1

DELAY OR MORA, ART. 1169-1170

I. Meaning of Delay
- Default or Mora
- to make something happen at a later time than originally planned/ expected

II. Requisites for Delay

There are three conditions that must be present before mora solvendi can exist or its
effects arise:
failure of the debtor to perform his (positive) obligation on the date agreed upon;
(2) demand (not mere reminder or notice) made by the creditor upon the debtor to fulfi ll,
perform, or comply with his obligation which demand, may be either judicial (when a
complaint is fi led in court) or extra-judicial (when made outside of court, orally or in
writing); and Art. 1169 43
(3) failure of the debtor to comply with such demand.

III. Kinds of Delay or Default

Mora solvendi (default on the part of the debtor)
- mora solvendi ex re (debtors default in real obligations)
- mora solvendi ex persona ( debtors default in personal obligations)
B. Mora accipendi (default on the part of the creditor)
C. Compensatio morae (when in a reciprocal obligation both parties are in default; here it is
as if neither is in default)

IV. When demand not needed to put debtor in default

When the law so provides.
(ex. Taxes should be paid within the definite period, otherwise penalties are imposed
without need of demand for payment)
B. When the obligation expressly so provides
C. When time is of the essence of the contract (or when the fixing of the time was the
controlling motive for the establishment of the contract)
D. When demand would be useless, as when the obligor has rendered it beyond
power to perform
E. When the obligor has expressly acknowledged that he really is in default
v. GROUNDS FOR LIABILITY IN THE PERFORMANCE OF OBLIGATIONS

his

2
Fraud (deceit or dolo) intentional evasion of fulfilment
Negligence (fault or culpa)
Default (or mora) if imputable to the debtor
Violation of the terms of the obligation (violation) unless excused in proper cases by
fortuitous events
NOTE: The following do not excuse fulfilment:
Increase in cost of performance
Poverty
War between subject of a neutral country and the subject of a country at war, as long as
substantial compliance can still be done
vi. KINDS OF DAMAGES (Keyword MENTAL)
Moral for mental and physical anguish
Exemplary corrective or to set an example
Nominal to vindicate a right when no other kind of damages may be recovered
Temperate when the exact amount of damages cannot be determined
Actual actual losses as well as unrealized profit
Liquidated predetermined beforehand by agreement
vii. 1. Case: Piczon vs. Piczon
Facts:
Esteban Piczon contracted a loan for P12,500 from Piczon and Co., Inc. in his capacity as
President of Sosing-Lobos and Co., Inc. as controlling stockholder and guarantor. The
parties also stipulated an interest of 12% per annum, commencing from the date of
execution hereof, as soon as the Incorporation papers are duly registered and the
Certification of Incorporation issued by the SEC. The agreement of loan was executed on
September 28, 1956.The Court of First Instance of Samar sentenced Sosing Lobos and Co.,
Inc. as principal, and Esteban Piczon, as guarantor, to pay P12,500 with 12% interest from
August 6, 1964.
Issues:
Whether or not the 12% interest per annum should run from August 6, 1964, instead from
September 28, 1956.
Whether or not Esteban Piczon is liable only as guarantor and not as surety.
Held:
No. The interest should run from September 28, 1956, the date of the execution of the
document per agreement, instead from August 6, 1954. If the contract stipulates from what
time interest will be counted, said stipulated time controls, and, therefore interest is
payable from such time, and not from the date of the filing of the complaint.

3
Yes. Esteban Piczon expressly bound himself only as guarantor, and there are no
circumstances in the record from which it can be deduced that his liability could be that of
a surety. A guaranty must be express, (Article 2055, Civil Code) and it would be violative of
the law to consider a party to be bound as a surety when the very word used in the
agreement is "guarantor."

vii. 2. Case: Philippine Charter Insurance Corporation vs. Central Colleges of the Philippines
Facts:
On May 16, 2000, Central Colleges of the Philippines (CCP) contracted the services of
Dynamic Planners and Construction Corporation (DPCC) to construct its five-storey school
building at No. 39 Aurora Boulevard, Quezon City, with a total contract price of P248M. The
construction of the entire building would be done in two phases with each phase valued at
P124M. To guarantee the fulfillment of the obligation, DPCC posted 3 bonds, all issued by
the Philippine Charter Insurance Corporation (PCIC). All the bonds were callable on demand
and set to expire on October 30, 2003.
Phase 1 of the project was completed without issue. Phase 2 of the project encountered
numerous delays. When CCP audited DPCC on July 25, 2003, only 47% of the work to be
done was actually finished. CCP informed DPCC and PCIC of the contractors breach of
contract and its plan to file an action on the said performance and surety bonds.
On November 6, 2003, only 51% of the project was completed. DPCC was declared in
default. CCP formally requested PCIC to remit the proceeds of the bonds which PCIC later
approved.
On November 14, 2003, DPPCC requested for the extension of its performance and surety
bonds because the supposed revision of the plans would require more days.
In a letter dated November 21, 2003, CCP notified PCIC that because of DPCC's inability to
complete the project on time, it decided to terminate its contract with the latter and to
continue the construction on its own. Eventually, CCP hired another contractor to work on
the school site.
CCP filed a complaint with request for arbitration before the Construction Industry
Arbitration Commission (CIAC) against DPCC and PCIC. CCP prayed that CIAC hold DPCC
and PCIC, jointly and severally liable, against the bonds. CIAC rendered a decision in favor
of CCP.
The CA modified CIAC's earlier decision. It held that due to DPCC's inexcusable delay, CCP
was legally within its rights to terminate the contract with it.
Issues:
Whether or not CCP can rightfully and justifiably terminate the contract agreement.
Whether or not DPCC is entitled to actual damages.
Held:
Yes. The option to terminate the contract is clearly apparent in the parties' agreement.
DPCC became in default on October 29, 2003 when CCP informed it in writing of the breach
of the contract agreement and demanded the fulfillment of its obligation against the bonds.
Consequently, the November 6, 2003 letter that CCP sent to PCIC properly complied with
the notice of claim requirement set forth in the said bonds.

4
CCP need not file another claim as to the supposed extended bonds because the October
29, 2003 letter was sufficient notice to PCIC and DPCC of the latter's default and its
intention to proceed against the surety and performance bonds. Moreover, the extension of
the bonds was only approved and relayed by PCIC to DPCC on December 5, 2003 or after
the October 29, 2003 Notice of Default.
No. The Court also finds nothing improper in the deletion by the CA of the award of actual
damages in favor of DPCC. DPCC was not able to establish that it is entitled to the actual
damages that it prayed for in its counterclaim.
3. Palmares v CA
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending
Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with
petitioner Estrella Palmares (Palmares is then a co-maker in the loan), in the amount of
P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of
6% per annum to be computed every 30 days from the date thereof.
A promissory note was executed whereby Palmares acknowledged her joint and several
(solidary) liability with the principal, that the creditor may demand payment in case of
default, and that she fully understood the contents thereof. The debtors defaulted in their
payment and consequently, on the basis of petitioner's solidary liability under the
promissory note, respondent corporation filed a complaint against petitioner Palmares as
the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of
the insolvency of the latter (NOTE: there was no condition stipulated in the contract that
the only time the creditor can collect from Palmares is if it was found that the principal was
insolvent).
Palmares, when informed that the debtors defaulted, requested that creditor try to collect
from her principal first and offered to settle the obligation in case the creditor fails to
collect. She also offered a parcel of land to settle the obligation which the creditor refused.
Thereafter, a complaint was filed against petitioner to the exclusion of the principal
debtors. Again petitioner offered to pay but the amount offered was way below the amount
computed.
Trial court dismissed the complaint. The complaint against Palmares amounted to
discharge of a prior party (the principal) and that the offer to pay made by Palmares who is
secondarily liable to the instrument discharged her.
CA reversed the trial court. Petitioner is solidarily liable with principal debtors and may be
sued for the entire obligation. Also awarded the amount of P2,745,483.39 (3% per month
plus attorneys fees) in favor of private respondent (even if the remaining balance of the
loan is only P13,700.00).
Petitioner now submits that she cannot as yet be compelled to pay the loan because the
principal debtors cannot be considered in default in the absence of a judicial or
extrajudicial demand. It is true that the complaint alleges the fact of demand, but the
purported demand letters were never attached to the pleadings filed by private respondent
before the trial court.
Palmares also prayed for the reduction of the penalty on grounds of substantial justice.
ISSUES:
Does the creditor have the right to refuse offer from the debtor for payment (e.g. parcel of
land)?
Does Palmares lack of understanding on what jointly and severally or solidarily liable
means amount to the presence of fraud in the contract?

5
Was the complaint prematurely filed because the principal debtors cannot as yet be
considered in default, there having been no judicial or extrajudicial demand made by
respondent corporation?
Can the court equitably reduce or eliminate the penalty interest?
RULING:
YES. A debt shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case may be. In
other words, the prestation must be fulfilled completely. A person entering into a contract
has a right to insist on its performance in all particulars. Petitioner cannot compel
respondent corporation to accept the amount she is willing to pay because the moment the
latter accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, then the obligation shall be deemed fully complied
with.
NO. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is
that of a surety. Petitioner admits that she voluntary affixed her signature thereto; ergo,
she cannot now be heard to claim otherwise (NOTE: in the contract, she stated that she
"fully understood the contents" of the promissory note and signed it). Any reference to the
existence of fraud is unavailing. Fraud must be established by clear and convincing
evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt
to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated
and, expectedly, self-serving allegations.
NO. Petitioner has agreed that respondent corporation may demand payment of the loan
from her in case the principal maker defaults, subject to the same conditions expressed in
the promissory note. Significantly, paragraph (G) of the note states that "should I fail to
pay in accordance with the above schedule of payment, I hereby waive my right to notice
and demand." Hence, demand by the creditor is no longer necessary in order that delay
may exist since the contract itself already expressly so declares. As a surety, petitioner is
equally bound by such waiver. Even if it were otherwise, demand on the sureties is not
necessary before bringing suit against them, since the commencement of the suit is a
sufficient demand.
The alleged failure of respondent corporation to prove the fact of demand on the principal
debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the
absence of a statutory or contractual requirement, it is not necessary that payment or
performance of his obligation be first demanded of the principal, especially where demand
would have been useless; nor is it a requisite, before proceeding against the sureties, that
the principal be called on to account.
YES. Article 1229 of the Civil Code provides that the court shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the
debtor (NOTE: the amount of P16,300.00 had already been paid even before the filing of
the present case). And, even if there has been no performance, the penalty may also be
reduced if it is iniquitous or leonine. In a case previously decided by the SC, it decided to
eliminate altogether the penalty interest for being excessive and unwarranted. The Court
also reduced the attorneys fees.
4. Binalbagan v CA
FACTS: On May 11, 1967, the Puentevellas, through Angelina Echaus (Echaus) as Judicial
Administrator of the intestate estate of Luis Puentevella, executed a Contract to Sell and a
Deed of Sale of forty-two subdivision lots of the Puentevella family, conveying and
transferring said lots to petitioner Binalbagan Tech., Inc. (Binalbagan). In turn, Binalbagan
executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in
favor of the estate of Puentevella.

6
However, there was a pending case in the RTC. In this case, Echaus sold the same fort-two
lots to Raul Javellana (Javellana) with the condition that Javellana would not transfer his
rights to the lots without the express consent of the Puentevellas and that if the contract is
cancelled due to violation of any of the contracts terms, all payments made and all
introduced improvements on the property shall be considered as rentals. Javellana failed to
pay the installments for five years which resulted in the Puentevellas filing of this case.
Trial court ruled in favor of the Puentevellas but on December 29, 1965, spouses de la Cruz
filed an appeal alleging a Deed of Sale was executed in their favor by spouses Lopez; thus,
Puentevella was constrained to assert physical possession of the premises to counteract
the claim of spouses de la Cruz. The Puentevellas filed a case for injunction and damages
with the trial court who issued an ex-parte writ of preliminary injunction; this was elevated
to the Court of Appeals who issued a writ of preliminary injunction ordering the trial court
to refrain from enforcing the injunction and from issuing any other writs or prohibitions
while the case is pending. Thus, the lots and buildings were restored to the Puentevellas.
The judgment in the civil case was finally executed and enforced and Binalbagan was
restored to the possession of the lots on May 31, 1982; in summary, Binalbagan was not in
possession of the lots from 1974 to May 31, 1982.
When Binalbagan was again placed in possession of the subdivision lots, Echaus demanded
payment from petitioner Binalbagan for the lots, enclosing in the letter of demand a
statement of account as of September 1982 representing the price of the land and accrued
interest as of that date.
Binalbagan failed to effect payment so Echaus filed on October 8, 1982 a civil case with the
regional trial court who decided in favor of Binalbagan because of prescription but the
Court of Appeals reversed said decision.
ISSUE: Is Echaus barred from claiming payments from Binalbagan due to prescription?
HELD: No. 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 there under (Art. 1191, Civil Code).
The prescriptive period within which to institute an action upon a written contract is ten
years (Art. 1144, Civil Code). In this case, Binalbagan was evicted from the 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 from 1974 to 1982, Echaus' warranty against eviction given to
buyer petitioner was breached though without her fault. During that period, 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.
The cause of action of Echaus is based on the deed of sale whereby she transferred
ownership of the subdivision lots 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. The 10-year prescriptive period seemed to
have expired before she brought her action to recover title. However, the period 1974 to
1982 should be deducted in computing the prescriptive period because from 1974 to 1982,
Echaus was not in a legal position to initiate action against Binalbagan.
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.

7
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.
5. Barzaga v CA
Facts: The petitioners wife was suffering from a debilitating ailment and with forewarning
of her impending death, she expressed her wish to be laid to rest before Christmas day to
spare her family of the long vigils as it was almost Christmas. After his wife passed away, in
obedience semper fidelis to her dying wish, petitioner went to herein private respondents
hardware store and bought materials for the construction of her niche. Private respondents
however failed to deliver on agreed time and date despite repeated follow-ups. As a result,
Barzaga cancelled his transaction with the store and look for construction materials
elsewhere.
The niche was completed in the afternoon of the 27th of December, and Barzaga's wife was
finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.
Barzaga wrote private respondent Alviar demanding recompense for the damage he
suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional
Trial Court.
Issue: Was there delay in the performance of the private respondent's obligation? If so, is
respondent liable for damages?
Ruling: Yes. Since the respondent was negligent and incurred delay in the performance of
his contractual obligations, the petitioner is entitled to be indemnified for the damage he
suffered as a consequence of the delay or contractual breach. There was a specific time
agreed upon for the delivery of the materials to the cemetery despite the respondents
untenable contention that the invoices never indicated a specific delivery time.
This is clearly a case of non-performance of a reciprocal obligation, as in the contract of
purchase and sale, the petitioner had already done his part, which is the payment of the
price. It was incumbent upon respondent to immediately fulfill his obligation to deliver the
goods otherwise delay would attach. The delay in the delivery in this case, 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. An award of
moral damages is incumbent in this case as the petitioner has suffered so much.
Exemplary damages should also be awarded in this case due to 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
6. Financial Building Corp v Rudlin International Corp
FACTS: Sometime in October 1985, Rudlin International Corporation (Rudlin) invited
proposals from several contractors to undertake the construction of a three-storey school
building and other appurtenances thereto at Vista Grande, BF Resort Village, Las Pias,
Metro Manila. The contract was eventually awarded to Financial Building Corporation (FBC),
with a bid of P6,933,268.00 as total project cost. On November 22, 1985, Rudlin
represented by its Chairman of the Board and President Rodolfo J. Lagera, and FBC
represented by its Vice-President and Treasurer Jaime B. Lo, executed a Construction
Agreement which, among others, provided for the total consideration and liability for delay.
The agreement provided that any delay not due to force majeure will result in injury and
damage to the owner, and in the completion of the work, the contractor shall be liable to
the owner in the sum equivalent to 1/10 of 1% of the total contract price for every calendar
day of delay (Sundays and Legal Holidays included). Any sums accruing in favor of the

8
owner will then be deductible from the stipulated Contract Price or any balance thereof due
to the contractor.
The contract also provided for completion date not later than April 30, 1986 unless an
extension of time has been "authorized and approved by the owner and the architect in
writing." It appears that the construction was not finished on said date as Rudlin wrote FBC
to complete the project not later than May 31, 1986, except for the administration wing
which Rudlin expected to be turned over to it "100% complete by June 10, 1986."

8. vii. (7.)
TANGUILIG vs. COURT OF APPEALS, G.R. No. 117190, JAN. 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.
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. 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.
The RTC ruled in favor of Tanguilig, but this decision was overturned by the Court of
Appeals
which
ruled
in
favor
of
Herce

ISSUE: Can the collapse of the windmill be attributed to force majeure? Thus, extinguishing
the
liability
of
Tanguilig?
- Yes, 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, the S.C. held that 4 requisites must concur that there must
be a (a) the cause of the breach of the obligation must be independent of the will of debtor
(b) the event must be either unforeseeable or unavoidable; (c) the event be such 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.
- Tanguilig merely stated that there was a strong wind, and a strong wind in this case is not
fortuitous, it was not unforeseeable nor unavoidable, places with strong winds are the
perfect locations to put up a windmill, since it needs strong winds for it to work.
HELD: 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.
Obligations and Contracts Terms: Fortuitous Events- Refers to an occurrence or happening
which could not be foreseen, or even if foreseen, is inevitable. It is necessary that the
obligor is free from negligence. Fortuitous events may be produced by two (2) general
causes: (1) by Nature, such as but not limited to, earthquakes, storms, floods, epidemics,

9
fires, and (2) by the act of man, such as but not limited to, armed invasion, attack by
bandits, governmental prohibitions, robbery, provided that they have the force of an
imposition which the contractor or supplier could not have resisted.
(8.)
AEROSPACE CHEMICAL INDUSTRIES, INC vs. COURT OF APPEALS, 315 SCRA 94, G.R. No.
108129, SEPT. 23, 1999
FACTS: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five
hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate
Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided
that the buyer shall pay its purchases in equivalent Philippine currency value, five days
prior to the shipment date. Petitioner as buyer committed to secure the means of transport
to pick-up the purchases from private respondent's loadports. Per agreement, one hundred
metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage
tank, while the remaining four hundred metric tons (400 MT) should be retrieved from
Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but
withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was
aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far
East Limited, dated December 17, 1986 and January 2, 1987, attested to these
occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with
a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don
Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On
January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed
letters to private respondent, concerning additional orders of sulfuric acid to replace its
sunken purchases.
ISSUE: Should expenses for the storage and preservation of the purchased fungible goods,
namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?
RULING: No. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the
goods remain at the seller's risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that: (2) Where actual delivery has
been delayed through the fault of either the buyer or seller the goods are at the risk of the
party at fault." Petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be
assumed by the seller. Rental expenses of storing sulfuric acid should be at private
respondent's account until ownership is transferred, according to petitioner. However, the
general rule that before delivery, the risk of loss is borne by the seller who is still the owner
is not applicable in this case because petitioner had incurred delay in the performance of
its obligation. The defendant [herein private respondent] was not remiss in reminding the
plaintiff that it would have to bear the said expenses for failure to lift the commodity for an
unreasonable length of time. But even assuming that the plaintiff did not consent to be so
bound, the provisions of Civil Code come in to make it liable for the damages sought by the
defendant.
9. Responsibility from fraud, Art. 1171
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of
an
action
for
future
fraud is void.
Responsibility
arising
from
fraud
can
be
demanded
with
respect
to all kinds of obligation and unlike in the case of responsibility arising
from negligence (Art. 1172.), the court is not given the power to mitigate or reduce the
damages
to
be
awarded.
This
is
so
because
fraud
is
deemed serious and evil that its employment to avoid the fulfi llment

10
of

ones

obligation

should

be

discouraged.

Waiver
of
action
for
future
fraud
void.
According to the time of commission, fraud may be past or future.
A waiver of an action for future fraud is void (no effect, as if there
is no waiver) as being against the law and public policy. (Art. 1409[1].)
A contrary rule would encourage the perpetration of fraud because the
obligor knows that even if he should commit fraud he would not be
liable
for
it
thus
making
the
obligation
illusory.

Waiver
of
action
for
past
fraud
valid.
What the law prohibits is waiver anterior to the fraud and to the
knowledge
thereof
by
the
aggrieved
party.
A past fraud can be the subject of a valid waiver because the waiver
can be considered as an act of generosity and magnanimity on the part
of the party who is the victim of the fraud. Here, what is renounced
is the effects of the fraud, that is, the right to indemnity of the party
entitled thereto.
9.1
FAR EAST BANK & TRUST Co. Vs. COURT OF APPEALS, (1995)
Facts: In October 1986, private respondent Luis A. Luna applied for, and was accorded, a
FAREASTCARD issued by petitioner Far East Bank and Trust Company (FEBTC) at its Pasig
Branch. Upon his request, the bank also issued a supplemental card to private respondent
Clarita S. Luna, however she lost it and FEBTC was forthwith informed. In order to replace
the lost card, Clarita submitted an affidavit of loss. On October 6, 1988, Luis tendered
a despedida lunch for a close friend and another guest at the Bahia Rooftop Restaurant of
the Hotel Intercontinental Manila and to pay for it he presented his FAREASTCARD however,
the card was not honored and was forced to pay in cash the bill amounting to P588.13 and
thereafter felt embarrassed by this incident.
Luis Luna, through counsel, demanded from FEBTC the payment for damages. Adrian V.
Festejo, the vice-president of the bank, expressed the bank's apologies to Luis. In his letter,
dated November 3, 1988, Festejo, in part, said: In cases when a card is reported to our
office as lost, FAREASTCARD undertakes the necessary action to avert its unauthorized use
(such as tagging the card as hot listed), as it is always our intention to protect our
cardholders. An investigation of your case however, revealed that FAREASTCARD failed to
inform you about its security policy. Furthermore, an overzealous employee of the Bank's
Credit Card Department did not consider the possibility that it may have been you who was
presenting the card at that time (for which reason, the unfortunate incident
occurred). Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to
assure the latter that private respondents were "very valued clients" of FEBTC. William
Anthony King, Food and Beverage Manager of the Intercontinental Hotel, wrote back to say
that the credibility of private respondent had never been "in question."
ISSUE: Whether or not there was a breach of contract between petitioner and respondent.
Whether or not petitioner is liable for quasi-delict.
Ruling: The Court has not in the process overlooked another rule that a quasi-delict can be
the cause for breaching a contract that might thereby permit the application of applicable
principles on tort 9 even where there is a pre-existing contract between the plaintiff and
the defendant. This doctrine, unfortunately, cannot improve private respondents' case for it
can aptly govern only where the act or omission complained of would constitute an
actionable tort independently of the contract. The test (whether a quasi-delict can be
deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-

11
existing contract between two parties, an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are contractually bound is no bar to the
application of quasi-delict provisions to the case. Here, private respondents' damage claim
is predicated solely on their contractual relationship; without such agreement, the act or
omission complained of cannot by itself be held to stand as a separate cause of action or
as an independent actionable tort.
10. Responsibility from Negligence, Art. 1172
SOUTHEASTERN COLLEGE INC. v CA, 10 July 1998
Facts: On October 11, 1989, powerful typhoon Saling hit Metro Manila. Buffeted by very
strong winds, the roof of Southeastern Colleges building was partly ripped off and blown
away, landing on and destroying portions of the roofing of private respondents Dimaanos
house. Private respondent alleged that the damage to their house rendered the same
uninhabitable, forcing them to stay temporarily in others houses. An ocular inspection of
the destroyed building was conducted by a team of engineers headed by the city building
official.
The
fourth
floor
of subject
school
building
was declared
as
a
structural hazard. Lower court awarded damages. CA affirmed but reduced
damages.
Issue: W/N the damage of the PRs house resulting from the impact of the falling portions of
the school buildings roof ripped off was due to fortuitous event?
Held: NO
Private respondents, in establishing the culpability of petitioner, merely relied on the
aforementioned report submitted by a team which made an ocular inspection of
petitioners school building after the typhoon. As the term imparts, an ocular inspection is
one by means of actual sight or viewing. What is visual to the eye through is not
always reflective of the real cause behind.
Petitioners obtained a permit from the city building official before the construction
of its building. Having obtained both building permit and certificate of occupancy
is prima facie evidence of the regular and proper construction of subject school building.
When part of its roof needed repairs of the damage inflicted by typhoon Saling, the city
engineer gave the go-signal for such repairs without any deviation from the original design.
It subsequently authorized the use of the entire fourth floor of the same
building. These only prove that subject building suffers from no structural defect.
Petitioner presented its vice president for finance and administration who testified that an
annual maintenance inspection and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its maintenance supervisor to attest to
the extent of such regular inspection but private respondents agreed to dispense
with his testimony and simply stipulated that it would be corroborative of the vice
presidents narration. Besides, no complaint regarding any defect on the same structure
has ever been lodged before his office prior to the institution of the case at bench. It is a
matter of judicial notice that typhoons are common occurrences in this country. If subject
school buildings roofing was not firmly anchored to its trusses, obviously, it could not
have
withstood
long
years
and
several typhoons even stronger than
Saling.Petitioner has not been shown negligent or at fault regarding the construction and
maintenance of its school building in question and that typhoon Saling was the proximate
cause of the damage suffered by private respondents house.
From SCRA: ObliCon; Fortuitous Events In order that a fortuitous event may exempt a
person from liability, it is necessary that he be free from any previous negligence or
misconduct by reason of which the loss may have been occasioned. An act of God cannot
be invoked for the protection of a person who has been guilty of gross negligence in not
trying to forestall its possible adverse consequences. When a persons negligence concurs

12
with an act of God in producing damage or injury to another, such person is not exempt
from liability by showing that the immediate or proximate cause of damage the damage or
injury was a fortuitous event. When the effect is to be found to be partly the result of the
participation of man--whether it be active from intervention, or neglect, or failure to act-the whole occurrence is hereby humanized, and removed from the rules applicable to acts
of God.
Same; Typhoons; Negligence explained There is no question that a typhoon or storm is a
fortuitous event. In order to be exempt from liability arising from any adverse consequence
engendered thereby, there should have been no human participation amounting to a
negligent act. In other words, the person seeking exoneration from liability must not be
guilty of negligence. Negligence is conduct which naturally or reasonably creates undue
risk or harm to others.
ii. Fraud vs. Negligence

iii. Kinds of Negligence

13

11. Degree of Diligence, Art. 1173

SAMSON v CA, 25 November 1994
Facts: A commercial unit owned by Susana Realty Corp. was leased to respondent Angel
Santos. The lessees haberdashery store, Santos & Sons, Inc., occupied the premises for
almost 20 years. Their lease contract provided that the term of the lease shall be 1 year
but it was extended and respondent continued to occupy the leased premises beyond the
extended term. Susana Realty, through a letter, informed the lessee of the increase in
rentals, pending renewal of his contract until the arrival of Ms. Ma. Rosa Madrigal (one of

14
the owners of Susana Realty). Several days later, Petitioner Samson, for P300K, bought the
store of Santos & Sons and his right to lease the subject premises on the condition that
The lease contract between Santos and Sons, Inc. and Madrigal was impliedly renewed. It
will be formally renewed this monthly (sic) when Tanya Madrigal arrives. All went well for a
few months for petitioner Samson until he received a notice from Susana Realty, addressed
to Santos & Sons, directing the latter to vacate the leased premises as he failed to renew
his lease over the premises and Samson was forced to vacate.
Samson filed an action for damages against respondent imputing fraud and bad faith
against private respondent when the latter stated in his letter-proposal that his lease
contract with Susana Realty has been impliedly renewed. Respondent countered that the
balance shall be paid only after the formal renewal of the lease contract and its actual
transfer to petitioner.
ISSUE: W/N respondent Angel Santos committed fraud or bad faith in representing to
petitioner that his contract of lease over the subject premises has been impliedly renewed
by Susana Realty. (Undoubtedly, it was this representation which induced petitioner to
enter into the subject contract with private respondent.)
HELD: NO
The records will bear that the original contract of lease between the lessor Susana Realty
and the lessee private respondent was for a period of one year, commencing on August 1,
1983 until July 31, 1984. Subsequently, however, private respondent's lease was extended
until December 31, 1984. At this point, it was clear that the lessor had no intention to
renew the lease contract of private respondent for another year. The letter led respondent
to believe and conclude that his lease contract was impliedly renewed and that formal
renewal thereof would be made upon the arrival of Tanya Madrigal. Thus, from the start, it
was known to both parties that, insofar as the agreement regarding the transfer of private
respondent's leasehold right to petitioner was concerned, the object thereof relates to a
future right. It is a conditional contract recognized in civil law, the efficacy of which
depends upon an expectancy the formal renewal of the lease contract between
respondent and Susana Realty.
When appellant Angel C. Santos said that the lease contract had expired but that it was
impliedly renewed, that representation should have put appellee on guard. To protect his
interest, appellee should have checked with the lessor whether that was so, and this he
failed to do; or he would have simply deferred his decision on the proposed sale until Miss
Madrigal's arrival, and this appellee also failed to do. In short, as a buyer of the store and
lease right in question or as a buyer of any object of commerce for that matter
appellee was charged with the obligation of caution aptly expressed in the universal maxim
caveat emptor.
The rule caveat emptor requires the purchaser to be aware of the supposed title of the
vendor and he who buys without checking the vendor's title takes all the risks and losses
consequent to such failure. In the case at bench, the means of verifying for himself the
status of private respondent's lease contract with Susana Realty was open to petitioner.
Nonetheless, no effort was exerted by petitioner to confirm the status of the subject lease
right. He cannot now claim that he has been deceived.

11.

Dioquino vs Laureano

15
Facts:

1. Attorney Dioquino requested the defendant to introduce him to one of the clerks in the
MVO Office, who could facilitate the registration of his car and the request was graciously
attended to.
2. Defendant rode on the car of Atty. Dioquino on his way. The car driven by plaintiff's
driver and with defendant as the sole passenger was stoned by some boys, and its
windshield was broken.
3. Defendant refused to file any charges against the boy and his parents because he
thought that the stone-throwing was merely accidental and that it was due to force
majeure.

ISSUE: WON the Defendant is liable to the damages due to force majeure.

HELD: NO. It was a fortuitous event resulting in a loss which must be borne by the owner of
the car.

"Except in cases expressly specified by the law, or when it is otherwise declared by

stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be, foreseen, or which, though
foreseen were inevitable."

An obligation arising from contract that some extraordinary circumstance independent of

the will of the obligor, or of his employees, is an essential element of a caso fortuito. It is,
therefore, not enough that the event should not have been foreseen or participated but it
must be one impossible to foresee or to avoid. If it could be shown that such indeed was
the case, liability is ruled out. There is no requirement of "diligence beyond what human
care and foresight can provide."

Jarco Marketing Corp vs CA

FACTS:

Criselda and her 6 year-old daughterwere at the 2nd floor of Syvel's Department Store,
Makati City. While Criselda was signing her credit card slip at the counter, she felt a sudden
gust of wind and heard a loud thud. As she looked behind her, she saw daugther's body
pinned by the bulk of the store's gift-wrapping counter/structure.
Although shocked, Criselda was quick to ask the assistance of the people around in lifting
the counter and retrieving her daughter from the floor.
The daughter was rushed to the Makati Medical Center where she was operated on.The
next day, she lost her speech. Eventually she died on the hospital.

16
After the burial of their daughter, Criselda demanded upon Petitioner Jarco Marketing the
reimbursement of the hospitalization, medical bills and wake and funeral expenses which
they had incurred. But, they refused to pay. She filed a complaint for damages.
Petitioner answered with counterclaim and denied any liability. Criselda was negligent in
exercising care and diligence over her daughter. It maintained that it observed the
diligence of a good father of a family in the selection, supervision and control of its
employees.
CA favored Criselda judgment. It found that petitioners were negligent in maintaining a
structurally dangerous counter.

ISSUE: WON was negligent or it was an accident

HELD: YES.

Accident and negligence are intrinsically contradictory; one cannot exist with the other.
Accident pertains to an unforeseen event in which no fault or negligence attaches to the
defendant. a fortuitous event is an event which under the circumstances is unusual or
unexpected by the person to whom it happens and occurs when the person concerned is
exercising ordinary care, which is not caused by fault of any person and which could not
have been prevented by any means suggested by common prudence.

Without doubt, a store manager and another store supervisor were personally informed of
the danger posed by the unstable counter. Yet, neither initiated any concrete action to
remedy the situation nor ensure the safety of the store's employees and patrons as a
reasonable and ordinary prudent man would have done. Thus, as confronted by the
situation petitioners miserably failed to discharge the due diligence required of a good
father of a family.

Children below 9 years old are incapable of contributory negligence. A person under nine
years of age is conclusively presumed to have acted without discernment, and is, on that
account, exempt from criminal liability.

Criselda should be absolved from any contributory negligence. The daughter held on to
CRISELDA's waist, and only momentarily released the child's hand from her clutch when
she signed her credit card slip. At this precise moment, it was reasonable and usual for her
to let go of her child. Further, the daughter was just a foot away from her mother and the
gift-wrapping counter was just 4 meters away - time and distance were both significant.

People vs Fallouna -> CASE NOT FOUND IN GOOGLE!

11.
5. PHILIPPINE AIR LINES, INC., petitioner, vs. THE COURT OF APPEALS and JESUS V.
SAMSON, respondents.

17
Facts:
Respondent Jesus V. Samson, a regular co-pilot of the petitioner Philippine Airlines, suffered
physical injuries in the head, in a crash landing ofpetitioner's aircraft, allegedly due to the
gross negligence of petitioner airlines in allowing Captain Delfin Bustamante who was
suffering from a long standing tumor of the Nasopharynx and who was allowed by Civil
Aeronautics Administration to fly only as a co-pilot, to fly the plane to Daet as commanding
pilot and whose slow reaction and poor judgment resulted in the accident.
Instead of providing private respondent with expert medical assistance as demanded by
him to determine the cause of his periodic attack of dizzy spell and headache, petitioner
discharged him on the ground ofphysical disability. In a complaint for damages filed by
private respondent, the Court of First Instance of Albay denied petitioner's motion to
dismiss claiming that the complaint is essentially a Workmen's Compensation case not
cognizable by the court and rendered a decision awarding compensatory and moral
damages, attorney's fees and costs. On appeal, The Court of Appeals affirmed the
decision of the lower court but modified the award of damages by imposing legal
rate of interest on the unearned income from the filing of the complaint.
Issue: WON PAL is liable, as a common carrier
Held:
On review by certiorari the Supreme Court held that the duty to exercise the utmost
diligence on the part of common carriers as required by Art. 1732 New Civil Code is for the
safety of passengers as well as for the members of the crew or the complement operating
the carrier, and agrees with the modification made by the Court of Appeals in ordering
payment of legal interest from the date of judicial demand.
There was gross negligence by PAL for allowing Capt. Bustamante to fly on the that fateful
day of the accident, even if he was sick, having tumor on his nose. The dizziness,
headaches and general debility of private respondent were after-effects of the crashlanding. And therefore there is causal connection between the accident and said aftereffects. The negligence of PAL is clearly a quasi-delict and therefore Art. 2219(2) is
applicable, justifying the recovery of moral damages. Even from the standpoint of the
petitioner that there is an employee-employer relationship between it and private
respondent arising from the contract of employment, private respondent is still entitled to
moral damages in view of the finding of bad faith or malice, applying the provisions of
Article 2220.

6. LA MALLORCA, petitioner, vs. HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET

AL., respondents.
Facts: Plaintiffs husband and wife, together with their minor children, boarded a La Mallorca
bus. Upon arrival at their destination, plaintiffs and their children alighted from the bus and
the father led them to a shaded spot about 5 meters from the vehicle. The father returned
to the bus to get a piece of baggage which was not unloaded. He was followed by her
daughter Raquel. While the father was still on the running board awaiting for the conductor
to give his baggage, the bus started to run so that the father had to jump. Raquel, who was
near the bus, was run over and killed.

Lower court rendered judgment for the plaintiff which was affirmed by CA, holding La
Mallorca liable for quasi-delict and ordering it to pay P6,000 plus P400. La Mallorco

18
contended that when the child was killed, she was no longer a passenger and therefore the
contract of carriage terminated.

Issue: Whether or not the contractual obligation between the parties ceases the moment
the passenger alighted form the vehicle.

Held: On the question whether the liability of the carrier, as to the child who was already
led a place 5 meters from the bus under the contract of carrier, still persists, we rule in the
affirmative. It is a recognized rules that the relation between carrier and passengers does
not cease at the moment the passenger alights from the carriers premises, to be
determined from the circumstances. In this case, there was no utmost diligence. Firstly,
the driver, although stopping the bus, did not put off the engine. Secondly, he started to
run the bus even before the bus conductor gave him the signal and while the latter was
unloading cargo. Here, the presence of said passenger near the bus was not unreasonable
and the duration of responsibility still exists. Averment of quasi-delict is permissible under
the Rules of Court, although incompatible with the contract of carriage. The Rules of Court
allows the plaintiffs to allege causes of action in the alternative, be they compatible with
each other or not (Sec. 2, Rule 1). Even assuming arguendo that the contract of carriage
has already terminated, herein petitioner can be held liable for the negligence of its driver
pursuant to Art. 2180 of NCC. Decision MODIFIED. Only question raised in the briefs can be
passed upon, and as plaintiffs did not appeals the award of P3,000.00 the increase by the
CA of the award to P6,000.00 cannot be sustained.

12. Fortuitous Events

Article 1174 Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
i. Definition
Fortuitous Events is an unforeseen event that occurs by chance or accident from natural or
man-made forces over which an affected person has no control.
ii. General Rule
No liability for a fortuitous event (caso fortuito) (that which could not be foreseen, or which
even if foreseen, was inevitable).
iii. Exceptions The debtor is responsible for a fortuitous event in the following cases.
When expressly declared by the law, such as when the possessor is in bad faith or is in
default
When expressly declared by stipulation or contract, such as when the contract says:
If there be a fortuitous event that would cause delay in the delivery of padlocks, an
extension must be sought, otherwise, damages can be asked.
When the nature of the obligation requires the assumption of risk (the doctrine of Created
Risk)

19
Example: When a carrier transports dynamite, and because of an accidental tire blow-out,
it injures nearby property, the carrier would be responsible. This is because of the nature of
carrying dynamite. Upon the other hand, injuries caused by a tire blow-out of a perfectly
new tire, or at least a still good one, when no explosives or dangerous things were being
carried, are due to an unavoidable accident, and the owner of the car would not be liable.
iv. Cases
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION VS PCIB

FACTS: PCIBANK filed a complaint for a sum of money with prayer for a writ of preliminary
attachment against ASIAKONSTRUKT. The complaint alleged that on various occasions,
ASIAKONSTRUKT obtained U.S. dollar denominated credit accommodations from PCIBANK.
These credit accommodations are covered by several promissory notes. Prompt and faithful
payment of all the foregoing promissory notes was secured by different deeds of
assignment executed by ASIAKONSTRUKT in favor of PCIBANK. The promissory notes have
remained not fully paid despite their having become due and demandable. Repeated
verbal and written demands were made upon ASIAKONSTRUKT, but to no avail. It has failed
and refused, and continues to fail and refuse, to pay its outstanding obligations to
PCIBANK. As a result of ASIAKONSTRUKTs refusal to pay its outstanding obligations,
PCIBANK was constrained to refer the matter to counsel.

PCIBANK also alleged in the same complaint that as a result of the fraudulent acts of
ASIAKONSTRUKT, PCIBANK suffered damages, all of which ASIAKONSTRUKT must be held to
pay PCIBANK. In support of its prayer for a writ of preliminary attachment, PCIBANK alleged
that ASIAKONSTRUKT is guilty of fraud in contracting the debt, in the performance thereof,
or both and that PCIBANK agreed to enter into the above-mentioned credit
accommodations primarily because of the existence of the deeds of assignment. However,
PCIBANK was surprised to learn that ASIAKONSTRUKT had long ago collected the contract
proceeds, or portions thereof. To date, it has yet to turn over these proceeds to PCIBANK.
Worse, PCIBANK learned that the contract proceeds were used by ASIAKONSTRUKT for its
own purposes clear evidence of fraud, which has deprived PCIBANK of its security. PCIBANK
also alleged that ASIAKONSTRUKT never had any intention of complying with the deeds of
assignment. ASIAKONSTRUKT only misled PCIBANK into believing that it had sufficient
security to ensure payment of its loan obligations. Alternatively, granting that
ASIAKONSTRUKT, at the time it executed the foregoing deeds of assignment, really
intended to abide by their terms and conditions, it nevertheless committed manifest fraud
when it collected the contract proceeds, and instead of remitting them to PCIBANK, used
them for its own purposes.

Meanwhile, ASIAKONSTRUKT filed its Answer. Defendant admits the material allegations of
the Complaint as regards its indebtedness to plaintiff PCIBANK and its execution of the
various deeds of assignment. It, however, denies the averments in the Complaint that it
has not paid, despite demands, its due and demandable obligations. It likewise denies
PCIBANKs allegations its having fraudulently misappropriated for its own use the contract
proceeds under the contracts mentioned in the several deeds of assignments, claiming in
this respect that it has still remaining receivables from those contracts.

By way of defenses, ASIAKONSTRUKT pleads in its Answer the alleged severe financial crisis
which hit the Philippines in July 1997, which adversely affected and ultimately put it out of
business. Defendant adds that the deeds of assignments it executed in favor of PCIBANK

20
were standard forms proposed by the bank as pre-condition for the release of the loans and
therefore partake of the nature of contracts of adhesion, leaving the defendant to the
alternative of taking it or leaving it.

PCIBANK then filed a verified Motion for Summary Judgment contending that the defenses
interposed by the defendant are sham and contrived, that the alleged financial crisis
pleaded in the Answer is not a fortuitous event that would excuse debtors from their loan
obligations, nor is it an exempting circumstance under Article 1262 of the New Civil Code
where, as here, the same is attended by bad faith. In the same motion, PCIBANK also
asserts that the deeds of assignments executed in its favor are not contracts of adhesion,
and even if they were, the same are valid.

The trial court ruled in favor of PCIBANK. Petitioner went to the CA which affirmed
the Summary Judgment rendered by the trial court. Petitioner then elevated the case to
the Supreme Court.

ISSUE: Whether or not ASIAKONSTRUKT had become virtually insolvent as a result of the
region-wide economic crisis that hit Asia, causing the Philippine peso to depreciate
dramatically, rendering the performance of the lease contract impractical

RULING: The Supreme Court ruled in favor of PCIBANK.

ASIAKONSTRUKT failed to show the factual basis for its defenses of extraordinary deflation,
including facts, figures and data showing its financial condition before and after the
economic crisis and that the crisis was the proximate cause of its financial distress.
The failure of the ASIAKONSTRUKT to append to its Opposition any Affidavits showing that
its defenses were not contrived or cosmetic to delay judgment created a presumption that
its defenses were not offered in good faith and that the same could not be sustained. If,
indeed, ASIAKONSTRUKT believed it that was prevented from complying with its obligations
to PCIBANK, under its contracts, it should have interposed a counterclaim for rescission of
contracts. ASIAKONSTRUCT may have experienced financial difficulties because of the 1997
economic crisis that ensued in Asia. However, the same does not constitute a valid
justification for it to renege on its obligations to PCIBANK.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be
complied with in good faith. But the law recognizes exceptions to the principle of the
obligatory force of contracts. One exception is laid down in Article 1266 of the Civil Code,
which reads: The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.

Petitioner cannot, however, successfully take refuge in the said article, since it is applicable
only to obligations to do, and not obligations to give. An obligation to do includes all kinds
of work or service; while an obligation to give is a prestation which consists in the delivery

21
of a movable or an immovable thing in order to create a real right, or for the use of the
recipient, or for its simple possession, or in order to return it to its owner.

RUFIN: Nos. 13 (1-2) and No. 14 (1)

Cauton v. Court of Appeals, G.R. No. 158382, Jan. 27, 2004

Obligations and Contracts: Usurious Transactions Article 1175
Facts:
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud,
instituted a suit for foreclosure of real estate mortgage with damages against petitioner
Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General
Santos City, Branch 35. The trial court rendered a decision declaring the mortgage
constituted on October 31, 1991 as void, because it was executed by Mansueto Cuaton in
favor of Rebecca Salud without expressly stating that he was merely acting as a
representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court
ordered Cauton to pay Salud the loan secured by the mortgage in the amount of One
Million Pesos plus a total P610, 000.00 representing interests of 10% and 8% per month for
the period February 1992 to August 1992.
On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the
judgment of the trial court. Cauton filed a motion for partial reconsideration of the trial
courts decision with respect to the award of interest in the amount of P610,000.00,
arguing that the same was iniquitous and exorbitant. This was denied by the Court of
Appeals on May 7, 2003.
Issue:
Whether or not the 8% and 10% monthly interest rates imposed on the one-million-peso
loan obligation of Cauton to respondent Salud are valid.
Held:
Yes. In Ruiz v. Court of Appeals, the Supreme Court declared that the Usury Law was
suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and that
parties to a loan agreement have been given wide latitude to agree on any interest rate.
However, nothing in the said Circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets. The stipulated interest rates are illegal if they are unconscionable. In the
present case, the 10% and 8% interest rates per month on the one-million-peso loan of
Cauton were even higher than those cases they previously invalidated. Accordingly, the
reduction of said rates to 12% per annum was fair and reasonable. Stipulations authorizing
iniquitous or unconscionable interests are contrary to morals if not against the law.

Liam Law vs. Olympic Sawmill Co., 129 SCRA 439 (1984)
Obligations and Contracts: Usurious Transactions Article 1175
Facts:

22
On or about September 7, 1957, the petitioner loaned P10,000.00, without interest, to the
respondent. The loan became ultimately due on January 31, 1960 but was not paid. The
petitioner asked for a 3-month extension, or up to April 30, 1960. On March 17, 1960, the
parties executed another loan document for the payment of P10, 000.00 extended up to
April 30, 1960 but the obligation was increased by P6,000.00 to answer for the attorneys
fees, legal interest, and other cost incident thereto. The petitioner again failed to pay their
obligation by April 30, 1960. On September 23, 1957, the respondent instituted a collection
case. The petitioner admitted the P10, 000.00 principal obligation but claimed that the
additional P6, 000.00 constituted usurious interest.
Issue:
Whether or not the additional P6, 000.00 constituted usurious interest.
Held:
No. Usury has been legally non-existent. Interest can now be charged as lender and
borrower may agree upon. In the present case, the petitioner had not proven that the P6,
000.00 additional obligation was illegal.

Manila Trading & Supply Co., vs. Medina, 2 SCRA 549 (1961)
Obligations and Contracts: Presumptions Article 1176
Facts:
Prior to May 7, 1956, Mariano Medina had certain accounts with Manila Trading & Supply
Co. On January 8, 1957, Manila Trading & Supply Co. filed a complaint against Medina in the
Court of First Instance of Manila, claiming that Medina had failed to meet the installments
due on the note for the months of September, 1956 up to and including January 7, 1957.
Medina averred that the genuine receipts dated January 1957 should raise the presumption
that prior installments were paid.
Issue:
Whether or not the Medina was correct in saying that genuine receipts dated January 1957
raise the presumption that prior installments were paid.
Held:
No. Such receipts did not indicate that they were issued for the installments corresponding
to the month of January, 1957. And even if such recital had been made, the resulting
presumption would only be prima facie.

14. Presumptions
Case No. 2

Ledesma v. Realubin, 8 SCRA 608 (1963)

Facts:

23
Alberto Realubin owned the Baguio Caltex service station where Salud Ledesma purchased
on credit, on different dates, through her drivers, gasoline and motor oil, from June to
September, 1956.

Realubin followed this business practice where each invoice is done in triplicate the
original, in white paper; the two others, in blue and pink paper, respectively. For purchases
in cash, the original or white invoice is issued, the station proprietor retaining the pink and
blue copies. For purchases on credit, the pink copy is issued, the station proprietor
retaining the original and blue copies. When payment is made on credit purchases, the
white or original copy is then released to the customer.

At the time of the trial, Realubin was in possession of the original or white copies of the
invoices for purchases made in the months stated, all of which were signed by the
petitioner's truck drivers.

Even after repeated verbal demands, Ledesma still failed to pay her obligation. She
claimed that she already paid for her October purchases so it should be presumed that her
prior purchases were already paid applying the presumption of payment under Article 1176
of the Civil Code because her account with Realubin was a running account.

Issue:
Whether or not Ledesma was correct in invoking the presumption of payment under Article
1176 of the Civil Code.

Held:
No. Realubin proved as a fact that the prior purchases were not paid, and that the October
purchases were for cash. Therefore, the presumption of payment of prior obligations
cannot prevail. Between a proven fact and a presumption pro tanto, the former stands, and
the latter falls.

15. Remedies of the Creditor

Art. 1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them.
Remedies available to creditors for the satisfaction of their claims.
In case the debtor does not comply with his obligation, the creditor may avail himself
of the following remedies to satisfy his claim:

Exact fulfillment (specific performance) with the right to damages;

24
Pursue the leviable (not exempt from attachment under the law) property of the debtor;
after having pursued the property in possession of the debtor, exercise all the rights (like
the right to redeem) and bring all the actions of the debtor (like the right to collect from the
debtor of his debtor) except those inherent in or personal to the person of the latter (such
as the right to vote, to hold office, to receive legal support, to revoke a donation on the
ground of ingratitude, etc.); and
Ask the court to rescind or impugn acts or contracts which the debtor may have done to
defraud him when he cannot in any other manner recover his claim. (see Arts. 1380-1389)

The following successive measures must be taken by a creditor before he may bring an
action for rescission of an allegedly fraudulent sale:

Exhaust the properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt by law from execution;
Exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria);
Seek rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana).

The debtor is liable with all his property, present and future, for the fulfillment of his
obligations, subject to the exemptions provided by law. (see Art 2236)

Example:
On the due date, D could not pay C his obligation in the amount of P300,000.00.
However, D owns a car worth about P160,000.00 and X is indebted to him for P40,000.00.
Before the due date of the obligation, D sold his land worth P200,000.00 to Y.

Under the circumstances, the rights granted to C under the law are as follows:

He may bring an action for collection of the amount of P300,000.00 with the right to
damages.
If, inspite of the judgment rendered, D fails to pay the amount due, C can ask for the
attachment of Ds car so that the car may be sold and payment made from the proceeds of
the sale.
He may ask the court to order X not to pay D so that payment may be made to him (C).
He may ask the court to rescind or cancel the sale made by D to Y on the ground that the
transaction is fraudulent in case he (C) cannot recover in any other manner his credit. Note
that this last remedy can be resorted to only if C could not collect in full his credit. He first
must exhaust the properties of the debtor or subrogate himself in the latters transmissible
rights and actions.

25

Adorable v. Court of Appeals, G.R. No. 119466

Facts:
Private respondent Saturnino Bareng was the registered owner of two parcels of land,
one of which is Lot No. 661-E. Petitioners were lessees of a 200 sq m portion of one of Lot
661-E.
On April 29, 1985, Saturnino Bareng and his son, Francisco, obtained a loan from
petitioners amounting to P26,000 in exchange for possession and enjoyment of the fruits of
Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son, Francisco, 18,500 sq m of Lot No. 661-D5-A. in turn, Francisco sold on August 27, 1986 to Jose Ramos. The portion of land being
rented to petitioners was included in the portion sold to Jose Ramos. The deeds of sale
were not registered in the Office of the Register of Deeds.
As the Barengs failed to pay their loan, the petitioners complained to Police Captain
Rodolfo Saet. A compromise agreement was executed between Francisco Bareng and the
Adorables whereby the former acknowledged his indebtedness of P56,385 which he
promised to pay on or before July 15, 1987. When the maturity date arrived, however,
Francisco Bareng failed to pay. A demand letter was sent to Francisco but he refused to pay.
Petitioners, upon learning of the sale made by Francisco to Jose Ramos, then filed a
complaint with the RTC for the annulment or rescission of the sale on the ground that the
sale was fraudulently prepared and executed.
Trial court rendered judgment dismissing the complaint for lack of cause of action,
declaring the contract between Francisco and Jose to be valid and ordering Francisco to pay
the amount owed to petitioners.
CA affirmed the decision of RTC, with modification of the amount of debt.

Issue: W/N petitioners have the right to rescind the contract between their debtors and
third party

Held: NO.
According to the SC, as creditors, petitioners do not have such material interest as
they only have a personal right to receive payment for the loan; it is not a real right over
the lot subject of the deed of sale.
A personal right is the power of one person to demand of another, as definite passive
subject, the fulfillment of prestation to give, to do, or not to do. On the other hand, a real
right is the power belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally exercised. In this case,
while the petitioners have an interest in securing the payment of the loan they extended,
their right to seek payment does not in any manner attach to a particular portion of the
patrimony of the debtor, Francisco.
Nor can we sustain petitioners claim that the sale was made in fraud of creditors
under Art. 1177 of the Civil Code. The following successive measures must be taken by a
creditor before he may bring an action for rescission of an allegedly fraudulent sale:

26

1) exhaust the property of the debtor through levying by attachment and execution upon
all the property of the debtor except such as are exempt by law from execution;
2) exercise all the rights and actions of the debtor, save those personal to him;
3) seek rescission of the contracts executed by the debtor in fraud of their rights.

Without availing of the first and second remedies, i.e., exhausting the properties of the
debtor or subrogating themselves in Francisco Barengs transmissible rights and
action, petitioners simply undertook the third measure and filed an action for annulment of
sale

16. Transmissibility of Rights

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.

Transmissibility of Rights
All rights acquired in virtue of obligation are generally transmissible. The exceptions to
this rule are the following:

Prohibited by law - when prohibited by law, like the rights in partnership, agency, and
commodatum which are purely personal in character.
By the contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
By the contract of commodatum, one of the parties delivers another something not
consumable so that the latter may use the same for a certain time and return it.

Commodatum is essentially gratuitous.

Prohibited by stipulation of parties when prohibited by stipulation of the parties, like the
stipulation that upon the death of the creditor, the obligation shall be extinguished or that
the creditor cannot assign his credit to another. The stipulation against the transmission
must not be contrary to public policy. Such stipulation, being contrary to the general rule,
should not be easily implied, but must be clearly proved, or at the very least, clearly
inferable from the provisions of the contract itself.

27

The assignment of credits and other incorporeal rights are governed by Articles 1624 to
1635 under Title IV (Sales).
D. Different Kinds of Obligations
1. Pure and Conditional Obligations
i. Articles 1179-1192
ii. Kinds of Conditional Obligations: suspensive and resolutory, Art. 1181

Art. 1181. In 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.

Suspensive
The happening of which gives rise to the obligation.
Rights are acquired upon the happening of the event which constitutes the condition.
Efficacy or obligatory force is subordinated to the happening of a future and uncertain
events
Therefore, if the condition does not take place, the parties would stand as if the conditional
obligation had never existed.

Ex.
(a) Surrender of the sweepstakes ticket before payment of the prize.
(b) Xs loan from Y will become due only at the time Y receives from Z the proceeds
of
the approved financing scheme. If Z refused to do so, X will not be liable since the
condition never happened.

The happening of the event which constitutes the condition produces the extinguishment
or loss of rights already acquired.

Ex.
(a) S sold a land to B subject to Ss right of repurchase. Ownership acquired by B
extinguished or lost should S exercise his right of repurchase.

shall be

(b) R, a lessor, may terminate the lease in case his children shall need the leased
premises.

Resolutory

28
The happening of which extinguishes the obligation.

Ex.
(a) A sold a lot to B subject to the condition that B shall construct a house on it
withing
a year and non-compliance with which shall result in the contract being deemed annulled
and cancelled.
(b) X sold a lot to Y subject to the conditions that Y should pay a down payment
of
P10,000 an shall purchase Xs car. If Y only paid P10k but never purchased
Xs
car, contract may be annulled since only one of the conditions was performed.
(c) However, if M donated a lot to N in the condition that said lot should only be
school purposes, but N found out that the donated lot cannot
accommodate
school, thus, he entered into a deed of exchange of land to O;
said act of N did
extinguish the obligation since the purpose was still
complied.

used for
the
not

Insular Life Assurance Co., Ltd. Vs Toyota Bel-Air Inc., (2008)

Facts:
Toyota Bel-Air, Inc. entered into a Contract of Lease over a 3,700-square meter lot and
building owned by Insular Life Assurance Company, Ltd. in Pasong Tamo Street, Makati City,
for a five-year period, from April 16, 1992 to April 15, 1997. Upon expiration of the
lease, Toyota remained
in
possession
of
the
property.
Despite
repeated
demands, Toyota refused to vacate the property. Thus, on January 28, 1998, Insular Life
filed a Complaint for unlawful detainer against Toyota in the MeTC. It was granted by the
court and ordered Toyota to vacate the leased properties and to pay reasonable
compensation from April 15, 1997, the date of termination of the contract to lease, until
the said property is surrendered to the Insular Life. Toyota then filed a petition for certiorari
before the RTC contending that the MeTC acted with grave abuse of discretion on giving
retroactive effect to the payment starting from April 15, 1997. On May 7, 1999, both of the
parties entered into a compromise agreement with three suspensive conditions. However,
Toyota failed to comply with the two of the three conditions. Said compromise agreement
were not given effect by the court. Toyota contended that it should be given effect since it
complied to all of the conditions.

Issue:
WON Insular Life has an obligation to Toyota.

Ruling:
NO, Insular Life has no obligation to Toyota.

Jurisprudence teaches us that when a contract is subject to a suspensive condition, its birth
or effectivity can take place only if and when the event which constitutes the condition
happens or is fulfilled,[35] and if the suspensive condition does not take place, the parties
would stand as if the conditional obligation has never existed.

29
In this case, the Compromise Agreement clearly stipulates that it shall become valid and
binding only upon the occurrence of all the conditions in the agreement: (a) to deliver 3
motor vehicles in favor of Insular Life; (b) issuance and delivery of 12 postdated checks in
favor of Insular Life; and (c) issuance of the surety company and delivery of the bond
P6.5m in favor of Insular Life.

Thus, the issuance of 12 postdated checks and the posting of a surety bond are
positive suspensive conditions of the Compromise Agreement, the non-compliance with
which was not a breach, casual or serious, but a situation that prevented the obligation
under the Compromise Agreement from acquiring obligatory force. For its non-fulfillment,
there was no contract or agreement to speak of, Toyota having failed to comply or perform
the suspensive conditions which enforce a juridical relation.[38] Since Toyota was unable to
comply with the last two conditions of the agreement, which were suspensive conditions,
Insular Life cannot be compelled to comply with its obligation to end the present
litigation. No right in favor of Toyota arose and no obligation on the part of Insular Life was
created.

Further, the awarding of payment starting from April 1, 1997 was correct. The pleadings,
findings of fact and conclusions of law of the MeTC bear out that upon the termination of
the lease on April 15, 1997, Toyota's possession of the property became unlawful; thus,
from that date, payment of rents must be reckoned

Article 1179. Every obligation whose performance does not depend upon a future or
uncertainevent, or upon a past event unknown to the parties, is demandable at once. (Pure
Obligation)

Every obligation which contains a resolutory condition shall also be demandable, without
prejudice to the effects of the happening of the event.

PURE OBLIGATION one without a condition or a term; hence, demandable at once,

provided there will be absurdity.

CONDITIONAL OBLIGATION when the obligation has a condition

Example: I will buy your land if you pass the last bar examinations.
CONDITION: It is an uncertain event which wields an influence on a legal relationship. A
condition is really a FUTURE and CERTAIN event, not a future or uncertain event.

TERM OR A PERIOD: That which necessarily must come (like year 2009), whether the
parties know when it will happen or not (like death, since this is sure).

WHEN AN OBLIGATION IS DEMANDABLE AT ONCE:

30
1. When it is a pure obligation
2. Or when it has a resolutory condition

Example of an Obligation with Resolutory Condition:

I will give you my car, but you should not marry Maria this year.
Effect: This is demandable now.

CLASSIFICATION OF CONDITIONS:

1. Suspense Condition the happening of the condition gives rise to the obligation
Resolutely Condition the happening of the condition extinguishes the obligation.

2. Potestative Condition depends upon the will of the debtor; considered void.
Casual Condition depends on chance or hazard or the will of a third person
Mixed Condition depends partly on the will of one of the parties and partly on chance or
thewill of a third person.

3. Divisible Condition capable of partial performance

Indivisible Condition not capable of partial performance because of the nature of the
thing, or because of the intention of the parties.

4. Positive Condition an act is to be performed

Negative Condition something will be omitted.

5. Express Condition the condition is stated.

Implied Condition the condition is merely inferred.

6. Possible Condition capable of fulfilment in nature and in law.

Impossible Condition not capable of fulfilment due to nature or due to operation of the
lawor morals or public policy or due to the contradiction in its terms.

7. Conjunctive Condition if all the conditions must be performed.

Alternative Condition if only a few of the conditions have to be performed.

31

CORONEL VS. CA

FACTS:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to
as Coronels) executed a document entitled "Receipt of Down Payment" in favor of Ramona
Patricia
Alcaraz
(hereinafter
referred
to
as
Ramona).
The

condons

appurtenant

to

the

sale

are

the

following:

1. Ramonaiti will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution
of
the
document;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00)
Pesos
down
payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date, Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother
of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos.
On February 6, 1985, the property originally registered in the name of the Coronels' father
was
transferred
in
their
names
under
TCT
No.
327043.
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00)
Pesos.
For this reason, Coronels canceled and rescinded the contract with Ramona by
depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia
Alcaraz.

against

On February 22, 1985, Concepcion filed a complaint for specific performance

the
Coronels.

On June 5, 1985, a new title over the subject property was issued in the name of
Catalina.

ISSUES:
Was the agreement with Ramona and the Coronels a contract of sale or a contract to sell?
Was the contract between the parties subject to a condition?

RULING:
1.

The agreement between the parties was a contract of sale. The agreement could not

32
have been a contract to sell because the sellers herein made no express reservation of
ownership or title to the subject parcel of land in the Receipt of Downpayment.
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.
2. Yes. The parties had agreed to a conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate of title from the name of
petitioners'
father,
Constancio
P.
Coronel,
to
their
names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on
February 6, 1985. Thus, on said date, the conditional contract of sale between petitioners
and private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the
deed of absolute sale in a public instrument, which petitioners unequivocally committed
themselves
to
do
as
evidenced
by
the
"Receipt
of
Down
Payment."
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale became mutually demandable, that is,
petitioners, as sellers, were obliged to present the transfer certificate of title already in
their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.

Article 1181. In 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. (SUSPENSIVE AND RESOLUTORY CONDITIONS)

This article treats of:

1. SUSPENSIVE CONDITIONS the happening of which will give rise to the acquisition of
aright. This is also called conditions precedent or conditions antecedent.

Be it noted that what characterizes an obligation with a suspensive condition is the fact
thatits efficacy or obligatory force is subordinated to the happening of a future and
uncertainevent; if the suspensive condition does not take place, the parties would stand as
if theconditional obligation had never existed.

2. RESOLUTORY CONDITIONS also called conditions

alreadyacquired are lost once the condtion is fulfilled.

subsequent;

here,

rights

33

Example of a Resolutory Condition:

I will give you my car nor but should you pass the bar, the donation will not be effective.
Ifyou pass the bar, you must return the car to me.

CONDITIONAL PERFECTION OF A CONTRACT:

If the perfection of a contract depends upon the fulfilment of a condtion, non-fulfilment

thereof means
the non-perfection of the contract since the suspensive condtion should have been first
fulfilled.

Central

Philippine

University

vs.

Court

of

Appeals

FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with
the
following
conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of medical
college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that land
shall be put in the fund to be known as Ramon Lopez Campus Fund.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for
annulment of donation, reconveyance & damages against CPU for not complying with the
conditions. The heirs also argued that CPU had negotiated with the NHA to exchange the
donated
property
with
another
land
owned
by
the
latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.

ISSUE:
WON petitioner failed to comply the resolutely conditions annotated at the back of
petitioners certificate of title without a fixed period when to comply with such conditions?
YES

RULLING:

Under Art. 1181, on conditional obligations, the acquisition of rights as well 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 is such a resolutory one. The
donation had to be valid before the fulfillment of the condition. If there was no fulfillment
with the condition such as what obtains in the instant case, the donation may be revoked &
all rights which the donee may have acquired shall be deemed lost & extinguished.

34
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.
Records are clear and facts are undisputed that since the execution of the deed of donation
up to the time of filing of the instant action, petitioner has failed to comply with its
obligation as donee. Petitioner has slept on its obligation for an unreasonable length of
time. Hence, it is only just and equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as donee should now return the
donated property to the heirs of the donor, private respondents herein, by means of
reconveyance.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
theobligors should not comply with what is incumbent upon him. (POWER TO RESCIND IN
RECIPROCAL OBLIGATIONS, implied)
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible. (CHOICES OF THE INJURED
PARTY rescission or fulfilment, in either case damages)
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
RIGHT TO RESCIND in RECIPROCAL OBLIGATIONS:
RECIPROCAL OBLIGATIONS obligations where two parties are reciprocally obliged to do or
give something like a contract of sale. It is NOT enough that both parties are indebted to
each other. The CAUSE must be INDENTICAL and the obligations should arise
simultaneously.
Parenthetically, in reciprocal contracts or transactions, the obligation or promise of each
party is the cause or consideration for the obligation or promise of the other.
The power to rescind, as used in this Article, means the right to cancel (or resolve) the
contract or reciprocal obligations in case of non-fulfillment on the part of one of the parties.
Rescission referred to here is NOT predicated on injury to economic interests on the part of
the party-plaintiff, but on the breach of faith by the defendant, which breach is violative of
the reciprocity between the parties.
Substantial Breach of Reciprocal Obligations entitles the injured party to rescind the
obligation.
EFFECT OF RESCISSION:
Rescission abrogates the contract from its inception and requires a mutual restitution of
benefits received. It 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.

35
To rescind is to declare the contract void from 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.
CHARACTERISTICS OF THE RIGHT TO RESCIND under this Article:
1. It exists only in reciprocal obligations.
NOTE: However, if the obligation is reciprocal BUT with a period, neither party can demand
performance or be considered in default before the expiration of the period.
2. It can be demanded only if the plaintiff is ready, willing, and able to comply with his
own obligation, and the other party is not. If neither is ready, neither can rescind.
3. The right to rescind is not absolute.
Trivial causes or slight breaches will not cause rescission. However, a substantial breach of
an employees obligations is sufficient cause to put an end to a reciprocal contract.
Rescission may be had only for such breaches that are so substantial and fundamental as
to defeat the object of the parties in making the agreement.
4. The right to rescind needs judicial approval in certain cases, and in others, does not
need such approval.
Judicial approval is needed when there has already been delivery of the object (unless of
course there is voluntary returning).
Judicial approval is NOT needed when there has been no delivery yet. Or, in case there has
been delivery, the contract stipulates that either party can rescind the same or take
possession of the property upon non-fulfillment by the other party.
There is nothing in Article 1191 of the Civil Code or in any legal provision that prohibits the
parties from entering into an agreement that violation of the terms would cause
cancellation thereof, even without judicial intervention.
NOTE: Extrajudicial rescission of a contract is not possible without express stipulation to
that effect.
5. The right to rescind is implied (or presumed) to exist and, therefore, need not be
expressly stipulated upon.
6. The right to rescind may be waived, expressly or impliedly.
CHOICES OF THE INJURED PARTY:
The injured party may choose between:
1. Fulfillment (specific performance) PLUS damages; or
2. Rescission PLUS damages.
NOTE: The damages sought must ne asked in the same action; otherwise the damages are
deemed waived.
NOTE: The right of the injured party is alternative and an alternative prayer may be made
in a court complaint unless eight had been waived previously.
GENERAL RULE:

36
The right is not conjunctive, that is the plaintiff CANNOT ask for both remedies. If the
plaintiff elects
Fulfillment of a reciprocal obligation, rescission thereof may not be declared at the same
time.
EXCEPTION:
The injured party who has elected fulfillment may, if fulfillment be impossible, still ask for
rescission.
The rule is vice-versa, provided the court has not yet given a final judgment.
RIGHT OF RESCISSION versus RIGHTS OF INNOCENT THIRD PERSONS:
The law subordinates the right of rescission to the right of innocent third persons.
QUESTION: How much DAMAGES for Breach of Lease Contract?
ANSWER: It depends upon what remedy has been resorted to by the landlord-plaintiff for
non-payment of rent by the lessee:
a. If he selects specific performance, he can demand the accrued rent plus the future rent
forthe unexpired term.
b. If he selects rescission, he gets only the back rents and ouster of the lessee, plus
damages,but not (necessarily) the future rents or rentals for the unexpired term.

JACINTO

VS

KAPARAZ

FACTS:
Petitioners, Oscar and Librada Franco-Jacinto and private respondents entered into an
agreement under which the private respondents agreed to sell and convey to petitioners a
six hundred (600) square meter lot located in Matiao, Mati, Davao Oriental, a total
consideration of P1,800.00. Down payment of P800.00 was paid upon execution of the
Agreement. The balance of P1, 000.00 was to be paid by petitioners on installment at the
rate of P100.00 a month to the Development Bank of the Philippines (DBP) to be applied to
private respondents' loan accounts. Upon the execution of the agreement, petitioners paid
the down payment of P800.00. As to the P1, 000.00 which was to be paid directly to the
DBP, petitioners claim that they had even made an excess payment of P100.00.
In view of the refusal of private respondents to execute the deed of sale, petitioners
filed against them a complaint for specific performance with the then Court of First
Instance of Davao Oriental. In their Answer, private respondents alleged that the sale did
not materialize because of the failure of petitioners to fulfill their promise to make timely
payments as a result of such failure; private respondents failed to secure the release of the
mortgage on the property. They then prayed for the dismissal of the case and a declaration
that the agreement is null and void. The lower court rendered judgment in favor of the
petitioners; however it was reversed by the court of appeals. The respondent Court was of
the opinion that petitioners had not fully discharged their obligation under the agreement
considering that their last payments were several months delayed beyond the date/s
agreed upon by the parties and that the delay in the payments was not a slight breach.
Unable to accept the verdict made, petitioner commenced petition to the SC.
ISSUE:
Can private respondent be compelled to execute the deed of sale?

37

RULING:
Yes. The delay incurred by petitioners was but a casual or slight breach of the
agreement, which did not defeat the object of the parties in entering into the agreement. A
mere casual breach does not justify rescission. The prompt payment of the monthly
amortizations of the unpaid balance of P1,000.00 was not a condition precedent to the
execution of the final deed of sale. Besides, petitioners had already paid P1,400.00 of the
total consideration of P1,800.00, or exactly 77.77% of the purchase price within the period
stipulated. Moreover, they had in fact overpaid the private respondents by P100.00.
Accordingly, We rule that rescission of the agreement was not available to private
respondents.
e. DUCUSIN VS. COURT OF APPEALS (122 SCRA 280)
FACTS:
On February 20, 1975, petitioner Agapito Ducusin leased to private respondent, Virgilio S.
Baliola and his
wife a one-door apartment unit. Under the contract of lease, with pertinent stipulations one
of which
states that the term of this contract shall be in a month to month basis commencing on
February 19,1975 until terminated by the lessor on the ground that his children need the
premises for their own use or residence or upon any ground provided for in accordance
with law; The Baliola spouses occupied the apartment for almost two (2) years, paying its
rentals when on January 18, 1977, petitioner Ducusin sent a "Notice to Terminate Lease
Contract" to private respondents Baliolas terminating the lease and giving them until March
15, 1977 within which to vacate the premises for the reason that his two children were
getting married and will need the apartment for their own use and residence. A second
letter dated February 14, 1977 was thereafter sent by Ducusin to respondents Baliolas
making an inquiry on any action the latter had taken on the previous notice to terminate
the lease contract To which respondents gave no reply.

On April 14, 1977, petitioner filed an action for ejectment against the Baliola spouses and
the lower courted decided in their favor on the ground that the "defendants' contract with
the plaintiff has already terminated with the notice of termination sent by the plaintiff to
the defendants on the ground that he needs the premises for his own children." The
lessees, went to the Court of Appeals on a petition for review among others "(2) that the
respondent CFI of Manila erred in finding that the need of the premises a quo by the private
respondents has been sufficiently proven by them and legally entitle them to judicially
eject the petitioners from the premises; The CA upheld the lower court decision but as to
the issue: whether the need of the immediate members of the family of the lessor of the
leased premises has been established by a preponderance of evidence, the respondent
court ruled against the lessor Ducusin. Hence this appeal to the SC.

ISSUE:
Is the termination valid in accordance to Article 1182 of the Civil Code?

RULING:

38
Art. 1182 states that When the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void. If it depends upon chance or upon the
will of a third person, the
obligation shall take effect in conformity with the provisions of this Code. ...

The resolutory condition in the contract of lease re: the need of the lessor's children of the
leased
premises is not a condition the happening of which is dependent solely upon the will of the
lessor. The
happening of the condition depends upon the will of a third person the lessor's children.
Whenever the
latter require the use of the leased premises for their own needs, then the contract of
lease shall be
deemed terminated. The validity of the said condition as agreed upon by the parties
stands. We likewise
conclude that the intention to use the leased premises as the residence of Ducusin Jr. has
been
satisfactorily and sufficiently proved by clear, strong, and substantial evidence found in the
records of the case.

Generally, the findings of fact by the Court of Appeals are deemed accepted as the basis
for review of the
appellate court's decision. But this rule is not without exception such as shown in the case
before Us
where the Court of Appeals reversed the findings of fact made by the trial court (the City
Court of Manila) and also the Court of First Instance, by excluding evidence supposedly
hearsay when they are not pursuant to the rules of evidence, by ignoring evidence on
record that are competent, clear and
substantial and by misapprehending the facts, thereby making manifest the commission of
grave abuse of discretion on the part of the respondent appellate court and so warrants
and justifies a review not only of the law but also the facts.

D.
iii. CASE
Rustans Pulp v IAC

Facts: When Rustan Pulp & Paper Mills (D) started operations Romeo Lluch (P) offered to
supply raw materials. Rustan Pulp (D) proposed a non-exclusive contract to buy wood pulp
from Lluch (P). However, a condition in the contract gave Rustan Pulp (D) the right to stop
accepting deliveries when the supply became sufficient until such time the raw materials
are
needed.

39

During the test run of the pulp mill, major defects on the machinery were discovered
prompting the Japanese supplier of the machinery to recommend the stoppage of the
deliveries. The suppliers were informed to stop deliveries, but were not informed as to the
reasons
for
the
stoppage.
Lluch (P) sought to clarify the tenor of the notice as to whether stoppage of delivery or
termination of the contract of sale was intended, but Rustan Pulp (D) failed to reply. This
alleged ambiguity notwithstanding, Lluch (P) and the other suppliers resumed deliveries
after a series of talks between Lluch (P) and Romeo Vergara, the manager of Rustan Pulp
(D).
Later, Lluch (P) filed a complaint for breach of contract. The case was dismissed, but at the
same time, the court enjoined Rustan Pulp (D) to honor the contract. On appeal, the court
ruled that Rustan Pulp's (D) suspension of deliveries was not in the lawful exercise of its
rights
under
the
contract
of
sale.
Issues: Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under
the
contract
of
sale?
Ruling: No. There is basis for the apprehension on the illusory resumption of deliveries at
Rustan Pulp (D) because the prerogative suggests a condition solely dependent upon its
exclusive will. The literal import of contested condition is that Rustan Pulp (D) can stop
delivery of pulp wood from Lluch (P) if the supply at the plant is sufficient as ascertained by
Rustan Pulp (D), subject to re-delivery when the need arises as determined likewise by
Rustan
Pulp
(D).
A purely potestative imposition of this character must be obliterated from the face of the
contract without affecting the rest of the stipulations considering that the condition relates
to the fulfillment of an already existing obligation and not to its inception (Civil Code
Annotated,
by
Padilla,
1987
Edition,
Volume
4,
Page
160).
A condition which is both potestative (or facultative) and resolutory may be valid, even
though the saving clause is left to the will of the obligor as this Court ruled in Taylor vs. Uy
Tieng Piao (43 Phil. 873). But the Taylor case, which allowed a condition for unilateral
cancellation dependent on the arrival of factory machinery, cannot be applied because the
facts relate to the birth of the undertaking and not to the fulfillment of an existing
obligation.

Osmena V Rama
FACTS: Doa Cenona Rama entered into a contract with Don Victoriano Osmena for a sum
of money with a stipulated condition that in the event that the former will not be able to
pay the amount borrowed, she will sell to the said Seor Osmea all the sugar that she will
harvest and as a guarantee, pledge as security all of her present and future property, and
as special security the house with tile roof and ground floor of stone in which she is
currently residing. The following year, defendant contracted an additional loan from
petitioner. However, even before the said loans can be paid, Don Victoriano Osmena died.
As a consequence, the said contractual agreements became properties of one of his heirs.
When the stipulated payment period came, defendant was not able to pay for said
obligation. This prompted the heir, herein plaintiff, to file a case in the Court of First

40
Instance demanding for the execution and delivery of said contracts. After hearing the
evidence presented by both parties, the Court of First Instance rendered a decision in a
favor of the plaintiff. Dissatisfied with the decision, the defendants appealed.
ISSUE: Whether or not the condition that herein defendant relied upon the payment of the
obligation is valid and would thereby preclude her from payment.
RULING: If that statement found in her acknowledgment of the indebtedness should be
regarded as a condition, it was a condition which depended upon her exclusive will, and is
therefore, void. (Art. 1115, Civil Code) The acknowledgment, therefore, was an absolute
acknowledgment of the obligation and was sufficient to prevent the statute of limitation
from barring the action upon the original contract.
C. NAGA telephone Co., Inc v CA

FACTS:
NATELCO is a telephone company rendering local and long distance telephone service in
Naga
City. While CASURECO is a private corporation established for purpose of operating and
electric power service in the same city.

In 1977, the parties entered into a contract for the use of the electric light post of
CASURECO by
NATELCO in operation of its telephone service. In consideration, NATELCO agreed to install
free of charge ten-telephone connection for the use of CASURECO. The term of the contract
shall be as long as NATELCO has need for the electric light post of the CASURECO, it being
understood that the same contract shall be terminated by any reason whatsoever, if
CASURECO is forced to stop or abandon its operation as a public service.

After 10 years, CASURECO filed a case against NATELCO for the reformation of contract
with
damages on the ground that it was too-one sided in favor of NATELCO. That after 11 years,
the cable
strung by NATELCO was much heavier due to the increase in volume of their subscribers,
worsened by the fact that their linemen bore holes through the post at which points those
post were broken during typhoons. NATELCO used posts in the towns outside Naga without
any contract or permission from CASURECO. After filing the complaints, NATELCO had
refused to pay despite the demands made. NATELCOs answered that CASURECO did not
sufficiently state the cause of action for the reformation of contract and that it was barred
by the prescription because it was filed after 10 years.

The trial court ruled in favor of CASURECO, ordering the reformation of contract and
ordering
NATELCO to pay CASURECO the compensation for the use of their post in Naga. Moreover,
CASURECO was ordered to pay the monthly bills for the use of the telephones. Disagreeing

41
with the judgment, NATELCO appealed to the Court of Appeals. The Court of Appeals
affirmed the decision.

ISSUE:
Was reformation of the contract a proper remedy for NASURECO?
Was the contract subject to potestative condition?

RULING:
No. NASURECO cannot correctly invoke reformation of contract as a proper remedy,
because there had been no showing of mistake or error in said contract on the part of any
of the parties, so as to result in its failure to express their true intent.

2. No. A potestative condition is a condition wherein the fulfillment of which depends upon
the sole sill of the debtor, in which conditional obligation is void. Based on the provision in
the contract, the term shall be as long as NATELCO had need for the electric post of the
CASURECO, which was a potestative condition. But it should be noted that the same
provision also stated that the contract shall terminate when for any reason whatsoever,
CASURECO was to stop or abandon its operation as a public service and it becomes
necessary to remove the electric light post, which were casual condition since they depend
on chance, hazard, or the will of the third person. The contract was subject to mixed
conditions, depending partly in the will of the debtor and partly on chance or will of a third
person that would not invalidate the provision.