was no evidence of negligence on the part of the cemetery.

● The court ruled that the word "sealed" in the contract cannot be equated with
"waterproof" and that the literal meaning of the stipulation in the contract should control.

● The court found that the act of boring a hole in the vault was not negligent but rather a
reasonable precaution to prevent the accumulation of water.

● Therefore, the court concluded that the cemetery did not breach its contractual obligation
and was not liable for a tort.
Philippine National Bank vs. Court of Appeals
G.R. No. 126152
Ponente
BELLOSILLO, J
Decision Date
Sep 28, 1999
A bank is estopped from denying the existence of a combination deposit agreement and is liable
for negligence, causing anxiety and humiliation, resulting in the award of moral damages and
attorney's fees to the account holder.
Civil Law; Negligence; Estoppel; Damages; How estoppel in pais or equitable estoppel
arises.—There was also no question that the Savings Account passbook of respondent Pujol
contained the printed words “Combo Deposit Plan” without qualification or condition that it
would take effect only after submission of certain requirements. Although petitioner presented
evidence before the trial court to prove that the arrangement was not yet operational at the time
respondent Pujol issued the two (2) checks, it failed to prove that she had actual knowledge that
it was not yet operational at the time she issued the checks considering that the passbook in her
Savings Account already indicated the words “Combo Deposit Plan.” Hence, respondent Pujol
had justifiable reason to believe, based on the description in her passbook, that her accounts were
effectively covered by the arrangement during the issuance of the checks. Either by its own
deliberate act, or its negligence in causing the “Combo Deposit Plan” to be placed in the
passbook, petitioner is considered estopped to deny the existence of and perfection of the
combination deposit agreement with respondent Pujol. Estoppel in pais or equitable estoppel
arises when one, by his acts, representations or admissions, or by his silence when he ought to
speak out, intentionally or through culpable negligence, induces another to believe certain facts
to exist and such other rightfully relies and acts on such belief so that he will be prejudiced if the
former is permitted to deny the existence of such facts.
Same; Same; Same; Same; Responsibility arising from negligence in the performance
of every kind of obligation is demandable.—This Court has ruled that a bank is under obligation
to treat the accounts of its depositors with meticulous care whether such account consists only of
a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner’s negligence in this
case may not have been attended with malice and bad faith, nevertheless, it caused serious
anxiety, embarrassment and humiliation to private respondent Lily S. Pujol for which she is
entitled to recover reasonable moral damages. In the case of Leopoldo Araneta v. Bank of
America we held that it can hardly be possible that a customer’s check can be wrongfully refused
payment without some impeachment of his credit which must in fact be an actual injury,
although he cannot, from the nature of the case, furnish independent and distinct proof thereof.
Facts:

● Lily S. Pujol opened a "Combo Account" with PNB, which was a combination of a
Savings Account and a Current Account.

● Checks issued against the Current Account would be automatically charged against the
Savings Account if there were insufficient funds in the Current Account.

● Pujol was issued a passbook for her Savings Account, which had the words "Combo
Deposit Plan" printed on it.
● On October 23, 1990, Pujol issued a check for P30,000.00, and on October 24, 1990, she
issued another check for the same amount.

● Despite having sufficient funds in her Savings Account, PNB dishonored both checks for
alleged insufficiency of funds.

● PNB later realized its mistake and honored the second check.

● Pujol filed a complaint for moral and exemplary damages against PNB.

Issue:

● Whether PNB was estopped from denying the existence of the "Combo Account" and the
fact that it was operational at the time of the issuance of the checks.
Ruling:

● PNB was considered estopped from denying the existence and perfection of the
combination deposit agreement with Pujol.

● Pujol was entitled to recover reasonable moral damages.

● The Court awarded Pujol P100,000.00 in moral damages and P20,000.00 in attorney's
fees.
Ratio:

● PNB argued that the arrangement was not yet operational due to the lack of certain
documentary requirements.

● However, the Court found that Pujol had justifiable reason to believe that her accounts
were covered by the arrangement based on the description in her passbook, which
indicated the words "Combo Deposit Plan."

● Therefore, PNB was considered estopped from denying the existence and perfection of
the combination deposit agreement with Pujol.

● The Court ruled that while PNB's negligence may not have been attended with malice and
bad faith, it caused serious anxiety, embarrassment, and humiliation to Pujol.

● As a result, Pujol was entitled to recover reasonable moral damages.

● The Court awarded Pujol P100,000.00 in moral damages, considering her reputation and
social standing.
● Additionally, the Court found the award of attorney's fees in the amount of P20,000.00 to
be proper, as Pujol was compelled to litigate to protect her interest.

Article 1174
Sia vs. Court of Appeals
G.R. No. 102970
Ponente
DAVIDE, JR., J
Decision Date
May 13, 1993
A petitioner seeks damages from a bank for the destruction of their stamp collection due to
negligence, but the court absolves the bank from liability based on the terms of the lease
agreement and the occurrence of a fortuitous event.
Civil Law; Deposit; Contract for the use of safety deposit box is a special kind of
deposit and the relationship between the parties thereto, with respect to the contents of the
box, is that of a bailor and bailee, the bailment being for hire and mutual benefit.—In the
recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease
governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it
is a contract of deposit to be strictly governed by the Civil Code provision on deposit; it is, as We
declared, a special kind of deposit. The prevailing rule in American jurisprudence—that the
relation between a bank renting out safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit
has been adopted in this jurisdiction.
Same; Same; Same; Conditions in a “Lease Agreement” covering a safety deposit box
which exempt the bank from any liability for damage, loss or destruction of the contents
thereof arising from its own or its agent’s fraud, negligence or delay are considered null and
void, for being contrary to law and public policy.—Assayed in the light of Our aforementioned
pronouncements in CA Agro-Industrial Development Corp., it is not at all difficult to conclude
that both conditions No. 9 and No. 13 of the “Lease Agreement” covering the safety deposit box
in question (Exhibits “A” and “1”) must be stricken down for being contrary to law and public
policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of
the contents of the safety deposit box which may arise from its own or its agents’ fraud,
negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.
Same; Same; Same; Same; Although flooding could be considered a fortuitous event,
failure of the bank to give notice to the renter of such fact makes it liable for damages, its
negligence caused to aggravate injury or damage to the renter; Case at bar.—Unfortunately,
however, the public respondent failed to consider that in the instant case, as correctly held by the
trial court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in
the petition and have been summarized in this ponencia. SBTC’s negligence aggravated the
injury or damage to the petitioner which resulted from the loss or destruction of the stamp
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have
lost no time in notifying the petitioner in order that the box could have been opened to retrieve
the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a family, thereby
becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent x x x The destruction or loss of the stamp collection
which was, in the language of the trial court, the “product of 27 years of patience and diligence”
caused the petitioner pecuniary loss; hence, he must be compensated therefor.
Same; Damages; Moral damages, to be recoverable in a relationship based on a
contract, a party committing breach thereof must have acted fraudulently or in bad faith.—We
cannot, however, place Our imprimatur on the trial court’s award of moral damages. Since the
relationship between the petitioner and SBTC is based on a contract, either of them may be held
liable for moral damages for breach thereof only if said party had acted fraudulently or in bad
faith. There is here no proof of fraud or bad faith on the part of SBTC. Sia vs. Court of Appeals,
222 SCRA 24, G.R. No. 102970 May 13, 1993

Facts:

● Petitioner, Luzan Sia, rented Safety Deposit Box No. 54 from Security Bank and Trust
Company (SBTC) in 1985.

● The box contained his stamp collection.

● During the floods in 1985 and 1986, floodwater entered the bank's premises and seeped
into the safety deposit box, causing damage to the stamp collection.

● Sia filed a complaint for damages against SBTC, claiming that the bank failed to exercise
the required diligence in maintaining the safety deposit box.
Issue:
1. Whether SBTC failed to exercise the required diligence in maintaining the safety deposit
box.
2. Whether the provisions in the lease agreement limiting SBTC's liability are valid.
3. Whether SBTC should be held liable for the damage to the stamp collection.
4. Whether Sia is entitled to actual and moral damages, as well as attorney's fees and legal
expenses.
Ruling:

● The Supreme Court ruled in favor of Sia and reinstated the decision of the trial court,
with the exception of the award of moral damages.

● The Court held that SBTC was negligent in failing to notify Sia about the flooding and
take appropriate measures to ensure the safety and maintenance of the safety deposit box.

● The provisions in the lease agreement limiting SBTC's liability were deemed void and
ineffective.

● The Court also found that the flooding was not a fortuitous event as SBTC had
knowledge of the floods and could have taken steps to prevent further damage.

● Therefore, SBTC was held liable for the damage to the stamp collection.

● However, the Court set aside the award of moral damages as there was no proof of fraud
or bad faith on the part of SBTC.
Ratio:
1. The relationship between a bank renting out safe deposit boxes and its customers with
respect to the contents of the box is that of a bailor and bailee, and not a contract of lease.
2. Provisions in a lease agreement that exempt the bank from liability for damage, loss, or
destruction of the contents of the safety deposit box due to its own or its agents' fraud,
negligence, or delay are void and ineffective.
3. A bank can be held liable for damages if it is guilty of fraud, negligence, or delay in the
performance of its obligations.
4. The occurrence of a fortuitous event does not absolve a party from liability if it
participated in the aggravation of the injury or loss.
5. Moral damages can only be awarded if a party acted fraudulently or in bad faith in the
performance of a contract.
G.R. No. 117190 January 2, 1997
Tanguilig v. Court of Appeals
MAIN TOPIC – Contracts –Interpretation of Contracts - Primacy of Intention I.
Civil Law; Contracts; Interpretation; Where the terms of the instruments are clear and
leave no doubt as to their meaning, they should not be disturbed.—Notably, nowhere in either
proposal is the installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep well. There is
absolutely no mention in the two (2) documents that a deep well pump is a component of the
proposed windmill system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words “deep well” and “deep well pump”
are mentioned in both, these do not indicate that a deep well is part of the windmill system. They
merely describe the type of deep well pump for which the proposed windmill would be suitable.
As correctly pointed out by petitioner, the words “deep well” preceded by the prepositions “for”
and “suitable for” were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of
petitioner was to include a deep well in the agreement to construct a windmill, he would have
used instead the conjunctions “and” or “with.” Since the terms of the instruments are clear and
leave no doubt as to their meaning they should not be disturbed.
Same; Same; Same; The intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered.—Moreover, it is a cardinal rule in the interpretation of contracts that the
intention of the parties shall be accorded primordial consideration and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. An examination of such
contemporaneous and subsequent acts of respondent as well as the attendant circumstances does
not persuade us to uphold him.
Same; Payments by a Third Person; Civil Code provisions on “payments made by a
third person” do not apply in the instant case as no creditor-debtor relationship has been
established between the parties.—Respondent cannot claim the benefit of the law concerning
“payments made by a third person.” The Civil Code provisions do not apply in the instant case
because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has
been established regarding the construction of the deep well. Specifically, witness Pili did not
testify that he entered into a contract with petitioner for the construction of respondent’s deep
well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.
Same; Civil Code; Obligations; Art. 1174; In order for a party to claim exemption from
liability by reason of fortuitous event should be the sole and proximate cause of the loss or
destruction of the object of the contract.—The second issue is not a novel one. In a long line of
cases this Court has consistently held that in order for a party to claim exemption from liability
by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and
proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of
Appeals, four (4) requisites must concur: (a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from any participation in or aggravation of the
injury to the creditor.
Same; Same; Same; Art. 1167; If a person obliged to do something fails to do it, the
same shall be executed at his cost.—Petitioner’s argument that private respondent was already
in default in the payment of his outstanding balance of P15,000.00 and hence should bear his
own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.
When the windmill failed to function properly it became incumbent upon petitioner to institute
the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot
be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost.
Tanguilig vs. Court of Appeals, 266 SCRA 78, G.R. No. 117190 January 2, 1997

FACTS:
Herce contracted Tanguilig to construct a windmill system for him, for consideration of
60,000.00. Pursuant to the agreement Herce paid the downpayment of 30,000.00 and installment
of 15,000.00 leaving a 15,000.00 balance. 2. Herce refused to pay the balance because he had
already paid this amount to SPGMI which constructed a deep well to which the windmill system
was to be connected since the deepwell, and assuming that he owed the 15,000.00 this should be
offset by the defects in the windmill system which caused the structure to collapse after strong
winds hit their place. 3. According to Tanguilig, the 60,000.00 consideration is only for the
construction of the windmill and the construction of the deepwell was not part of it. The collapse
of the windmill cannot be attributed to him as well, since he delivered it in good and working
condition and Herce accepted it without protest. Herce contested that the collapse is attributable
to a typhoon, a force majeure that relieved him of liability. 4. The RTC ruled in favor of
Tanguilig, but this decision was overturned by the Court of Appeals which ruled in favor of
Herce. Hence the petition. 1.

ISSUE/s : Whether the agreement to construct the windmill system included the installation of a
deep well. Whether petitioner is under obligation to reconstruct the windmill after it collapsed.
Whether or not the private respondent incurs delay for the payment of P15,000
HELD
No. The Court held that the preponderance of evidence supports the finding of the trial court that
the installation of a deep well was not included in the proposals of petitioner to construct a
windmill system for respondent. Nowhere in either proposal is the installation of a deep well
mentioned, even remotely. Neither is there an itemization or description of the materials to be
used in constructing the deep well. There is absolutely no mention in the two (2) documents that
a deep well pump is a component of the proposed windmill system. Moreover, it is a cardinal
rule in the interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered. An examination of such contemporaneous and subsequent acts of
respondent as well as the attendant circumstances does not persuade court to uphold him

2.Yes. The Court held that the petitioner is under obligation to reconstruvt the collapsed
windmill. The Court has consistently held that in order for a party to claim exemption from
liability by reason of fortuitous event under Art. 1174 of the Civil Code, the event should be the
sole and proximate cause of the loss or destruction of the object of the contract. In the case at bar
the petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day
the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong
wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a
strong wind should be present in places where windmills are constructed, otherwise the
windmills will not turn.

3. No. the Court held that in reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon
him. When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay. Instead, it is petitioner who should bear the
expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this
point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

Ponente: Bellosillo, J. Digest Maker: Balina, Namiel Maverick

G.R. No. 117190 January 2, 1997 Tanguilig v. Court of Appeals

IV.

DISPOSITIVE PORTION WHEREFORE, the appealed decision is MODIFIED. Respondent

VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return,
petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the
one-year guaranty and to complete the same within three (3) months from the finality of this
decision. SOORDERED.

DOCTRINE/LAW ART. 1371 – In order to judge the intention of the contracting parties, their
contemporaneous and subsequesnt acts shall be principally considered.

Ponente: Bellosillo, J. Digest Maker: Balina, Namiel Maverick

Dioquino vs. Laureano

G.R. No. L-25906
Ponente
FERNANDO, J
Decision Date
May 28, 1970
A car owner seeks to hold a borrower responsible for damages caused by a fortuitous event,
while also facing scrutiny for including the borrower's family members in the complaint.
OutlineParagraph
Obligations; Nature and effect of obligations; No one is liable for fortuitous events.—
The express language of Article 1174 of the present Civil Code which is a restatement of Article
1105 of the old Civil Code, except for the addition of the nature of an obligation requiring the
assumption of risk, compels the conclusion that in the absence of a legal provision or an express
covenant, "no one should be held to account for fortuitous cases."
Same; Same; When nature of obligation requires assumption of risk; Case at bar.—
Where the risk is quite evident such that the possibility of danger is not only foreseeable, but
actually foreseen, then it could be said that the nature of the obligation is such that a party could
rightfully be deemed to have assumed it. It is, therefore, not enough that the event should not
have been foreseen or anticipated, as is commonly believed, but it must be one impossible to
foresee or to avoid in order that a party may be said to have assumed the risk resulting from the
nature of the obligation itself. In the case at bar, there is no assumption by the borrower of a car
to respond to damages for the broken windshield caused by an accidental stone-throwing
incident by boys playing along the road.
Damages; Filing suit against wrong parties; Where mistake of lawyer in including
wrong parties in a suit not actionable.—Where the lawyer suffered financial losses as a result of
the act of the defendant in borrowing his car, he should not be penalized by his mistaken view of
the law in including other persons as party defendants in the case.
Dioquino vs. Laureano, 33 SCRA 65, No. L-25906 May 28, 1970

Facts:

● Plaintiff Pedro D. Dioquino owned a car that was borrowed by defendant Federico
Laureano.

● While on their way to the P.C. Barracks at Masbate, the car was stoned by mischievous
boys, resulting in the windshield being broken.
● Dioquino held Laureano responsible for the damages and included Laureano's wife, Aida
de Laureano, and father, Juanito Laureano, in the complaint.
Issue:

● Whether Laureano should be held liable for the damages caused by the fortuitous event.

● Whether Dioquino should be held liable for including Laureano's wife and father in the
complaint.
Ruling:

● Laureano is not liable for the damages caused by the fortuitous event.

● Dioquino should not be held liable for including Laureano's wife and father in the
complaint.
Ratio:

● The court ruled that Laureano is not liable for the damages because the event was
unforeseen and falls under the concept of fortuitous event.

● The court cited Article 1174 of the Civil Code, which states that no person shall be
responsible for events that could not be foreseen or were inevitable, unless there is a
stipulation or assumption of risk.

● The court emphasized that liability cannot be imposed on an individual in a situation like
Laureano's, where the event was unforeseen and beyond his control.

● The court also ruled that Dioquino should not be penalized further for his mistaken view
of the law in including Laureano's wife and father in the complaint.

● The court emphasized that the expenses and annoyance of litigation are part of the social
burden of living in a society that seeks to attain social control through law.

Victorias Planters Association, Inc. vs. Victorias Milling Co., Inc.

G.R. No. L-6648
Ponente
PADILLA, J
Decision Date
Jul 25, 1955
In a dispute over a milling contract, the court rules that a force majeure event relieves the
planters from delivering sugar cane for an additional six years after the expiration of the 30-year
period, as it was impossible for them to fulfill their obligation during that time. The court affirms
that the contracts expired and the milling company is not entitled to any extension or addition to
the 30-year term.
CONTRACTS, INTERPRETATION OF; EFFECT OF FAILURE OF OBLIGOR
TO FlLL THE CONTRACTUAL OBLIGATION DUE TO "FORCE MAJEURE".—The
petitioners (sugar planters) and the respondent central company entered into milling contract
whereby they stipulated a 30-year period within which the sugar cane produced by the petitioners
would be milled by the respondent central. The parties also stipulated that in the event of force
majeure, the contract shall be deemed suspended during said period. The petitioners failed to
deliver sugar cane during the four years of the Japanese occupation and the two years after
liberation when the mill was being rebuilt or a total of six years. Question: Could the petitioners
be compelled to deliver sugar cane to the respondent central for six more years after the
expiration of the 30-year period, to make up for what they failed to deliver during the six years?
Held: Fortuitous event relieves the obligor from fulfilling a contractual obligation (Article 1105,
old Civil Code; Article 1174, new Civil Code). The stipulation in the contract that in the event of
force majeure the contract shall be deemed suspended during said period does not mean that the
happening of any of those events stops the running of the period agreed upon. It only relieves the
parties from the fulfillment of their respective obligations during that time—the petitioners from
delivering sugar cane and the respondent central from milling it. In order that the respondent
central may be entitled to demand from the petitioners the fulfillment of their part in the
contracts, the latter must have been able to perform it but failed or refused to do so and not when
they were prevented by force majeure such as war. To require the petitioners to deliver the sugar
cane which they failed to deliver during the six years is to demand from them the fulfillment of
an obligation which was impossible of performance at the time it became due. Nemo tenetur ad
impossibilia. The respondent central not being entitled to demand from the petitioners the
performance of the latter's part of the contracts under those circumstances cannot later on
demand its fulfillment. The performance of what the law has written off cannot be demanded and
required. The prayer that the petitioners be compelled to deliver sugar cane for six more years to
make up for what they failed to deliver, the fulfillment of which was impossible, if granted,
would in effect be an extension of the terms of the contracts entered into by and between the
parties.
Victorias Planters Assn., Inc., et al. vs. Victorias Milling Co., Inc., 97 Phil., 318, No. L-6648
July 25, 1955
Facts:

● The case involves a dispute between sugar cane planters and a milling company over the
interpretation of a milling contract.

● The contract stipulated a 30-year period within which the sugar cane produced by the
planters would be milled by the company.

● The contract also included a provision stating that in the event of force majeure, the
contract would be suspended during that period.

● During the Japanese occupation and the two years after liberation when the mill was
being rebuilt, the planters failed to deliver sugar cane for a total of six years.
Issue:

● Can the planters be compelled to deliver sugar cane for six more years after the
expiration of the 30-year period to make up for what they failed to deliver during the six
years of force majeure?
Ruling:

● The court ruled in favor of the planters.

Ratio:

● A fortuitous event relieves the obligor from fulfilling a contractual obligation.

● The provision in the contract stating that it would be suspended during force majeure
does not mean that the running of the period agreed upon is stopped. It only relieves the
parties from fulfilling their respective obligations during that time.

● Therefore, the planters cannot be required to deliver the sugar cane they failed to deliver
during the six years of force majeure, as it was impossible for them to fulfill their
obligation at that time.

● The court held that the performance of what the law has written off cannot be demanded
and required.

● Granting the appellant's prayer for the planters to deliver sugar cane for six more years
would effectively extend the terms of the contracts, which is not allowed.
Conclusion:

● The milling contracts between the planters and the milling company expired and
terminated upon the lapse of the stipulated 30-year period.

● The milling company is not entitled to claim any extension or addition to the 30-year
term due to the force majeure event.

● The judgment of the trial court, which declared that the planters are not obligated to
deliver sugar cane for six more years, was affirmed.
Ace-Agro Development Corp. vs. Court of Appeals
G.R. No. 119729
Ponente
MENDOZA, J
Decision Date
Jan 21, 1997
Ace-Agro Development Corporation files a complaint against Cosmos Bottling Corporation for
breach of contract after Cosmos terminates their service contract due to a fire, leading to a legal
battle over the justification of the termination and the refusal of Ace-Agro to resume work.
Contracts; Force Majeure; The period during which work is suspended due to force
majeure does not justify an extension of the term of the contract.—Nor was petitioner justified
in refusing to resume work on November 7 when it was again notified by petitioner to work.
Although it cited the pending labor case as reason for turning down private respondent’s offer, it
would appear that the real reason for petitioner’s refusal was the fact that the term of the contract
was expiring in two months and its request for an extension was not granted. But, as the
appellate court correctly ruled, the suspension of work under the contract was brought about by
force majeure. Therefore, the period during which work was suspended did not justify an
extension of the term of the contract. For the fact is that the contract was subject to a resolutory
period which relieved the parties of their respective obligations but did not stop the running of
the period of their contract.
Ace-Agro Development Corp. vs. Court of Appeals, 266 SCRA 429, G.R. No. 119729 January
21, 1997
Facts:

● Ace-Agro Development Corporation filed a complaint against Cosmos Bottling

Corporation for breach of contract.
● The dispute arose after Cosmos terminated their service contract with Ace-Agro
following a fire that destroyed the area where Ace-Agro did its work.

● Ace-Agro sought damages for the termination of the contract and the resulting loss of
profits and liability to its employees.

Issue:

● Whether Cosmos was justified in terminating the contract due to the fire.

● Whether Ace-Agro was justified in refusing to resume work after the fire.

Ruling:

● The Court ruled in favor of Cosmos.

Ratio:

● The fire was considered a force majeure event that temporarily suspended the work under
the contract, but did not justify an extension of the contract term.

● Ace-Agro had no legal basis for refusing to resume work when offered the opportunity by
Cosmos.

● The termination of the contract by Cosmos was not illegal and arbitrary, as it was within
their rights to terminate the contract after the fire.
Explanation:

● The Court based its decision on Article 1231 of the New Civil Code, which states that
force majeure events do not automatically extinguish a contract, but only suspend its
performance.

● The resolutory period in the contract relieved the parties of their obligations but did not
stop the running of the contract term.

● Ace-Agro's refusal to resume work and its demand for an extension of the contract term
constituted a breach of contract.
Conclusion:

● Cosmos was justified in terminating the contract due to the fire.

● Ace-Agro was in breach of contract for refusing to resume work.

● The Court affirmed the decision of the Court of Appeals, dismissing Ace-Agro's
complaint and ordering it to pay damages to Cosmos.

Article 1179
Pay vs. Vda. de Palanca
G.R. No. L-29900
Ponente
FERNANDO, J
Decision Date
Jun 28, 1974
In the case of Pay v. Vda. de Palanca, the court ruled that the petitioner's claim on a promissory
note had already prescribed due to the ten-year limitation period, despite the alternative payment
options stated in the note.
Civil law; Promissory note; Prescription; A promissory note payable "on demand" is
immediately due and demandable; action thereon prescribes within ten years.—The obligation
being due and demandable, it would appear that the filing of the suit after fifteen years was much
too late. For again, according to the Civil Code, which is based on Section 43 of Act No. 90, the
prescriptive period for a written contract is that of ten years. This is another instance where this
Court has consistently adhered to the express language of the applicable norm.
Same; Same; Same; Same.—Article 1179 of the Civil Code provides: "Every obligation
whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." This used to be Article 1113 of the Spanish Civil
Code of 1889. As far back as Floriano v. Delgado (11 Phil. 154), a 1908 decision, it has been
applied according to its express language. The well-known Spanish commentator, Manresa, on
this point, states: "Dejando, con acierto, el caracter mas teórico y grafico del acto, o sea la
perfeccion de éste, se fija, para determinar el concepto de la obligacion pura, en el distintivo de
esta, y que es consecuencia de aquél: la exigibilidad im mediata."
Pay vs. Vda. de Palanca, 57 SCRA 618, No. L-29900 June 28, 1974
Facts:

● George Pay is a creditor of the late Justo Palanca, who died on July 3, 1963.

● The petitioner's claim is based on a promissory note dated January 30, 1952, in which
Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay
the amount of P26,900.00, with interest at 12% per annum.

● The petitioner sought to have Segundina Chua Vda. de Palanca, the surviving spouse of
Justo Palanca, appointed as administratrix of a residential property owned by Justo
Palanca.

● The petitioner intended to file his claim against the administratrix once the property was
brought under administration.

● The court dismissed the petition, stating that the surviving spouse refused to be appointed
as administratrix and that the property sought to be administered no longer belonged to
the debtor.

● The court also ruled that the petitioner's claim had already prescribed due to the ten-year
limitation period.
Issue:

● Whether the petitioner's claim on the promissory note had already prescribed.

Ruling:

● The court ruled that the petitioner's claim had indeed prescribed.

● The court based its decision on Article 1179 of the Civil Code, which provides that every
obligation whose performance does not depend on a future or uncertain event is
demandable at once.

● Since the promissory note stated that the payment was due "upon demand," the obligation
was immediately due and demandable.

● The court held that the filing of the suit after fifteen years was too late, as the ten-year
limitation period had already expired.

● Therefore, the court affirmed the lower court's decision.

Ratio:
● The court based its decision on the wording of the promissory note, which stated that the
obligation was immediately due and demandable.

● The court applied Article 1179 of the Civil Code, which provides that obligations that do
not depend on a future or uncertain event are demandable at once.

● Since the promissory note stated that the payment was due "upon demand," the court
considered the obligation to be immediately due and demandable.

● The court held that the petitioner's claim had already prescribed due to the ten-year
limitation period.

● The court affirmed the lower court's decision, stating that the filing of the suit after
fifteen years was too late.

Central Philippine University vs. Court of Appeals

G.R. No. 112127
Ponente
BELLOSILLO, J
Decision Date
Jul 17, 1995
The Supreme Court declared a donation made by Don Ramon Lopez, Sr. to Central Philippine
University null and void due to the university's failure to fulfill the condition of establishing a
medical college on the donated property within a reasonable period of time.
Donations; Onerous Donations; Words and Phrases; An onerous donation is one
executed for a valuable consideration which is considered the equivalent of the donation itself.
—We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the
deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that
his donation was onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value
of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct
a children’s playground and open streets on the land was considered an onerous donation.
Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the donation must be for an
onerous consideration.
Same; Same; Obligations; Conditional Obligations; When a person donates land to
another on the condition that the latter would build upon the land a school, the condition
imposed is not a condition precedent or a suspensive condition but a resolutory one.—Under
Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates land to another on the condition
that the latter would build upon the land a school, the condition imposed was not a condition
precedent or a suspensive condition but a resolutory one.
Same; Same; Same; Same; If there is no fulfillment or compliance with the resolutory
condition, the donation may now be revoked and all rights which the donee may have
acquired under it shall be deemed lost and extinguished.—It is not correct to say that the
schoolhouse had to be constructed before the donation became effective, that is, before the donee
could become the owner of the land, other wise, it would be invading the property rights of the
donor. The donation had to be valid before the fulfillment of the condition. If there was no
fulfillment or compliance with the condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee may have acquired under it shall be
deemed lost and extinguished.
Same; Same; Same; Same; Statute of Limitations; Prescription; Where the time within
which the condition should be fulfilled depends upon the exclusive will of the donee, its
absolute acceptance and the acknowledgment of its obligation provided in the deed of
donation are sufficient to prevent the statute of limitations from barring the action for
annulment of donation.—The claim of petitioner that prescription bars the instant action of
private respondents is unavailing. The condition imposed by the donor, i.e., the building of a
medical school upon the land donated, depended upon the exclusive will of the donee as to when
this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply
with the condition thereof. Since the time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance
and the acknowledgment of its obligation provided in the deed of donation were sufficient to
prevent the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation.
Same; Same; Same; Same; Same; Same; Actions; A cause of action arises when that
which should have been done is not done, or that which should not have been done is done,
and in cases where there is no special provision for such computation, recourse must be had
to the rule that the period must be counted from the day on which the corresponding action
could have been instituted.—Moreover, the time from which the cause of action accrued for the
revocation of the donation and recovery of the property donated cannot be specifically
determined in the instant case. A cause of action arises when that which should have been done
is not done, or that which should not have been done is done. In cases where there is no special
provision for such computation, recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been instituted. It is the legal
possibility of bringing the action which determines the starting point for the computation of the
period. In this case, the starting point begins with the expiration of a reasonable period and
opportunity for petitioner to fulfill what has been charged upon it by the donor.
Same; Same; Same; Same; Same; Same; Same; When the obligation does not fix a
period but from its nature and circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof.—Thus, when the obligation does not fix a period but from
its nature and circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself cannot be demanded until after
the court has fixed the period for compliance therewith and such period has arrived.
Same; Same; Same; Same; Same; Same; Same; There is no more need to fix the
duration of a term of the obligation when more than a reasonable period of fifty (50) years
has already been allowed the donee to avail of the opportunity to comply with the condition in
the donation.—This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty (50) years has
already been allowed petitioner to avail of the opportunity to comply with the condition even if it
be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do
so. Hence, there is no more need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would serve no purpose than to delay
or lead to an unnecessary and expensive multiplication of suits.
Same; Same; Same; Same; Same; Same; Same; Rescission; When obligor cannot
comply with what is incumbent upon him, the obligee may seek rescission, and in the absence
of any just cause for the court to determine the period of the compliance, there is no more
obstacle for the court to decree the rescission claimed.—Moreover, under Art. 1191 of the Civil
Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee
may seek rescission and the court shall decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court to determine the period of the
compliance, there is no more obstacle for the court to decree the rescission claimed.
Same; Same; Same; Same; Contracts; Doubts referring to incidental circumstances of
a gratuitous contract should be resolved in favor of the least transmission of rights and
interests.—Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor
of the least transmission of rights and interests.
Donations; Obligations; “Conditions” as used in donations and as used in the law of
obligations, compared.—There is no conditional obligation to speak of in this case. It seems that
the “conditions” imposed by the donor and as the word is used in the law of donations is
confused with “conditions” as used in the law of obligations. In his annotation of Article 764 of
the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within
which the term “conditions” is used in the law of donations, to wit: The word “conditions” in this
article does not refer to uncertain events on which the birth or extinguishment of a juridical
relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor
on the donee . It is used, not in its technical or strict legal sense, but in its broadest sense.
Same; Same; Words and Phrases; “Modal Donation,” Explained.—Clearly then, when
the law and the deed of donation speaks of “conditions” of a donation, what are referred to are
actually the obligations, charges or burdens imposed by the donor upon the donee and which
would characterize the donation as onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a “modal donation.” A modal donation is one in which the
donor imposes a prestation upon the donee. The establishment of the medical college as the
condition of the donation in the present case is one such prestation.
Same; Same; Statute of Limitations; Prescription; The mere fact that there is no time
fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that
the statute of limitations will not apply anymore and the action to revoke the donation
becomes imprescriptible.—Although it is admitted that the fulfillment of the
conditions/obligations of the present donation may be dependent on the will of the donee as to
when it will comply therewith, this did not arise out of a condition which the donee itself
imposed. It is believed that the donee was not meant to and does not have absolute control over
the time within which it will perform its obligations. It must still do so within a reasonable time.
What that reasonable time is, under the circumstances, for the courts to determine. Thus, the
mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled
does not ipso facto mean that the statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.
Central Philippine University vs. Court of Appeals, 246 SCRA 511, G.R. No. 112127 July 17,
1995
Facts:

● Don Ramon Lopez, Sr. donated a parcel of land to Central Philippine University (CPU)
in 1939.

● The donation was made with the condition that CPU establish a medical college on the
property.

● As of the filing of the case in 1989, CPU had not fulfilled the condition of establishing
the medical college.

● The heirs of Don Ramon Lopez, Sr. filed a case for annulment of donation,
reconveyance, and damages against CPU.

● The heirs argued that CPU had not complied with the conditions of the donation and had
even negotiated with the National Housing Authority to exchange the donated property.
● The trial court ruled in favor of the heirs, declaring the donation null and void and
ordering CPU to reconvey the property.
Issue:

● Whether the donation made by Don Ramon Lopez, Sr. to CPU should be declared null
and void due to non-compliance with the conditions of the donation.
Ruling:

● The Supreme Court reinstated and affirmed the decision of the trial court, and modified
the decision of the Court of Appeals.

● The Supreme Court declared the donation ineffective and ordered CPU to reconvey the
property to the heirs of the donor.
Ratio:

● The donation was onerous as it imposed a burden on CPU to establish a medical college
on the donated property.

● The action of the heirs of Don Ramon Lopez, Sr. was not barred by prescription, as the
fulfillment of the condition depended on the exclusive will of CPU.

● The period for the establishment of the medical college could not be quantified in a
specific number of years.

● More than a reasonable period of fifty years had already been allowed for CPU to comply
with the condition.

● The conditions in the deed of donation were onerous obligations and resolutory
conditions, breach of which would render the donation revocable.

● The provisions of Article 1197 of the Civil Code should not be applied to determine the
period within which the conditions of the donation should be fulfilled.

● The dissenting opinion argued that the conditions in the deed of donation were not
resolutory conditions, but rather obligations imposed by the donor.

● The dissenting opinion also disagreed with the majority's view on prescription and argued
that the action to revoke the donation could prescribe.
Coronel vs. Court of Appeals
G.R. No. 103577
Ponente
MELO, J
Decision Date
Oct 7, 1996
A conditional contract of sale for a parcel of land in Quezon City leads to a dispute over
ownership, with the court ruling in favor of the first buyer who had no knowledge of the second
sale, declaring them as the rightful owner of the property.
Contracts; Sales; Essential Elements of a Contract of Sale.—Sale, by its very nature, is
a consensual contract because it is perfected by mere consent. The essential elements of a
contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in
money or its equivalent.
Same; Same; Words and Phrases; “Contract to Sell” and “Contract of Sale,”
Distinguished; In a contract to sell, the prospective seller explicitly reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent
to transfer ownership of the property subject of the contract to sell until the happening of an
event.—Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase price is delivered to him. In other words
the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.

Same; Same; Same; Same; “Contract to Sell,” Defined.—A contract to sell may thus be
defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.
Same; Same; Same; Same; A contract to sell may not even be considered as a
conditional contract of sale because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a contingent event which
may or may not occur.—A contract to sell as defined hereinabove, may not even be considered
as a conditional contract of sale where the seller may likewise reserve title to the property subject
of the sale until the fulfillment of a suspensive condition, because in a conditional contract of
sale, the first element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court
of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be performed by the seller.
Same; Same; Same; Same; In a contract to sell, upon the fulfillment of the suspensive
condition, ownership will not automatically transfer to the buyer — the prospective seller still
has to convey title to the prospective buyer by entering into a contract of absolute sale.—In a
contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
Same; Same; Same; Same; In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price cannot be deemed a buyer in bad
faith and the prospective buyer cannot seek the relief of reconveyance of the property — there
is no double sale in such case.—It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject property is sold by the owner not
to the party the seller contracted with, but to a third person, as in the case at bench. In a contract
to sell, there being no previous sale of the property, a third person buying such property despite
the fulfillment of the suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief
of reconveyance of the property. There is no double sale in such case. Title to the property will
transfer to the buyer after registration because there is no defect in the owner-seller’s title per se,
but the latter, of course, may be sued for damages by the intending buyer.

Same; Same; Same; Same; In a conditional contract of sale, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s
title thereto.—In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In
fact, if there had been previous delivery of the subject property, the seller’s ownership or title to
the property is automatically transferred to the buyer such that, the seller will no longer have any
title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer
of the property who may have had actual or constructive knowledge of such defect in the seller’s
title, or at least was charged with the obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property subject of the sale.
Same; Same; Same; Same; When the sellers declared in the “Receipt of Down
Payment” that they received an amount as purchase price for their house and lot without any
reservation of title until full payment of the entire purchase price, the natural and ordinary
idea conveyed is that they sold their property.—It is a canon in the interpretation of contracts
that the words used therein should be given their natural and ordinary meaning unless a technical
meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said “Receipt of Down Payment” that they — Received from Miss
Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00. Without any reservation of title until full
payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold
their property.
Sale; Ownership; Succession; Rights to the succession are transmitted from the
moment of death of the decedent.—Article 774 of the Civil Code defines Succession as a mode
of transferring ownership as follows: Art. 774. Succession is a mode of acquisition by virtue of
which the property, rights and obligations to the extent and value of the inheritance of a person
are transmitted through his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P.
Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the
point their father drew his last breath, petitioners stepped into his shoes insofar as the subject
property is concerned, such that any rights or obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights to the succession are transmitted from
the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil.
850 [1952]) Coronel vs. Court of Appeals, 263 SCRA 15, G.R. No. 103577 October 7, 1996
Same; Same; Estoppel; Having represented themselves as the true owners of the
subject property at the time of sale, the sellers cannot claim later that they were not yet the
absolute owners thereof at that time.—Aside from this, petitioners are precluded from raising
their supposed lack of capacity to enter into an agreement at that time and they cannot be
allowed to now take a posture contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that: Art.
1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. Having
represented themselves as the true owners of the subject property at the time of sale, petitioners
cannot claim now that they were not yet the absolute owners thereof at that time.
Same; Rescission; Pleadings and Practice; Evidence; Allegations must be proven by
sufficient evidence — mere allegation is not an evidence.—We do not agree with petitioners
that there was a valid rescission of the contract of sale in the instant case. We note that these
supposed grounds for petitioners’ rescission, are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft
of any supporting evidence to substantiate petitioners’ allegations. We have stressed time and
again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110
Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence
(Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Same; Same; A seller cannot unilaterally and extrajudicially rescind a contract of sale
where there is no express stipulation authorizing him to extrajudicially rescind.—Even
assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6,
1985, we cannot justify petitioners-sellers’ act of unilaterally and extrajudicially rescinding the
contract of sale, there being no express stipulation authorizing the sellers to extrajudicially
rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de De
Leon, 132 SCRA 722 [1984])
Same; In case of double sale, what finds relevance and materiality is not whether or
not the second buyer was a buyer in good faith but whether or not said second buyer registers
such second sale in good faith, that is, without knowledge of any defect in the title of the
property sold.—In a case of double sale, what finds relevance and materiality is not whether or
not the second buyer was a buyer in good faith but whether or not said second buyer registers
such second sale in good faith, that is, without knowledge of any defect in the title of the
property sold. As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in
the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April,
1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had
already been previously sold to private respondents, or, at least, she was charged with knowledge
that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her
eyes to the defect in petitioners’ title to the property at the time of the registration of the
property. Coronel vs. Court of Appeals, 263 SCRA 15, G.R. No. 103577 October 7, 1996
Facts:

● The case involves a conditional contract of sale for a parcel of land in Quezon City.

● The petitioners, Romulo A. Coronel and others, entered into a contract with the
respondent, Ramona Patricia Alcaraz, for the sale of the property.

● The contract was subject to the condition that the sellers would transfer the title to the
property to their names.

● The sellers received a down payment from the buyer and agreed to execute a deed of
absolute sale upon the fulfillment of the condition.

● However, the sellers later sold the property to another petitioner, Catalina B. Mabanag.

Issue:
● Whether the contract of sale between the petitioners and the respondent is valid.

● Whether there was a double sale of the property.

Ruling:

● The court ruled in favor of the respondents, upholding the validity of the contract of sale
and ordering the sellers to execute the deed of absolute sale.

● The court declared the first buyer as the rightful owner of the property.

Ratio:

● The court applied Article 1544 of the Civil Code, which states that ownership of the
property belongs to the buyer who first takes possession in good faith or registers the sale
in good faith.

● The court found that there was no double sale in this case because the first buyer did not
have previous knowledge of the second sale.

● The second buyer did not register the sale in good faith because she had knowledge of the
previous sale.

● Therefore, the court declared the first buyer as the rightful owner of the property.

Roque vs. Lapuz

G.R. No. L-32811
Ponente
GUERRERO, J
Decision Date
Mar 31, 1980
A dispute over a sale agreement for lots in a subdivision leads to a ruling in favor of the seller,
ordering the buyer to vacate the lots, remove his house, and pay rental value and attorney's fees.

Property; Sale; Contracts; Article 1592 of the New Civil Code, on rescission of the
contracts of sale of immovable property, does not apply to contracts to sell realty on
installments.—The decision also stressed that “there can be no rescission or resolution of an
obligation as yet non-existent, because the suspensive condition did not happen. Article 1592 of
the New Civil Code (Art. 1504 of Old Civil Code) requiring demand by suit or notarial act in
case the vendor of realty wants to rescind does not apply to a contract to sell or promise to sell,
where title remains with the vendor until fulfillment to a positive condition, such as full payment
of the price.” (Manuel vs. Rodriguez, 109 Phil. 9).
Same; Same; Same; Contract to sell realty defined.—Under the findings of facts by the
appellant court, it appears that the two lots subject of the agreement between the parties herein
were delivered by the petitioner to the private respondent who took possession thereof and
occupied the same and thereafter built his house thereon, enclosing the lots with adobe stone
walls and barbed wires. But the property being registered under the Land Registration Act, it is
the act of registration of the Deed of Sale which could legally effect the transfer of title of
ownership to the transferee, pursuant to Section 50 of Act 496. (Manuel vs. Rodriguez, et al., 109
Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo, 28 Phil. 635; Worcester vs.
Ocampo. 34 Phil. 646). Hence, We hold that the contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring binding force.
Same; Same; Same; Absence of a deed of conveyance as indication that parties did not
intend immediate transfer of ownership over realty.—This absence of a formal deed of
conveyance is a very strong indication that the parties did not intend immediate transfer of
ownership and title, but only a transfer after full payment of the price. Parenthetically. We must
say that the standard printed contracts for the sale of the lots in Rockville Subdivision on a
monthly installment basis showing the terms and conditions thereof are immaterial to the case at
bar since they have not been signed by either of the parties to this case.
Same; Same; Same; Article 1191 of the New Civil Code applies in rescission of a
contract to sell realty.—We agree with the respondent Court of Appeals that Art. 1191 of the
New Civil Code is the applicable provision where the obligee, like petitioner herein, elects to
res-cind or cancel his obligation to deliver the ownership of the two lots in question for failure of
the respondent to pay in full the purchase price on the basis of 120 monthly equal installments,
promptly and punctually for a period of 10 years.
Same; Same; Same; The benefit stated in Art. 1191 of the New Civil Code allowing the
court to fix the period within which obligor may fulfill his obligation will not be granted where
to allow him such term will amount to sanctioning bad faith, as where obligor-vendee refused
to pay more than 116 monthly installments.—His refusal to pay further installments on the
purchase price, his insistence that he had the option to pay the purchase price any time in ten
years inspite of the clearness and certainty of his agreement with the petitioner as evidenced
further by the receipt, Exh. “B”, his dilatory tactic of refusing to sign the necessary contract of
sale on the pretext that he will sign later when he shall have updated his monthly payments in
arrears but which he never attempted to update and his failure to deposit or make available any
amount since the execution of Exh. “B” on June 28, 1954 up to the present or a period of 26
years, are all unreasonable and unjustified which altogether manifest clear bad faith and malice
on the part of respondent Lapuz, making inapplicable and unwarranted the benefits of paragraph
3, Art. 1191, N.C.C. 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 paragraph 3, Art. 1191,
N.C.C.
Same; Same; Same; Mere fact that obligor has built a house on land he intends to buy
will not justify grant of mere term to pay installments where his default was quite substantial.
—We further rule that there exists no just cause authorizing the fixing of a new period within
which private respondent may pay the balance of the purchase price. The equitable grounds or
considerations which are the basis of the respondent court in the fixing of an additional period
because respondent had constructed valuable improvements on the land, that he has built his
house on the property worth P45,000.00 and placed adobe stone walls with barbed wires around,
do not warrant the fixing of an additional period. We cannot sanction this claim for equity of the
respondent for to grant the same would place the vendor at the mercy of the vendee who can
easily construct substantial improvements on the land but beyond the capacity of the vendor to
reimburse in case he elects to rescind the contract by reason of the vendee’s default or deliberate
refusal to pay or continue paying the purchase price of the land. Under this design, strategem or
scheme, the vendee can cleverly and easily “improve out” the vendor of his land.
Same; Same; Same; Subdivision owner’s duty to put up facilities is not correlative to
duty of lot buyer to pay his monthly installments.—The judgment of the appellate court
concedes that petitioner’s failure to comply with his obligation to put up the necessary facilities
in the subdivision will not deter him from asking for the rescission of the agreement since his
obligation is not correlative with respondent’s obligation to buy the property. Since this is so
conceded, then the right of the petitioner to rescind the agreement upon the happening or in the
event that respondent fails or defaults in any of the monthly installments would be rendered
nugatory and ineffective. The right of rescission would then depend upon an extraneous
consideration which the law does not contemplate.
Same; Same; Same; To allow the respondent a new term to pay for his lot because he
erected a house thereon is like making the lot accessory to the house.—One final point, on the
supposed substantial improvements erected on the land, respondent’s house. To grant the period
to the respondent because of the substantial value of his house is to make the land an accessory
to the house. This is unjust and un conscionable since it is a rule in Our Law that buildings and
constructions are regarded as mere accessories to the land which is the principal, following the
Roman maxim “omne quod solo inadeficatur solo cedit” (Everything that is built on the soil
yields to the soil).
Facts:

● The case involves a dispute between Felipe C. Roque and Nicanor Lapuz over an
agreement of sale for lots in a subdivision.
● The agreement was made in 1954, prior to the approval of the subdivision plan by the
National Planning Commission.

● The agreement stated that Lapuz would pay Roque in monthly installments for a period
of ten years.

● Lapuz failed to make further payments after the initial deposit and four monthly
installments.

● Roque demanded payment and the signing of a contract, but Lapuz refused to comply.

● Roque filed a complaint for rescission and cancellation of the agreement.

● The trial court ruled in favor of Roque.

Issue:

● Whether Lapuz is entitled to a new period to pay the balance of the purchase price.

● Whether the agreement should be rescinded.

Ruling:

● The Supreme Court ruled in favor of Roque.

Ratio:

● Lapuz's failure to make payments and his refusal to comply with Roque's demands
constituted a substantial breach of the agreement.

● Lapuz is not entitled to the benefits of Article 1191 of the Civil Code, which allows for
the fixing of a new period in cases of non-compliance with reciprocal obligations.

● Roque had fulfilled his obligation to provide necessary facilities in the subdivision.

● Lapuz is ordered to vacate the lots, remove his house, and pay Roque the reasonable
rental value of the lots, as well as attorney's fees.
Javier vs. Court of Appeals
G.R. No. L-48194
Ponente
REGALADO, J
Decision Date
Mar 15, 1990
A dispute arises between the Javiers and Tiro over a timber license, leading to a Supreme Court
ruling that declares one agreement null and void while affirming the Court of Appeals' decision
in all other respects.
Remedial Law; Judgment; The rationale behind the rule on the immutability of a final
and executory judgment is set forth in Gabaya vs. Mendoza.—In Gabaya v. Mendoza, this
Court set forth the rationale behind the rule on the immutability of a final and executory
judgment, i.e., that after judgment has become final no additions can be made thereto, and
nothing can be done therewith except its execution; otherwise, there would be no end to
litigations, thus setting at naught the main role of courts of justice, which is to assist in the
enforcement of the rule of law and the maintenance of peace and order by settling justiciable
controversies with finality.
Same; Same; Same; The supervening event which would justify the suspension or
nullification of the execution of a final and executory judgment refers to facts and events
transpiring after the judgment or order had become executory.—The supervening event which
would justify the suspension or nullification of the execution of a final and executory judgment
refers to facts and events transpiring after the judgment or order had become executory. These
circumstances affect or change the substance of the judgment and render its execution
inequitable.
Same; Same; Same; Same; The execution or existence of the alleged deed of sale of 4
March 1975 cannot be considered a supervening event that will alter the finality and the
executory nature of the decision in question.—In the present cases, the execution or existence
of the alleged deed of sale of 4 March 1975 cannot be considered a supervening event that will
alter the finality and the executory nature of the decisions in question. The records show that Luz
Javier filed the complaint for recission of the Deed of Absolute Sale of 8 March 1972 on 5
August 1976. All throughout the proceedings from the lower court to the appellate courts in 1976
(specifically during the lifetime of Luz Javier, who died on 9 June 1980), to this Court in 1987.
Ursula and the legal heirs remained silent about the existence of the alleged deed of sale of 4
March 1975. Hence, they are now precluded under the principle of res judicata to question the
finality of the judgment in the rescission case.
Same; Same; Res Judicata; All the essential requisites of res judicata are present in
this case.—All the essential requisites of res judicata are present in this case, namely: (a) the
former judgment is final; (b) it was rendered by a court having jurisdiction over the subject
matter and the parties; (c) it is a judgment on the merits; and, (d) there is, between the first and
second actions, identity of parties, of subject matter and of cause of action.

Civil Law; Land Registration; The Land Registration Act, as amended by the Property
Registration Decree, only protects a purchaser for value in good faith.—Even granting
arguendo that the alleged second sale took place, Ursula’s assertion is without merit. The Land
Registration Act, as amended by the Property Registration Decree, only protects a purchaser for
value in good faith. The law does not permit its provisions to be used as a shield for fraud or as
an excuse for a person to enrich himself at the expense of another.
Same; Same; Same; Actual knowledge by a purchaser of an existing title is equivalent
to notice resulting from a registry.—Ursula knew all along that Luz Javier had already ceded the
disputed property to her children. Hence, at the time of the alleged second sale of the same
property, Luz Javier was no longer its owner. She could no longer convey something which she
did not own. Ursula cannot therefore claim a superior right to the disputed property because she
did not acquire any under the second sale of 1975. The fact that the first sale is unregistered is of
no moment. Actual knowledge by a purchaser of an existing title is equivalent to notice resulting
from a registry.
Same; Same; Same; Same; Registration neither vests title nor gives the holder a better
title than what he actually has, especially if the registration was done in bad faith.—Moreover,
registration neither vests title nor gives the holder a better title than what he actually has,
especially if the registration was done in bad faith. A person who wrongfully or illegally registers
property in his name is deemed to hold the same in trust for the real owner. In this situation, the
real owner has the right to file an action for the reconveyance of the property even beyond the
one year period under Act No. 496 because such an action is imprescriptible. He also has an
alternative remedy of instituting an action for damages if the property has passed into the hands
of an innocent purchaser for value. Javier vs. Court of Appeals, 224 SCRA 704, G.R. No. 96086,
G.R. No. 100777 July 21, 1993
Facts:

● Dispute between Jose and Estrella Javier (petitioners) and Leonardo Tiro (respondent)

● Date: March 15, 1990

● Place: Supreme Court of the Philippines

● Tiro held a timber license covering 2,535 hectares in Medina, Misamis Oriental
● On February 15, 1966, Tiro executed a "Deed of Assignment" in favor of the Javiers,
transferring his shares of stocks in Timberwealth Corporation for P120,000

● Payment to be made in two installments, with the balance to be paid for every shipment
of export logs produced from the forest concession

● Tiro had a pending application for an additional forest concession covering 2,000
hectares adjacent to his existing concession

● On February 28, 1966, Tiro and the Javiers entered into another agreement stating that
Tiro would transfer his rights over the additional area to Timberwealth Corporation, and
in return, the Javiers would pay him P30,000

● Effectiveness of this agreement subject to the approval of the Bureau of Forestry

● Javiers assumed the operation of the logging concessions and entered into a Forest
Consolidation Agreement with other timber license holders

● Lower court dismissed Tiro's complaint and ordered him to pay the Javiers a reduced
amount

● Tiro appealed to the Court of Appeals, which reversed the lower court's decision and
ordered the Javiers to pay Tiro the full amount claimed

● Javiers filed a petition for review on certiorari with the Supreme Court, arguing that the
agreements were null and void

● Javiers sought an extension of time to file a motion for reconsideration, which was
granted by the Court of Appeals

● Court of Appeals denied their motion for reconsideration, stating that the decision had
already become final and executory
Issue:

● Whether the agreements between Tiro and the Javiers were null and void

Ruling:

● The agreement of February 28, 1966, was declared without force and effect

● The amount of P30,000.00 was ordered to be deducted from the sum awarded to Tiro

● In all other respects, the decision of the Court of Appeals was affirmed
Ratio:

● The Supreme Court excused the one-day delay in filing the motion for extension,
emphasizing that litigations should be decided on their merits and not on technicalities

● The Court found that the cause stated in the deed of assignment was false, as the true
cause was the transfer of the forest concession from Tiro to the Javiers

● The Court relied on the contemporaneous and subsequent acts of the parties as evidence
of their true intention

● The Court held that the agreement of February 28, 1966, was not enforceable because it
was subject to the condition that Tiro's application for an additional forest concession be
approved by the Bureau of Forestry, which did not happen

Article 1182
Lim vs. Court of Appeals
G.R. No. 87047
Ponente
REGALADO, J
Decision Date
Oct 31, 1990
A landlord files an ejectment suit against a tenant who refuses to vacate the premises after the
lease term expires, leading to a legal battle over the validity of a stipulation in a compromise
agreement and the application of res judicata.
Obligations and Contracts; Potestative and Suspensive Conditions; The disputed
stipulation “for as long as the defendant needed the premises and can meet and pay said
increases” is a purely potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee.—Contrary to the ruling of
respondent court, the disputed stipulation “for as long as the defendant needed the premises and
can meet and pay said increases” is a purely potestative condition because it leaves the
effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is
likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease,
depends upon said condition. It should be noted that a renewal constitutes a new contract of lease
although with the same terms and conditions as those in the expired lease. It should also not be
overlooked that said condition is not resolutory in nature because it is not a condition that
terminates the lease contract. The lease contract is for a definite period of three (3) years upon
the expiration of which the lease automatically terminates.
Same; Lease Contracts; Ejectment; In an action for ejectment, the defense interposed
by the lessees that the contract of lease authorized them to continue occupying the premises as
long as they pay the rents is untenable, because it leaves to the lessees the sole power to
determine whether the lease should continue or not.—The invalidity of a condition in a lease
contract similar to the one at bar has been resolved in Encarnacion vs. Baldomar, et al., where we
ruled that in an action for ejectment, the defense interposed by the lessees that the contract of
lease authorized them to continue occupying the premises as long as they paid the rents is
untenable, because it would leave to the lessees the sole power to determine whether the lease
should continue or not. As stated therein, “(i)f this defense were to be allowed, so long as
defendants elected to continue the lease by continuing the payment of the rentals, the owner
would never be able to discontinue it; conversely, although the owner should desire the lease to
continue, the lessees could effectively thwart his purpose if they should prefer to terminate the
contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited
by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos,
34 Phil. 100.)” The continuance, effectivity and fulfillment of a contract of lease cannot be made
to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality
does not obtain in such a contract of lease and no equality exists between the lessor and the
lessee since the life of the contract is dictated solely by the lessee.
Same; Compromise Agreements; Statutory Construction; Where the instrument is
susceptible of two interpretations, one which will make it invalid and illegal and another
which will make it valid and legal, the latter interpretation should be adopted.—Resultantly,
the contract of lease should be and is hereby construed as providing for a definite period of three
(3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect
only if the parties decide to renew the lease. A contrary interpretation will result in a situation
where the continuation and effectivity of the contract will depend only upon the will of the
lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion.
The compromise agreement should be understood as bearing that import which is most adequate
to render it effectual. Where the instrument is susceptible of two interpretations, one which will
make it invalid and illegal and another which will make it valid and legal, the latter interpretation
should be adopted.
Same; Same; Same; Lease; A lease will not be construed to create a right to perpetual
renewals unless the language employed indicates clearly and unambiguously that it was the
intention and purpose of the parties to do so.—Moreover, perpetual leases are not favored in
law, nor are covenants for continued renewals tending to create a perpetuity, and the rule of
construction is well settled that a covenant for renewal or for an additional term should not be
held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the
parties have expressed such intention. A lease will not be construed to create a right to perpetual
renewals unless the language employed indicates clearly and unambiguously that it was the
intention and purpose of the parties to do so. A portion in a lease giving the lessee and his
assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed
as not making such a provision unless it does so clearly.
Same; Same; Same; Civil Procedure; Res Judicata; While the compromise agreement
may be res judicata as far as the cause of action and issues in the first ejectment case is
concerned, any cause of action that arises from the application or violation of the compromise
agreement cannot be said to have been settled in said first case.—In the first ejectment case, the
cause of action was private respondent’s refusal to comply with the lease contract which expired
on December 31, 1978. In the present case, the cause of action is a similar refusal but with
respect to the lease which expired in October, 1985 under the compromise agreement. While the
compromise agreement may be res judicata as far as the cause of action and issues in the first
ejectment case is concerned, any cause of action that arises from the application or violation of
the compromise agreement cannot be said to have been settled in said first case. The compromise
agreement was meant to settle, as it did only settle, the first case. It did not, as it could not, cover
any cause of action that might arise thereafter, like the present case which was founded on the
expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact
that the compromise agreement was judicially approved does not foreclose any cause of action
arising from a violation of the terms thereof.
153 Lao Lim vs. Court of Appeals, 191 SCRA 150, G.R. No. 87047 October 31, 1990

Facts:

● Francisco Lao Lim (petitioner) and Benito Villavicencio Dy (respondent) entered into a
lease contract for a period of three years, from 1976 to 1979.

● After the lease term expired, Dy refused to vacate the premises, leading Lim to file an
ejectment suit against him.

● The case was settled through a compromise agreement, which stated that the lease would
be renewed every three years as long as Dy needed the premises and could pay the rent
increases.

● In 1985, Lim informed Dy that he would not be renewing the lease contract.

● Dy disagreed and expressed his intention to renew the lease for another term.

● Lim filed another ejectment suit against Dy.

● The Metropolitan Trial Court dismissed the complaint, stating that the lease contract was
continuous and the compromise agreement constituted res judicata.

● Lim appealed to the Regional Trial Court, which affirmed the decision of the lower court.
● The Court of Appeals also affirmed the decision, ruling that the stipulation in the
compromise agreement allowing Dy to stay on the premises as long as he needed it and
could pay rent was valid.
Issue:

● Whether the disputed stipulation in the compromise agreement allowing the lessee to stay
on the premises as long as he needed it and could pay rent was valid.

● Whether the action for ejectment was barred by res judicata.

Ruling:

● The Supreme Court reversed the decision of the Court of Appeals.

● The disputed stipulation in the compromise agreement was held to be invalid.

● The action for ejectment was not barred by res judicata.

Ratio:

● The disputed stipulation in the compromise agreement was a purely potestative condition,
as it left the effectivity and enjoyment of leasehold rights solely to the will of the lessee.

● The lease contract was for a definite period of three years, and the automatic increase in
rent would only take effect if the parties agreed to renew the lease.

● Perpetual leases are not favored in law, and covenants for continued renewals should not
be held to create a right to repeated grants in perpetuity unless expressly stated.

● There was no identity of subject matter and cause of action between the first ejectment
case and the present case.

● The compromise agreement settled the first case, but it did not cover any cause of action
that might arise thereafter, such as the expiration of the lease in 1985.

● Therefore, the action for ejectment was not barred by res judicata.

Conclusion:

● The Supreme Court ruled in favor of Lim, ordering Dy to vacate the premises and pay
monthly rentals until he does so.
● The disputed stipulation in the compromise agreement was invalid, as it gave the lessee
sole power to determine whether the lease should continue or not.

● The application of res judicata was rejected, as there was no identity of subject matter and
cause of action between the first ejectment case and the present case.
Security Bank & Trust Co. vs. Court of Appeals
G.R. No. 117009
Ponente
PADILLA, J
Decision Date
Oct 11, 1995
A construction contractor successfully sues a bank for the increased cost of construction
materials, with the court ruling that the bank's recommendation to settle for a lower amount
constitutes an admission of liability and that acquiring the building at a price below its actual
cost would be unjust enrichment.
Civil Law; Obligation and Contract; A conditional obligation shall be void if its
fulfillment depends upon the sole will of the debtor.—Under Article 1182 of the Civil Code, a
conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In
the present case, the mutual agreement, the absence of which petitioner bank relies upon to
support its non-liability for the increased construction cost, is in effect a condition dependent on
petitioner bank’s sole will, since private respondent would naturally and logically give consent to
such an agreement which would allow him recovery of the increased cost.

Same; Same; Unjust enrichment is not allowed by law.—Hence, to allow petitioner

bank to acquire the constructed building at a price far below its actual construction cost would
undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent.
Such unjust enrichment, as previously discussed, is not allowed by law.
Same; Attorney’s Fees; Even with the presence of an agreement between the parties,
the court may nevertheless reduce attorney’s fees though fixed in the contract when the
amount thereof appears to be unconscionable or unreasonable.—Finally, with respect to the
award of attorney’s fees to respondent, the Court has previously held that, “even with the
presence of an agreement between the parties, the court may nevertheless reduce attorney’s fees
though fixed in the contract when the amount thereof appears to be unconscionable or
unreasonable.” As previously noted, the diligence and legal know-how exhibited by counsel for
private respondent hardly justify an award of 25% of the principal amount due, which would be
at least P60,000.00. Besides, ths issues in this case are far from complex and intricate. The award
of attorney’s fees is thus reduced to P10,000.00. Security Bank and Trust Company vs. Court of
Appeals, 249 SCRA 206, G.R. No. 117009 October 11, 1995
Facts:

● Ysmael C. Ferrer, a construction contractor, was contracted by Security Bank & Trust
Company (SBTC) and Rosito C. Manhit to construct a building in Davao City.

● The contract stated that Ferrer would complete the construction within 200 working days.

● Due to a drastic increase in the cost of construction materials, Ferrer incurred additional
expenses of about P300,000.00.

● Ferrer informed SBTC of the increased cost in March 1980 and made timely demands for
payment, providing receipts and other documents as proof.

● In March 1981, SBTC verified Ferrer's claims but only recommended settling for
P200,000.00.

● SBTC denied authorizing any payment beyond the original contract price and refused to
pay the additional cost.
Issue:
1. Whether SBTC is liable to pay for the increased cost of construction materials.
2. Whether the provision in the building contract regarding the "appropriate adjustment" of
the contract price requires mutual agreement between the parties.
3. Whether the trial court violated SBTC's constitutional guarantee of non-impairment of
the obligation of contract.
Ruling:
The court ruled in favor of Ferrer and ordered SBTC and Manhit to pay the following: a)
P259,417.23 for the increase in price of labor and materials plus 12% interest per annum from
August 15, 1980, until fully paid. b) P24,000.00 as actual damages. c) P20,000.00 as moral
damages. d) P20,000.00 as exemplary damages. e) Attorney's fees equivalent to 25% of the
principal amount due. f) Costs of suit.
Ratio:

● The court held that SBTC is liable to pay for the increased cost of construction materials.

● The provision in the building contract regarding the "appropriate adjustment" of the
contract price does not require mutual agreement between the parties.
● SBTC admitted liability when a recommendation was made to settle Ferrer's claim for
P200,000.00.

● Allowing SBTC to acquire the constructed building at a price far below its actual
construction cost would constitute unjust enrichment, which is not allowed by law.

● The court reduced the attorney's fees awarded to Ferrer from 25% of the principal amount
due to P10,000.00.

● Attorney's fees can be reduced when the amount appears to be unconscionable or

unreasonable.

● In this case, the issues were not complex, and the legal know-how exhibited by Ferrer's
counsel did not justify a higher award.
NATELCO VS. CA G.R. No. 107112 February 24, 1994
Civil Law; Obligations and Contracts; Art. 1267; The term “service” should be
understood as referring to the “performance” of the obligation.—Article 1267 speaks of
“service” which has become so difficult. Taking into consideration the rationale behind this
provision, the term “service” should be understood as referring to the “performance” of the
obligation. In the present case, the obligation of private respondent consists in allowing
petitioners to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According to Senator Arturo M.
Tolentino, Article 1267 states in our law the doctrine of unforeseen events. This is said to be
based on the discredited theory of rebus sic stantibus in public international law; under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering practical needs and the demands of
equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in
favor of the party prejudiced.
Same; Same; Reformation of Instruments; In reformation of contracts, what is
reformed is not the contract itself, but the instrument embodying the contract.—On the issue of
prescription of private respondent’s action for reformation of contract, petitioners allege that
respondent court’s ruling that the right of action “arose only after said contract had already
become disadvantageous and unfair to it due to subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 x x x” is erroneous. In reformation of
contracts, what is reformed is not the contract itself, but the instrument embodying the contract.
It follows that whether the contract is disadvantageous or not is irrelevant to reformation and
therefore, cannot be an element in the determination of the period for prescription of the action to
reform.
Same; Same; Art. 1144; Action upon a written contract must be brought within ten
(10) years from the time the right of action accrues.—Article 1144 of the New Civil Code
provides, inter alia, that an action upon a written contract must be brought within ten (10) years
from the time the right of action accrues. Clearly, the ten (10) year period is to be reckoned from
the time the right of action accrues which is not necessarily the date of execution of the contract.
As correctly ruled by respondent court, private respondent’s right of action arose “sometime
during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. x x x, he was
asked by (private respondent’s) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent’s) cause
of action to ask for reformation of said contract should thus be considered to have arisen only in
1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten
(10) years had not yet elapsed.” Naga Telephone Co., Inc. vs. Court of Appeals, 230 SCRA 351,
G.R. No. 107112 February 24, 1994
FACTS: ∙NATELCO: telephone company rendering local and long distance services in Naga. ∙Entered into
contract with Camarines Sur II Electric Cooperative (electrice power service):

o“For the use in operation of its telephone service, electric light

posts of CASURECO II”. oIn return, free use of 10 telephone
connections.
oPeriod: as long as NATELCO needs electric light posts, CASURECO
understands that contract will terminate when they are forced to
stop, abandon operation and remove lightposts.
∙CASURECO after 10 years: filed for reformation of contract with
damages, not conforming to guidelines of National Electrification
Administration (NEA)- reasonable compensation for use of posts.
oCompensation is P10/posts but consumption of telephone cables
costs P2630.
oNATELCO used 319 posts without any contract at P10.00; refused to
pay. oPoor servicing- damage not less than P100,000.
∙NATELCO ∙Compensation: oNo cause of action for reformation of contract.

oBarred by prescription (10 years execution of contract) oBarred by

estoppel.
oUtilization could not have cause deterioration because already used
for 11 years. oValue of expenses been equal to use of telephone lines.
TRIAL COURT ∙ORDERED REFORMATION OF AGREEMENT:
oNATELCO to pay for electric polls sum of P10/pole from January 1989.
∙Contract eventually became unfair due to increase in volume of
subscribers without increase of telephone connections which are free
of charge to CASURECO.
∙REFORMATION OF CONTACT: cannot make another contract but abolish
inequities. ∙Contract does not mention use of posts outside Naga City.
Contract should be reformed including provision that for the use
posts outside Naga.
CA: agreed to TRIAL COURT but for different reasons: ∙Article 1267
applicable ∙Contract POTESTATIVE CONDITION, THUS VOID. ISSUE: ∙
Is Article 1267 applicable? YES
∙Has the filing of reformation of contract prescribed? NO.
∙Is the period of contract, “as long as the party of the first part has
need for electrive light posts…” potestative? YES.
n of the period for prescription of the action to reform. ∙Article 1144: Action upon a written contract
must be brought within 10 years from the time the right of action accrues.

o“From the time the right of action accrues” not necessarily the date
of execution of the contract.
oAs correctly ruled by respondent court, private respondent's right
of action arose "sometime during the latter part of 1982 or in 1983
when according to Atty. Luis General, Jr. . . ., he was asked by (private
respondent's) Board of Directors to study said contract as it already
appeared disadvantageous to (private respondent) in 1989. o10 years
had not yet elapsed.
∙PERIOD OF CONTRACT IS POTESTATIVE, THUS INVALID. ♣Leaves the
continued effectivity of the aforesaid agreement to the latter's sole
and exclusive will as long as plaintiff is in operation ♣Leaves leaves
the effectivity and enjoyment of leasehold rights to the sole and

Article 1191
Areola vs. Court of Appeals
G.R. No. 95641
Ponente
ROMERO, J
Decision Date
Sep 22, 1994
A lawyer sues an insurance company for breach of contract after they mistakenly cancel his
policy, leading to a Supreme Court ruling that holds the company liable for damages despite their
offer to reinstate the policy.
Civil Law; Agency; Obligations of the Principal; A corporation such as respondent
insurance company, acts solely thru its employees. The latters’ acts are considered as its own
for which it can be held to account.—We uphold petitioner-insured’s submission. Malapit’s
fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt
directly imputable to respondent insurance company. A corporation, such as respondent
insurance company, acts solely thru its employees. The latters’ acts are considered as its own for
which it can be held to account. The facts are clear as to the relationship between private
respondent insurance company and Malapit. As admitted by private respondent insurance
company in its answer, Malapit was the manager of its Baguio branch. It is beyond doubt that he
represented its interests and acted in its behalf.
Same; Same; Same; Malapit’s receipt of said premiums is receipt by private
respondent insurance company who, by provision of law, under Article 1910 of the Civil Code,
is bound by the acts of its agent.—His act of receiving the premiums collected is well within the
province of his authority. Thus, his receipt of said premiums is receipt by private respondent
insurance company who, by provision of law, particularly under Article 1910 of the Civil Code,
is bound by the acts of its agent. x x x Malapit’s failure to remit the premiums he received cannot
constitute a defense for private respondent insurance company; no exoneration from liability
could result therefrom. The fact that private respondent insurance company was itself defrauded
due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said
premiums to its account, does not free the same from its obligation to petitioner Areola. As held
in Prudential Bank v. Court of Appeals citing the ruling in McIntosh v. Dakota Trust Co.: “A
bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. A bank holding out its officers and agent as worthy of confidence will not be permitted
to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk itsresponsibility for such frauds, even though no
benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.”
Same; Contracts; Reciprocal Obligations; Reciprocal obligations are those which arise
from the same cause and in which each party is both a debtor and creditor of the other, such
that the obligation of one is dependent upon the obligation of the other.—Consequently,
respondent insurance company is liable by way of damages for the fraudulent acts committed by
Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier
act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those which arise from the
same cause and in which each party is both a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other.
Same; Agency; Obligations of the Principal; Under the second paragraph of Article
1191, the injured party is given a choice between fulfillment or rescission of the obligation in
case one of the obligors fails to comply with what is incumbent upon him. However, said
article entitles the injured party to payment of damages, regardless of whether he demands
fulfillment or rescission of the obligation.—Under the circumstances of the instant case, the
relationship as creditor and debtor between the parties arose from a common cause: i.e., by
reason of their agreement to enter into a contract of insurance under whose terms, respondent
insurance company promised to extend protection to petitioner-insured against the risk insured
for a consideration in the form of premiums to be paid by the latter. Under the law governing
reciprocal obligations, particularly the second paragraph of Article 1191, the injured party,
petitioner-insured in this case, is given a choice between fulfillment or rescission of the
obligation in case one of the obligors, such as respondent insurance company, fails to comply
with what is incumbent upon him. However, said article entitles the injured party to payment of
damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable
then is respondent insurance company’s argument, namely, that reinstatement being equivalent
to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of
damages. Such a claim finds no support in our laws on obligations and contracts.
Same; Damages; The nature of damages to be awarded would be in the form of
nominal damages where a legal right is technically violated and must be vindicated.—The
nature of damages to be awarded, however, would be in the form of nominal damages contrary to
that granted by the court below. Although the erroneous cancellation of the insurance policy
constituted a breach of contract, private respondent insurance company, within a reasonable time
took steps to rectify the wrong committed by reinstating the insurance policy of petitioner.
Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time
the insurance policy was cancelled. Nominal damages are “recoverable where a legal right is
technically violated and must be vindicated against an invasion that has produced no actual
present loss of any kind, or where there has been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be shown.”
Areola vs. Court of Appeals, 236 SCRA 643, G.R. No. 95641 September 22, 1994
Facts:

● Santos B. Areola, a lawyer from Dagupan City, purchased a Personal Accident Insurance
Policy from Prudential Guarantee and Assurance, Inc. (Prudential) on November 28,
1984.

● The policy was supposed to be in effect for one year.

● Areola paid the premiums in full and received a provisional receipt.

● Seven months later, Prudential unilaterally cancelled the policy due to a failure to pay
premiums.

● Areola confronted Prudential's agent, who admitted the cancellation was a mistake but
failed to rectify it.

● Areola then sent a letter demanding reinstatement of the policy and payment of damages.

● Prudential eventually admitted the mistake and offered to reinstate the policy.

Issue:
1. Did the erroneous cancellation of the insurance policy entitle Areola to payment of
damages?
2. Did the subsequent reinstatement of the policy by Prudential absolve them from liability
for damages?
Ruling:
The Supreme Court ruled in favor of Areola. They held that Prudential was liable for damages
due to the fraudulent acts of its branch manager, who misappropriated the premiums paid by
Areola. The cancellation of the policy was a breach of contract, and Prudential's subsequent offer
to reinstate the policy did not absolve them from liability. The Court emphasized that a contract
of insurance creates reciprocal obligations, and Prudential failed to fulfill its obligation to
provide protection to Areola. However, the Court modified the damages awarded by the lower
court and instead awarded nominal damages of P30,000.
Ratio:

● The Court held that Prudential was liable for the fraudulent acts of its branch manager, as
the manager acted within the scope of his authority and represented the interests of
Prudential.

● The cancellation of the policy was a breach of contract, and Prudential's offer to reinstate
the policy did not remedy the injury inflicted on Areola.

● The Court clarified that reinstatement is equivalent to fulfillment of Prudential's

obligation, but it does not absolve them from liability for damages.

● The Court awarded nominal damages to Areola, as no actual or substantial damage was
shown to have been suffered.
Tan vs. Court of Appeals
G.R. No. 80479
Ponente
CORTES, J
Decision Date
Jul 28, 1989
A buyer demands the return of earnest money after a delay in clearing the property title, but the
Supreme Court rules in favor of the sellers, ordering the execution of the sale and payment of the
remaining balance.
Civil Law; Obligations; Rescission; In the absence of a contrary stipulation the power
to rescind obligations must be invoked judicially, it cannot be exercised solely on a party’s
own judgment that the other has committed a breach of the obligation.—That 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 is clear from a reading of the Civil Code provisions. However,
it is equally settled that, in the absence of a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a party’s own judgment that the other has
committed a breach of the obligation. Where there is nothing in the contract empowering the
petitioner to rescind it without resort to the courts, the petitioner’s action in unilaterally
terminating the contract in this case is unjustified.
Same; Same; Same; Alleged breach of the obligation by private respondents not
considered substantial enough to warrant rescission of the contract.—The alleged breach of
the obligation by the private respondents, which consists in a mere delay for a few days in
clearing the title to the property, cannot be considered substantial enough to warrant rescission of
the contract.
Same; Same; Same; Same; Rescission not permitted for a slight or casual breach of
the contract.—It is a settled principle of law that rescission will not be permitted for a slight or
casual breach of the contract but only for such breaches as are so substantial and fundamental as
to defeat the object of the parties in making the agreement.
Same; Same; Same; Same; Same; A slight delay on the part of the private respondents
in the performance of their obligation not sufficient ground for resolution of the agreement.—
In this case, as to the lot covered by TCT No. T-13826, it is true that as of June 25, 1984, the
date set for the execution of the final deed of sale, the mortgage lien in favor of DBP annotated
in the title has not yet been cancelled as it took DBP some time in processing the papers relative
thereto. However, just a few days after, or on July 12, 1984, the cancellation of the DBP
mortgage was entered by the Register of Deeds and duly noted on the title. Time not being of the
essence in the agreement, a slight delay on the part of the private respondents in the performance
of their obligation, is not sufficient ground for the resolution of the agreement. Tan vs. Court of
Appeals, 175 SCRA 656, G.R. No. 80479 July 28, 1989
Facts:
● Petitioner Agustina Liquette Tan and respondents Mariano Singson and Visitacion
Singson entered into a contract of sale for a house and lot.

● The purchase price was initially agreed at P1,800,000, with Tan giving an earnest money
of P200,000.

● On June 17, 1984, Tan requested a reduction in the price to P1,750,000, which the
Singsons agreed to.

● The Singsons started paying off their mortgage loan with the Development Bank of the
Philippines (DBP) to clear the title of the property.

● Tan visited Baguio City on June 25, 1984, and was informed by the Singsons that the
DBP was still processing the cancellation of the mortgage.

● The parties agreed to extend the execution of the deed of sale for two weeks.

● Tan unilaterally stopped the sale and demanded the return of the earnest money through
her lawyer.

● Tan filed a case for recovery of the earnest money and damages against the Singsons.

● The Regional Trial Court ruled in favor of Tan and ordered the rescission of the contract,
the return of the earnest money, and the payment of damages and attorney's fees by the
Singsons.

● The Court of Appeals reversed the trial court's ruling and ordered the Singsons to execute
an absolute deed of sale and for Tan to pay the balance of the purchase price plus interest.

● Tan filed a petition for review on certiorari before the Supreme Court.

Issue:

● Whether the Singsons committed a substantial breach of their obligation.

● Whether Tan's consent to the contract was vitiated by fraud.

Ruling:

● The Supreme Court found the petition to be without merit.

● The Court held that the delay in clearing the title to the property was not a substantial
breach that would warrant rescission of the contract.
● The Court rejected Tan's claim of fraud, as there was no evidence to support it.

● The Court affirmed the decision of the Court of Appeals, with the modification that Tan
was given a period of 90 days to pay the balance of the purchase price, with interest.

● The Singsons were ordered to execute the absolute deed of sale after Tan completed
payment.
Ratio:

● The delay in clearing the title to the property was not a substantial breach of the contract.
The Singsons took immediate action by paying off their mortgage loan and securing the
cancellation of the mortgage. They also paid all the taxes due on the property and
completed the payment for the adjacent lot used as a driveway. These actions
demonstrate their commitment to fulfilling their obligations under the contract.

● Tan's claim of fraud was unsupported by evidence. Mere allegations of fraud are not
enough to prove its existence. Tan failed to present any proof that the Singsons
intentionally deceived her or made false representations to induce her to enter into the
contract.

● The Court of Appeals correctly ruled that the Singsons should execute an absolute deed
of sale and that Tan should pay the balance of the purchase price plus interest. This is in
accordance with the terms of the contract and the principle of fairness and equity. Tan
should fulfill her obligation to pay the remaining balance, and the Singsons should
transfer the title to the property upon completion of payment.
Sps. Velarde vs. Court of Appeals
G.R. No. 108346
Ponente
PANGANIBAN, J
Decision Date
Jul 11, 2001
A couple's failure to pay the balance of the purchase price in a contract of sale with assumption
of mortgage justified the rescission of the contract, with the court ordering the return of the
amount paid by the couple as a consequence of the rescinded contract.
Civil Law; Contracts; Sale; In a contract of sale, the seller obligates itself to transfer
the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain
in money or its equivalent.—In a contract of sale, the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in
money or its equivalent. Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the property to
petitioner through constructive delivery. Prior physical delivery or possession is not legally
required, and the execution of the Deed of Sale is deemed equivalent to delivery. Petitioners, on
the other hand, did not perform their correlative obligation of paying the contract price in the
manner agreed upon. Worse, they wanted private respondents to perform obligations beyond
those stipulated in the contract before fulfilling their own obligation to pay the full purchase
price.
Same; Same; Same; Rescission; Rescission of a party to an obligation under Article
1191 of the Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them.—The right of rescission of a party to an obligation under Article 1191
of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine the
period of compliance, the court shall decree the rescission.
Same; Same; Same; Same; Rescission can be carried out only when the one who
demands it can return whatever he may be obliged to restore.—Rescission creates the
obligation to return the object of the contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as 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 their relative positions as if no contract has been made.
Velarde vs. Court of Appeals, 361 SCRA 56, G.R. No. 108346 July 11, 2001
Facts:

● Spouses Mariano and Avelina Velarde (petitioners) entered into a contract of sale with
assumption of mortgage with David and George Raymundo (respondents).

● Petitioners paid a downpayment of P800,000 and assumed the mortgage amount of P1.8
million in favor of the Bank of the Philippine Islands (BPI).

● Petitioners agreed to strictly comply with the terms and conditions of the mortgage
contract.

● Bank denied petitioners' application for assumption of mortgage, leading to petitioners'

non-payment of the balance of the purchase price.

● Respondents sent a notice of cancellation/rescission to petitioners for non-performance of

their obligation.
● Petitioners filed a complaint against respondents for specific performance, nullity of
cancellation, writ of possession, and damages.

● Trial court initially dismissed the complaint but later directed the parties to proceed with
the sale.

● Court of Appeals upheld the validity of the rescission.

Issue:

● Whether the non-payment of the balance of the purchase price constitutes a breach of
contract and justifies the rescission of the contract.
Ruling:

● The failure of the petitioners to pay the balance of the purchase price constituted a breach
of their reciprocal obligation under the contract of sale.

● This breach gave rise to the respondents' right to rescind the contract in accordance with
Article 1191 of the Civil Code.

● The automatic rescission and forfeiture of payment clauses in the mortgage contract did
not apply because the breach was non-performance, not a violation of the terms and
conditions of the mortgage contract.

● The court applied the provisions of the Civil Code governing rescission, which require
mutual restitution.
Ratio:

● The court held that the non-payment of the balance of the purchase price by the
petitioners constituted a breach of their reciprocal obligation under the contract of sale.

● This breach entitled the respondents to rescind the contract in accordance with Article
1191 of the Civil Code, which provides that the injured party may choose between
specific performance or the rescission of the contract with damages.

● The court emphasized that the breach in this case was non-performance, as the petitioners
failed to pay the balance of the purchase price, and not a violation of the terms and
conditions of the mortgage contract.

● Therefore, the automatic rescission and forfeiture of payment clauses in the mortgage
contract did not apply.
● Instead, the court applied the provisions of the Civil Code governing rescission, which
require mutual restitution.

● The court affirmed the validity of the rescission and ordered the respondents to return the
amount paid by the petitioners as a consequence of the rescinded contract, with legal
interest.
Spouses Santos vs. Court of Appeals
G.R. No. 120820
Ponente
QUISUMBING, J
Decision Date
Aug 1, 2000
Spouses Fortunato and Rosalinda Santos repossess a house and lot from the Caseda spouses for
failure to pay the purchase price, leading to a legal battle over whether the agreement between
the parties was a contract of sale or a contract to sell.
Civil Law; Contracts; Sale; A contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting parties call it; The transfer
of ownership in exchange for a price paid or promised is the very essence of a contract of sale.
—It must be emphasized from the outset that a contract is what the law defines it to be, taking
into consideration its essential elements, and not what the contracting parties call it. Article 1458
of the Civil Code defines a contract of sale. Note that the said article expressly obliges the
vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This
is because the transfer of ownership in exchange for a price paid or promised is the very essence
of a contract of sale.
Same; Same; Same; Contract of Sale Distinguished from a Contract to Sell.—As we
earlier pointed out, in a contract to sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a
mere breach, casual or serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. This is entirely different from the situation in a
contract of sale, where non-payment of the price is a negative resolutory condition. The effects in
law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and
cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor should eject the vendee for failure to meet
the condition precedent, he is enforcing the contract and not rescinding it. Santos vs. Court of
Appeals, 337 SCRA 67, G.R. No. 120820 August 1, 2000
Facts:
Spouses Fortunato and Rosalinda Santos owned a house and lot in Better Living Subdivision,
Parañaque, Metro Manila. The property was mortgaged with the Rural Bank of Salinas, Inc. On
June 16, 1984, the bank sent a letter to Rosalinda Santos demanding payment of unpaid interest
and other charges. Rosalinda offered to sell the property to Carmen Caseda, who agreed to buy
it. Carmen made a partial payment and the parties agreed that the Casedas would pay the balance
of the mortgage loan, real estate taxes, electric and water bills, and the remaining cash price by
June 16, 1987. The Casedas took possession of the property and rented it out. They also made
installment payments on the mortgage loan. However, they suffered bankruptcy in 1987. Carmen
paid the real estate taxes and electric bills in the name of Rosalinda. In January 1989, the
Santoses repossessed the property due to the Casedas' failure to pay the purchase price in full.
Carmen offered to pay the balance of the purchase price, but the Santoses wanted a higher price.
The Casedas filed an action for specific performance and damages. The trial court dismissed the
complaint, but the Court of Appeals reversed the decision.
Issue:
1. Whether or not the Court of Appeals has jurisdiction to decide the appeal involving
questions of law.
2. Whether the transaction between the parties is a contract of sale or a contract to sell.
3. Whether a judicial rescission of the agreement is necessary.
4. Whether the breach of contract by the Casedas is substantial enough to entitle the
Santoses to rescission.
Ruling:
The petition is granted. The Court of Appeals erred in ruling that a judicial rescission of the
agreement was necessary. The agreement between the parties is a contract to sell, not a contract
of sale. When the Santoses repossessed the property for the Casedas' failure to pay the purchase
price in full, they were enforcing the contract and not rescinding it. The provisions of Articles
1592 and 1191 of the Civil Code, which pertain to rescission, do not apply to a contract to sell.
Therefore, the Santoses were not required to judicially rescind the contract. The breach of
contract by the Casedas is moot since there is no rescission to speak of.

Ratio:
1. The Court of Appeals has jurisdiction to decide the appeal involving questions of fact, as
it required an evaluation of proof and not just a consideration of applicable laws.
2. The transaction between the parties is a contract to sell, as evidenced by the fact that the
title to the property remained in the name of Rosalinda Santos and all payments made by
the Casedas were in her name. The transfer of ownership did not occur simultaneously
with the delivery of the property.
3. A judicial rescission of the agreement is not necessary since there was no rescission to
speak of. The Santoses were enforcing the contract when they repossessed the property
for the Casedas' failure to pay the purchase price in full.
4. The breach of contract by the Casedas is moot since there is no rescission to speak of.
Article 1196
Abesamis vs. Woodcraft Works, Ltd.
G.R. No. L-18916
Ponente
MAKALINTAL, J
Decision Date
Nov 28, 1969
In a case involving a timber concession and sawmill, the Supreme Court affirms a lower court's
decision, holding Woodcraft Works, Ltd. liable for failing to provide a vessel for the shipment of
logs, resulting in damages and loss of value.
Civil Law; Contracts; Interpretation of contracts; Contemporaneons and subsequent
acts of the parties as aids in interpretalion; Case at bar.—The contemporaneous and
subsequent acts of the parties which under the law may be taken into consideration to determine
their intention (Art. 1371, Civil Code), point unequivocally to the conclusion that the obligation
to furnish a vessel devolved upon appellant. In the two shipments of logs in March and April of
1961 the vessels "SS AEULUS" and "SS DON JOSE" were furnished by appellant. In several
telegraphic communications exchanged between the parties it was invariably appellee who
requested information as to the arrival of the vessels and appellant who gave the information.
Same; Obligations; Reciprocal obligation with a period; Obligation of parties before
expiration of period.—Where the obligation is reciprocal and with a period, neither party could
demand performance nor incur delay before the expiration of the period.

Same; Same; Same; Same; Where party benefited by period waives it.—Where the
party benefited by the period waives it by assuring the other party that he would perform his part
of the obligation and fails to do so, without any satisfactory explanation for such failure, said
party incurs delay and should bear the corresponding loss or damages suffered by the other party.

Same; Damages; Actual or compensatory damages must be proved.—Actual or

compensatory damages must be established by clear evidence.
Same; Same; Same; Proof of loss of credit by letters of demand not sufficient.—A few
letters of demand for payment of money accounts received from creditors and presented as
exhibits and the mere fact that such demands were made does not necessarily prove loss of
credit. Vitamins vs. Woodcraft Works, Ltd., 30 SCRA 372, No. L-18916 November 28, 1969
OutlineParagraph
Facts:

● Plaintiff, Jose Abesamis, owned a timber concession and sawmill in Dolores, Samar.

● Defendant, Woodcraft Works, Ltd., entered into an agreement with Abesamis to purchase
300,000 board feet of Philippine round logs.

● Due to bad weather conditions and the defendant's failure to send the necessary vessels,
only 13,068 board feet of logs were delivered.

● The parties entered into a new contract, but only two shipments were made, totaling
462,657 board feet of logs.

● Abesamis filed a lawsuit for rescission of the contract and recovery of damages
amounting to P55,000.

● The lower court ruled in favor of Abesamis, declaring the contract rescinded and ordering
the defendant to pay damages and attorney's fees.
Issue:

● Whether or not Woodcraft Works, Ltd. failed to comply with its obligations under the
contract, specifically in providing a vessel for the shipment of logs.
Ruling:

● The Supreme Court affirmed the lower court's decision with modifications.

● Woodcraft Works, Ltd. was obligated to furnish the vessel based on the provisions in the
contract and the parties' actions.

● Woodcraft Works, Ltd. waived the benefit of the term by assuring Abesamis that it would
take delivery of the logs on a specific date, but failed to do so without any satisfactory
explanation.

● Woodcraft Works, Ltd. should bear the loss amounting to P7,685.26 for the value of the
logs lost while waiting for the vessel.
● Woodcraft Works, Ltd. is liable for the destruction of 800,000 board feet of logs due to
marine borers, resulting in a loss of P62,000.

● The claim for P50,000 representing Abesamis' loss of credit was denied due to lack of
clear evidence.
Ratio:

● The court based its decision on the provisions of the contract, which implied that
Woodcraft Works, Ltd. was obligated to furnish the vessel.

● The court considered the parties' actions, such as the previous shipments where
Woodcraft Works, Ltd. provided the vessels and the telegraphic communications where
Abesamis requested information about the arrival of the vessels.

● When a reciprocal obligation with a term exists, neither party can demand performance or
incur in delay before the expiration of the term.

● If one party waives the benefit of the term and fails to perform their part of the obligation,
they bear the corresponding loss.

● Actual or compensatory damages must be established by clear evidence.

● The claim for loss of credit was not supported by clear evidence.

Article 1198
Gaite vs. Fonacier
G.R. No. L-11827
Ponente
REYES, J.B.L., J
Decision Date
Jul 31, 1961
When the defendants failed to renew the surety bond, the Supreme Court ruled in favor of
Fernando Gaite, entitling him to payment of the balance for the extracted iron ore.
Obligations and Contracts; Conditional Obligations; Efficacy subordinated to the
happening of a future and uncertain event.—What characterizes a conditional obligation is the
fact that its efficacy or obligatory force is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed.

Sales; Commutative and onerous nature of contract of sale; Contingent character of

obligation must clearly appear.—A contract of sale is normally commutative and onerous; not
only does each of the parties assume a correlative obligation, but each party anticipates
performance by the other from the very start. Although the obligation of one party can be
lawfully subordinated to an uncertain event, so that the other understands that he assumes the
risk of receiving nothing for what he gives, it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear.
Same; How doubt in the intention of parties is resolved.—Sale is essentially onerous,
and if there is doubt whether the parties intended a suspensive condition or a suspensive period
for the payment of the agreed price, the doubt shall be settled in favor of the greatest reciprocity
of interests, which will obtain if the buyer’s obligation is deemed to be actually existing, with
only its maturity postponed or deferred. Gaite vs. Fonacier, 2 SCRA 830, No. L-11827 July 31,
1961
Facts:

● Parties involved: Fernando Gaite (plaintiff-appellee) and Isabelo Fonacier, George

Krakower, Larap Mines & Smelting Co., Inc., Segundina Vivas, Francisco Dante,
Pacifico Escandor, and Fernando Ty (defendants-appellants)

● Date of decision: July 31, 1961

● Fernando Gaite was appointed as the attorney-in-fact by Isabelo Fonacier to enter into a
contract for the exploration and development of 11 iron lode mineral claims owned by
Fonacier.

● Gaite assigned the development and exploitation of the mining claims to Larap Iron
Mines, a company owned by him.

● Gaite extracted approximately 24,000 metric tons of iron ore from the mining claims.

● Fonacier decided to revoke Gaite's authority and entered into a "Revocation of Power of
Attorney and Contract" with Gaite.

● In the agreement, Fonacier transferred all his rights and interests over the extracted iron
ore to Gaite in exchange for a payment of P75,000, with P10,000 paid upon signing the
agreement and the balance of P65,000 to be paid from the first letter of credit or local sale
of iron ore made by Larap Mines & Smelting Co., Inc.
● Fonacier promised to execute a surety bond to secure the payment of the P65,000
balance.

● Two surety bonds were executed, one by Fonacier and Larap Mines & Smelting Co., Inc.
and another by the Far Eastern Surety and Insurance Co.

● The second bond provided that the liability of the surety company would attach only
when there had been an actual sale of iron ore for an amount of not less than P65,000 and
would automatically expire on December 8, 1955.

● When no sale of the iron ore was made by December 8, 1955, Gaite demanded payment
of the P65,000 balance from Fonacier and his sureties.

● When they failed to pay, Gaite filed a complaint in the Court of First Instance of Manila
for the payment of the balance, consequential damages, and attorney's fees.
Issue:

● Whether the obligation to pay the P65,000 became due and demandable when the surety
bond expired.

● Whether there was a short-delivery of the iron ore.

Ruling:

● The Supreme Court ruled in favor of Gaite.

Ratio:

● The court held that the obligation to pay the P65,000 became due and demandable when
the defendants failed to renew or replace the surety bond upon its expiration.

● The court reasoned that the expiration of the bond impaired the securities given to the
creditor (Gaite) and, therefore, the defendants forfeited any further time within which to
pay.

● The court also found that there was no short-delivery of the iron ore, as the estimated
quantity of 24,000 tons made by Gaite was substantially correct.