CETUS DEVELOPMENT CORP V CA

Facts
Private respondents were the lessees of the premises located at Quiapo, Manila, originally owned by the
Susana Realty. These individual verbal leases were on a month-to month basis. The payments of the
rentals were paid by the lessees to a collector of the Susana Realty who went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus
Development, Inc.
From April to June of the same year, the private respondents continued to pay their monthly rentals to a
collector sent by Cetus. In the succeeding months of July, August and September, the respondents failed
to pay their monthly individual rentals as no collector came.
On October 9, 1984, Cetus 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, August and September 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 Cetus subject to the unilateral condition
that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental
payments were likewise accepted by Cetus under the same condition.
The private respondents failed to vacate the premises as demanded in the letter, thus, the petitioner filed
with the MTC Manila complaints for ejectment.
In their respective answers, the six (6) private respondents interposed a common defense. They claimed
that
1. since the occupancy of the premises, they paid their monthly rental regularly through a
collector of the lessor;
2. 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 new owner) to send its collector;
3. they were at a loss as to where they should pay their rentals; that sometime later, one
of the respondents called the office of the petitioner to inquire as to where they would
make such payments and he was told that a collector would be sent to receive the
same;
4. no collector was ever sent by the petitioner; and that instead they received a uniform
demand letter dated October 9, 1984.
The six cases were consolidated in the MTC Manila. The trial court rendered its decision dismissing the
six cases on the ground that at the time of the filing of the complaint, the rentals had all been paid.
Hence, Abella cannot eject Guillermos 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 Abella before the filing of
the complaint, as in this 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. 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.
The petitioner appealed to RTC-Manila but it was dismissed for lack of merit. CA likewise dismissed the
petition for lack of merit. Hence, this petition.
Issue: WON 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.

Ruling (NO. no specific demand to pay rent for July, August, September; combined with demand to vacate;
respondents immediately paid; no delay; no cause of action)
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
Guillermos 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."
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.
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.
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. 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. (Since no demand for payment of rentals, rescission cannot be availed!!) 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 Guillermos. 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.
Thus, petition is denied for lack of merit. CAs decision is hereby affirmed.
ABELLA V. GUILLERMO

Facts

Respondent Guillermo purchased from the Government on installments, lots 937 to 945 of the Tala Estate
in Caloocan, Rizal. He was behind in payments for some of these installments.
On October 31, 1928, he signed a document stating that he received P500 from petitioner Abella as
payment on account of lots Nos. 937-945 of the Tala Estate, barrio of Caloocan, Rizal, the balance being
due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter.
Abella made another payment of P415.31 on November 13, upon demand made by Guillermo. On
December 27th of the same year, Guillermo, being in the Province of Cebu, wrote to a certain Roman
Mabanta of City of Manila, attaching a power of attorney authorizing him to sign in his behalf all the
documents required by the Bureau of Lands for the transfer of the lots to Abella.
In that letter, Guillermo instructed Roman Mabanta, that in the event Abella failed to pay the remainder
of the selling price, to inform him that the option would be considered cancelled, and to return to him the
amount of P915.31 already delivered.
On January 3, 1929, Mabanta notified Abella that he had received the power of attorney to sign the deed
of conveyance of the lots to him, and that he was willing to execute the proper deed of sale upon
payment of the balance due. Abella asked for a few days' time, but Mabanta, following the instructions he
had received from Guillermo, only gave him until the 5th of that month. Abella did not pay the rest of the
price on the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however, refused
to accept it, and gave him to understand that he regarded the contract as rescinded. On the same day,
Mabanta returned by check the sum of P915.31 which Abella had paid.
Abella brought this action to compel Guillermo to execute the deed of sale of the lots in question, upon
receipt of the balance of the price, and asks that he be judicially declared the owner of said lots and that
Guillermo be ordered to deliver them to him.
The court absolved Guillermo from the complaint, and Abella appealed.

Issue : WON time was an essential element of the contract, and therefore, Giuillermo was entitled to rescind the
contract for failure of Abella to pay the price within the specified time

Ruling (YES)

In rendering that judgment, the court relied on the fact that Abella had failed to pay the price of the lots
within the stipulated time; and that since the contract between Abella and Guillermo was an option for
the purchase of the lots, time was an essential element in it.
It is to be noted that in the document signed by Guillermo, the 15th of December was fixed as the date,
extendible for fifteen days, for the payment by Abella of the balance of the selling price. It has been
admitted that Abella did not offer to complete the payment until January 9, 1929. He contends that
Mabanta, as attorney-in-fact for Guillermo in this transaction, granted him an extension of time until the
9th of January. But Mabanta has stated that he only extended the time until the 5th of that month.
Mabanta's testimony on this point is corroborated by that of Paz Vicente and by Abella's own admission
to Narciso Javier that his option to purchase those lots expired on January 5, 1929.
In holding that the period was an essential element of the transaction between Abella and Guillermo, the
trial court considered that the contract in question was an option for the purchase of the lots, and that in
 an agreement of this nature, the period is deemed essential. The opinion of the court is divided upon the
question of whether the agreement was an option or a sale, but even supposing it was a sale, the court
holds that time was an essential element in the transaction. Guillermo wanted to sell those lots to Abella
in order to pay off certain obligation which fell due in the month of December, 1928. The time fixed for
the payment of the price was therefore essential for Guillermo, and this view in borne out by his letter to
his representative Mabanta instructing him to consider the contract rescinded if the price was not
completed in time. In accordance with article 1124 of the Civil Code, Guillermo is entitled to resolve the
contract for failure to pay the price within the time specified.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.

VDA. DE VILLARUEL VS. MANILA MOTOR

Facts
Sometime in May of 1940, Villaruel and Manila Motor entered into a lease contract for five (5) years
which is renewable for an additional five years. The monthly rental agreed was Three Hundred (P300)
pesos payable in advance before the fifth day of each month.
This situation, Manila Motor and its branch manager enjoying the premises, and the lessors receiving the
corresponding rentals as stipulated, continued until the invasion of 1941; and shortly after the Japanese
military occupation of the Provincial Capital of Bacolod the enemy forces held and used the properties
leased as part of their quarters from 1942-1945, ousting the lessee therefrom. No payment of rentals was
made at any time during the said period.
Immediately upon the liberation of the said city in 1945, the American Forces occupied the same buildings
that were vacated by the Japanese, including those leased by Manila Motor. Monthly rentals were paid by
the said occupants to the owners during the time that they were in possession, as the same rate that
Manila Motor used to pay.
Thereafter, when the United States Army finally gave up the occupancy the premises, Manila Motor,
through their branch manager, Rafael Grey, decided to exercise their option to renew the contract for the
additional period of five (5) years, and the parties agreed that the seven months occupancy by the U. S.
Army would not be counted as part of the new 5-year term. Simultaneously with such renewal, the
company subleased the same buildings, except that used for the residence of the branch manager, to the
other defendant, Arturo Colmenares.
However, before resuming the collection of rentals, Villaruel, who was entrusted with the same,
consulted Atty Hilado on whether they had the right to collect, from Manila Motor, rentals corresponding
to the time during which the Japanese military forces had control over the leased premises. Upon being
advised that they had such a right, Dr. Villaruel demanded payment thereof, but Manila Motor refused to
pay. As a result, Dr. Villaruel gave notice seeking the rescission of the contract of lease and the payment
of rentals from June 1, 1942 to March 31, 1945 (Japanese occupation). This was also rejected by Manila
Motor.
Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350, for
which, tenderer requested a receipt that would state that it was in full payment for the said month. The
latter expressed willingness to accept the tendered amount provided, however, that his acceptance
should be understood to be without prejudice to their demand for the rescission of the contract, and for
increased rentals until their buildings were returned to them. As no accord could still be reached between
the parties as to the context of the receipt, no payment was thereafter tendered. On December 4, 1946
(the day after Manila Motor notified Dr. Villaruel by telegram, that it cancelled the power of attorney
given to Grey, and that it now authorized Arturo Colmenares, instead, to pay the rent of P350 each
 month), Manila Motor. remitted to Dr. Villaruel by letter, the sum of P350.90. For this payment, the latter
issued a receipt stating that it was "without prejudice" to their demand for rents in arrears and for the
rescission of the contract of lease.
After it had become evident that the parties could not settle their case amicably, the lessors commenced
this action with the CFI - Negros Occidental against the appellants herein. During the pendency of the
case, a fire originating from the projection room of the City Theatre, into which Arturo Colmenares, (the
sublessee) had converted the former repair shop of Manila Motor completely razed the building,
engulfing also the main building where Colmenares had opened a soda fountain and refreshment parlor,
and made partitions for store spaces which he rented to other persons.
Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but
having been refused, they filed a supplemental complaint to include as their third cause of action, the
recovery of the value of the burned buildings.
Trial Court ruled in favor of Villaruel. Thereafter, Manila Motor regularly appealed to this Court.

Issue:
1. WON Manila Motor is liable for the rentals of the premises leased corresponding to the lapse of time that
they were occupied by Japanese army; (NO)
2. WON Manila Motor was placed in default by its refusal to comply with the demand to pay such rents
which will determine whether they are liable for the loss of the leased premises caused by fire (NO)

Ruling

Villaruel contended that the ouster of the lessee company by the Japanese occupation forces from 1942
until liberation, while operating to deprive the lessee of the enjoyment of the thing leased, was,
nevertheless, a mere act of trespass that, under the Spanish Civil Code of 1889 did not exempt the lessee
from the duty to pay rent. We find that contention and ruling erroneous and untenable.
The pertinent articles of the Civil Code of Spain of 1889 provide:
"ART. 1554(3). It shall be the duty of the lessor to maintain the lessee in the peaceful
enjoyment of the lease during the entire term of the contract.
"ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the
use of the leased property; but the lessee shall have a direct action against the trespasser.
If the third person, be it the Government or a private individual, has acted in reliance upon a right, such
action shall not be deemed a mere act of disturbance." (Italics supplied)
Under the generally accepted principles of international law (and it must be remembered that those
principles are made by our Constitution a part of the law of our nation) a belligerent occupant may
legitimately billet or quarter its troops in privately owned land and buildings for the duration of its military
operations, or as military necessity should demand.
We are thus forced to conclude that in evicting the lessee, Manila Motor from the leased buildings and
occupying the same as quarters for troops, the Japanese authorities acted pursuant to a right recognized
by international and domestic law. Thus, the lessors Villaruel and not Manila Motors were liable for the
consequences of which said lessors must respond, since the result of the disturbance was the deprivation
of the lessee of the peaceful use and enjoyment of the property leased. Wherefore, the latter's
corresponding obligation to pay rentals ceased during such deprivation.
In addition, the text of Art. 1560, in its first paragraph assumes that in case of mere disturbance "the
lessee shall have a direct action against the trespasser." This assumption evidently does not contemplate
 the case of dispossession of the lessee by a military occupant, as pointed out by Mr. Chief Justice Paras in
his dissenting opinion in Reyes vs. Caltex: for the reason that the lessee could not have a direct action
against the military occupant. It would be most unrealistic to expect that the occupation courts, placed
under the authority of the occupying belligerent, should entertain at the time a suit for forcible entry
against the Japanese army. The plaintiffs, their lawyers, and in all probability, the Judge and court
personnel, would face "severest penalties" for such defiance of the invader.
The lessor's position is not improved by regarding the military seizure of the property under lease as a
case of force majeure or fortuitous event. Ordinarily, a party may not be held responsible therefor,
despite the fact that it prevented compliance of its obligations. But lease being a contract that calls for
prestations that are both reciprocal and repetitive, the obligations of either party are not discharged at
any given moment, but must be fulfilled all throughout the term of the contract. As a result, any
substantial failure by one party to fulfill its commitments at any time during the contract period gives rise
to a failure of consideration (causa) for the obligations of the other party and excuses the latter from the
correlative performance, because the causa in lease must exist not only at the perfection but throughout
the term of the contract. No lessee would agree to pay rent for premises he could not enjoy.
This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event;
the only difference being that in case of fault, the other party is entitled to rescind the contract in
toto, and collect damages, while in casual non-performance it becomes entitled only to a suspension pro
tanto of its own commitments. This rule is recognized in par. 2 of Art. 1558, authorizing the lessee to
demand reduction of the rent in case of repairs depriving him of the possession of part of the property;
and in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more than one-
half of the fruits are lost by extraordinary fortuitous event. Of course, where it becomes immediately
apparent that the loss of possession or enjoyment will be permanent, as in the case of accidental
destruction of a leased building, the lease contract terminates.
The civil law regards a lease for years as a mere transfer of the use and enjoyment of the property; and
holds the landlord bound, without any express covenant, to keep it in repair and otherwise fit for use and
enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is caused
by an inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent
abated.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal
of the contract of lease for another five years (from June 1, 1946 to May 31 of 1951) without making any
reservation regarding the alleged liability of the lessee company for the rentals corresponding to the
period of occupancy of the premises by the Japanese army, and without insisting that the non-payment of
such rental was a breach of the contract of lease. This passivity of the lessors strongly supports the claim
of the lessees that the rentals in question were verbally waived. Lessors contend that the they could not
refuse to renew the lease, because the privilege of renewal had been granted to the lessees in the original
contract. Such excuse is untenable: if the lessors deemed that the contract had been breached by the
lessee's non-payment of the occupation rents how could they admit the lessee's right to renew a contract
that the lessee itself had violated?
But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It was
only in July 1946 that they insisted upon collecting also the 1942-1945 rents, and refused to accept
further payments tendered by the lessee unless their right to collect the occupation rental was recognized
or reserved. After refusing the rents from July to November 1946, unless the lessee recognized their right
to occupation rentals, the lessor demanded rescission of the contract and a rental of P1,740 monthly in
lieu of the stipulated P350 per month.
 This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by the
Japanese army exempted the lessee from his obligation to pay rent for the period of its ouster; and
second, because even if the lessee had been liable for that rent, its collection in 1946 was barred by the
moratorium order, Executive Order No. 32, that remained in force until replaced by Rep. Act 342 in 1948.
To apply the current rentals to the occupation obligations would amount to enforcing them contrary to
the moratorium decreed by the government.
Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was
unwarranted in law. Hence, their refusal to accept the current rentals without qualification placed them
in default (mora creditoris or acci piendi) with the result that thereafter, they had to bear all
supervening risks of accidental injury or destruction of the leased premises. While not expressly
declared by the Code of 1889, this result is clearly inferable from the nature and effects of mora, and
from Articles 1185, 1452 [par. 3] and 1589).
"ART. 1185. When the obligation to deliver a certain and determinate thing arises from the commission of
a crime or misdemeanor the obligor shall not be exempted from the payment of its value, whatever the cause
of its loss may have been, unless, having offered the thing to the person entitled 'to receive it, the latter
should have refused without reason to accept it."
"Art. 1452. . . If fungible things should be sold for a price fixed with relation to weight, number, or
measure, they shall not be at the purchaser's risk until they have been weighed, counted, or measured, unless
the purchaser should be in default."
"ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he shall
bear the loss in case of the destruction of the work before it is delivered, unless its acceptance has been
delayed by the default of the other party."
While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code of
1889, Art. 1563), it is noteworthy that the lessors have not invoked that presumption either here or in the
court below. On the contrary, the parties and the trial court have all proceeded and discussed the issues
taking for granted that the destruction of the leased buildings was purely fortuitous. We see no reason for
departing from that assumption and further prolonging this litigation.
That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly
rejected by the lessors, did not render the debtor liable for default (mora solvendi) nor answerable for
fortuitous events the only effect of the failure to consign the rentals in court was that the obligation to
pay them subsisted and the lessee remained liable for the amount of the unpaid contract rent,
corresponding to the period from July to November, 1946; it being undisputed that, from December 1946
up to March 2, 1948, when the commercial buildings were burned, the defendants-appellants have paid
the contract rentals at the rate of P350 per month. But the failure to consign did not eradicate the
default (mora) of the lessors nor the risk of loss that lay upon them
In view of the foregoing, we hold:
(a) That the dispossession of the lessee from the premises by the Japanese army of occupation was not an act of
mere trespass ( perturbacion de mero hecho) but one de derecho (disturbance of right) chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the exemption of
the lessee from its obligation to pay rent during the period that it was deprived of the possession and enjoyment
of the premises leased;
(c) That the insistence of the lessors to collect such rentals was unwarranted;
(d) That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee should
recognize their right to the rents corresponding to the period that the lessee was not in possession;
(e) That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred in
default (mora) and they must shoulder the subsequent accidental loss of the premises leased;
(f) That the mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected
payments, but the lessee remained obligated to pay the amounts tendered and not consigned by it in court.
The decision appealed from is modified in the sense that the appellant Manila Motor Company should pay
to the appellees Villaruel only the rents for the leased premises corresponding to the period from July up
to November 1946, at the rate of P350 a month, or a total of P1,750.

CENTRAL BANK V. CA

Facts

Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a
real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan. The loan called for a lump sum
of P80,000, repayable in semi-annual installments for 3 yrs, with 12% annual interest. After the agreement, a mere
P17K partial release of the loan was made by the bank and Tolentino and his wife signed a promissory note for the
P17,000 at 12% annual interest payable w/in 3 yrs. An advance interest was deducted from the partial release but
this prededucted interest was refunded to Tolentino after being informed that there was no fund yet for the
release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the bank fr
making new loans and investments. And after the bank failed to restore its solvency, the Central Bank prohibited
Island Savings Bank from doing business in the Philippines. Island Savings Bank in view of the non-payment of the
P17K filed an application for foreclosure of the real estate mortgage. Tolentino filed petition for specific
performance or rescission and damages with preliminary injunction, alleging that since the bank failed to deliver
P63K, he is entitled to specific performance and if not, to rescind the real estate mortgage.

Issues: 1) Whether or not Tolentinos can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
3) Whether or not the real estate mortgage can be foreclosed
Held:

1) Whether or not Tolentinos can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the other party
not ready nor willing incurs in delay. When Tolentino executed real estate mortgage, he signified willingness to
pay. That time, the banks obligation to furnish the P80K loan accrued. Now, the Central Bank resolution made it
impossible for the bank to furnish the P63K balance. The prohibition on the bank to make new loans is irrelevant
bec it did not prohibit the bank fr releasing the balance of loans previously contracted. Insolvency of debtor is not
an excuse for non-fulfillment of obligation but is a breach of contract.
The banks asking for advance interest for the loan is improper considering that the total loan hasnt been
released. A person cant be charged interest for nonexisting debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. The bank officials should have been more responsible and the
bank bears risk in case the collateral turned out to be overvalued. Furthermore, this was not raised in the
pleadings so this issue cant be raised. The bank was in default and Tolentino may choose bet specific performance
or rescission w/ damages in either case. But considering that the bank is now prohibited fr doing business, specific
performance cannot be granted. Rescission is the only remedy left, but the rescission shld only be for the P63K
balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the P17,000.00 loan when it
falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note
setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to
pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00,
hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares
is more than sufficient to secure a P17,000.00 debt.

CHAVEZ V GONZALES

Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales, a typewriter repairman, for the
cleaning and servicing of the said typewriter but the latter was not able to finish the job. During October 1963, the
plaintiff gave the amount of P6.00 to the defendant which the latter asked from the plaintiff for the purchase of
spare parts, because of the delay of the repair the plaintiff decided to recover the typewriter to the defendant
which he wrapped it like a package. When the plaintiff reached their home he opened it and examined that some
parts and screws was lost. That on October 29, 1963 the plaintiff sent a letter to the defendant for the return of
the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to
the plaintiff some of the missing parts, the interior cover and the P6.00. The plaintiff brought his typewriter to
Freixas Business Machines and the repair cost the amount of P89.85. He commenced this action on August 23,
1965 in the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorneys
fees. The defendant made no denials of the facts narrated above, except the claim of the plaintiff that the cost of
the repair made by Freixas Business Machines be fully chargeable against him.
Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas Business Machines
with the plaintiff typewriter?
Ruling: No, he is not liable for the total cost of the repair made by Freixas Business Machines instead he is only
liable for the cost of the missing parts and screws. The defendant contravened the tenor of his obligation in
repairing the typewriter of the plaintiff that he fails to repair it and returned it with the missing parts, he is liable
under ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may
be decreed that what has been poorly done he undone.