[G.R. No. 108346. July 11, 2001.
] The Facts
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE,
petitioners, vs. COURT OF APPEALS, DAVID A. RAYMUNDO and
GEORGE RAYMUNDO, respondents.
Marciano J. Cagatan and Mariano R. Logarta for petitioners.
M.B. Tomacruz for private respondents.
DECISION
PANGANIBAN, J p:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits
received.
The Case
Before us is a Petition for Review on Certiorari 1 questioning the Decision 2 of the Court of
Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution 3
dated December 29, 1992 denying petitioner's motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED
and SET ASIDE and the Decision dated November 14, 1990 dismissing
the [C]omplaint is REINSTATED. The bonds posted by plaintiffs-
appellees and defendants-appellants are hereby RELEASED." 5
The factual antecedents of the case, as found by the CA, are as follows:
" . . .. David Raymundo [herein private respondent] is the absolute and
registered owner of a parcel of land, together with the house and other
improvements thereon, located at 1918 Kamias St., Dasmariñas Village,
Makati and covered by TCT No. 142177. Defendant George Raymundo
[herein private respondent] is David's father who negotiated with plaintiffs
Avelina and Mariano Velarde [herein petitioners] for the sale of said
property, which was, however, under lease (Exh. '6', p. 232, Record of
Civil Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh.
'A'; Exh. '1', pp. 11-12, Record) was executed by defendant David
Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee,
with the following terms and conditions:
'xxx xxx xxx
'That for and in consideration of the amount of EIGHT
HUNDRED THOUSAND PESOS (P800,000.00), Philippine
currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, to his entire and complete
satisfaction, by these presents the VENDOR hereby SELLS,
CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and
voluntarily, with full warranty of a legal and valid title as provided
by law, unto the VENDEE, her heirs, successors and assigns, the
parcel of land mentioned and described above, together with the
house and other improvements thereon.
'That the aforesaid parcel of land, together with the house and
other improvements thereon, were mortgaged by the VENDOR to
the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro
Manila, to secure the payment of a loan of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
 currency, as evidenced by a Real Estate Mortgage signed and
executed by the VENDOR in favor of the said Bank of the
Philippine Islands, on _________ and which Real Estate Mortgage
was ratified before Notary Public for Makati, _________, as Doc.
No. _____, Page No. ____, Book No. ____, Series of 1986 of his
Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby
assumes to pay the mortgage obligations on the property herein
sold in the amount of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, in
favor of Bank of the Philippine Islands, in the name of the
VENDOR, and further agrees to strictly and faithfully comply with
all the terms and conditions appearing in the Real Estate Mortgage
signed and executed by the VENDOR in favor of BPI, including
interests and other charges for late payment levied by the Bank, as
if the same were originally signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the
capital gains tax and documentary stamps on the sale shall be for
the account of the VENDOR; whereas, the registration fees and
transfer tax thereon shall be for the account of the VENDEE.'
(Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina
Velarde, with the consent of her husband, Mariano, executed an
Undertaking (Exh. 'C', pp. 13-14, Record). the pertinent Portions of which
read, as follows:
'xxx xxx xxx
'Whereas, as per Deed of Sale with Assumption of Mortgage, I
paid Mr. David A. Raymundo the sum of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, and
assume the mortgage obligations on the property with the Bank of
the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in accordance with the terms and conditions of the Deed
of Real Estate Mortgage dated _________, signed and executed by
Mr. David A. Raymundo with the said Bank, acknowledged before
Notary Public for Makati, ______, as Doc. No. ___, Page No.
____, Book No. _____, Series of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the
mortgage obligations on the property is not yet approved by the
mortgagee Bank, I have agreed to pay the mortgage obligations on
the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the said
Deed of Real Estate Mortgage, including all interests and other
charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr.
David A. Raymundo, for purposes of attesting and confirming our
private understanding concerning the said mortgage obligations to
be assumed. cCEAHT
'NOW, THEREFORE, for and in consideration of the foregoing
premises, and the assumption of the mortgage obligations of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, with the Bank of the
Philippine islands, I, Mrs. Avelina D. Velarde, with the consent of
my husband, Mariano Z. Velarde, do hereby bind and obligate
myself, my heirs, successors and assigns, to strictly and faithfully
comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage
obligations on the property purchased is approved by the
mortgagee bank, the Bank of the Philippine Islands, I shall
continue to pay the said loan in accordance with the terms and
 conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of
the said Deed of Real Estate Mortgage, I hereby agree that my
downpayment of P800,000.00, plus all payments made with the
Bank of the Philippine Islands on the mortgage loan, shall be
forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo shall
resume total and complete ownership and possession of the
property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled
and be of no further force or effect, in the same manner as if (the)
same had never been executed or entered into.
'3. That I am executing this Undertaking for purposes of binding
myself, my heirs, successors and assigns, to strictly and faithfully
comply with the terms and conditions of the mortgage obligations
with the Bank of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned
and identified above, [does] hereby confirm and agree to the
undertakings of the Vendee pertinent to the assumption of the
mortgage obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David
Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8
million was from the proceeds of a loan that plaintiffs were to secure from
a bank with defendant's help. Defendants had a standing approved credit
line with the Bank of the Philippine Islands (BPI). The parties agreed to
avail of this, subject to BPI's approval of an application for assumption of
mortgage by plaintiffs. Pending BPI's approval o[f] the application,
plaintiffs were to continue paying the monthly interests of the loan secured
by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on
the loan secured by the aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00; October 20, 1986 at
P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp.
15, 17 and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved (Exh. 'J', p. 133,
Record). This prompted plaintiffs not to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing
the latter that their non-payment to the mortgage bank constitute[d] non-
performance of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as
follows:
'This is to advise you, therefore, that our client is willing to pay the
balance in cash not later than January 21, 1987 provided: (a) you
deliver actual possession of the property to her not later than
January 15, 1987 for her immediate occupancy; (b) you cause the
release of title and mortgage from the Bank of P.I. and make the
title available and free from any liens and encumbrances; and (c)
you execute an absolute deed of sale in her favor free from any
liens or encumbrances not later than January 21, 1987.' (Exhs. 'K',
'4', p. 223, Record).
"On January 8, 1987, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property
allegedly due to the latter's failure to comply with the terms and conditions
of the Deed of Sale with Assumption of Mortgage and the Undertaking
(Exh. '5', pp. 225-226, Record)." ' 6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents
for specific performance, nullity of cancellation, writ of possession and damages. This was
docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The
case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice
of this Court), who dismissed the Complaint in a Decision dated November 14, 1990. 7
Thereafter, petitioners filed a Motion for Reconsideration. 8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge
Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,
1991, 9 Judge Abad Santos granted petitioners' Motion for Reconsideration and directed the
parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeals
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-
Santiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of the
rescission made by private respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that
'as part of the consideration of this sale, the VENDEE (Velarde)' would
assume to pay the mortgage obligation on the subject property in the
amount of P1.8 million in favor of BPI in the name of the Vendor
(Raymundo). Since the price to be paid by the Vendee Velarde includes the
downpayment of P800,000.00 and the balance of P1.8 million, and the
balance of P1.8 million cannot be paid in cash, Vendee Velarde, as part of
the consideration of the sale, had to assume the mortgage obligation on the
subject property. In other words, the assumption of the mortgage obligation
is part of the obligation of Velarde, as vendee, under the contract. Velarde
further agreed 'to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by
the VENDOR in favor of BPI . . . as if the same were originally signed and
executed by the Vendee.' (p. 2, thereof, p. 12, Record). This was reiterated
by Velarde in the document entitled 'Undertaking' wherein the latter agreed
to continue paying said loan in accordance with the terms and conditions of
the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it
was stipulated that in the event of violation by Velarde of any terms and
conditions of said deed of real estate mortgage, the downpayment of
P800,000.00 plus all payments made with BPI or the mortgage loan would
be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage
would thereby be cancelled automatically and of no force and effect (pars.
2 & 3, thereof, pp. 13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration
of the sale was the assumption by Velarde of the mortgage obligation of
Raymundo in the amount of P1.8 million. This would mean that Velarde
had to make payments to BPI under the [D]eed of [R]eal [E]state
[M]ortgage in the name of Raymundo. The application with BPI for the
approval of the assumption of mortgage would mean that, in case of
approval, payment of the mortgage obligation will now be in the name of
Velarde. And in the event said application is disapproved, Velarde had to
pay in full. This is alleged and admitted in Paragraph 5 of the Complaint.
Mariano Velarde likewise admitted this fact during the hearing on
September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26,
t.s.n., October 8, 1989). This being the case, the non-payment of the
mortgage obligation would result in a violation of the contract. And, upon
Velarde's failure to pay the agreed price, the[n] Raymundo may choose
either of two (2) actions — (1) demand fulfillment of the contract, or (2)
demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage
cannot be used as an excuse for Velarde's non-payment of the balance of
the purchase price. As borne out by the evidence, Velarde had to pay in full
in case of BPI's disapproval of the application for assumption of mortgage.
What Velarde should have done was to pay the balance of P1.8 million.
Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K',
'4') which was strongly given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In said letter, Velarde
registered their willingness to pay the balance in cash but enumerated 3
new conditions which, to the mind of this Court, would constitute a new Hence, this appeal. 11
undertaking or new agreement which is subject to the consent or approval
of Raymundo. These 3 conditions were not among those previously agreed The Issues
upon by Velarde and Raymundo. These are mere offers or, at most, an
attempt to novate. But then again, there can be no novation because there Petitioners, in their Memorandum, 12 interpose the following assignment of errors:
was no agreement of all the parties to the new contract (Garcia, Jr. vs.
Court of Appeals, 191 SCRA 493). "I

The Court of Appeals erred in holding that the non-payment of the

mortgage obligation resulted in a breach of the contract.
"It was likewise agreed that in case of violation of the mortgage obligation,
the Deed of Sale with Assumption of Mortgage would be deemed "II
'automatically cancelled and of no further force and effect, as if the same
had never been executed or entered into.' While it is true that even if the The Court of Appeals erred in holding that the rescission (resolution) of the
contract expressly provided for automatic rescission upon failure to pay the contract by private respondents was justified.
price, the vendee may still pay, he may do so only for as long as no
demand for rescission of the contract has been made upon him either
"III
judicially or by a notarial act (Article 1592, Civil Code). In the case at bar,
Raymundo sent Velarde a notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latter's failure to comply The Court of Appeals erred in holding that petitioners' January 7, 1987
with their obligation. The rescission was justified in view of Velarde's letter gave three 'new conditions' constituting mere offers or an attempt to
failure to pay the price (balance) which is substantial and fundamental as to novate necessitating a new agreement between the parties."
defeat the object of the parties in making the agreement. As adverted to
above, the agreement of the parties involved a reciprocal obligation The Court's Ruling
wherein the obligation of one is a resolutory condition of the obligation of
the other, the non-fulfillment of which entitles the other party to rescind the The Petition is partially meritorious.
contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the
mortgage obligation by appellees Velarde would create a right to demand First Issue:
payment or to rescind the contract, or to criminal prosecution (Edca Breach of Contract
Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon
appellees' failure, therefore, to pay the balance, the contract was properly
Petitioners aver that their nonpayment of private respondents' mortgage obligation did not
rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde
constitute a breach of contract, considering that their request to assume the obligation had
having violated the contract, they have lost their right to its enforcement
been disapproved by the mortgagee bank. Accordingly, payment of the monthly
and hence, cannot avail of the action for specific performance (Voysaw vs.
amortizations ceased to be their obligation and, instead, it devolved upon private respondents
Interphil Promotions, Inc., 148 SCRA 635)." 10
again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8 million to private respondents
in case the request to assume the mortgage would be disapproved. Thus, on December 15,
1986, when petitioners received notice of the bank's disapproval of their application to
assume respondents' mortgage, they should have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its equivalent. 13
Private respondents had already performed their obligation through the execution of the Deed
of Sale, which effectively transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery. 14
Petitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to
pay the full purchase price. IHcTDA
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval
of their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases 15 in
which this Court declared that rescission of a contract would not be permitted for a slight or
casual breach. Finally, they argue that they have substantially performed their obligation in
good faith, considering that they have already made the initial payment of P800,000 and three
(3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their
nonpayment of the mortgage obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract of sale. Private respondents' right to
rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as
follows:
"ARTICLE 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between 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."
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them.
16 The breach contemplated in the said provision is the obligor's failure to comply with an
existing obligation. 17 When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission. 18
In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract
of sale, a violation that consequently gave rise to private respondents' right to rescind the
same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of additional burdens that had not
been agreed upon in the original contract. Thus, it cannot be said that the breach committed
by petitioners was merely slight or casual as would preclude the exercise of the right to
rescind.
Misplaced is petitioners' reliance on the cases 19 they cited, because the factual
circumstances in those cases are not analogous to those in the present one. In Song Fo there
was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered.
Moreover, the buyer's offer to pay was unconditional and was accepted by the seller. In
Zepeda, the breach involved a mere one-week delay in paying the balance of P1,000, which
was actually paid. In Tan, the alleged breach was private respondent's delay of only a few
days, which was for the purpose of clearing the title to the property; there was no reference
whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment
or an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of
their own obligation. In effect, the qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own interest.
Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. 20
To rescind is to declare a contract void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release the parties from further obligations to
each other, but to abrogate it. from the beginning and restore the parties to their relative
positions as if no contract has been made. 21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third
issue raised by petitioners. Suffice it to say that the three conditions appearing on the January
7, 1987 letter of petitioners to private respondents were not part of the original contract. By
that time, it was already incumbent upon the former to pay the balance of the sale price. They
had no right to demand preconditions to the fulfillment of their obligation, which had become
due.

Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a
reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the
contract does not apply. Instead, Civil Code provisions shall govern and regulate the
resolution of this controversy.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that
private respondents are ordered to return to petitioners the amount of P874,150, which the
latter paid as a consequence of the rescinded contract, with legal interest thereon from
January 8, 1987, the date of rescission. No pronouncement as to costs. SO ORDERED.
||| (Sps. Velarde v. Court of Appeals, G.R. No. 108346, [July 11, 2001], 413 PHIL 360-376)

Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding
mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.
 [G.R. No. L-42283. March 18, 1985.]
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.
DECISION
GUTIERREZ, JR., J p:
This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial
District, Branch X, declaring the contract to sell as not having been validly cancelled and
ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-
appellees, to pay P500.00 attorney's fees and costs. cdrep
The facts being undisputed, the Court of Appeals certified the case to us since only pure
questions of law have been raised for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz
and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to
sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per
annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract.
They promised to pay the balance in monthly installments of P41.20 until fully paid, the
installments being due and payable on the 19th day of each month. The plaintiffs-appellees
paid the monthly installments until July 1966, when their aggregate payment already
amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and
received delayed installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter
requesting the remittance of past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said contract because the
plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea
for reconsideration of the said cancellation was denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal,
Seventh Judicial District, Branch X to compel the defendants-appellants to execute in their
favor the final deed of sale alleging inter alia that after computing all subsequent payments
for the land in question, they found out that they have already paid the total amount of
P4,533.38 including interests, realty taxes and incidental expenses for the registration and
transfer of the land.
The defendants-appellants alleged in their answer that the complaint states no cause of action
and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they
failed and refused to pay and/or offer to pay the monthly installments corresponding to the
month of August, 1966 for more than five (5) months, thereby constraining the defendants-
appellants to cancel the said contract. LLphil
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive
portion of the decision reads:
"WHEREFORE, based on the foregoing considerations, the Court hereby
renders judgment in favor of the plaintiffs and against the defendants
declaring that the contract subject matter of the instant case was NOT
VALIDLY cancelled by the defendants. Consequently, the defendants are
ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay
the sum of P500.00 by way of attorney's fees. Costs against the
defendants."
A motion for reconsideration filed by the defendants-appellants was denied.
As earlier stated, the then Court of Appeals certified the case to us considering that the appeal
involves pure questions of law.
The defendants-appellants assigned the following alleged errors of the lower court:
First Assignment of Error
THE LOWER COURT ERRED IN NOT HOLDING THE
CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS
HAVING BEEN LEGALLY AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT
TO SELL HAS NOT BEEN LEGALLY AND VALIDLY
CANCELLED, THE LOWER COURT ERRED IN ORDERING
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN
FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS
TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S
FEES.
The main issue to be resolved is whether or not the contract to sell has been automatically and
validly cancelled by the defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to
paragraph six of the contract which provides:
xxx xxx xxx
"SIXTH. — In case the party of the SECOND PART fails to satisfy any
monthly installments, or any other payments herein agreed upon, he is
granted a month of grace within which to make the retarded payment,
together with the one corresponding to the said month of grace; it is
understood, however, that should the month of grace herein granted to the
party of the SECOND PART expired; without the payments corresponding
to both months having been satisfied, an interest of 10% per annum will be
charged on the amounts he should have paid; it is understood further, that
should a period of 90 days elapse, to begin from the expiration of the
month of grace herein mentioned, and the party of SECOND PART has not
paid all the amounts he should have paid with the corresponding interest
up to that date, the party of the FIRST PART has the right to declare this
contract cancelled and of no effect, and as consequence thereof, the party
of the FIRST PART may dispose of the parcel of land covered by this
contract in favor of other persons, as if this contract had never been
entered into. In case of such cancellation of the contract, all the amounts
paid in accordance with this agreement together with all the improvements
made on the premises, shall be considered as rents paid for the use and
occupation of the above mentioned premises, and as payment for the
damages suffered by failure of the party of the SECOND PART to fulfill
his part of the agreement, and the party of the SECOND PART hereby
renounces all his right to demand or reclaim the return of the same and
obliges himself to peacefully vacate the premises and deliver the same to
the party of the FIRST PART." (Italics supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966
installment despite demands for more than four (4) months. The defendants-appellants point
to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court
upheld the right of the subdivision owner to automatically cancel a contract to sell on the
strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The
defendants-appellants also argue that even in the absence of the aforequoted provision, they
had the right to cancel the contract to sell under Article 1191 of the Civil Code of the
Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They
state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in
case of specified breaches of its terms, the sellers have the right to declare the contract
cancelled and of no effect, because it granted the sellers an absolute and automatic right of
rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
 "The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
"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 later should
become impossible."
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the
contract upon the failure of the other to perform the obligation assumed thereunder.
Moreover, there is nothing in the law that prohibits the parties from entering into an
agreement that violation of the terms of the contract would cause its cancellation even
without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276) —
"Well settled is, however, the rule that a judicial action for the rescission of
a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions'
(Lopez v. Commissioner of Customs, 37 SCRA 327, 334, and cases cited
therein).
"Resort to judicial action for rescission is obviously not contemplated . . .
The validity of the stipulation can not be seriously disputed. It is in the
nature of a facultative resolutory condition which in many cases has been
upheld by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504)."
The rule that it is not always necessary for the injured party to resort to court for rescission of
the contract when the contract itself provides that it may be rescinded for violation of its
terms and conditions, was qualified by this Court in University of the Philippines v. De los
Angeles, (35 SCRA 102) where we explained that:
"Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was
not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.
"In other words, the party who deems the contract violated many consider
it resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law . . .
"We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is necessary
for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v.
International Banking Corp., 37 Phil. 631; Republic v. Hospital de San
Juan de Dios, et al., 84 Phil. 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be necessary, as
without it, the extrajudicial resolution will remain contestable and subject
to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription."
The right to rescind the contract for non-performance of one of its stipulations, therefore, is
not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
—
"The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827)
The question of whether a breach of a contract is substantial depends upon
the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 &
L-23720, Jan. 17, 1968)." . . .
The defendants-appellants state that the plaintiffs-appellees violated Section two of the
contract to sell which provides:
"SECOND. — That in consideration of the agreement of sale of the above
described property, the party of the SECOND PART obligates himself to
pay to the party of the FIRST PART the Sum of THREE THOUSAND
NINE HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency,
plus interest at the rate of 7% per annum, as follows:
"(a) The amount of THREE HUNDRED NINETY TWO only (P392.00)
when this contract is signed; and
"(b) The sum of FORTY ONE AND 20/100 ONLY (P41.20) on or before
the 19th day of each month, from this date until the total payment of the
price above stipulated, including interest."
because they failed to pay the August installment, despite demand, for more than four (4)
months.
The breach of the contract adverted to by the defendants-appellants is so slight and casual
when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees
had already paid the monthly installments for a period of almost nine (9) years. In other
words, in only a short time, the entire obligation would have been paid. Furthermore,
although the principal obligation was only P3,920.00 excluding the 7 percent interests, the
plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the
rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees.
(See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the
defendants-appellants.
Article 1234 of the Civil Code which provides that: cdphil
"If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee."
also militates against the unilateral act of the defendants-appellants in cancelling the
contract.
We agree with the observation of the lower court to the effect that:
"Although the primary object of selling subdivided lots is business, yet, it
cannot be denied that this subdivision is likewise purposely done to afford
those landless, low income group people of realizing their dream of a little
parcel of land which they can really call their own."
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
"NINTH. — That whatever consideration of the party of the FIRST PART
may concede to the party of the SECOND PART, as not exacting a strict
compliance with the conditions of paragraph 6 of this contract, as well as
any other condonation that the party of the FIRST PART may give to the
party of the SECOND PART with regards to the obligations of the latter,
should not be interpreted as a renunciation on the part of the party of the
FIRST PART of any right granted it by this contract, in case of default or
non-compliance by the party of the SECOND PART."
The defendants-appellants argue that paragraph nine clearly allows the seller to waive the
observance of paragraph 6 not merely once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees
that when the defendants-appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the plaintiffs-appellees have
been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the
defendants-appellants have waived and are now estopped from exercising their alleged right
of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
 "But defendants do not deny that in spite of the long arrearages, neither
they nor their predecessor, Teodoro de Guzman, even took steps to cancel
the option or to eject the appellees from the home-lot in question. On the
contrary, it is admitted that the delayed payments were received without
protest or qualification. . . . Under these circumstances, We cannot but
agree with the lower court that at the time appellees exercised their option,
appellants had already forfeited their right to invoke the above-quoted
provision regarding the nullifying effect of the non-payment of six months
rentals by appellees by their having accepted without qualification on July
21, 1964 the full payment by appellees of all their arrearages."
The defendants-appellants contend in the second assignment of error that the ledger of
payments show a balance of P671.67 due from the plaintiffs-appellees. They submit that
while it is true that the total monthly installments paid by the plaintiffs-appellees may have
exceeded P3,920.00, a substantial portion of the said payments were applied to the interests
since the contract specifically provides for a 7% interest per annum on the remaining balance.
The defendants-appellants rely on paragraph 2 of the contract which provides:
"SECOND. — That in consideration of the agreement of sale of the above
described property, the party of the SECOND PART obligates himself to
pay to the party of the FIRST PART the Sum of THREE THOUSAND
NINE HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency,
plus interest at the rate of 7% per annum . . . ." (Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have
already paid the defendants-appellants a total sum of P4,533.38, the defendants-appellants
must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the
contract which provides:
"TWELFTH. — That once the payment of the sum of P3,920.00, the total
price of the sale is completed, the party to the FIRST PART will execute in
favor of the party of the SECOND PART, the necessary deed or deeds to
transfer to the latter the title of the parcel of land sold, free from all liens
and encumbrances other than those expressly provided in this contract; it is
understood, however, that all the expenses which may be incurred in the
said transfer of title shall be paid by the party of the SECOND PART, as
above stated."
Closely related to the second assignment of error is the submission of the plaintiffs-appellees
that the contract herein is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has
some characteristics of a contract of adhesion. The defendants-appellants drafted and
prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could
build a home, affixed their signatures and assented to the terms and conditions of the contract.
They had no opportunity to question nor change any of the terms of the agreement. It was
offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 361),
we held that:
xxx xxx xxx
". . .' (W)hile generally, stipulations in a contract come about after
deliberate drafting by the parties thereto, .. there are certain contracts
almost all the provisions of which have been drafted only by one party,
usually a corporation. Such contracts are called contracts of adhesion,
because the only participation of the party is the signing of his signature or
his `adhesion' thereto. Insurance contracts, bills of lading, contracts of sale
of lots on the installment plan fall into this category.' (Paras, Civil Code of
the Philippines, Seventh ed., Vol. I, p. 80.)" (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the
defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true
that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment
of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing
it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a
contract must be interpreted against the party who drafted the same, especially where such
interpretation will help effect justice to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the prayed application of a contract
clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in
essence, and in its entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-
appellees have already paid an aggregate amount of P4,533.38, the courts should only order
the payment of the few remaining installments but not uphold the cancellation of the contract.
Upon payment of the balance of P671.67 without any interest thereon, the defendants-
appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees
and execute the necessary transfer documents as provided in paragraph 12 of the contract.
The attorney's fees are justified. cdrep
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from
is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of
SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (671.67)
without any interests. Costs against the defendants-appellants. SO ORDERED.
||| (Angeles v. Calasanz, G.R. No. L-42283, [March 18, 1985], 220 PHIL 10-23)
[G.R. No. 55665. February 8, 1989.]
DELTA MOTOR CORPORATION, petitioner, vs. EDUARDA
SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S.
GENUINO, HECTOR S. GENUINO, EVELYN S. GENUINO, and
The COURT OF APPEALS, respondents.
Alcasid, Villanueva & Associates for petitioner.
Luna, Puruganan, Sison & Ongkiko for respondents.
DECISION
CORTES, J p:
Petitioner, through this petition for review by certiorari, appeals from the decision of
respondent appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et
al. v. Delta Motor Corporation" promulgated on October 27, 1980.
The facts are as follows:
Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly
organized and existing under Philippine laws.
On the other hand, private respondents are the owners of an iceplant and cold storage located
at 1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "España
Extension Iceplant and Cold Storage."
In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to
sell black iron pipes.
The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes
schedule 40, 2" x 20' including delivery at P66,000 with the following terms of payment:
a.20% of the net contract price or P13,200.00 will be due and payable upon
signing of the contract papers.
b.20% of the net contract price or P13,200.00 will be due and payable
before commencement of delivery.
c.The balance of 60% of the net contract price or P39,600.00 with 8%
financing charge per annum will be covered by a Promissory Note bearing
interest at the rate of 14% per annum and payable in TWELVE (12) equal
monthly installment (sic), the first of which will become due thirty (30)
days after the completion of delivery. Additional 14% will be charged for
all delayed payments. [Exh. "A"; Exh. "1".].
The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths
of black iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the
following terms of payment:
a.50% of the net contract price or P2,700.00 will be due and payable upon
signing of the contract papers.
b.50% of the net contract price or P2,700.00 will be due and payable before
commencement of delivery. [Exh. "C"; Exh. "2".]
Both letter-quotations also contain the following stipulations as to delivery and price offer:
DELIVERY.
Ex-stock subject to prior sales.
xxx xxx xxx
Our price offer indicated herein shall remain firm within a period of thirty
(30) days from the date hereof. Any order placed after said period will be
subject to our review and confirmation. [Exhs. "A" and "C"; Exhs. "1" and
"2".]
Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity
thereto by signing his name in the space provided on July 17, 1972 and July 24, 1972 for the
first and second letter-quotations, respectively.
It is undisputed that private respondents made initial payments on both contracts — for the
first contract, P13,200.00 and, for the second, P2,700.00 — for a total sum of P15,900.00 on
July 28, 1972 [Exhs. "B" and "D"].
Likewise unquestionable are the following the nondelivery of the iron pipes by Delta; the
nonpayment of the subsequent installments by the Genuinos; and the non-execution by the
Genuinos of the promissory note called for by the first contract.
The evidence presented in the trial court also showed that sometime in July 1972 Delta
offered to deliver the iron pipes but the Genuinos did not accept the offer because the
construction of the ice plant building where the pipes were to be installed was not yet
finished.
Almost three years later, on April 15, 1975, Hector Genuino, in behalf of España Extension
Ice Plant and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from
its receipt of the request. At the same time private respondents manifested their preparedness
to pay the second installment on both contracts upon notice of Delta's readiness to deliver.
Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July
1972. The company called the attention of the Genuinos to the stipulation in their two (2)
contracts that the quoted prices were good only within thirty (30) days from date of offer.
Whereupon Delta sent new price quotations to the Genuinos based on its current price of
black iron pipes, as follows: cdphil
P241,800.00 for 1,200 lengths of black iron pipes schedule 40, 2" x 20'
[Exh. "G-1".]
P17,550.00 for 150 lengths of black iron pipes schedule 40,1 1/4' x 20'
[Exh. "G-2".]
The Genuinos rejected the new quoted prices and instead filed a complaint for specific
performance with damages seeking to compel Delta to deliver the pipes. Delta, in its answer
prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code. The case
was docketed as Civil Case No. Q-20120 of the then Court of First Instance of Rizal, Branch
XVIII, Quezon City.
After trial the Court of First Instance ruled in favor of Delta, the dispositive portion of its
decision reading as follows:
WHEREFORE, premises considered, judgment is rendered:
1.Declaring the contracts, Annexes "A" and "C" of the complaint
rescinded;
 2.Ordering defendant to refund to plaintiffs the sum of P15,900.00
delivered by the latter as down payments on the aforesaid contracts;
3.Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's
fees; and,
4.To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.].
On appeal, the Court of Appeals reversed and ordered private respondents to make the
payments specified in "Terms of Payment — (b)" of the contracts and to execute the
promissory note required in the first contract and thereafter, Delta should immediately
commence delivery of the black iron pipes. ** [CA Decision, p. 20; Rollo, p. 75.].
The Court of Appeals cited two main reasons why it reversed the trial court, namely:
1.As Delta was the one who prepared the contracts and admittedly, it had
knowledge of the fact that the black iron pipes would be used by the
Genuinos in their cold storage plant which was then undergoing
construction and therefore, would require sometime before the Genuinos
would require delivery, Delta should have included in said contracts a
deadline for delivery but it did not. As a matter of fact neither did it insist
on delivery when the Genuinos refused to accept its offer of delivery. [CA
Decision, pp. 16-17; Rollo, pp. 71-72.]
2.Delta's refusal to make delivery in 1975 unless the Genuinos pay a price
very much higher than the prices it previously quoted would mean an
amendment of the contracts. It would be too unfair for the plaintiffs if they
will be made to bear the increase in prices of the black iron pipes when
they had already paid quite an amount for said items and defendant had
made use of the advance payments. That would be unjust enrichment on
the part of the defendant at the expense of the plaintiffs and is considered
an abominable business practice. [CA Decision, pp. 18-19; Rollo, pp. 73-
74.]
Respondent court denied Delta's motion for reconsideration hence this petition for review
praying for the reversal of the Court of Appeals decision and affirmance of that of the trial
court.
Petitioner argues that its obligation to deliver the goods under both contracts is subject to
conditions required of private respondents as vendees. These conditions are: payment of 20%
of the net contract price or P13,200.00 and execution of a promissory note called for by the
first contract; and payment of 50% of the net contract price or P2,700.00 under the second
contract. These, Delta posits, are suspensive conditions and only upon their performance or
compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 17-
20.] Thus, when private respondents did not perform their obligations; when they refused to
accept petitioner's offer to deliver the goods; and, when it took them three (3) long years
before they demanded delivery of the iron pipes that in the meantime, great and sudden
fluctuation in market prices have occurred; Delta is entitled to rescind the two (2) contracts.
Delta relies on the following provision of law on rescission:
Art. 1191.The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
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.
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.
In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only
where the breach complained of is substantial as to defeat the object of the parties in entering
into the agreement. It will not be granted where the breach is slight or casual." [Phil.
Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA
284, 290.] Further, "[t]he question of whether a breach a contract is substantial depends upon
the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-
29155, May 13, 1970, 33 SCRA 1, 18]. cdphil
In the case at bar, the conduct of Delta indicates that the Genuinos non-performance of its
obligations was not a substantial breach, let alone a breach of contract, as would warrant
rescission.
Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer
to deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept
delivery because the cold storage rooms have not been constructed yet. Plaintiffs (private
respondents herein) were short-funded, and did not have the space to accommodate the pipes
they ordered' [CFI Decision, p. 9; Rollo, p. 49].
Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva,
manager of the Technical Service department of petitioner:
QYou stated that you sent a certain Evangelista to the España Extension
and Cold Storage to offer the delivery subject matter of the
contract and then you said that Mr. Evangelista reported (sic) to
you that plaintiff would not accept delivery, is that correct, as a
summary of your statement?
AYes, sir.
QNow, what did you do in the premises (sic)?
AYes, well, we take the word of Mr. Evangelista. We could not deliver the
said black iron pipes, because as per information the Ice Plant is
not yet finished.
QDid you not report that fact to . . . any other defendant-officials of the
Delta Motor Corporation?
ANo.
QAnd you did not do anything after that?
ABecause taking the word of my Engineer we did not do anything. [TSN,
December 8, 1975, pp. 18-19.]
xxx xxx xxx
And secondly, three (3) years later when the Genuinos offered to make payment
Delta did not raise any argument but merely demanded that the quoted prices be
increased. Thus, in its answer to private respondents' request for delivery of the pipes,
Delta countered:
Thank you for your letter dated April 15, 1975, requesting for delivery of
Black Iron pipes.
We regret to say, however, that we cannot base our price on our proposals
dated July 3 and July 18, 1972 as per the following paragraph quoted on
said proposal:
"Our price offer indicated herein shall remain firm within a period
of thirty (30) days from the date hereof. Any order placed after
said period will be subject to our review and confirmation."
We are, therefore, enclosing our re-quoted proposal based on our current
price. [Exh. "G".]
Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in
treating a contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court." [University of the Phils. v. De los
Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA 102, 107; Emphasis supplied.]
In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its
contracts with the Genuinos. It only raised rescission as a defense when it was sued for
specific performance by private respondents.
Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts
considering the fact that not only does it have in its possession and ownership the black iron
pipes, but also the P15,900.00 down payments private respondents have paid. And if
petitioner Delta claims the right to rescission, at the very least, it should have offered to
return the P15,900.00 down payments [See Art. 1385, Civil Code and Hodges v. Granada, 59
Phil. 429 (1934)]. cdrep
It is for these same reasons that while there is merit in Delta's claim that the sale is subject to
suspensive conditions, the Court finds that it has, nevertheless, waived performance of these
conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of
the Civil Code provides:
Art. 1545.Where the obligation of either party to a contract of sale us
subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the
condition . . . [Emphasis supplied.]
Finally, Delta cannot ask for increased prices based on the price offer stipulation in the
contracts and in the increase in the cost of goods. Reliance by Delta on the price offer
stipulation is misplaced. Said stipulation makes reference to Delta's price offer as remaining
firm for thirty (30) days and thereafter will be subject to its review and confirmation. The
offers of Delta, however, were accepted by the private respondents within the thirty (30) day
period. And as stipulated in the two (2) letter-quotations, acceptance of the offer gives rise to
a contract between the parties:
And as further provided by the Civil Code:
Art. 1319.Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract . . .
Art. 1475.The contract of sale is perfected at the moment there is a meeting
of minds upon thing which is the object of the contract and upon the price.
Thus, the moment private respondents accepted the offer of Delta, the contract of sale
between them was perfected and neither party could change the terms thereof. prcd
Neither could petitioner Delta rely on the fluctuation in the market price of goods to support
its claim for rescission. As testified to by petitioner's Vice-President of Marketing for the
Electronics, Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the
two (2) contracts as to delivery, ex-stock subject to prior sales, means that "the goods have
not been delivered and that there are no prior commitments other than the sale covered by
the contracts . . . once the offer is accepted, the company has no more option to change the
price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim
for higher prices for the black iron pipes due to the increase in the cost of goods. Based on the
foregoing, petitioner Delta and private respondents Genuinos should comply with the original
terms of their contracts.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED.
||| (Delta Motor Corp. v. Genuino, G.R. No. 55665, [February 8, 1989], 252 PHIL 32-41)

In the event that this proposal is acceptable to you, please indicate your
conformity by signing the space provided herein below which also serves
as a contract of this proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".]
 [G.R. No. 101762. July 6, 1993.]
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner,
vs. THE COURT OF APPEALS and SENECA HARDWARE CO.,
INC., respondents.
Ramon P. Gutierrez for petitioner.
Adriano Velasco for private respondent.
DECISION
BIDIN, J p:
Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730,
which set aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil
Case No. Q-45232. The dispositive portion of the assailed decision reads as follows:
"WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-
appellant, the 'Offsetting Agreement' (Exhibit "E" or "2") is hereby
rescinded. Room 601 of Phase I of the Vermen Pines Condominium should
be returned by plaintiff-appellant to defendant-appellee upon payment by
the latter of the sum of P330,855.25 to the former, plus damages in the sum
of P5,000.00 and P50.00 for the furnishings of Phase I of Condo (sic) Units
Nos. 601 and 602, and three (3) day rental of Room 402 during the Holy
Week of 1982, respectively. In addition, defendant-appellee is hereby
ordered to pay plaintiff-appellant, who was compelled to litigate and hire
the services of counsel to protect its interests against defendant-appellee's
violation of their Offsetting Agreement, the sum of P10,000.00 as an award
for attorney's fee (sic) and other expenses of litigation. The claim for
unrealized profits in a sum equivalent to 10% to 20% percent or
P522,000.00 not having been duly proved, is therefore DENIED. No
costs." (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party,
and private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract
denominated as "Offsetting Agreement". The said agreement contained the following
stipulations:
"1. That the FIRST PARTY is the owner/developer of VERMEN PINES
CONDOMINIUM located at Bakakeng Road, Baguio City;
"2. That the SECOND PARTY is in business of construction materials and
other hardware items;
"3. That the SECOND PARTY desires to buy from the FIRST PARTY two
(2) residential condominium units, studio type, with a total floor area of
76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY
SIX THOUSAND (P276,000.00) PESOS only;
"4. That the FIRST PARTY desires to buy from the SECOND PARTY
construction materials mostly steel bars, electrical materials and other
related items worth FIVE HUNDRED FIFTY TWO THOUSAND
(P552,000.00) PESOS only;
"5. That the FIRST PARTY shall pay the SECOND PARTY TWO
HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS in cash
upon delivery of said construction materials and the other TWO
HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS shall be
paid in the form of two (2) residential condominium units, studio type,
with a total floor area of 76.22 square meter (sic) more or less also worth
P276,000.00;
"6. That, for every staggered delivery of construction materials, fifty
percent (50%) shall be paid by the FIRST PARTY to the SECOND
PARTY C.O.D. and, fifty percent (50%) shall be credited to the said
condominium unit in favor of the SECOND PARTY;
"7. That the SECOND PARTY shall deliver to the FIRST PARTY said
construction materials under the agreed price and conditions stated in the
 price quotation approved by both parties and made an integral part of this
document;
"8. That the SECOND PARTY is obliged to start delivering to the FIRST
PARTY all items in the purchase order seven (7) days from receipt of said
purchase order until such time that the whole amount of P552,000.00 is
settled;
"9. That the place of delivery shall be Vermen Pines Condominium at
Bakakeng Road, Baguio City;
"10. That the freight cost of said materials shall be borne fifty percent
(50%) by the FIRST PARTY and fifty percent (50%) by the SECOND
PARTY;
"11. That the FIRST PARTY pending completion of the VERMEN PINES
CONDOMINIUM PHASE II which is the subject of this contract, shall
deliver to the SECOND PARTY the possession of residential
condominium, Phase I, Unit Nos. 601 and 602, studio type with a total area
of 76.2 square meters or less, worth P276,000.00;
"12. That after the completion of Vermen Pines Condominium Phase II, the
SECOND PARTY shall be given by the FIRST PARTY the first option to
transfer from Phase I to Phase II under the same price, terms and
conditions." (Rollo, pp. 26-28).
As found by the appellate court and admitted by both parties, private respondent had paid
petitioner the amount of P110,151.75, and at the same time delivered construction materials
worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums,
petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines
Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence
of the repossession, the officers of the private respondent corporation had to rent another unit
for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the
private respondent corporation requested for a clarification of the petitioner's action of
preventing them and their families from occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased
to another tenant because private respondent corporation had not paid anything for purchase
of the condominium unit. Petitioner corporation demanded payment of P27,848.25
representing the balance of the purchase price of Room 601.
In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II
was denied. Consequently, construction of the condominium project stopped and has not been
resumed since then.
On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of
Quezon City (Branch 92) for rescission of the Offsetting Agreement with damages. In said
complaint, private respondent alleged that petitioner Vermen Realty Corporation had stopped
issuing purchase orders of construction materials after April, 1982, without valid reason, thus
resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware)
part, in violation of the Offsetting Agreement.
In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private
respondent (plaintiff therein): although petitioner issued purchase orders, it was private
respondent who could not deliver the supplies ordered, alleging that they were out of stock.
(However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation,
when asked where the purchase orders were, alleged that she was going to produce the same
in court, but the same was never produced (Rollo. p. 30). Moreover, private respondent
quoted higher prices for the construction materials which were available. Thus, petitioner had
to resort to its other suppliers. Anent the query as to why Unit 602 was leased to another
tenant, petitioner averred that this was done because private respondent had not paid anything
for it. cdphil
As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made
deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25
representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit
was P138,000.00.
After conducting hearings, the trial court rendered a decision dismissing the complaint and
ordering the plaintiff (private respondent in this petition) to pay defendant (petitioner in this
petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the
purchase price of condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.
Petitioner now comes before Us with the following assignment of errors:
I p. )
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS
ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT
SUPPLANTED CONTRARY TO THE EVIDENCE ON RECORD, THE
TRIAL COURT'S CONCLUSIONS THAT PETITIONER DID NOT
VIOLATE THE 'OFFSETTING AGREEMENT' IT ENTERED INTO
WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY
BASELESS 'PERCEPTION' THAT IT WAS PETITIONER WHICH
DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE
STOPPAGE OF THE CONSTRUCTION OF PHASE II OF THE
CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID
PROJECT WAS STOPPED.
II
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS
ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT
CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE
'OFFSETTING AGREEMENT' BECAUSE IT DID NOT SEND
PURCHASE ORDERS TO PRIVATE RESPONDENT AND
DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM
PROJECT DESPITE THE FACT THAT THE EXHIBITS ATTESTING
TO THIS FACT WAS FORMALLY OFFERED IN EVIDENCE IN
COURT AND MENTIONED BY IT IN ITS DECISION.
III
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS
ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT
CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE
'OFFSETTING AGREEMENT' DESPITE THE ADMISSION MADE BY
PRIVATE RESPONDENT'S OWN WITNESS THAT PETITIONER
HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE
CONSTRUCTION MATERIAL (SIC) FROM THE FORMER." (Rollo,
The issue presented before the Court is whether or not the circumstances of the case warrant
rescission of the Offsetting Agreement as prayed for by Private Respondent when he
instituted the case before the trial court.
We rule in favor of private respondent. There is no controversy that the provisions of the
Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or
established at the same time, out of the same cause, and which results in a mutual relationship
of creditor and debtor between parties. In reciprocal obligations, the performance of one is
conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard
Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall
deliver to petitioner construction materials worth P552,000.00 under the conditions set forth
in the Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he
shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and
602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private
respondent; upon completion of Vermen Pines Condominiums Phase II, private respondent
shall be given option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the
term is "resolution") in case of reciprocal obligations, where one of the obligors fails to
comply with what is incumbent upon him.
The general rule is that rescission of a contract will not be permitted for a slight or causal
breach, but only for such substantial and fundamental breach as would defeat the very object
of the parties in executing the agreement. The question of whether a breach of contract is
substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of
Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private respondent who failed to perform its
obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling,
the mere stoppage of the loan for the construction of Phase II of the Vermen Pines
Condominiums should not have had any effect on the fulfillment of the obligations set forth
in the Offsetting Agreement. Petitioner moreover stresses that contrary to private respondent's
averments, purchase orders were sent, but there was failure to deliver the materials ordered
because they were allegedly out of stock. Petitioner points out that, as admitted by private
respondent's witness, petitioner had the discretion to order or not to order constructions
materials, and that it was only after petitioner approved the price, after making a canvass
from other suppliers, that the latter would issue a purchase order. Petitioner argues that this
was the agreement, and therefore the law between the parties, hence, when no purchase
orders were issued, no provision of the agreement was violated. llcd
The impossibility of fulfillment of the obligation on the part of petitioner necessitates
resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned
constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the
option of whether or not to transfer to condominium units in Phase II was one of the factors
which were considered by private respondent when it entered into the agreement. Since the
construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in
no position to perform its obligation to give private respondent the option to transfer to Phase
II. It would be the height of injustice to make private respondent wait for something that may
never come.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. LexSO
ORDERED.

Private respondent, on the other hand, points out that the subject of the Offsetting Agreement ||| (Vermen Realty Development Corp. v. Court of Appeals, G.R. No. 101762, [July 6, 1993])
is Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II
of the Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move
for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the
condominium units to it. FIRST DIVISION

It is evident from the facts of the case that private respondent did not fail to fulfill its [G.R. No. 77647. August 7, 1989.]
obligation in the Offsetting Agreement. The discontinuance of delivery of construction
materials to petitioner stemmed from the failure of petitioner to send purchase orders to
private respondent. The allegation that petitioner had been sending purchase orders to private CETUS DEVELOPMENT INC., petitioner, vs. COURT OF APPEALS
respondent, which the latter could not fill, cannot be given credence. Perhaps in the and EDERLINA NAVALTA, respondents.
beginning, it would send purchase orders to private respondent (as evidenced by the purchase
orders presented in court), and the latter would deliver the construction materials ordered.
However, according to private respondent, after April, 1982, petitioner stopped sending [G.R. No. 77648. August 7, 1989.]
purchase orders. Petitioner failed to refute this allegation. When petitioner's witness,
Treasurer of the petitioner corporation, was asked to produce the purchase orders in court, the CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF
latter promised to do so, but this was never complied with. APPEALS and ONG TENG, respondents.

On the other hand, petitioner would never be able to fulfill its obligation in allowing private
respondent to exercise the option to transfer from Phase I to Phase II, as the construction of [G.R. No. 77649. August 7, 1989.]
Phase II has ceased and the subject condominium units will never be available.
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF
APPEALS and JOSE LIWANAG, respondents.
[G.R. No. 77650. August 7, 1989.] rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the
Susana Realty who went to the premises monthly.
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF
APPEALS and LEANDRO CANLAS, respondents. Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus
Development, Inc., a corporation duly organized and existing under the laws of the
Philippines. From April to June, 1984, the private respondents continued to pay their monthly
[G.R. No. 77651. August 7, 1989.] rentals to a collector sent by the petitioner. In the succeeding months of July, August and
September 1984, the respondents failed to pay their monthly individual rentals as no collector
came.
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF
APPEALS and VICTORIA SUDARIO, respondents.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding
that they vacate the subject premises and to pay the back rentals for the months of July,
[G.R. No. 77652. August 7, 1989.] August and September, 1984, within fifteen (15) days from the receipt thereof. Immediately
upon the receipt of the said demand letters on October 10, 1984, the private respondents paid
their respective arrearages in rent which were accepted by the petitioner subject to the
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF unilateral condition that the acceptance was without prejudice to the filing of an ejectment
APPEALS and FLORA NAGBUYA, respondents. suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the
same condition.
DECISION
For failure of the private respondents to vacate the premises as demanded in the latter dated
October 9, 1984, the petitioner with the Metropolitan Trial Court of Manila complaints for
MEDIALDEA, J p: ejectment against the former, as follows: (1) 105972-CV, against Ederlina Navalta; (2)
105973-CV, against Jose Liwanag; (3) 4 CV, against Flora Nagbuya; (4) 105975-CV, against
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against Ong
of Appeals in CA-GR Nos. SP-079450 entitled, "Cetus Development, Inc., Petitioner vs. Teng.
Hon. Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch XI,
Ederlina Navalta, et. al., respondents." In their respective answers, the six (6) private respondents interposed a common defense.
They claimed that since the occupancy of the premises they paid their monthly rental
The following facts appear in the records: regularly through a collector of the lessor; that their non-payment of the rentals for the
months of July, August and September, 1984, was due to the failure of the petitioner (as the
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, new owner) to send its collector; that they were at a loss as to where they should pay their
Victoria Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512 rentals; that sometime later, one of the respondent called the office of the petitioner to inquire
Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These individual as to where they would make such payments and he was told that a collector would be sent to
receive the same; that no collector was ever sent by the petitioner; and that instead they
verbal leases were on a month-to-month basis at the following rates: Ederlina Navalta at the
received a uniform demand letter dated October 9, 1984.
rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro
Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the
The private respondents, thru counsel, later filed a motion for was consolidation of the six
cases and as a result thereof, the said cases were consolidated in The Metropolitan Trial Court
of Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the
trial court rendered its decision dismissing the six cases, a pertinent portion of which reads, as
follow: Cdpr
"The records of this case show how that the time of the filing of this
complaints, the rental had all been paid. Hence, the plaintiff cannot eject
the defendants from the leased premises, because at the time these cases
were instituted, there are no rentals in arrears.
"The acceptance of the back rental by the plaintiff before the filing of the
complaint, as in these case, the alleged rental arrearages were paid
immediately after receipt of the demand letter, removes its cause of action
in an unlawful detainer case, even if the acceptance was without prejudice.
xxx xxx xxx
"Furthermore, the court has observed that the account involved which
constitutes the rentals of the tenants are relatively small to which the
ejectment may not lie on grounds of equity and for humanitarian reasons.
"Defendants' counterclaim for litigation expenses has no legal and factual
basis for assessing the same against plaintiff.
"WHEREFORE, judgment is hereby rendered dismissing these cases,
without pronouncement as to costs.
"Defendants' counterclaim is likewise dismissed.
"SO ORDERED." (pp 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the
Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided
over by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals). In its
decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of
merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the
petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for
lack of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this
petition, assigning the following errors:
ASSIGNMENT OF ERRORS
"I
"RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE
OF ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID
NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE
PRIVATE RESPONDENTS TENDERED, AND PETITIONER
ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL
IN ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM
PRIVATE RESPONDENTS' RECEIPT OF PETITIONER'S DEMAND
LETTERS TO VACATE THE SUBJECT' PREMISES AND TO PAY
THE RENTALS IN ARREARS.
"II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WEN IT ERRED IN AFFIRMING THE DISMISSAL
OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING
THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL
EJECTMENT OF PRIVATE RESPONDENT.
"III
 "RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE
CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT
CONTROL LAW." (pp. 164-165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there
exists a cause of action when the complaints for unlawful detainer were filed considering the
fact that upon demand by petitioner from private respondents for payment of their back
rentals, the latter immediately tendered payment which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule
70 of the Rules of Court, which provides:
"Sec. 2. Landlord to proceed against tenant only after demand. — No
landlord or his legal representative or assign, shall bring such action
against a tenant for failure to pay rent due or to comply with the conditions
of his lease, unless the tenant shall have failed to pay such rent or comply
with such conditions for a period of fifteen (15) days or five (5) days in
case of building, after demand therefor, made upon him personally, or by
serving written notice of such demand upon the person found on the
premises, or by posting such notice on the premises if no persons be found
thereon."
It interpreted the said provision as follows:
". . . the right to bring an action of ejectment or unlawful detainer must be
counted from the time the defendants failed to pay rent after the demand
therefor. It is not the failure per se to pay rent as agreed in the contract, but
the failure to pay the rent after a demand therefor is made, that entitles the
lessor to bring an action for unlawful detainer. In other words, the demand
contemplated by the above-quoted provision is not a demand to vacate, but
a demand made by the landlord upon his tenant for the latter to pay the rent
due. If the tenant fails to comply with the said demand within the period
provided, his possession becomes unlawful and the landlord may then
bring the action for ejectment." (p. 28, Rollo, G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a
jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to
pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that
must be pursued before resorting to judicial action so much so that when there is full
compliance with the demand, there arises no necessity for court action. LLpr
As to whether this demand is merely a demand to pay rent or comply with the conditions of
the lease or also a demand to vacate, the answer can be gleaned from said Section 2. This
section presupposes the existence of a cause of action for unlawful detainer as it speaks of
"failure to pay rent due or comply with the conditions of the lease." The existence of said
cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for
the rescission of the contract of lease and indemnification for damages, or only the latter,
allowing the contract to remain in force. Accordingly, if the option chosen is for specific
performance, then the demand referred to is obviously to pay rent or to comply with the
conditions of the lease violated. However, if rescission is the option chosen, the demand must
be for the lessee to pay rents or to comply with the conditions of the lease and to vacate.
Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly
the option taken, is that both demands to pay rent and to vacate are necessary to make a lessee
a deforciant in order that an ejectment suit may be filed (Casilan, et al. vs. Tomassi, L-16574,
February 28, 1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423; Dikit vs. Icasiano,
89 Phil. 44).
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1)
there must be failure to pay rent or comply with the conditions of the lease and (2) there must
be demand both to pay or to comply and vacate with in the period specified in Section 2, Rule
70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers
to the existence of the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was
no failure yet on the part of private respondents to pay rents for three consecutive months. As
the terms of the individual verbal leases which were on a month-to-month basis were not
alleged and proved, the general rule on necessity of demand applies, to wit: there is default in
the fulfillment of an obligation when the creditor demands payment at the maturity of the
obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which
provides that "(t)hose obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation."
Petitioner has not shown that its case falls on any of the following exceptions where demand
is not required: (a) when the obligation or the law so declares; (b) when from the nature and
circumstances of the obligation it can be inferred that time is of the essence of the contract;
and (c) when demand would be useless, as when the obligor has rendered it beyond his power
to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it
can be proved. The proof of this demand lies upon the creditor. Without such demand, oral or
written, the effects of default do not arise. This demand is different from the demand required
under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing
cause of action may be pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals
when the obligation matured. Coupled with the fact that no collector was sent as previously
done in the past, the private respondents cannot be held guilty of mora solvendi or delay in
the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month
arrearages and private respondents lost no time in making tender and payment, which
petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to vacate
was premature as it was an exercise of a non-existing right to rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental
after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish The cause
of action for ejectment as the lessor is not only entitled to recover the unpaid rents but also to
eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver
of the cause of action for ejectment especially when accepted with the written condition that
it was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous
not to accept the tender of payment of rentals merely to preserve the right to file an action for
unlawful detainer. However, this line of argument presupposes that a cause of action for
ejectment has already accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be
considered a valid defense for the reason that sending a collector is not one of the obligations
of the lessor under Article 1654. While it is true that a lessor is not obligated to send a
collector, it has been duly established that it has been customary for private respondents to
pay the rentals through a collector. Besides Article 1257, New Civil Code provides that
where no agreement has been designated for the payment of the rentals, the place of payment
is at the domicile of the defendants. Hence, it could not be said that they were in default in the
payment of their rentals as the delay in paying the same was not imputable to them. Rather, it
was attributable to petitioner's omission or neglect to collect. LLjur
Petitioner also argues that neither is its refusal to accept the rentals a defense for non-payment
as Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing due." It bears emphasis that in this case there was no unjustified on
the part of petitioner or non-acceptance without reason that would constitute mora accipiendi
and warrant consignation. There was simply lack of demand for payment of the rentals.
In sum, We hold that respondent court of appeals did not commit grave abuse of discretion
amounting to lack of jurisdiction in its conclusion affirming the trail court's decision
dismissing petitioner's complaint for lack of cause of action. We do not agree, however the
reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit
and the decision dated January 30, 1987 of respondent Court of Appeals is hereby
AFFIRMED. SO ORDERED.
||| (Cetus Development Inc. v. Court of Appeals, G.R. No. 77647, 77648, 77649, 77650,
77651, 77652, [August 7, 1989], 257 PHIL 73-83)
 [G.R. No. 108129. September 23, 1999.] Costs against plaintiff-appellee." 2

AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs.

COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER,
CORP., respondents. As gleaned from the records, the following are the antecedents:

Gancayco Law Offices for petitioner.
Quiroz Dumas and Capistrano Law Offices for private respondent.
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). The contract 3 was in letter-form as follows:
27 June 1986

DECISION AEROSPACE INDUSTRIES INC.

203 E. Fernandez St.

QUISUMBING, J p: San Juan, Metro Manila

Attention: Mr. Melecio Hernandez

This petition for review assails the Decision 1 dated August 19, 1992, of the Court of
Appeals, which set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The Manager
case stemmed from a complaint filed by the buyer (herein petitioner) against the seller
(private respondent) for alleged breach of contract. Although petitioner prevailed in the trial Subject: Sulfuric Acid Shipment
court, the appellate court reversed and instead found petitioner guilty of delay and therefore
liable for damages, as follows: cdrep Gentlemen:

"WHEREFORE, the Decision of the court a quo is SET ASIDE and a new This is to confirm our agreement to supply your Sulfuric Acid requirement
one rendered, dismissing the complaint with costs against the plaintiff under the following terms and conditions: prcd
(herein petitioner) and, on the counterclaim, ordering the plaintiff
Aerospace Chemical Industries, Inc. to pay the defendant, Philippine A. Commodity : Sulfuric Acid in Bulk
Phosphate Fertilizer Corporation the sum of P324,516.63 representing the
balance of the maintenance cost and tank rental charges incurred by the
B. Concentration : 98-99% H2SO4
defendant for the failure of the plaintiff to haul the rest of the sulfuric acid
on the designated date.
C. Quantity : 500MT - 100 MT Ex-Basay
 400 MT Ex-Sangi AEROSPACE INDUSTRIES, INC.

D. Price : US$ 50.00/MT - FOB Cotcot, Basay, Signed: Mr. Melecio Hernandez
Negros Or.
Manager
US$ 54.00/MT - FOB Sangi, Cebu
Initially set beginning July 1986, the agreement provided that the buyer shall pay its
E. Payment : Cash in Philippine currency payable purchases in equivalent Philippine currency value, five days prior to the shipment date.
to Philippine Phosphate Fertilizer Corp. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from
(MAKATI) at PCIB selling rate at the private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric
time of payment at least five (5) days acid should be taken from Basay, Negros Oriental storage tank, while the remaining four
prior to shipment date. hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.

F. Shipping Conditions On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the
sulfuric acid purchased at Basay because private respondent had been incurring incremental
1. Laycan : July expense of two thousand (P2,000.00) pesos for each day of delay in shipment. cdll

2. Loadport : Cotcot, Basay, Negros Or. and On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
Atlas Pier, Sangi, Cebu
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk
xxx xxx xxx Head Services. The vessel was assigned to carry the agreed volumes of freight from
designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from
11. Other terms and Conditions: To be mutually agreed upon. Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship
stopped further loading. Thereafter, the vessel underwent repairs.
Very truly yours,
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve
Philippine Phosphate Fertilizer Corp. the remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before
December 15, 1986. Private respondent said that it would charge petitioner the storage and
consequential costs for the Basay tanks, including all other incremental expenses due to
Signed: Herman J. Rustia
loading delay, if petitioner failed to comply.
Sr. Manager, Materials & Logistics
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
CONFORME: 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. cdrep
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500
MT. 6 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, which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx
"We recently charter another vessel M/T DON VICTOR who will be
authorized by us to lift the balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with
quantity of 227.51 MT and we are willing to pay the additional order at the
prevailing market price, provided the lifting of the total 500 MT be
centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu."
7
March 20, 1987
"This refers to the remaining balance of the above product quantity which
were not loaded to the authorized cargo vessel, M/T Sultan Kayumanggi at
your loadport — Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within
the month of April 1987 and we are arranging for a 500 MT Sulfuric Acid
inclusive of which the remaining balance: 272.49 MT an additional
product quantity thereof of 227.51 MT." 8 cdasia
Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10
to private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or
the return of the purchase price of three hundred seven thousand five hundred thirty
(P307,530.00) pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner
to lift the remaining 30 MT of sulfuric acid from Basay, or pay maintenance and storage
expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases
consisting of 272.49 MT and an additional of 227.51 MT of sulfuric acid. According to
petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that:
"With regard to our balance of sulfuric acid - product at your shore
tank/plant for 272.49 metric ton that was left by M/T Sultana Kayumanggi
due to her sinking, we request for an additional quantity of 227.51 metric
ton of sulfuric acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as
the chartered vessel schedule to lift the high grade sulfuric acid product is
contracted for her full capacity/load which is 500 metric tons more or less.
We are willing to pay the additional quantity - 227.51 metric tons high
grade sulfuric acid in the prevailing price of the said product." 12 prLL
xxx xxx xxx
By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get
its additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the
information to his associate, Herman Rustia, the Senior Manager for Imports and
International Sales of private respondent. In a letter dated July 22, 1988, Rustia replied:
"Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you
that we cannot accommodate your request to lift Sulfuric Acid ex-Isabel
 due to Pyrite limitation and delayed arrival of imported Sulfuric Acid from from Aug. 15, 1986 to Aug. 15, 1987
Japan." 14
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for
the delivery of the purchases remaining, or suffer tedious legal action his client would ————— —————
commence.
Receivable/Counterclaim (P324,516.63)
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before
the Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with ==========
counterclaim, stating that it was the petitioner who was remiss in the performance of its
obligation in arranging the shipping requirements of its purchases and, as a consequence, Trial ensued and after due proceedings, judgment was rendered by the trial court in
should pay damages as computed below: LibLex petitioner's favor, disposing as follows:

Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00 "WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant,
directing the latter to pay the former the following sums: dctai
Less Shipments
1. P306,060.77 - representing the value of the undelivered 272.49 metric
70.009 MT sulfuric acid P72,830.36 tons of sulfuric acid plaintiff paid to defendant;

151.51 MT sulfuric acid 176,966.27 (249,796.63) 2. P91,818.23 - representing unrealized profits, both items with 12%
interest per annum from May 4, 1989, when the complaint was
————— ————— filed until fully paid;

Balance P303,483.37 3. P30,000.00 - as exemplary damages; and

Less Charges 4. P30,000.00 - as attorney's fees and litigation expenses, both last items
also with 12% interest per annum from date hereof until fully paid.
Basay Maintenance Expense
Defendant's counterclaims are hereby dismissed for lack of merit.
from Aug. 15 to Dec. 15, 1986
Costs against defendant." 15
(P2,000.00/day x 122 days) P244,000.00
In finding for the petitioner, the trial court held that the petitioner was absolved in its
Sangi - Tank Rental obligation to pick-up the remaining sulfuric acid because its failure was due to force majeure.
According to the trial court, it was private respondent who committed a breach of contract
when it failed to accommodate the additional order of the petitioner, to replace those that
sank in the sea, thus:
"To begin with, even if we assume that it is incumbent upon the plaintiff to
'lift' the sulfuric acid it ordered from defendant, the fact that force majeure
intervened when the vessel which was previouly (sic) listing, but which the
parties, including a representative of the defendant, did not mind, sunk, has
the effect of absolving plaintiff from 'lifting' the sulfuric acid at the
designated load port. But even assuming the plaintiff cannot be held
entirely blameless, the allegation that plaintiff agreed to a payment of a
2,000-peso incremental expenses per day to defendant for delayed 'lifting'
has not been proven. . . .
Also, if it were true that plaintiff is indebted to defendant, why did
defendant accept a second additional order after the transaction in
litigation? Why also, did defendant not send plaintiff statements of account
until after 3 years? prcd
All these convince the Court that indeed, defendant must return what
plaintiff has paid it for the goods which the latter did not actually receive."
16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court,
as follows:
"Based on the facts of this case as hereinabove set forth, it is clear that the
plaintiff had the obligation to withdraw the full amount of 500 MT of
sulfuric acid from the defendant's loadport at Basay and Sangi on or before
August 15, 1986. As early as August 6, 1986 it had been accordingly
warned by the defendant that any delay in the hauling of the commodity
would mean expenses on the part of the defendant amounting to P2,000.00
a day. The plaintiff sent its vessel, the 'M/T Sultan Kayumanggi', only on
November 19, 1987. The vessel, however, was not capable of loading the
entire 500 MT and in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the 'M/T Sultan
Kayumanggi' did not absolve the plaintiff from its obligation to lift the rest
of the 272.481 MT of sulfuric acid at the agreed time. It was the plaintiff's
duty to charter another vessel for the purpose. It did contract for the
services of a new vessel, the 'M/T Don Victor', but did not want to lift the
balance of 272.481 MT only but insisted that its additional order of 227.51
MT be also given by the defendant to complete 500 MT, apparently so that
the vessel may be availed of in its full capacity. cdtai
xxx xxx xxx
We find no basis for the decision of the trial court to make the defendant
liable to the plaintiff not only for the cost of the sulfuric acid, which the
plaintiff itself failed to haul, but also for unrealized profits as well as
exemplary damages and attorney's fees." 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the
performance of its obligation. It dismissed the complaint of petitioner and ordered it to pay
damages representing the counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its
Resolution dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING
PRIVATE RESPONDENT TO HAVE COMMITTED A BREACH OF
CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID
IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE
RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO
PETITIONER ONLY 227.51 M.T. LLpr
II.
 RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
HOLDING PETITIONER LIABLE FOR DAMAGES TO PRIVATE
RESPONDENT ON THE BASIS OF A XEROX COPY OF AN
ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR
DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT
FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION OF
THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO
CONSIDER THE UNDISPUTED FACTS THAT PETITIONER'S
PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE
RESPONDENT WITHOUT ANY QUALIFICATION AND THAT
PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT
TO SUPPLY PETITIONER 227.519 MT OF SULFURIC ACID IN
ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT
ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID
ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT
CONSIDERING THE LAW THAT WHEN THE SALE INVOLVES
FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR
STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF THE
SELLER (ARTICLE 1504 CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO
RENDER JUDGMENT FOR PETITIONER AFFIRMING THE
DECISION OF THE TRIAL COURT. prLL
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as
follows:
1. Did the respondent court err in holding that the petitioner committed
breach of contract, considering that:
a) the petitioner allegedly paid the full value of its purchases, yet
received only a portion of said purchases?
b) petitioner and private respondent allegedly had also agreed for
the purchase and supply of an additional 227.519 MT of
sulfuric acid, hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. 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?
To resolve these issues, petitioner urges us to review factual findings of respondent court and
its conclusion that the petitioner was guilty of delay in the performance of its obligation.
According to petitioner, that conclusion is contrary to the factual evidence. It adds that
respondent court disregarded the rule that findings of the trial court are given weight, with the
highest degree of respect. Claiming that respondent court's findings conflict with those of the
trial court, petitioner prays that the trial court's findings be upheld over those of the appellate
court. cdphil
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the
withdrawal thereof, or on October 3, 1986, hence, it had complied with the primary condition
set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on
time was due to a storm, a force majeure, which sank the vessel. It thus claims exemption
from liability to pay damages. Petitioner also contends that it was actually the private
respondent's shipping officer, who advised petitioner to buy the additional 227.51 MT of
sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner insists that
when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric acid,
private respondent could not comply with the contract commitment due to "pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary to
those of the trial court, 18 this Court may review those findings, we find the appellate court's
conclusion that petitioner violated the subject contract amply supported by preponderant
evidence. Petitioner's claim was predicated merely on the allegations of its employee,
Melecio Hernandez, that the storm or force majeure caused the petitioner's delay and failure
to lift the cargo of sulfuric acid at the designated loadports. In contrast, the appellate court
discounted Hernandez' assertions. For on record, the storm was not the proximate cause of
petitioner's failure to transport its purchases on time. The survey report submitted by a third
party surveyor, SGS Far East Limited, revealed that the vessel, which was unstable, was
incapable of carrying the full load of sulfuric acid. Note that there was a premature
termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs
before continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs,
the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like
listing to one side. Its unfortunate sinking was not due to force majeure. It sunk because it
was, based on SGS survey report, unstable and unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros
Oriental, elucidated this point: LLphil
"Loading was started at 1500hrs. November 19. At 1600Hrs. November
20, loading operation was temporarily stopped by the vessel's master due to
ships stability was heavily tilted to port side, ship's had tried to transfer the
loaded acid to stbdside but failed to do so, due to their auxiliary pump on
board does not work out for acid.
xxx xxx xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to
delayed advice of said vessel Declared quantity loaded onboard based on
data's provided by PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay
to assist the situation, at 1300Hrs repairing and/or welding of tank number
5 started at 1000Hrs November 27, repairing and/or welding was
suspended due to the explosion of tank no. 5. Explosion ripped about two
feet of the double bottom tank.
November 27 up to date no progress of said vessel" 19
While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report
therein noted:
"Declared quantity loaded on board was based on shore tank withdrawal
due to ship's incomplete tank calibration table. Barge displacement cannot
be applied due to ship was listing to Stboard side which has been loaded
with rocks to control her stability." 20 prcd
These two vital pieces of information were totally ignored by trial court. The appellate court
correctly took these into account, significantly. As to the weather condition in Basay, the
appellate court accepted surveyor Rabe's testimony, thus:
"Q. Now, Mr. Witness, what was the weather condition then at Basay,
Negros Oriental during the loading operation of sulfuric acid on
board the Sultana Kayumanggi?
A. Fair, sir." 21
Since the third party surveyor was neither petitioner's nor private respondent's employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondent's loadports to the petitioner's
designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel
was petitioner's agent. When it failed to comply with the necessary loading conditions of
sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan
Kayumanggi with another seaworthy vessel. However, despite repeated demands, petitioner
did not comply seasonably.
Additionally, petitioner claims that private respondent's employee, Gil Belen, had
recommended to petitioner to fully utilize the vessel, hence petitioner's request for an
additional order to complete the vessel's 500 MT capacity. This claim has no probative
pertinence nor solid basis. A party who asserts that a contract of sale has been changed or
modified has the burden of proving the change or modification by clear and convincing
evidence. 22 Repeated requests and additional orders were contained in petitioner's letters to
private respondent. In contrast, Belen's alleged action was only verbal; it was not
substantiated at all during the trial. Note that, using the vessel to full capacity could redound
to petitioner's advantage, not the other party's. If additional orders were at the instance of
private respondent, the same must be properly proved together with its relevance to the
question of delay. Settled is the principle in law that proof of verbal agreements offered to
vary the terms of written agreements is inadmissible, under the parol evidence rule. 23
Belen's purported recommendation could not be taken at face value and, obviously, cannot
excuse petitioner's default. llcd
Respondent court found petitioner's default unjustified, and on this conclusion we agree:
"It is not true that the defendant was not in a position to deliver the 272.481
MT which was the balance of the original 500 MT purchased by the
plaintiff. The whole lot of 500 MT was ready for lifting as early as August
15, 1986. What the defendant could not sell to the plaintiff was the
additional 227.51 MT which said plaintiff was ordering, for the reason that
the defendant was short of the supply needed. The defendant, however, had
no obligation to agree to this additional order and may not be faulted for its
inability to meet the said additional requirements of the plaintiff. And the
defendant's incapacity to agree to the delivery of another 227.51 MT is not
a legal justification for the plaintiff's refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send
the 'M/T Don Victor' only if the defendant would confirm that it was ready
to deliver 500 MT. Because the defendant could not sell another 227.51
MT to the plaintiff, the latter did not send a new vessel to pick up the
balance of the 500 MT originally contracted for by the parties. This, inspite
the representations made by the defendant for the hauling thereof as
scheduled and its reminders that any expenses for the delay would be for
the account of the plaintiff." 24
We are therefore constrained to declare that the respondent court did not err when it absolved
private respondent from any breach of contract. prLL
Our next inquiry is whether damages have been properly awarded against petitioner for its
unjustified delay in the performance of its obligation under the contract. Where there has
been breach of contract by the buyer, the seller has a right of action for damages. Following
this rule, a cause of action of the seller for damages may arise where the buyer refuses to
remove the goods, such that buyer has to remove them. 25 Article 1170 of the Civil Code
provides:
"Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages."
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor
the performance of the obligation. 26 Art. 1169 states:
"ARTICLE 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation."
In order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid
as agreed, otherwise petitioner would be charged for the consequential damages owing to any
delay. As stated in private respondent's letter to petitioner, dated December 12, 1986: prcd
Subject : M/T "KAYUMANGGI"
Gentlemen :
This is to reiterate our telephone advice and our letter HJR-8612-031 dated
2 December 1986 regarding your sulfuric acid vessel, M/T
"KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have
to be vacated 15th December 1986 as we are expecting the arrival of our
chartered vessel purportedly to haul our equipments and all other
 remaining assets in Basay. This includes our sulfuric acid tanks. We regret,
therefore, that if these tanks are not emptied on or before the 15th of
December, we either have to charge you for the tanks waiting time at
Basay and its consequential costs (i.e. chartering of another vessel for its
second pick-up at Basay, handling, etc.) as well as all other incremental
costs on account of the protracted loading delay." 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did
such delay begin? The above letter constitutes private respondent's extrajudicial demand for
the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however,
we cannot sustain the finding of the respondent court that petitioner's delay started on August
6, 1986. The Court of Appeals had relied on private respondent's earlier letter to petitioner of
that date for computing the commencement of delay. But as averred by petitioner, said letter
of August 6th is not a categorical demand. What it showed was a mere statement of fact, that
"[F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental
expenses of P2,000.00 per day." Noteworthy, private respondent accepted the full payment by
petitioner for purchases on October 3, 1986, without qualification, long after the August 6th
letter. In contrast to the August 6th letter, that of December 12th was a categorical demand.
LibLex
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get
the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a
vessel to travel between Basay and Sangi. Logically, the computation of damages arising
from the shipping delay would then have to be from December 15, 1986, given said
reasonable period after the December 12th letter. More important, private respondent was
forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before
December 15, 1986, were necessary and regular business expenses for which the petitioner
should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until
August 31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should
reimburse private respondent's rental expenses of P32,000 monthly, commencing December
15, 1986, up to August 31, 1987, the period of the extended lease. Note further that there is
nothing on record refuting the amount of expenses abovecited. Private respondent presented
in court two supporting documents: first, the lease agreement pertaining to the equipment,
and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to private
respondent representing the rental charges incurred. Private respondent is entitled to recover
the payment for these charges. It should be reimbursed the amount of two hundred seventy
two thousand (P272,000.00) 29 pesos, corresponding to the total amount of rentals from
December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that 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. 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: cdphil
xxx xxx xxx
(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." (emphasis
supplied)
On this score, we quote with approval the findings of the appellate court, thus:
". . . 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.
Article 1170 of the Civil Code provides:
 'Those who in the performance of their obligations are guilty of
fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages..'
Certainly, the plaintiff [herein petitioner] was guilty of negligence and
delay in the performance of its obligation to lift the sulfuric acid on August
15, 1986 and had contravened the tenor of its letter-contract with the
defendant." 30 LLpr
eighty three pesos and thirty-seven centavos (P303,483.37) representing the price of the
272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of
thirty one thousand, four hundred eighty three pesos and thirty seven centavos (P31,483.37)
be RETURNED soonest by private respondent to herein petitioner. LibLex
Costs against the petitioner. SO ORDERED.

As pointed out earlier, petitioner is guilty of delay, after private respondent made the [G.R. No. 153004. November 5, 2004.]
necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract it became
liable for its shortcomings. Petitioner is indubitably liable for proven damages. SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner,
vs. ERNESTO V. SANTOS and RIVERLAND, INC., respondents.

Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid DECISION
in the amount of three hundred three thousand, four hundred eighty three pesos and thirty
seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses
initially paid by private respondent. It is worth noting that the adjustment and allowance of
QUISUMBING, J p:
private respondent's counterclaim or set-off in the present action, rather than by another
independent action, is encouraged by the law. Such practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the Subject of the present petition for review on certiorari is the Decision, 1 dated January 30,
court's time. 31 The trend of judicial decisions is toward a liberal extension of the right to 2002, as well as the April 12, 2002, Resolution 2 of the Court of Appeals in CA-G.R. CV No.
avail of counterclaims or set-offs. 32 The rules on counterclaims are designed to achieve the 55122. The appellate court reversed the Decision, 3 dated October 4, 1996, of the Regional
disposition of a whole controversy involving the conflicting claims of interested parties at one Trial Court of Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied
time and in one action, provided all parties can be brought before the court and the matter petitioner's Motion for Reconsideration.
decided without prejudicing the right of any party. 33 Set-off in this case is proper and
reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37 (advance The facts of this case are undisputed.
payment), which will leave the amount of P31,483.37 refundable to petitioner.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of and defendant, respectively, in several civil cases filed in different courts in the Philippines.
Appeals in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount On October 26, 1990, the parties executed a Compromise Agreement 4 which amicably ended
of damages awarded in favor of private respondent is REDUCED to Two hundred seventy all their pending litigations. The pertinent portions of the Agreement read as follows:
two thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be
OFFSET against petitioner's advance payment of Three hundred three thousand four hundred
1.Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the
following manner:
a.P1.5 Million immediately upon the execution of this agreement;
b.The balance of P13 Million shall be paid, whether in one lump
sum or in installments, at the discretion of the Foundation,
within a period of not more than two (2) years from the
execution of this agreement; provided, however, that in the
event that the Foundation does not pay the whole or any
part of such balance, the same shall be paid with the
corresponding portion of the land or real properties subject
of the aforesaid cases and previously covered by the
notices of lis pendens, under such terms and conditions as
to area, valuation, and location mutually acceptable to both
parties; but in no case shall the payment of such balance
be later than two (2) years from the date of this agreement;
otherwise, payment of any unpaid portion shall only be in
the form of land aforesaid; SaETCI
2.Immediately upon the execution of this agreement (and [the] receipt of
the P1.5 Million), plaintiff Santos shall cause the dismissal with
prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366
and 18166 and voluntarily withdraw the appeals in Civil Cases
Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No.
24304) respectively and for the immediate lifting of the aforesaid
various notices of lis pendens on the real properties
aforementioned (by signing herein attached corresponding
documents, for such lifting); provided, however, that in the event
that defendant Foundation shall sell or dispose of any of the lands
previously subject of lis pendens, the proceeds of any such sale, or
any part thereof as may be required, shall be partially devoted to
the payment of the Foundation's obligations under this agreement
as may still be subsisting and payable at the time of any such sale
or sales;
xxx xxx xxx
5.Failure of compliance of any of the foregoing terms and conditions by
either or both parties to this agreement shall ipso facto and ipso
jure automatically entitle the aggrieved party to a writ of execution
for the enforcement of this agreement. [Emphasis supplied] 5
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal
of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real
properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos,
leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two
real properties, which were previously subjects of lis pendens. Discovering the disposition
made by the petitioner, respondent Santos sent a letter to the petitioner demanding the
payment of the remaining P13 million, which was ignored by the latter. Meanwhile, on
September 30, 1991, the Regional Trial Court of Makati City, Branch 62, issued a Decision 6
approving the compromise agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it
would pay the balance of P13 million. There was no response from petitioner. Consequently,
respondent Santos applied with the Regional Trial Court of Makati City, Branch 62, for the
issuance of a writ of execution of its compromise judgment dated September 30, 1991. The
RTC granted the writ. Thus, on March 10, 1993, the Sheriff levied on the real properties of
petitioner, which were formerly subjects of the lis pendens. Petitioner, however, filed
numerous motions to block the enforcement of the said writ. The challenge of the execution
of the aforesaid compromise judgment even reached the Supreme Court. All these efforts,
however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were
auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it
was issued a Certificate of Sale covering the real properties subject of the auction sale.
Subsequently, another auction sale was held on February 8, 1995, for the sale of real
properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The
Certificates of Sale issued for both properties provided for the right of redemption within one
year from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and COMPROMISE AGREEMENT NOR IN THE COMPROMISE
Damages 7 alleging that there was delay on the part of petitioner in paying the balance of P13 JUDGMENT OF HON. JUDGE DIOKNO PROVIDES FOR PAYMENT
million. They further alleged that under the Compromise Agreement, the obligation became OF INTEREST TO THE RESPONDENT
due on October 26, 1992, but payment of the remaining P12 million was effected only on
November 22, 1994. Thus, respondents prayed that petitioner be ordered to pay legal interest II
on the obligation, penalty, attorney's fees and costs of litigation. Furthermore, they prayed
that the aforesaid sales be declared final and not subject to legal redemption. WHETHER OF NOT THE COURT OF APPEALS ERRED IN
AWARDING LEGAL IN[T]EREST IN FAVOR OF THE
In its Answer, 8 petitioner countered that respondents have no cause of action against it since RESPONDENTS, MR. SANTOS AND RIVERLAND, INC.,
it had fully paid its obligation to the latter. It further claimed that the alleged delay in the NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE
payment of the balance was due to its valid exercise of its rights to protect its interests as PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF
provided under the Rules. Petitioner counterclaimed for attorney's fees and exemplary MONEY HAD BEEN CONVERTED TO AN OBLIGATION TO PAY IN
damages. aSADIC KIND — DELIVERY OF REAL PROPERTIES OWNED BY THE
PETITIONER — WHICH HAD BEEN FULLY PERFORMED
On October 4, 1996, the trial court rendered a Decision 9 dismissing herein respondents'
complaint and ordering them to pay attorney's fees and exemplary damages to petitioner. III
Respondents then appealed to the Court of Appeals. The appellate court reversed the ruling of
the trial court: WHETHER OR NOT RESPONDENTS ARE BARRED FROM
DEMANDING PAYMENT OF INTEREST BY REASON OF THE
WHEREFORE, finding merit in the appeal, the appealed Decision is WAIVER PROVISION IN THE COMPROMISE AGREEMENT, WHICH
hereby REVERSED and judgment is hereby rendered ordering appellee BECAME THE LAW AMONG THE PARTIES 10
SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on
the principal amount of P13 million at the rate of 12% per annum from the The only issue to be resolved is whether the respondents are entitled to legal interest.
date of demand on October 28, 1992 up to the date of actual payment of the
whole obligation; and (2) P20,000 as attorney's fees and costs of suit. Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does
not provide for the payment of interest, the legal interest by way of penalty on account of
SO ORDERED. fault or delay shall not be due and payable, considering that the obligation or loan, on which
the payment of legal interest could be based, has been superseded by the compromise
Hence this petition for review on certiorari where petitioner assigns the following issues: agreement. 11 Furthermore, the petitioner argues that the respondents are barred by res
judicata from seeking legal interest on account of the waiver clause in the duly approved
I compromise agreement. 12 Article 4 of the compromise agreement provides:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED Plaintiff Santos waives and renounces any and all other claims that he and
REVERSIBLE ERROR WHEN IT AWARDED LEGAL INTEREST IN his family may have on the defendant Foundation arising from and in
FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, connection with the aforesaid civil cases, and defendant Foundation, on the
INC., NOTWITHSTANDING THE FACT THAT NEITHER IN THE other hand, also waives and renounces any and all claims that it may have
 against plaintiff Santos in connection with such cases. 13 [Emphasis
supplied.] ETCcSa
Lastly, petitioner alleges that since the compromise agreement did not provide for a period
within which the obligation will become due and demandable, it is incumbent upon
respondent Santos to ask for judicial intervention for purposes of fixing the period. It is only
when a fixed period exists that the legal interests can be computed.
Respondents profer that their right to damages is based on delay in the payment of the
obligation provided in the Compromise Agreement. The Compromise Agreement provides
that payment must be made within the two-year period from its execution. This was approved
by the trial court and became the law governing their contract. Respondents posit that
petitioner's failure to comply entitles them to damages, by way of interest. 14
The petition lacks merit.
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. 15 It is an agreement between two or
more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by
mutual consent in the manner which they agree on, and which everyone of them prefers in the
hope of gaining, balanced by the danger of losing. 16
The general rule is that a compromise has upon the parties the effect and authority of res
judicata, with respect to the matter definitely stated therein, or which by implication from its
terms should be deemed to have been included therein. 17 This holds true even if the
agreement has not been judicially approved. 18
In the case at bar, the Compromise Agreement was entered into by the parties on October 26,
1990. 19 It was judicially approved on September 30, 1991. 20 Applying existing
jurisprudence, the compromise agreement as a consensual contract became binding between
the parties upon its execution and not upon its court approval. From the time a compromise is
validly entered into, it becomes the source of the rights and obligations of the parties thereto.
The purpose of the compromise is precisely to replace and terminate controverted claims. 21
In accordance with the compromise agreement, the respondents asked for the dismissal of the
pending civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the
execution of the agreement. This act of the petitioner showed that it acknowledges that the
agreement was immediately executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise agreement are
clear and unambiguous. It provides:
xxx xxx xxx
b.The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not
more than two (2) years from the execution of this agreement. . . . 22
[Emphasis supplied.]
xxx xxx xxx
The two-year period must be counted from October 26, 1990, the date of execution of the
compromise agreement, and not on the judicial approval of the compromise agreement on
September 30, 1991. When respondents wrote a demand letter to petitioner on October 28,
1992, the obligation was already due and demandable. When the petitioner failed to pay its
due obligation after the demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation. [Emphasis supplied]
Delay as used in this article is synonymous to default or mora which means delay in the
fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. 23
In order for the debtor to be in default, it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.
24
In the case at bar, the obligation was already due and demandable after the lapse of the two-
year period from the execution of the contract. The two-year period ended on October 26,
1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the
obligation was already due and demandable. Furthermore, the obligation is liquidated because
the debtor knows precisely how much he is to pay and when he is to pay it. ADcSHC

The second requisite is also present. Petitioner delayed in the performance. It was able to
fully settle its outstanding balance only on February 8, 1995, which is more than two years
after the extra-judicial demand. Moreover, it filed several motions and elevated adverse
resolutions to the appellate court to hinder the execution of a final and executory judgment,
and further delay the fulfillment of its obligation.

Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an
extra-judicial demand contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance of its obligation.
This is provided for in Article 1170 25 of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest as damages is
generally allowed as a matter of right. 26 The complaining party has been deprived of funds
to which he is entitled by virtue of their compromise agreement. The goal of compensation
requires that the complainant be compensated for the loss of use of those funds. This
compensation is in the form of interest. 27 In the absence of agreement, the legal rate of
interest shall prevail. 28 The legal interest for loan as forbearance of money is 12% per
annum 29 to be computed from default, i.e., from judicial or extra-judicial demand under and
subject to the provisions of Article 1169 of the Civil Code. 30

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30,
2002 of the Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122
are AFFIRMED. Costs against petitioner. SO ORDERED.

||| (Santos Ventura Hocorma Foundation v. Santos, G.R. No. 153004, [November 5, 2004],
484 PHIL 447-459)