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2.

4 Consequences of Failure to Comply

Angeles vs Calasanz 135 SCRA 323 (1985)

FACTS

1. 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.
2. 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.
3. 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.

4. 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.

5. 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. CFI
rendered a ruling favor of the plaintiffs-appellees prompting
Calasanz spouses to appeal.

ISSUES

1. WON the contract to sell has been automatically and validly


cancelled by the defendants-appellants Calasanz spouses

2. WON the contract partakes of a contract of adhesion and


therefore must be strictly construed against the one who drafted it
(defendants-appellants)

HELD

1. NO. "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.

- 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:

“If the obligation has been substantially performed in good faith,


the obligor may recovers 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 argue that paragraph nine of the


contract 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.

2. YES. 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. "x x x (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. 1, p. 80.)" (Italics 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."

Disposition 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 interests 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.

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 (P671.67)
without any interests.

RELIANCE COMMODITIES, INC. v. INTERMEDIATE


APPELLATE COURT
Facts:
Martin Paez entered into a contract with Samuel Chuason,
president and general manager of Reliance Commodities, Inc. on
Apr. 19, 1972 where the latter agreed to provide the former with
funds and equipment for the operation of manganese mining claims
of Daniel Garde in Nueva Ecija. On Jun. 1, 1972, they entered into
another agreement called “Addendum to Operating Agreement”
which provides that Paez must segregate the Manganese Ores into
2 classes with Reliance Commodities, Inc. giving Paez a cash
advance of P8,300 to hire laborers, tools, supplies and food. The
bulldozer, dump truck and cobra drill were provided by petitioner.
On Jul. 28, 1972, Paez executed a deed of first real estate
mortgage on their property as security for more cash advances to
sustain the operation, amounting to P25,030.

A difference arose between petitioner and Paez regarding the cash


advances. Petitioner demanded the tools back, which Paez’
laborers refused to return because they had not been paid their
wages. Petitioner gave Paez P800 to pay their salaries and
foreclosed extrajudicially the mortgage executed by plaintiffs in its
favor. Paez filed an action for preliminary injunction to stop the
sheriff from proceeding with the auction sale, annulling the Deed
of First Real Estate Mortgage and the Addendum and directing
petitioner to make further cash advances in the amount of P75,000
plus damages. Judgment was rendered in favor of the petitioners
dismissing the complaint and ordering Paez to pay the sum of
P41,130 representing the cash advances with interest at the rate
of 12% per annum from the date of receipt, attorney’s fees and
ordering the restraining order for the auction sale set aside upon
failure to pay.

Paez appealed with the CA who set aside the decision and declared
both the Deed and the Addendum null and void, and ordered the
petitioner to pay P20,000 for unrealized profits.

Issue:
Whether the IAC erred in finding that the petitioner, not
respondent, have cause for rescission of the contracts and in ruling
that rescission was not available in rescission of contracts under
Art. 1191.

Held:
In favor of petitioners.
Under the agreement, Reliance Commodities was to pay Paez P70
for every ton of manganese ores delivered with a grade of 40-46%
or over, to be made upon delivery to the stockpile yard in Nueva
Ecija. Petitioner was to advance the expenses of mining and haling
as they were incurred every 15 days, and advances made
deductible from the agreed consideration.

Paez failed to make a single delivery of manganese ores. In fact,


there was no mining operation at all. Petitioner rescinded the
contracts. In reciprocal obligations, the power to rescind or resolve
is given to the injured party. It requires the parties to restore to
each other what they have received by reason of the contracts. The
rescission has the effect of abrogating the contracts in all parts.

Decision of the IAC is reversed and the decision of the trial court is
revived and affirmed.

ADELFA S. RIVERA V. FIDELA DEL ROSARIO


FACTS:
Respondents Fidela, et al. were the registered owners of a parcel
of land. Fidela borrowed P250k from Mariano Rivera and to secure
the loan, she and Mariano Rivera agreed to execute a deed of REM
and an agreement to sell the land. Mariano went to his lawyer to
have 3 documents drafted: the Deed of REM, a Kasunduan
(Agreement to Sell), and a Deed of Absolute Sale.
The Kasunduan provided that the children of Mariano Rivera, herein
petitioners, would purchase the land for a consideration of P2M, to
be paid in 3 installments. It also provided that the Deed of Absolute
Sale would be executed only after the 2nd installment is paid and
a postdated check for the last installment is deposited with Fidela.
Mariano Rivera then went to his lawyer bringing with him the
signed documents. He also brought Fidela and her son Oscar, so
that the latter two may sign the mortgage and the CIV LAW
REVIEW - OBLICON DIGESTS Kasunduan there. Although Fidela
intended to sign only the Kasunduan and the REM, she
inadvertently affixed her signature on all 3 documents. Mariano
then gave Fidela the amount for the 1st installment. Later, he also
gave Fidela a check for the 2nd installment. Mariano also gave
Oscar several amounts upon the latter’s demand for the payment
of the balance despite his lack of authority to receive payments
under the Kasunduan. Fidela entrusted the owner’s copy of TCT to
Mariano to guarantee compliance with the Kasunduan.
When Mariano unreasonably refused to return the TCT,
respondents caused the annotation on TCT of an Affidavit of Loss
of the owner’s duplicate copy of the title. However, Mariano then
registered the Deed of Absolute Sale and got a new TCT.
Respondents then filed a complaint asking that the Kasunduan be
rescinded for failure of the Riveras to comply with its conditions,
with damages. They also sought the annulment of the Deed of
Absolute Sale on the ground of fraud.
Respondents claimed that Fidela never intended to enter into a
deed of sale at the time of its execution and that she signed the
said deed on the mistaken belief that she was merely signing copies
of the Kasunduan.

ISSUE:
WON the Deed of Absolute Sale is valid and binding?

HELD:
NO. The deed is void in its entirety. Rescission of reciprocal
obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383 of the
same Code. Both presuppose contracts validly entered into as well
as subsisting, and both require mutual restitution when proper,
nevertheless they are not entirely identical.
While Article 1191 uses the term rescission, the original term used
in Article 1124 of the old Civil Code, from which Article 1191 was
based, was resolution. Resolution is a principal action that is based
on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under
Article 1381 of the New Civil Code.
Obviously, the Kasunduan does not fall under any of those
situations mentioned in Article 1381. Consequently, Article 1383 is
inapplicable. Hence, we rule in favor of the respondents.
May the contract entered into between the parties, however, be
rescinded based on Article 1191? A careful reading of the
Kasunduan reveals that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of sale, the title
to the property passes to the vendee upon the delivery of the thing
sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. In a contract to sell, the payment
of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring
an obligatory force.
Respondents in this case bound themselves to deliver a deed of
absolute sale and clean title covering Lot No. 1083-C after
petitioners have made the second installment. This promise to sell
was subject to the fulfillment of the suspensive condition that
petitioners pay P750,000 on August 31, 1987, and deposit a
postdated check for the third installment of P1M. Petitioners,
however, failed to complete payment of the second installment.
The non-fulfillment of the condition rendered the contract to sell
ineffective and without force and effect. It must be stressed that
the breach contemplated in Article 1191 of the New Civil Code is
the obligor’s failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. Failure
to pay, in this instance, is not even a breach but an event that
prevents the vendor’s obligation to convey title from acquiring
binding force. Hence, the agreement of the parties in the instant
case may be set aside, but not because of a breach on the part of
petitioners for failure to complete payment of the second
installment. Rather, their failure to do so prevented the obligation
of respondents to convey title from acquiring an obligatory force.
Coming now to the matter of prescription. Contrary to petitioners’
assertion, we find that prescription has not yet set in. Article 1391
states that the action for annulment of void contracts shall be
brought within four years. This period shall begin from the time the
fraud or mistake is discovered. Here, the fraud was discovered in
1992 and the complaint filed in 1993. Thus, the case is well within
the prescriptive period

BARREDO v. LEANO
Facts:
In 1979, Manuel and Jocelyn Barredo bought a house and lot in Las
Pinas with an SSS loan of P50,000 payable in 25 yrs. and an Apex
Mortgage and Loans Corporation of P88,400 payable in 20 years.
To secure the loans, they executed a first mortgage in favor of SSS
and a second one for Apex. On Jul. 10, 1987, the sold their house
and lot to Eustaquio and Emilda Leano by way of a Conditional
Deed of Sale with Assumption of Mortgage. The Leano Spouses
would pay the Barredo Spouses P200,000, half of which would be
payable on Jul. 15, 1987, with the balance paid in 10 equal monthly
payments after the signing of the contract. They would also assume
the mortgages and pay the monthly amortizations beginning Jul.
1987 until both obligations were fully paid.
Two years later, Sept. 4, 1989, the Barredo Spouses initiated a
complaint before the RTC of Las Pinas seeking the rescission of the
contract on the ground that the Leanos failed to pay the mortgage
amortizations despite repeated demands. The Leanos contended
that they were up-to-date with Apex payments but were not able
to pay SSS because their payments were refused upon instructions
by the Barredos. The Barredos took it upon themselves to settle
the mortgage loans and paid P27,494 on Sept. 11, 1989 and
P41,401.91 on Jan. 9, 1990. SSS issued a Release of Real Estate
Mortgage Loan. They also settled the Apex loan with P5,379.23 on
Oct. 3, 1989 and P64,000 on Jan. 9, 1990. Apex issued a
Certification of Full Payment of Loan. The Barredos also paid the
real estate property taxes for 1987-1990. The RTC ruled in favor
of the Barredos, declaring the contract as rescinded and null and
void, and ordering the defendants to pay.
The Leanos, who had turned over the house and lot to the
Barredos, appealed to the CA, who reversed the decision on the
ground that the payments of amortization were mere collateral
matters which did not detract from the condition of paying the
principal consideration, and ordered the Barredos to execute the
Deed of Absolute Sale upon full payment of P140,492.74 and turn
over the property to the Leanos.

Issue:
W/N the CA erred in holding that the payments of amortization are
mere collateral matters.

Held:
The principal object of the contract was the sale of the Barredo
house and lot, for which the Leanos gave P200,000. The
assumption of the mortgages by the Leanos and their payment of
amortizations are just mere collateral matters which are natural
consequences of the sale of the mortgaged property. ¶3 of the
agreement provides that the Leanos merely bound themselves to
assume, which they actually did upon signing of the agreement,
the obligations of the Barredos with SSS and Apex. Nowhere in the
contract is it stipulated that the sale was conditioned upon their full
payment of the loans. To include the full payment of the obligations
with SSS and Apex as a condition would be to unnecessarily stretch
and put a new meaning to the provisions of the agreement.

Even if the payment of the amortizations to SSS and Apex are


considered as a condition on which the sale is based on, rescission
would still not be available since non-compliance with such
condition would just be a minor or causal breach as it does not
defeat the very object of the parties in entering into the contract.
The main consideration of the sale is the payment of P200,000
within the period agreed upon. The assumption of mortgage is a
natural consequence of buying a mortgaged property. The
Barredos do not stand to benefit from the payment of the
amortizations by the Leanos simply because the Barredos have
already parted with their property, which they were already fully
compensated for. In ordering rescission, the trial court should have
ordered the Barredos to return the P200,000 they received as
purchase price plus interests. Art. 1385 provides that “rescission
creates the obligation to return the things which were the object of
the contract, together with the fruits, and the price with its
interest.” The vendor is obliged to return the purchase price paid
to him by the buyer if the latter rescinds the sale. Thus, where a
contract is rescinded, it is the duty of the court to require both
parties to surrender that which they have respectively received and
place each other as far as practicable in his original situation.

VILLANUEVA v. ESTATE OF GERARDO L. GONZAGA

Facts:
On Jan. 15, 1990, Generoso Villanueva and Raul Villanueva, Jr.,
business entrepreneurs engaged in the operation of transloading
stations and sugar trading, and the Estate of Gerardo L. Gonzaga,
represented by its Judicial Administratix, Ma. Villa J. Gonzaga,
executed a MOA which read that the latter was the owner of land
in Bacolod City, mortgaged with the Philippine National Bank as
collateral for loan, and that the former was to purchase portions of
the lot for P150 per sq. m. for the total price of P486,000 subject
to the ff. conditions:
a.) That the Estate of Gonzaga would release the lots from PNB.
b.) That the Villanuevas would pay the amount P100,000 upon
signing the agreement, P191,600 on Jan. 10, 1990, and
P194,400 upon approval of the PNB of the release of the lots.
c.) That the P100,000 downpayment shall be considered forfeited
if the Villanuevas withdraw from their agreement.
d.) Upon 60% payment, the Villanuevas may start to introduce
improvements.
e.) Upon the release of the lots by the PNB, the Estate of Gonzaga
would execute a Deed of Sale.

The Villanuevas started improving after paying P291,600 or 60%


of the purchase price and requested permission to use the lots for
the next milling season. It was refused on the ground that they
had not yet paid the full purchase price. The Villanuevas informed
them that the immediate use was absolutely necessary and delay
would cause them substantial damages. The Estate was firm in
their refusal unless they paid the full purchase price, which the
Villanuevas reminded them of their obligation to redeem the lots
from mortgage from PNB, giving them 10 days to do so. The Estate
informed the Villanuevas of the PNB’s approval (which contained 3
conditions: that the sale be approved by the Court, that payment
of 2 annual amortizations in addition to P50,000 be derived from
sale of lot ought to be released, and terms and conditions that their
Legal Dept. might impose in the interest of PNB), of which they
demanded the clean titles to the lots.
On May 28, 1991, Gonzaga executed a Deed of Rescission
rescinding the MOA on 2 grounds: that they failed to pay the
balance despite notice of the lots’ release from mortgage, and for
using the lots for transloading without permission. The Villanuevas
demanded the lot titles before the full payment, which was ignored.
They filed a complaint for breach of contract, specific performance
and damages before the RTC. The trial court ruled in favor of the
Estate declaring the MOA rescinded, ownership and possession
restored to them and ordering them to refund the sum of P100,000
and another payment of P191,600 with legal interest at 6% per
annum. The Villanuevas filed a petition for review in the CA where
they affirmed the trial court’s decision excepting the award for
moral damages on the ground that they were not guilty of bad faith
for refusing to pay the balance of the purchase price.
Issue:
W/N respondents failed to comply with their reciprocal obligation
of securing the release of the lots from mortgage indebtedness with
the PNB.

Held:
The PNB’s letter of approval shows that the approval was
conditional. It was therefore premature for respondents to demand
payment of the balance of the purchase price and rescinding the
MOA. Moreover, there is no legal basis for the rescission. The
remedy of rescission under Art. 1191 is predicated on a breach of
faith by the other party that violates the reciprocity between them.
The remedy does not apply to contracts to sell. In a contract to
sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full. Thus, the payment
of the purchase price is a positive suspensive condition. Failure to
pay the price agreed upon is not a mere breach, casual or serious,
but a situation that prevents the obligation of the vendor to convey
title from acquiring an obligatory force. In a contract to sell, the
vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If
the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it.
The MOA between the two parties is a conditional contract to sell.
Ownership over the lots is not to pass to the petitioners until full
payment of the purchase price. The petitioners’ obligation to pay,
in turn, is conditioned upon the release of the lots from mortgage
with the PNB to be secured by the respondents. Since ownership
had not been transferred, no legal action need have been taken by
the respondents. The records show that the lots were finally
released from mortgage in Jul. 1991 and petitioners should be
allowed to pay. However, petitioners may not demand production
of the titles as condition for the payment as it was not required
under the MOA. Petition is granted and the decision is reversed.
SPS. GUANIO VS. MAKATI SHANGRI-LA HOTEL
Facts: Petitioner spouses, Luigi M. Guanio and Anna Hernandez-
Guanio, booked respondent Makati Shangre-La Hotel for their
wedding reception.
A week before their wedding reception, the hotel scheduled a food
tasting. Eventually, the parties agreed to a package where the final
price was P1,150.00 per person.
According to the complainants, when the actual reception took
place, ” the respondent’s representatives did not show up despite
their assurance that they would; their guests complained of the
delay in the service of the dinner; certain items listed in the
published menu were unavailable; the hotel’s waiters were rude
and unapologetic when confronted about the delay; and despite
Alvarez’s promise that there would be no charge for the extension
of the reception beyond 12:00 midnight, they were billed and paid
P8,000 per hour for the three-hour extension of the event up to
4:00 A.M. the next day. They further claim that they brought wine
and liquor in accordance with their open bar arrangement, but
these were not served to the guests who were forced to pay for
their drinks. They sent a letter-complaint to hotel and received an
apologetic reply from the hotel’s Executive Assistant Manager in
charge of Food and Beverage.
They nevertheless filed a complaint for breach of contract and
damages before the Regional Trial Court (RTC) of Makati City.
Answering, the hotel said that complainants requested a
combination of king prawns and salmon, hence, the price was
increased to P1,200.00 per person, but discounted at P1,150.00;
that contrary to their claim, the hotel representatives were present
during the event, albeit they were not permanently stationed
thereat as there were three other hotel functions; that while there
was a delay in the service of the meals, the same was occasioned
by the sudden increase of guests to 470 from the guaranteed
expected minimum number of guests of 350 to a maximum of 380,
as stated in the Banquet Event Order (BEO);2 and the Banquet
Service Director in fact relayed the delay in the service of the meals
to complainant’s father.
The RTC, relying heavily on the letter of the hotel’s Executive
Assistant ruled in favour of the complainants and awarded
damages in their favour.
The Court of Appeals reversed the decision, noting that the
proximate cause of the complainant’s injury was the unexpected
increase in the number of their guests.

Issue:
WON Makati Shangri-La Hotel may be held liable for damages.

Held:
The Supreme Court reversed the Court of Appeals decision, noting
that in this case, the obligation was based on a contract, hence,
the concept of proximate cause has no application.
In absolving the hotel from damages, the Supreme Court noted
that: “The appellate court, and even the trial court, observed that
petitioners were remiss in their obligation to inform respondent of
the change in the expected number of guests. The observation is
reflected in the records of the case. Petitioners’ failure to discharge
such obligation thus excused, as the above-quoted paragraph 4.5
of the parties’ contract provide, respondent from liability for “any
damage or inconvenience” occasioned thereby”
Nevertheless, on grounds of equity, the High Court awarded
P50,000.00 in favour of the complainants and justified it by saying:
“The exculpatory clause notwithstanding, the Court notes that
respondent could have managed the “situation” better, it being
held in high esteem in the hotel and service industry. Given
respondent’s vast experience, it is safe to presume that this is not
its first encounter with booked events exceeding the guaranteed
cover. It is not audacious to expect that certain measures have
been placed in case this predicament crops up. That regardless of
these measures, respondent still received complaints as in the
present case, does not amuse.
Respondent admitted that three hotel functions coincided with
petitioners’ reception. To the Court, the delay in service might have
been avoided or minimized if respondent exercised prescience in
scheduling events. No less than quality service should be delivered
especially in events which possibility of repetition is close to nil.
Petitioners are not expected to get married twice in their lifetimes.”
What applies in the present case is Article 1170 of the Civil Code
which reads:
Art. 1170. 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.
RCPI v. Verchez, et al. enlightens: In culpa contractual x x x the
mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The
law, recognizing the obligatory force of contracts, will not permit a
party to be set free from liability for any kind of misperformance of
the contractual undertaking or a contravention of the tenor thereof.
A breach upon the contract confers upon the injured party a valid
cause for recovering that which may have been lost or suffered.
The remedy serves to preserve the interests of the promissee that
may include his “expectation interest ,” which is his interest in
having the benefit of his bargain by being put in as good a position
as he would have been in had the contract been performed, or his
“reliance interest ,”which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a
position as he would have been in had the contract not been made;
or his ”restitution interest,” which is his interest in having restored
to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers
or for society, unless they are made the basis for action.
The effect of every infraction is to create a new duty, that is, to
make RECOMPENSE to the one who has been injured by the failure
of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due
diligence or of the attendance of fortuitous event to excuse him
from his ensuing liability.

3.1 Cause of Breach

RADIO COMM. OF THE PHILS., INC. (RCPI). V. CA & LORETO


DIONELA

FACTS:
The basis of the complaint against the defendant corporation is a
telegram sent through its Manila Office to the offended party,
Loreto Dionela, reading as follows: SA IYO WALANG PAKINABANG
DUMATING KA DIYAN-WALAKANG PADALA DITO KAHIT BULBUL
MO
Loreto Dionela alleges that the defamatory words on the telegram
sent to him not only wounded his feelings but also caused him
undue embarrassment and affected adversely his business as well
because other people have come to know of said defamatory
words. Defendant corporation as a defense, alleges that the
additional words in Tagalog was a private joke between the sending
and receiving operators and that they were not addressed to or
intended for plaintiff and therefore did not form part of the
telegram and that the Tagalog words are not defamatory. The
telegram sent through its facilities was received in its station at
Legaspi City. Nobody other than the operator manned the teletype
machine which automatically receives telegrams being
transmitted. The said telegram was detached from the machine
and placed inside a sealed envelope and delivered to plaintiff,
obviously as is. The additional words in Tagalog were never noticed
and were included in the telegram when delivered.
RTC ruled in favor of Dionela, holding that the additional Tagalog
words are libelous. It ruled that there was sufficient publication
because the office file of the defendant containing copies of
telegrams received are open and held together only by a metal
fastener. Moreover, they are open to view and inspection by third
parties. RTC also held that the defendant is sued directly not as an
employer. The business of the defendant is to transmit telegrams.
It will open the door to frauds and allow the defendant to act with
impunity if it can escape liability by the simple expedient of
showing that its employees acted beyond the scope of their
assigned tasks.

ISSUE:
WON Petitioner-employer should answer directly and primarily for
the civil liability arising from the criminal act of its employee.

HELD:
YES. The action for damages was filed in the lower court directly
against respondent corporation not as an employer subsidiarily
liable under the provisions of Article 1161 of the New Civil Code in
relation to Art. 103 of the Revised Penal Code. The cause of action
of the private respondent is based on Arts. 19 and 20 of the New
Civil Code, as well as on respondent's breach of contract thru the
negligence of its own employees.
Petitioner is a domestic corporation engaged in the business of
receiving and transmitting messages. Every time a person
transmits a message through the facilities of the petitioner, a
contract is entered into. Upon receipt of the rate or fee fixed, the
petitioner undertakes to transmit the message accurately. There is
no question that in the case at bar, libelous matters were included
in the message transmitted, without the consent or knowledge of
the sender. There is a clear case of breach of contract by the
petitioner in adding extraneous and libelous matters in the
message sent to the private respondent. As a corporation, the
petitioner can act only through its employees. Hence the acts of its
employees in receiving and transmitting messages are the acts of
the petitioner. To hold that the petitioner is not liable directly for
the acts of its employees in the pursuit of petitioner's business is
to deprive the general public availing of the services of the
petitioner of an effective and adequate remedy. In most cases,
negligence must be proved in order that plaintiff may recover.
However, since negligence may be hard to substantiate in some
cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing
speaks for itself), by considering the presence of facts or
circumstances surrounding the injury.

JUAN J. SYQUIA V. C.A. & MANILA MEMORIAL PARK


CEMETERY, INC.

FACTS:
Pursuant to a Deed of Sale and an Interment Order executed
between plaintiff and defendant, Juan J. Syquia (father of deceased
Vicente Syquia) authorized and instructed defendant to inter the
remains of the deceased in the Manila Memorial Park Cemetery
conformably and in accordance with defendant's interment
procedures.
After a few months, preparatory to transferring the said remains
to a newly purchased family plot also at the Manila Memorial Park
Cemetery, the concrete vault encasing the coffin of the deceased
was removed from its niche underground with the assistance of
certain employees of defendant. As the concrete vault was being
raised to the surface, plaintiffs discovered that the concrete vault
had a hole approximately 3 inches in diameter near the bottom of
one of the walls closing out the width of the vault on one end and
that for a certain length of time, water drained out of the hole.
Pursuant to an authority granted by the MTC, plaintiffs, with the
assistance of licensed morticians and certain personnel of
defendant, caused the opening of the concrete vault. Upon opening
the vault, the following became apparent: (a) the interior walls of
the concrete vault showed evidence of total flooding; (b) the coffin
was entirely damaged by water, filth and silt causing the wooden
parts to warp and separate and to crack the viewing glass panel
located directly above the head and torso of the deceased; (c) the
entire lining of the coffin, the clothing of the deceased, and the
exposed parts of the deceased's remains were damaged and soiled
by the action of the water and silt and were also coated with filth.
Plaintiffs filed a case for damages, based on the alleged unlawful
and malicious breach by the defendant of its obligation to deliver a
defect-free concrete vault designed to protect the remains of the
deceased and the coffin against the elements which resulted in the
desecration of deceased's grave and in the alternative, because of
defendant-appellee's gross negligence conformably to Article 2176
of the New Civil Code in failing to seal the concrete vault.

ISSUE:
WON DEFENDANT IS LIABLE FOR QUASI-DELICT?

HELD:
NO, there was no fault or negligence on the part of the defendant
that would render him liable for quasi-delict. Although a pre-
existing contractual relation between the parties does not preclude
the existence of a culpa aquiliana, we find no reason to disregard
the respondent's Court finding that there was no negligence. In this
case, it has been established that the Syquias and the Manila
Memorial Park Cemetery, Inc., entered into a contract entitled
"Deed of Sale and Certificate of Perpetual Care." That agreement
governed the relations of the parties and defined their respective
rights and obligations. Hence, had there been actual negligence on
the part of the Manila Memorial Park Cemetery, Inc., it would be
held liable not for a quasi-delict or culpa aquiliana, but for culpa
contractual as provided by Article 1170 of the Civil Code.
The Manila Memorial Park Cemetery, Inc. bound itself to provide
the concrete box to be sent in the interment. Rule 17 of the Rules
and Regulations of private respondent provides that: Rule 17.
Every earth interment shall be made enclosed in a concrete box,
or in an outer wall of stone, brick or concrete, the actual installment
of which shall be made by the employees of the Association.
Pursuant to this above-mentioned Rule, a concrete vault was
provided the day before the interment, and was, on the same day,
installed by private respondent's employees in the grave which was
dug earlier. After the burial, the vault was covered by a cement lid.
Petitioners however claim that private respondent breached its
contract with them as the latter held out in the brochure it
distributed that the lot may hold a single or double internment
underground, in a sealed concrete vault. Petitioners claim that the
vault provided by private respondent was not sealed, that is, not
waterproof. Consequently, water seeped through the cement
enclosure and damaged everything inside it. We do not agree.
There was no stipulation in the Deed of Sale and Certificate of
Perpetual Care and in the Rules and Regulations of the Manila
Memorial Park Cemetery, Inc. that the vault would be waterproof.
Private respondent's witness, Mr. Dexter Heuschkel, explained that
the term "sealed" meant "closed." Moreover, it is also quite clear
that "sealed" cannot be equated with "waterproof". Well settled is
the rule that when the terms of the contract are clear and leave no
doubt as to the intention of the contracting parties, then the literal
meaning of the stipulation shall control. Contracts should be
interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment.
We hold, therefore, that private respondent did not breach the
tenor of its obligation to the Syquias. While this may be so, can
private respondent be liable for culpa aquiliana for boring the hole
on the vault? It cannot be denied that the hole made possible the
entry of more water and soil than was natural had there been no
hole.
The law defines negligence as the "omission of that diligence which
is required by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of the place." In
the absence of stipulation or legal provision providing the contrary,
the diligence to be observed in the performance of the obligation
is that which is expected of a good father of a family.

FAR EAST BANK AND TRUST COMPANY V. C.A. & LUIS A.


LUNA

FACTS:
Private respondent Luis A. Luna applied for, and was accorded, a
FAREASTCARD issued by petitioner FEBTC. Upon his request, the
bank also issued a supplemental card to private respondent Clarita
S. Luna. Later, Clarita lost her credit card. FEBTC was informed. In
order to replace the lost card, Clarita submitted an affidavit of loss.
In cases of this nature, the bank's internal security procedures and
policy would be to record the lost card, along with the principal
card, as a "Hot Card" or "Cancelled Card" in its master file.
Luis then tendered a despedida lunch for a close friend, a Filipino-
American, and another guest at the Bahia Rooftop Restaurant of
the Hotel Intercontinental Manila. To pay for the lunch, Luis
presented his fareastcard to the attending waiter who promptly had
it verified through a telephone call to the bank's Credit Card
Department. Since the card was not honored, Luis was forced to
pay in cash the bill amounting to P588.13. Naturally, Luis felt
embarrassed by this incident.
Private respondent Luis Luna, through counsel, demanded from
FEBTC the payment of damages. Adrian V. Festejo, a vice-
president of the bank, expressed the bank's apologies to Luis,
admitting that: “An investigation of your case revealed that
FAREASTCARD failed to inform you about its security policy.
Furthermore, an overzealous employee of the Bank's CIV LAW
REVIEW - OBLICON DIGESTS Credit Card Department did not
consider the possibility that it may have been you who was
presenting the card at that time (for which reason, the unfortunate
incident occurred).”
Luna then filed a case for damages in the RTC, which rendered a
decision against FEBTC, and awarded moral damages.

ISSUE:
WON FEBTC IS LIABLE FOR QUASI-DELICT?

HELD:
NO. In culpa contractual, moral damages may be recovered where
the defendant is shown to have acted in bad faith or with malice in
the breach of the contract. Bad faith, in the context of Article 2220,
includes gross, but not simple, negligence. Exceptionally, in a
contract of carriage, moral damages are also allowed in case of
death of a passenger attributable to the fault (which is presumed)
of the common carrier.
Concededly, the bank was remiss in indeed neglecting to personally
inform Luis of his own card's cancellation. Nothing in the findings
of the trial court and the appellate court, however, can sufficiently
indicate any deliberate intent on the part of FEBTC to cause harm
to private respondents. Neither could FEBTC's negligence in failing
to give personal notice to Luis be considered so gross as to amount
to malice or bad faith.
Malice or bad faith implies a conscious and intentional design to do
a wrongful act for a dishonest purpose or moral obliquity; it is
different from the negative idea of negligence in that malice or bad
faith contemplates a state of mind affirmatively operating with
furtive design or ill will.
We are not unaware of the previous rulings of this Court,
sanctioning the application of Article 21, in relation to Article 2217
and Article 2219 7 of the Civil Code to a contractual breach similar
to the case at bench. Article 21 of the Code, it should be observed,
contemplates a conscious act to cause harm. Thus, even if we are
to assume that the provision could properly relate to a breach of
contract, its application can be warranted only when the
defendant's disregard of his contractual obligation is so deliberate
as to approximate a degree of misconduct certainly no less worse
than fraud or bad faith. Most importantly, Article 21 is a mere
declaration of a general principle in human relations that clearly
must, in any case, give way to the specific provision of Article 2220
of the Civil Code authorizing the grant of moral damages in culpa
contractual solely when the breach is due to fraud or bad faith.
Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda,
explained: ”Moral damages are not recoverable in damage actions
predicated on a breach of the contract of transportation, in view of
Articles 2219 and 2220 of the new Civil Code. By contrasting the
provisions of these two articles it immediately becomes apparent
that: (a) In case of breach of contract (including one of
transportation) proof of bad faith or fraud (dolus), i.e., wanton or
deliberately injurious conduct, is essential to justify an award of
moral damages; and (b) That a breach of contract can not be
considered included in the descriptive term "analogous cases" used
in Art. 2219; not only because Art. 2220 specifically provides for
the damages that are caused contractual breach, but because the
definition of quasi-delict in Art. 2176 of the Code expressly
excludes the cases where there is a "preexisitng contractual
relations between the parties."
The distinction between fraud, bad faith or malice in the sense of
deliberate or wanton wrong doing and negligence (as mere
carelessness) is too fundamental in our law to be ignored (Arts.
1170-1172); their consequences being clearly differentiated by the
Code. It is to be presumed, in the absence of statutory provision
to the contrary, that this difference was in the mind of the
lawmakers when in Art. 2220 they limited recovery of moral
damages to breaches of contract in bad faith. It is true that
negligence may be occasionally so gross as to amount to malice;
but the fact must be shown in evidence, and a carrier's bad faith is
not to be lightly inferred from a mere finding that the contract was
breached through negligence of the carrier's employees.
The Court has not in the process overlooked another rule that a
quasi-delict can be the cause for breaching a contract that might
thereby permit the application of applicable principles on tort even
where there is a pre-existing contract between the plaintiff and the
defendant. This doctrine, unfortunately, cannot improve private
respondents' case for it can aptly govern only where the act or
omission complained of would constitute an actionable tort
independently of the contract. The test (whether a quasi-delict can
be deemed to underlie the breach of a contract) can be stated
thusly: Where, without a pre-existing contract between two
parties, an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are contractually
bound is no bar to the application of quasi-delict provisions to the
case. Here, private respondents' damage claim is predicated solely
on their contractual relationship; without such agreement, the act
or omission complained of cannot by itself be held to stand as a
separate cause of action or as an independent actionable tort.

Cetus Development, Inc., petitioner, v. Court of Appeals and


Ederlina Navalta

FACTS
Respondents Navalta et al were lessees of the premises originally
owned by Susana Realty. They would pay on a month-to-month
basis to a collector who would come every month to collect the
rent.
The premises were later sold to Cetus Development and the
respondents continued paying their monthly rentals to a collector
sent by the petitioner.
For a period of three months (July, Aug, Sept), however, no
collector came and thus the respondents could not pay.
On October, the petitioner sent a letter to the respondents
demanding that they vacate the premises and pay the back rentals
for the 3 months. Respondents then paid the back rentals as well
as subsequent monthly rentals which were all accepted by
petitioner but without prejudice to the filing of an ejectment suit.
Petitioner filed for respondents’ ejectment but respondents counter
that their non-payment was due to petitioner’s failure to send a
collector.

Issue:
WON there is a cause for ejectment due to respondents’ supposed
failure to pay during the 3 months.

Held:
There is no cause for ejectment because there is no failure to pay
on the part of the respondents. CA is affirmed in denying ejectment
suit.
Ratio:
In order to file an ejectment suit, there must be 1. A failure to pay
or to comply with the conditions agreed upon and 2. Demand both
to pay or comply and vacate.
However, there is no failure to pay on the part of the respondents
for the 3 months because, as a general rule, default in the
fulfillment of an obligation exists only when the creditor demands
payment at the time of maturity or at any time thereafter.1 (from
Art 1169) The petitioner has failed to prove that their agreement
with respondents falls under the exceptions where demand is
required: a.) when law declares as such, b.) when it can be inferred
from the essence of the contract, c.) when demand would be
useless.
Demand can also come in any form, provided it can be proved by
the creditor. But the petitioner in this case has failed to prove that
demand was made, more so since no collector was sent during the
3 months. It could not therefore be said that the respondents were
in delay of payment rentals. Moreover, when petitioner actually
made the demand (in the form of the letter), respondents lost no
time in making payment, which the petitioner accepted.
Therefore, petitioner cannot ask for respondents’ ejectment
because there is no right on his part to rescind the contract of
lease.

CETUS DEVELOPMENT INC V CA


NATURE Petition for review on certiorari of the decision of the CA
FACTS
- Respondents Ong, Teng, Liwanag, Canlas, Sudario, Nagbuya,
were lessees of premises in Quiapo, Manila, originally owned by
the Susana Realty. They were individual, verbal leases, on a
month-to-month basis. Rental payments were made to a collector
of the Susana Realty who went to the premises monthly.
- Premises were sold to petitioner, Cetus Development, in 1984.
The private respondents continued to pay monthly rentals to a
collector sent by the petitioner from April to June, 1984. In August
and September, they failed to pay because no collector came.
- In October, petitioner sent letters demanding they vacate the
premises and pay back rentals. Immediately upon receipt of the
demand letters, private respondents paid arrearages, which were
accepted subject to the condition that the acceptance was without
prejudice to the filing of an ejectment suit. Subsequent monthly
rental payments were accepted under the same condition.
- For failure of the private respondents to vacate the premises as
demanded in the letter, petitioner filed with the Metropolitan Trial
court complaints for ejectment.
- Trial court dismissed the case, and subsequently the Regional
Trial Court did so, as did the CA.
ISSUES
WON there exists a cause of action, when the complaints for
unlawful detainer were filed considering the fact that upon demand
by petitioner for payment of back rentals, respondents immediately
tendered payment, which was accepted.
HELD
-Section 2, RoC, "Landlord to proceed against tenant only after
demand." states that 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. The demand required
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 is no need for court action.
-for purposes of bringing an ejectment suit, 2 requisites: 1) must
be failure to pay rent/comply with conditions of lease, and 2) must
be DEMAND to both pay or to comply and vacate.
- in this case, no cause of action for ejectment has accrued. NO
FAILURE YET on the part of private respondents, because upon
demand, they paid. **exceptions where demand is not required:
(a) when obligation or law so declares; (b) when from the nature
and circumstances of obligation it can be inferred that time is of
the essence of the contract, (c) when demand would be useless.
-without such demand, effects of default do not arise.
Pantaleon vs American Express
Facts:
Petitioner Atty. Polo Pantaleon and his family joined a Western
Europe tour in October 1991. On the second to the last day of the
tour, the tour group arrived late in Amsterdam so they failed to
engage in their sight seeing activities. Given this delay, the group
decided to start early the next day before they end the tour.
On the last day of the tour, the group arrived at the Coster
Diamond House in Amsterdam 10 minutes before 9:00 am. The
tour should last for 30 minutes so they can still have a guided city
tour of Amsterdam.
Mrs. Pantaleon decided to purchase even before the tour a 2.5
karat diamond brilliant cut, wherein she luckily found in the Coster
Diamond House during the tour. She also decided to purchase a
pendant and a chain along with the diamond which totalled U.S $
13,826.00. She used her American Express Credit Card to pay for
these purchases.
Mrs. Pantaleon was not given an approval for her purchases right
away but was delayed for almost one hour that led to the delay of
the tour group for further touring around Amsterdam. Before
heading home to Manila, the family stopped over in the US and the
same delay happened with several purchases that they made with
the AmEx credit card.
When the family arrived in Manila from their tour, Atty. Pantaleon
sent a letter through counsel to respondent demanding an apology
for the "inconvenience, humiliation and embarrassment he and his
family thereby suffered" for respondent's refusal to provide credit
authorization for the aforementioned purchases. However,
American Express International, Inc. refused to give an apology
which led to Atty. Pantaleon instituting a complaint for damages
before the Makati RTC.
Makati RTC rendered a decision in favor of Atty. Pantaleon; but the
CA found that Amex’s “delay was not attended by bad faith, malice,
or gross negligence" and that Amex “had exercised diligent efforts
to effect the approval” of the purchase because the purchases were
“not in accordance with the charge pattern” of Atty. Pantaleon since
at the Coster Diamond House, he was “making his very first single
charge purchase of US$13,826,” and “the record of [his] past
spending with [Amex] at the time [did] not favorably support his
ability to pay for such purchase.”
Issue:
Whether or not American Express International, Inc. had
committed a breach of its obligations to Atty. Pantaleon and is
liable for damages.
Held:
American Express International, Inc. has committed a breach of its
obligations and is liable for damages; not just because of the
incurred delay, but because the delay, for which culpability lies in
Article 1170, led to the particular injuries under Article 2217 of the
Civil Code for which moral damages are remunerative.
The SC, however, held that Atty. Pantaleon was instead correct in
citing the principle of mora solvendi (delay on the part of the debtor
to fulfill his obligation), not mora accipiendi. The traditional role of
a credit card company as creditor applies when the cardholder has
already incurred a debt. In this case, the debt had not yet been
created; the purchase was still pending approval or disapproval by
Amex. Thus, under mora solvendi, Amex is not creditor but debtor
“insofar as it has the obligation to the customer … to act promptly
on its purchases on credit.”
The delay committed by defendant was clearly attended by
unjustified neglect and bad faith, since it alleges that it took more
than an hour to look for the records of the petitioner when all data
are already stored and readily available. Likewise, it was also
attested that there were no history in the petitioner's billing history
that would warrant the imprudent suspension in the processing of
the purchase.
Wherefore, the petition is GRANTED. The assailed Decision of the
Court of Appeals is REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-
1665 is hereby REINSTATED. Cost against respondent.

BRICKTOWN DEVELOPMENT CORP. V. AMOR TIERRA DEV’T


CORP.
FACTS:
Bricktown Dev’t Corp. executed 2 Contracts to Sell in favor of Amor
Tierra Dev’t Corp. covering 96 residential lots in Parañaque. The
total price of P21M was stipulated to be paid in 3 installments and
the balance of P11.5M to be paid by means of an assumption of
Bricktown's mortgage liability to Philippine Savings Bank or,
alternatively, to be made payable in cash.
Later, the parties executed a Supplemental Agreement providing
that private respondent would additionally pay to Bricktown the
amounts representing interest on the balance of downpayments
and the interest paid by Bricktown to PSB in updating the bank
loan.
Private respondent was only able to pay petitioner corporation the
sum of P1.3M. In the meanwhile, however, the parties continued
to negotiate for a possible modification of their agreement,
although nothing conclusive would appear to have ultimately been
arrived at.
Finally, Bricktown, sent private respondent a "Notice of
Cancellation of Contract" on account of the latter's continued
failure to pay the installment due 30 June 1981 and the interest on
the unpaid balance of the stipulated initial payment. Bricktown
advised Amor Tierra, however, that Amor Tierra still had the right
to pay its arrearages within 30 days from receipt of the notice
"otherwise the actual cancellation of the contract would take
place."
Several months later, Amor Tierra, through counsel, demanded the
refund of it's various payments to Bricktown, with interest within
fifteen days from receipt of said letter, or, in lieu of a cash
payment, to assign to private respondent an equivalent number of
unencumbered lots at the same price fixed in the contracts. The
demand, not having been heeded, Amor Tierra commenced an
action against Bricktown.
RTC declared the K to sell and the supplemental agreement
rescinded, and ordered Bricktown to return to Amor Tierra the
amounts the latter have paid, with interest. CA affirmed.
ISSUE:
WON THE K TO SELL WERE VALIDLY RESCINDED?
HELD:
YES, Bricktown acted well within its right, in accordance with the
agreement. Admittedly, the terms of payment agreed upon by the
parties were not met by Amor Tierra. Of a total selling price of
P21M, Amor Tierra was only able to remit the sum of P1.3M which
was even short of the stipulated initial payment of P2.2M. No
additional payments, it would seem, were made. A notice of
cancellation was ultimately made months after the lapse of the
contracted grace period. Paragraph 15 of the Contracts to Sell
provided thusly: “Should the PURCHASER fail to pay when due any
of the installments mentioned in stipulation No. 1 above, the
OWNER shall grant the purchaser a sixty (60)-day grace period
within which to pay the amount/s due, and should the PURCHASER
still fail to pay the due amount/s within the 60-day grace period,
the PURCHASER shall have the right to ex-parte cancel or rescind
this contract, provided, however, that the actual cancellation or
rescission shall take effect only after the lapse of thirty (30) days
from the date of receipt by the PURCHASER of the notice of
cancellation of this contract or the demand for its rescission by a
notarial act, and thereafter, the OWNER shall have the right to
resell the lot/s subject hereof to another buyer and all payments
made, together with all improvements introduced on the
aforementioned lot/s shall be forfeited in favor of the OWNER as
liquidated damages, and in this connection, the PURCHASER
obligates itself to peacefully vacate the aforesaid lot/s without
necessity of notice or demand by the OWNER.”
A grace period is a right, not an obligation, of the debtor. When
unconditionally conferred, such as in this case, the grace period is
effective without further need of demand either calling for the
payment of the obligation or for honoring the right. The grace
period must not be likened to an obligation, the non-payment of
which, under Article 1169 of the Civil Code, would generally still
require judicial or extrajudicial demand before "default" can be said
to arise.
Verily, in the case at bench, the sixty-day grace period under the
terms of the contracts to sell became ipso facto operative from the
moment the due payments were not met at their stated maturities.
On this score, the provisions of Article 1169 of the Civil Code would
find no relevance whatsoever.
The cancellation of the contracts to sell by petitioner corporation
accords with the contractual covenants of the parties, and such
cancellation must be respected. It may be noteworthy to add that
in a contract to sell, the non-payment of the purchase price (which
is normally the condition for the final sale) can prevent the
obligation to convey title from acquiring any obligatory force.
The forfeiture of the payments thus far remitted under the
cancelled contracts in question, given the factual findings of both
the trial court and the appellate court, must be viewed differently.
Petitioners do not deny the fact that there has indeed been a
constant dialogue between the parties during the period of their
juridical relation. In fine, while we must conclude that petitioner
corporation still acted within its legal right to declare the contracts
to sell rescinded or cancelled, considering, nevertheless, the
peculiar circumstances found to be extant by the trial court,
confirmed by the Court of Appeals, it would be unconscionable, in
our view, to likewise sanction the forfeiture by petitioner
corporation of payments made to it by private respondent. Indeed,
in the opening statement of this ponencia, we have intimated that
the relationship between parties in any contract must always be
characterized and punctuated by good faith and fair dealing.
Judging from what the courts below have said, petitioners did fall
well behind that standard. We do not find it equitable, however, to
adjudge any interest payment by petitioners on the amount to be
thus refunded, computed from judicial demand, for, indeed, private
respondent should not be allowed to totally free itself from its own
breach.

4. Fraud

LEGASPI OIL CO., INC. v. THE COURT OF APPEALS and


BERNARD OSERAOS
FACTS
Respondent Bernard Oseraos acting through his authorized agents,
had several transactions with appellee Legaspi Oil Co. for the sale
of copra to the latter. The price at which appellant sells the copra
varies from time to time, depending on the prevailing market price
when the contract is entered into. One of his authorized agents,
Jose Llover, had previous transactions with appellee for the sale
and delivery of copra.
On February 16, 1976, appellant's agent Jose Llover signed a
contract for the sale of 100 tons of copra at P82.00 per 100 kilos
with delivery terms of 20 days effective March 8, 1976. As
compared to appellant's transaction on November 6, 1975, the
current price agreed upon is slightly higher than the last contract.
In all these contracts though, the selling price had always been
stated as "total price" rather than per 100 kilos. However, the
parties have understood the same to be per 100 kilos in their
previous transactions. After the period to deliver had lapsed,
appellant sold only 46,334 kilos of copra thus leaving a balance of
53,666 kilos as per running account card.
Accordingly, demands were made upon appellant to deliver the
balance with a final warning embodied in a letter dated October 6,
1976, that failure to deliver will mean cancellation of the contract,
the balance to be purchased at open market and the price
differential to be charged against appellant. On October 22, 1976,
since there was still no compliance, appellee exercised its option
under the contract and purchased the undelivered balance from
the open market at the prevailing price of P168.00 per 100 kilos,
or a price differential of P86.00 per 100 kilos, a net loss of
P46,152.76 chargeable against appellant. The petitioner then filed
a complaint against private respondent for breach of a contract and
for damages. The trial court held Oseraos liable for damages
amounting to P48,152.76. The Appellate Court ordered the
dismissal of the case on appeal. Hence, the instant petition for
review on certiorari.
ISSUE Whether or not private respondent Oseraos is liable for
damages arising from fraud or bad faith in deliberately breaching
the contract of sale entered into by the parties
RULING Yes. The private respondent is guilty of fraud in the
performance of his obligation under the sales contract whereunder
he bound himself to deliver to petitioner 100 metric tons of copra
within twenty (20) days from March 8, 1976. However within the
delivery period, Oseraos delivered only 46,334 kilograms of copra
to petitioner, leaving an undelivered thus a balance of 53,666
kilograms.
Petitioner made repeated demands upon private respondent to
comply with his contractual undertaking to deliver the balance of
53,666 kilograms but private respondent elected to ignore the
same. In general, fraud may be defined as the voluntary execution
of a wrongful act, or a wilfull omission, knowing and intending the
effects which naturally and necessarily arise from such act or
omission; the fraud referred to in Article 1170 of the Civil Code of
the Philippines is the deliberate and intentional evasion of the
normal fulfillment of obligation; it is distinguished from negligence
by the presence of deliberate intent, which is lacking in the latter.
The conduct of private respondent clearly manifests his deliberate
fraudulent intent to evade his contractual obligation for the price
of copra had in the meantime more than doubled from P82.00 to
P168 per 100 kilograms.
Under Article 1170 of the Civil Code of the Philippines, those who
in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. Pursuant to said article,
private respondent is liable for damages. In case of fraud, bad
faith, malice, or wanton attitude, the guilty party is liable for all
damages, which may be reasonably attributed to the non-
performance of the obligation. On account of private respondent's
deliberate breach of his contractual obligation, petitioner was
compelled to buy the balance of 53,666 kilos of copra in the open
market at the then prevailing price of P168 per 100 kilograms
thereby paying P46,152.76 more than he would have paid had
private respondent completed delivery of the copra as agreed
upon. Thus, private respondent is liable to pay respondent the
amount of P46,152.76 as damages. Petition granted.