SICAM V.
JORGE RULING: Petitioners are incorrect when they insisted that they are not liable
FACTS: It appears that on different dates from September to October 1987,
Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with
Agencia de R.C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque,
Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault.
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss of her jewelry due to the robbery incident in the
pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to
petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the
pawnshop since it had been the practice that before they could withdraw,
advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on November 6, 1987 but
petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge,
filed a complaint against petitioner Sicam seeking indemnification for the loss
of pawned jewelry and payment of actual, moral and exemplary damages as
well as attorney’s fees.
Petitioner Sicam filed his Answer contending that he is not the real party-in-
interest as the pawnshop was incorporated on April 20, 1987 and known as
Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due
care and diligence in the safekeeping of the articles pledged with it and
could not be made liable for an event that is fortuitous.
RTC: petitioner Sicam could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended Complaint of
respondents, they passerted that “plaintiff pawned assorted jewelries in
defendants’ pawnshop”; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or
credit of a stockholder.
petitioner corporation could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents that the loss of the
pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a
fortuitous event which exempts the victim from liability for the loss and
that the parties’ transaction was that of a pledgor and pledgee and under
Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible
for those events which could not be foreseen.
CA: In finding petitioner Sicam liable together with petitioner corporation,
the CA applied the doctrine of piercing the veil of corporate entity reasoning
that respondents were misled into thinking that they were dealing with the
pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to
them bear the words “Agencia de R.C. Sicam”; and that there was no
indication on the pawnshop tickets that it was the petitioner corporation that
owned the pawnshop which explained why respondents had to amend their
complaint impleading petitioner corporation.
The corresponding diligence required of a pawnshop is that it should take
steps to secure and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted to its custody as
it derives earnings from the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the robbery incident
happened in 1961 when the criminality had not as yet reached the levels
attained in the present day; that they are at least guilty of contributory
negligence and should be held liable for the loss of jewelries; and that
robberies and hold-ups are foreseeable risks in that those engaged in the
pawnshop business are expected to foresee.
ISSUE: Whether petitioners are liable for the loss of the pawned articles in
their possession? YES
since robbery is a fortuitous event and they are not negligent at all.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and
d) the obligor must be free from any participation in the aggravation of the
injury or loss.
It has been held that an act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse consequences
of such a loss. One’s negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is found to be partly
the result of a person’s participation—whether by active intervention,
neglect or failure to act—the whole occurrence is humanized and removed
from the rules applicable to acts of God.
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault with
the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored
in a vault inside the pawnshop. The very measures which petitioners had
allegedly adopted show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s
testimony, in effect, contradicts petitioners’ defense of fortuitous event.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. The
fact that a thing was unlawfully and forcefully taken from another’s rightful
possession, as in cases of carnapping, does not automatically give rise to a
fortuitous event. To be considered as such, carnapping entails more than the
mere forceful taking of another's property. It must be proved and
established that the event was an act of God or was done solely by third
parties and that neither the claimant nor the person alleged to be negligent
has any participation.
METRO CONCAST V. ALLIED BANKING
FACTS: Metro Concast obtained several loans from Allied Bank. These loan
transactions were covered by a promissory note and separate letters of
credit/trust receipts By way of security, the individual petitioners executed
several Continuing Guaranty/Comprehensive Surety Agreements in favor of
Allied Bank.
Petitioners failed to settle their obligations under the aforementioned
promissory note and trust receipts, hence, Allied Bank, through counsel, sent
them demand letters but to no avail. Thus, Allied Bank was prompted to file a
complaint for collection of sum of money.
Petitioners admitted their indebtedness to Allied Bank but denied liability for
the interests and penalties charged. They also alleged that the economic
reverses suffered by the Philippine economy in 1998 as well as the
devaluation of the peso against the US dollar contributed greatly to the
downfall of the steel industry, directly affecting the business of Metro
Concast and eventually leading to its cessation.
Hence, in order to settle their debts with Allied Bank, petitioners offered the
sale of Metro Concast’s remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter, however, refused. Instead, Allied
Bank advised them to sell the equipment and apply the proceeds of the sale
to their outstanding obligations. Accordingly, petitioners offered the
equipment for sale, but since there were no takers, the equipment was
reduced into ferro scrap or scrap metal over the years.
In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta
Camiling (Camiling), expressed interest in buying the scrap metal. During the
negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty.
Saw), a member of Allied Bank’s legal department, acted as the latter’s agent.
Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through Camiling,
under which Peakstar obligated itself to purchase the scrap metal
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this
regard, petitioners asseverated that: (a) their failure to pay their outstanding
loan obligations to Allied Bank must be considered as force majeure; and (b)
since Allied Bank was the party that accepted the terms and conditions of
payment proposed by Peakstar, petitioners must therefore be deemed to
have settled their obligations to Allied Bank.
RTC: since Allied Bank was duly represented by its agent, Atty. Saw, in all the
negotiations and transactions with Peakstar — considering that Atty. Saw (a)
drafted the MoA, (b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition of the
scrap metal — then it stands to reason that the MoA between Metro Concast
and Peakstar was binding upon said bank.
CA: there was “no legal basis in fact and in law to declare that when
Bankwise reneged its guarantee under the [MoA], herein [petitioners] should
be deemed to be discharged from their obligations lawfully incurred in favor
of [Allied Bank].”[33] The CA examined the MoA executed between Metro
Concast, as seller of the ferro scrap, and Peakstar, as the buyer thereof, and
found that the same did not indicate that Allied Bank intervened or was a
party thereto. It also pointed out the fact that the post-dated checks
pursuant to the MoA were issued in favor of Jose Dychiao.
Likewise, the CA found no sufficient evidence on record showing that Atty.
Saw was duly and legally authorized to act for and on behalf of Allied Bank,
opining that the RTC was “indulging in hypothesis and speculation”[34] when
it made a contrary pronouncement. While Atty. Saw received the earnest
money from Peakstar, the receipt was signed by him on behalf of Jose
Dychiao.[35] It also added that “in the final analysis, the aforesaid checks and
receipts were signed by [Atty.] Saw either as representative of [petitioners]
or as partner of the latter’s legal counsel, and not in anyway as
representative of [Allied Bank].”
ISSUE: whether or not the loan obligations incurred by the petitioners under
the subject promissory note and various trust receipts have already been
extinguished. NO
RULING: The MoA is a sale of assets contract, while petitioners’ obligations to
Allied Bank arose from various loan transactions. Absent any showing that
the terms and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the MoA, said contracts
should be treated separately and distinctly from each other, such that the
existence, performance or breach of one would not depend on the existence,
performance or breach of the other. In the foregoing respect, the issue on
whether or not Allied Bank expressed its conformity to the assets sale
transaction between Metro Concast and Peakstar (as evidenced by the MoA)
is actually irrelevant to the issues related to petitioners’ loan obligations to
the bank. Besides, as the CA pointed out, the fact of Allied Bank’s
representation has not been proven in this case and hence, cannot be
deemed as a sustainable defense to exculpate petitioners from their loan
obligations to Allied Bank.
Peakstar’s breach of its obligations to Metro Concast arising from the MoA
cannot be classified as a fortuitous event. While it may be argued that
Peakstar’s breach of the MoA was unforeseen by petitioners, the same is
clearly not “impossible” to foresee or even an event which is “independent of
human will.” Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank and
thus, negates the former’s force majeure theory altogether. In any case, as
earlier stated, the performance or breach of the MoA bears no relation to the
performance or breach of the subject loan transactions, they being separate
and distinct sources of obligation. The fact of the matter is that petitioners’
loan obligations to Allied Bank remain subsisting for the basic reason that the
former has not been able to prove that the same had already been paid[41]
or, in any way, extinguished. In this regard, petitioners’ liability, as adjudged
by the CA, must perforce stand. Considering, however, that Allied Bank’s
extrajudicial demand on petitioners appears to have been made only on
December 10, 1998, the computation of the applicable interests and penalty
charges should be reckoned only from such date.
CENTRAL PHIL. UNIVERSITY V. CA
FACTS: Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central Philippine
College (now Central Philippine University) executed a deed of donation
in favor of the latter of a parcel of land. The conditions in the deed were
the ff:
1. The land described shall be utilized by the CPU exclusively for
the establishment and use of a medical college with all its
buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third
party nor in any way encumber said land;
3. The said land shall be called “RAMON LOPEZ CAMPUS,” and
the said college shall be under obligation to erect a
cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known
as the “RAMON LOPEZ CAMPUS FUND” to be used for
improvements of said campus and erection of a building
thereon.”
On 1989, private respondents, who are the heirs of Don Ramon Lopez,
Sr., filed an action for annulment of donation, reconveyance and
damages against CPU alleging that since 1939 up to the time the action
was filed the latter had not complied with the conditions of the
donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to
file the action had prescribed; that it did not violate any of the
conditions in the deed of donation because it never used the donated
property for any other purpose than that for which it was intended;
and, that it did not sell, transfer or convey it to any third party.
TC: CPU failed to comply with the conditions of the donation and
declared it null and void. It directed CPU to execute a deed of
reconveyance of the property in favor of the heirs of the donor.
CA: the annotations at the back of petitioner’s certificate of title were
resolutory conditions breach of which should terminate the rights of the
donee thus making the donation revocable.
The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a
medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the
fulfillment of the condition, petitioner could not be considered as having
failed to comply with its part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed decision and remanding the
case to the court of origin for the determination of the time within
which petitioner should comply with the first condition annotated in the
certificate of title.
ISSUE: WON the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of the
donation which must be fulfilled noncompliance of which would render
the donation revocable
RULING: Yes. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but
to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself,
e.g., when a donation imposes a burden equivalent to the value of the
donation. A gift of land to the City of Manila requiring the latter to
erect schools, construct a children’s playground and open streets on the
land was considered an onerous donation.
Similarly, where Don Ramon Lopez donated the subject parcel of land
to petitioner but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous
consideration. Under Art. 1181 of the Civil Code, on conditional
obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. Thus, when a person donates
land to another on the condition that the latter would build upon the
land a school, the condition imposed was not a condition precedent or
a suspensive condition but a resolutory one.4 It is not correct to say
that the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the owner of
the land, otherwise, it would be invading the property rights of the
donor. The donation had to be valid before the fulfillment of the
condition. If there was no fulfillment or compliance with the condition,
such as what obtains in the instant case, the donation may now be
revoked and all rights which the donee may have acquired under it
shall be deemed lost and extinguished.
DEVELOPMENT BANK V. CA
FACTS: Private respondents were the original owners of a parcel of
agricultural land. On 30 May 1977, private respondents mortgaged said land
to petitioner. When private respondents defaulted on their obligation,
petitioner foreclosed the mortgage on the land and emerged as sole bidder
in the ensuing auction sale.
On 6 April 1984, petitioner and private respondents entered into a Deed of
Conditional Sale wherein petitioner agreed to reconvey the foreclosed
property to private respondents.
On 6 April 1990, upon completing the payment of the full repurchase price,
private respondents demanded from petitioner the execution of a Deed of
Conveyance in their favor. Petitioner then informed private respondents that
the prestation to execute and deliver a deed of conveyance in their favor had
become legally impossible in view of Sec. 6of Rep. Act 6657 (the
Comprehensive Agrarian Reform law or CARL)
Aggrieved, private respondents filed a complaint for specific performance
with damages against petitioner.
RTC: petitioner interpreted the fourth paragraph of Sec. 6, Rep. Act 6657
literally in conjunction with Sec. 1 of E.O. 407. The court a quo noted that
Sec. 6 of Rep. Act 6657, taken in its entirety, is a provision dealing primarily
with retention limits in agricultural land allowed the landowner and his
family and that the fourth paragraph, which nullifies any sale x x x by the
original landowner in violation of the Act,does not cover the sale by
petitioner (not the original landowner) to private respondents.
On the other hand, according to the trial court, E.O. 407took effect on 10
June 1990. But private respondents completed payment of the price for the
property, object of the conditional sale, as early as 6 April 1990. Hence, with
the fulfillment of the condition for the sale, the land covered thereby, was
detached from the mass of foreclosed properties held by DBP, and,
therefore, fell beyond the ambit or reach of E.O. 407.
CA: the full payment by the appellee on April 6, 1990 retroacts to the time
the contract of conditional sale was executed on April 6, 1984. From that
time, all elements of the contract of sale were present.Consequently, the
contract of sale was perfected. As such, the said sale does not come under
the coverage of R.A. 6657. Going now to E.O. 407, We hold that the same can
neither affect appellants’ obligation under the deed of conditional sale.Under
the said law, appellant is required to transfer to theRepublic of the
Philippines ‘all lands foreclosed’ effective June 10,1990. Under the facts
obtaining, the subject property has ceased to belong to the mass of
foreclosed property falling within the reach of said law. As earlier explained,
the property has already been sold to herein appellees even before the said
E.O. has been enacted. On this same reason, We therefore need not delve on
the applicability of DBP Circular No. 11
ISSUE: WON Rep. Act 6657, E.O. 407 andDBP Circular No. 11 rendered its
obligation to execute a Deed of Sale to private respondents “a legal
impossibility.”
RULING: The deed of conditional sale between petitioner and private
respondents was executed on 6 April 1984. Private respondents had
religiously paid the agreed installments on the property until they completed
payment on 6 April1990. Petitioner, in fact, allowed private respondents to
fulfill the condition of effecting full payment, and invoked Section 6 of Rep.
Act 6657 only after private respondents,having fully paid the repurchase
price, demanded the execution of a Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10June 1988. Following
petitioner’s argument in this case, its prestation to execute the deed of sale
was rendered legally impossible by Section 6 of said law. In other words, the
deed of conditional sale was extinguished by a supervening event, giving rise
to an impossibility of performance.
Neither Sec. 6 ofRep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair
the obligation of contract petitioner had much earlier concluded with private
respondents.More specifically, petitioner cannot invoke the last paragraph of
Sec. 6 of Rep. Act 6657 to set aside its obligations already existing prior to its
enactment. In the first place, said last paragraph clearly deals with “any
sale,lease, management contract or transfer or possession of private lands
executed by the original landowner.” The original owner in this case is not
the petitioner but the private respondents.Petitioner acquired the land
through foreclosure proceedings but agreed thereafter to reconvey it to
private respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention
limits allowed by law to small landowners. Since the property here involved is
more orless ten (10) hectares, it is then within the jurisdiction ofthe
Department of Agrarian Reform (CAR) to determine whether or not the
property can be subjected to agrarian reform. But this necessitates an
entirely different proceeding.
The CARL (Rep. Act 6657) was not intended to takeaway property without
due process of law. Nor is it intended to impair the obligation of contracts. In
the same manner must E.O. 407 be regarded. It was enacted two (2)months
after private respondents had legally fulfilled the condition in the contract of
conditional sale by the payment of all installments on their due dates. These
laws cannot have retroactive effect unless there is an express provision in
them to that effect.
MEGAWORLD V. MAJESTIC FINANCE
FACTS: On September 23, 1994, Megaworld entered into a JVA with
Majestic Finance for the development of a residential subdivision.
According to the JVA, the development of the land belonging to the
owner would be for the sole account of the developer and that upon
completion of the development of the subdivision, the owner would
compensate the developer in the form of saleable residential subdivision
lots. The JVA further provided that the developer would advance all the
costs for the relocation and resettlement of the occupants of the joint
venture property, subject to reimbursement by the owner; and that the
developer would deposit the initial amount of P10,000,000.00 to defray
the expenses for the relocation and settlement, and the costs for
obtaining from the Government the exemptions and conversion permits,
and the required clearances.
On October 27, 1994, the developer, by deed of assignment,
transferred, conveyed and assigned to Empire East Land Holdings, Inc.
(developer/assignee) all its rights and obligations under the JVA including
the addendum.
On February 29, 2000, the owner filed in the RTC a complaint for
specific performance with damages against the developer, the
developer/assignee, and Andrew Tan. The complaint was mainly based on
the failure of the petitioners to comply with their obligations under the
JVA, including the obligation to maintain a strong security force to
safeguard the entire joint venture property of 215 hectares from illegal
entrants and occupants.
MAJESTIC FINANCE: prayed that petitioners be directed to provide round-
the-clock security for the joint venture property in order to defend and
protect it from the invasion of unauthorized persons.
MEGAWORLD, ET. AL.: opposed and stated that (1) the move to have
them provide security in the properties was premature; and (2) under
the principle of reciprocal obligations, the owner could not compel them
to perform their obligations under the JVA if the owner itself refused to
honor its obligations under the JVA and the addendum.
RTC: issued its first assailed order, directing the developer to provide
sufficient round-the-clock security for the protection of the joint venture
property.
CA: These clear and categorical provisions in the JVA — which
petitioners themselves do not question — obviously belie their
contention that the respondent judge’s order to provide security for the
property is premature at this stage. The petitioner’s obligation to secure
the property under the JVA arose upon the execution of the
Agreement, or as soon as the petitioners acquired possession of the
joint venture property in 1994, and is therefore already demandable.
ISSUE: Whether or not the petitioners are obligated to perform their
obligations under the JVA, including that of providing round-the-clock
security for the subject properties, despite respondents’ failure or refusal
to acknowledge, or perform their reciprocal obligations there;
RULING: The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are those that arise
from the same cause, and in which each party is a debtor and a
creditor of the other at the same time, such that the obligations of one
are dependent upon the obligations of the other. They are to be
performed simultaneously, so that the performance by one is
conditioned upon the simultaneous fulfillment by the other.
The determination of default on the part of either of the parties
depends on the terms of the JVA that clearly categorized the parties’
several obligations into two types (continuous & activity).
CONTINUOUS OBLIGATIONS would be continuously performed from the
moment of the execution of the JVA until the parties shall have
achieved the purpose of their joint venture:
(1) the developer would secure the joint venture property from
unauthorized occupants;
(2) the owner would allow the developer to take possession of
the joint venture property;
(3) the owner would deliver any and all documents necessary for
the accomplishment of each activity;
(4) both the developer and the owner would pay the real estate
taxes.
ACTIVITY OBLIGATIONS - In each activity, the obligation of each party
was dependent upon the obligation of the other. Although their
obligations were to be performed simultaneously, the performance of an
activity obligation was still conditioned upon the fulfillment of the
continuous obligation, and vice versa. Should either party cease to
perform a continuous obligation, the other’s subsequent activity
obligation would not accrue. Conversely, if an activity obligation was not
performed by either party, the continuous obligation of the other would
cease to take effect.
The performance of the continuous obligation was subject to the
resolutory condition that the precedent obligation of the other party,
whether continuous or activity, was fulfilled as it became due.
Otherwise, the continuous obligation would be extinguished.
According to Article 1184 of the Civil Code, the condition that some
event happen at a determinate time shall extinguish the obligation as
soon as the time expires, or if it has become indubitable that the
event will not take place.
Here, the common cause of the parties in entering into the joint
venture was the development of the joint venture property into the
residential subdivision as to eventually profit therefrom. Consequently,
all of the obligations under the JVA were subject to the happening of
the complete development of the joint venture property, or if it
would become indubitable that the completion would not take place,
like when an obligation, whether continuous or activity, was not
performed. Should any of the obligations, whether continuous or
activity, be not performed, all the other remaining obligations would
not ripen into demandable obligations while those already performed
would cease to take effect. This is because every single obligation of
each party under the JVA rested on the common cause of profiting from
the developed subdivision.
It appears that upon the execution of the JVA, the parties were
performing their respective obligations until disagreement arose between
them that affected the subsequent performance of their accrued
obligations. Being reciprocal in nature, their respective obligations as the
owner and the developer were dependent upon the performance by the
other of its obligations; hence, any claim of delay or nonperformance
against the other could prosper only if the complaining party had
faithfully complied with its own correlative obligation.
TAYAG V. CA
FACTS: The deed of conveyance executed on May 28, 1975 by JuanGalicia,
Sr., prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido
Leyva involving the undivided one-half portion of a piece of land situated at
Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the
following terms:
1. The sum of PESOS: THREE THOUSAND(P3,000.00) is HEREBY
acknowledged to have been paid upon the execution of this
agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00)shall be paid
within ten (10) days from and after the execution of this
agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the
VENDORS' indebtedness with the Philippine Veterans Bank which
is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00)
shall be paid within one(1) year from and after the execution of
this instrument."
There is no dispute that the sum of P3,000.00 listed as first installment was
received by Juan Galicia, Sr. According to petitioners, of the P 10,000.00 to be
paid within ten days from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions from May 29,
1975, up to November 3,1979.
Concerning private respondent's assumption of the vendor’s obligation to the
Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while
the difference of the indebtedness came from Celerina Labuguin Moreover,
petitioners asserted that not a single centavo of the P27,000.00 representing
the remaining balance was paid to them. Because of the apprehension that
the heirs of Juan Galicia, Sr. are disavowing the contract inked by their
predecessor, private respondent filed the complaint for) specific
performance.
RTC: In addressing the issue of whether the conditions of the instrument
were performed by herein private respondent as vendee, RTC decided to
uphold private respondent's theory on the basis of constructive fulfilment
under Article 1186 and estoppel through acceptance of piecemeal payments
in line with Article 1235 of the Civil Code.
Regarding the third condition, the trial court noted that plaintiff below paid
more than P6,000.00 to thePhilippine Veterans Bank but Celerina Labuguin,
the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77which
circumstance was construed to be a ploy underArticle 1186 of the Civil Code
that "prematurely prevented plaintiff from paying the installment fully" and
"for the purpose of withdrawing the title to the lot". The acceptance by
petitioners of the various payments even beyond the periods agreed upon,
was perceived by the lower court as tantamount to faithful performance of
the obligation pursuant to Article 1235 of the Civil Code. Furthermore,the
trial court noted that private respondent consignedP18,520.00, an amount
sufficient to offset the remaining balance, leaving the sum of P 1,315.00 to be
credited to private respondent.
CA: concurred with RTC but modified the decision regarding 4th condition
ISSUE: WON insofar as the third item is concerned, constructive fulfillment
should not have been appreciated because they are the pbligees while the
proviso speaks of the obligor.
RULING: Petitioners must concede that in a reciprocal obligation like a
contract of purchase, both parties are mutually obligors and also obligees,
and any of the contracting parties may, upon non-fulfillment by the other
privy of his part of the prestation, rescind the contract or seek fulfilment. In
short, it is puerile for petitioners to say that they are the only obligees under
the contract since they are also bound as obligors to respect the stipulation
in permitting private respondent to assume the loan with the Philippine
Veterans Bank which petitioners impeded when they paid the balance of said
loan. As vendors, they are supposed to execute the final deed of sale upon
full payment; of the balance as determined hereafter.
DEVELOPMENT BANK V. STA. INES MELALE
FACTS: Sometime in 1977, National Galleon Shipping Corporation
(Galleon), was organized to operate a liner service between the
Philippines and its .  .  . trading partners. Galleon’s major stockholders
were respondents Sta. Ines Melale Forest Products Corporation (Sta.
Ines), Cuenca Investment Corporation Cuenca Investment), Universal
Holdings Corporation (Universal Holdings), Galleon’s President Rodolfo M.
Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the Philippine National
Construction Corporation (PNCC).
Galleon experienced financial difficulties and had to take out several
loans from different sources such as foreign financial institutions, its
shareholders and other entities “with whom it had ongoing commercial
relationships.”
DBP guaranteed Galleon’s foreign loans. In return, Galleon and its
stockholders Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca,
and Tinio, executed a Deed of Undertaking and obligated themselves to
guarantee DBP’s potential liabilities.
To secure DBP’s guarantee, Galleon undertook to secure a first
mortgage on its five new vessels and two secondhand vessels. However,
despite the loans extended to it, “[Galleon’s] financial condition did not
improve.
Cuenca, as Galleon’s president, wrote to the members of the Cabinet
Standing Committee “for the consideration of a policy decision to
support a liner service.” Cuenca also wrote then President Ferdinand
Marcos and asked for assistance.
On August 10, 1981, pursuant to Letter of Instructions No. 1155,
Galleon’s stockholders and NDC entered into a Memorandum of
Agreement, where NDC and Galleon undertook to prepare and sign a
share purchase agreement covering 100% of Galleon’s equity for
P46,740,755.00. The purchase price was to be paid after five years from
the execution of the share purchase agreement. The share purchase
agreement also provided for the release of Sta. Ines, Cuenca, Tinio and
Construction Development Corporation of the Philippines from the
personal counter guarantees they issued in DBP’s favor under the Deed
of Undertaking.
Acting as Galleon’s guarantor, DBP paid off Galleon’s debts to its foreign
bank creditor and, on January 25, 1982, pursuant to the Deed of
Undertaking, Galleon executed a mortgage contract over seven of its
vessels in favor of DBP.
NDC took over Galleon’s operations “even prior to the signing of a share
purchase agreement.” However, despite NDC’s takeover, the share
purchase agreement was never formally executed.
On February 10, 1982, or barely seven months from the issuance of
Letter of Instructions No. 1155, President Marcos issued Letter of
Instructions No. 1195, which reads:
TO : Development Bank of the Philippines
National Development Company
RE : Galleon Shipping Corporation
WHEREAS, NDC has assumed management of Galleon’s operations
pursuant to LOI No. 1155;
WHEREAS, the original terms under which Galleon acquired or leased
the vessels were such that Galleon would be unable to pay from its
cash flows the resulting debt service burden;
WHEREAS, in such a situation the financial exposure of the Government
will continue to increase and therefore the appropriate steps must be
taken to limit and protect the Government’s exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, do hereby direct the following:
1) The DBP and the NDC shall take immediate steps, including
foreclosure of Galleon vessels and other assets, as may be
deemed necessary to limit and protect the Government’s
exposure;
2) NDC shall discharge such maritime liens as it may deem necessary
to allow the foreclosed vessels to engage in the international
shipping business;
3) Any provision of LOI No. 1155 inconsistent with this Letter of
Instructions is hereby rescinded. These instructions are to take effect
immediately.
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca
Investment and Universal Holdings filed a Complaint with Application for
the Issuance of a Temporary Restraining Order or Writ of Preliminary
Injunction.
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings alleged that NDC, “without paying a single centavo,
took over the complete, total, and absolute ownership, management,
control, and operation of defendant [Galleon] and all its assets, even
prior to the formality of signing a share purchase agreement, which was
held in abeyance because the defendant NDC was verifying and
confirming the amounts paid by plaintiffs to Galleon, and certain
liabilities of Galleon to plaintiffs[.]”
They also alleged that NDC tried to delay ‘the formal signing of the
share purchase agreement in order to interrupt the running of the 5-
year period to pay the purchase of the shares in the amount of
P46,740,755[.00] and the execution of the negotiable promissory notes to
secure payment[.]”

As for DBP, they claimed that “DBP can no longer go after [them] for
any deficiency judgment [since] NDC had been subrogated [in their
place] as borrower[s], hence the Deed of Undertaking between [Sta.
Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP]
had been extinguished and novated[.]”
Meanwhile, on December 8, 1986, Proclamation No. 50 created the
Asset Privatization Trust. The Asset Privatization Trust was tasked to
“take title to and possession of, conserve, provisionally manage and
dispose of, assets which have been identified for privatization or
disposition and transferred to the TI-List for [that] purpose.”
Under Administrative Order No. 14 issued by then President Corazon C.
Aquino, certain assets of DBP, which included Galleon’s loan accounts,
“were identified for transfer to the National Government.”
On February 27, 1987, a Deed of Transfer was executed providing for
the transfer of the Galleon loan account from DBP to the National
Government. The Asset Privatization Trust was “constituted as [the
National Government’s] trustee over the transferred accounts and
assets[.]”
RTC: The Letter of Instructions No. 1155 and the Memorandum of
Agreement executed by NDC and Galleon’s stockholders, pursuant to
Letter of Instructions No. 1155 is valid.
Letter of Instructions No. 1195 did not supersede or impliedly repeal
Letter of Instructions No. 1155, and assuming that it did impliedly
repeal Letter of Instructions No. 1155, it would be void and
unconstitutional for violating the non impairment clause.
As regards NDC’s argument that Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings had no basis to compel it to pay
Galleon’s shares of stocks because no share purchase agreement was
executed, the Regional Trial Court held that the NDC was in estoppel
since it prevented the execution of the share purchase agreement and
had admitted to being Galleon’s owner.
CA: NDC is estopped from claiming that there was no agreement
between it and Cuenca since the agreement had already been partially
executed after NDC took over the control and management of Galleon.
NDC “voluntarily prevented the execution of a share purchase
agreement when it reneged on its various obligations under the
Memorandum of Agreement.”
ISSUE: Whether the Memorandum of Agreement obligates NDC to
purchase Galleon’s shares of stocks and pay the advances made by
respondents in Galleon’s favor.
RULING: We uphold the Court of Appeals’ finding that the failure to
execute the share purchase agreement was brought about by NDC’s
delay in reviewing the financial accounts submitted by Galleon’s
stockholders. The Memorandum of Agreement was executed on August
10, 1981, giving the parties no more than sixty days or up to October
9, 1981, to prepare and sign the share purchase agreement. However, it
was only on April 26, 1982, or more than eight months after the
Memorandum of Agreement was signed, did NDC’s General Director
submit his recommendation on Galleon’s outstanding account. Even
then, there was no clear intention to execute a share purchase
agreement as compliance with the Memorandum of Agreement. Article
1186 of the Civil Code is categorical that a “condition shall be deemed
fulfilled when the obligor voluntarily prevents its fulfilment.” Considering
NDC’s delay, the execution of the share purchase agreement should be
considered fulfilled with NDC as the new owner of 100% of Galleon’s
shares of stocks.
VELARDE V. CA
FACTS: David Raymundo [herein private respondent] is the absolute and
registered owner of a parcel of land, together with the house and
other improvements thereon. George Raymundo is David’s father who
negotiated with plaintiffs Avelina and Mariano Velarde [herein
petitioners] for the sale of said property, which was, however, under
lease.
On August 8, 1986, a Deed of Sale with Assumption of Mortgage was
executed by defendant David Raymundo, as vendor, in favor of plaintiff
Avelina Velarde, as vendee.
On the same date, and as part of the above-document, plaintiff Avelina
Velarde, with the consent of her husband, Mariano, executed an
Undertaking. This undertaking was signed by Avelina and Mariano
Velarde and David Raymundo. It appears that the negotiated terms for
the payment of the balance of P1.8 million was from the proceeds of a
loan that the Velardes were to secure from a bank with Raymundo’s
help. Raymundos had a standing approved credit line with the Bank of
the Philippine Islands (BPI). The parties agreed to avail of this, subject
to BPI’s approval of an application for assumption of mortgage by
plaintiffs. Pending BPI’s approval o[f] the application, plaintiffs were to
continue paying the monthly interests of the loan secured by a real
estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on
the loan secured by the aforementioned mortgage for three (3) months
On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved. This prompted
plaintiffs not to make any further payment.
On January 5, 1987, defendants Raymundo, thru counsel, wrote plaintiffs
Velarde informing the latter that their non-payment to the mortgage
bank constitute[d] non-performance of their obligation.
In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded
that they are willing to pay the balance in cash provided that: (a) they deliver
the actual possession of the property to her for her immediate
occupancy; (b) that they cause the release of title and mortgage from the
Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) to execute an absolute deed of sale in her favor
free from any liens or encumbrances.
On January 8, 1987, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property
allegedly due to the latter’s failure to comply with the terms and
conditions of the Deed of Sale with Assumption of Mortgage and the
Undertaking.
Petitioners filed a Complaint against private respondents for the nullity of
cancellation, among others.
RTC: MR was filed after it was dismissed. AFTER MR: instructed petitioners
to pay the balance of P1.8 million to private respondents who, in turn,
were ordered to execute a deed of absolute sale and to surrender
possession of the disputed property to petitioners.
CA: reinstated the earlier decision by the previous judge. Upheld the validity
of the rescission made by the Raymundos.
ISSUE: WON the rescission of the contract by the Raymundos was justified.
RULING: Petitioners likewise claim that the rescission of the contract by
private respondents was not justified, inasmuch as the former had
signified their willingness to pay the balance of the purchase price only
a little over a month from the time they were notified of the
disapproval of their application for assumption of mortgage. Petitioners
also aver that the breach of the contract was not substantial as would
warrant a rescission. They cite several cases15 in which this Court
declared that rescission of a contract would not be permitted for a
slight or casual breach. Finally, they argue that they have substantially
performed their obligation in good faith, considering that they have
already made the initial payment of P800,000 and three (3) monthly
mortgage payments.
The breach committed by petitioners was not so much their
nonpayment of the mortgage obligations, as their nonperformance of
their reciprocal obligation to pay the purchase price under the contract
of sale. Private respondents’ right to rescind the contract finds basis in
Article 1191 of the Civil Code.
The right of rescission of a party to an obligation under Article 1191
of the Civil Code is predicated on a breach of faith by the other party
who violates the reciprocity between them. The breach contemplated
in the said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and, in the absence of any
just cause for the court to determine the period of compliance, the
court shall decree the rescission.
In the present case, private respondents validly exercised their right to
rescind the contract, because of the failure of petitioners to comply
with their obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently gave rise to private
respondents’ right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the
purchase price one month after it became due; however, this was not
equivalent to actual payment as would constitute a faithful compliance
of their reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of additional
burdens that had not been agreed upon in the original contract. Thus,
it cannot be said that the breach committed by petitioners was merely
slight or casual as would preclude the exercise of the right to rescind.
In the instant case, the breach committed did not merely consist of a
slight delay in payment or an irregularity; such breach would not
normally defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to
the performance of their own obligation. In effect, the qualified offer to
pay was a repudiation of an existing obligation, which was legally due
and demandable under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to protect their own
interest.
As discussed earlier, the breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the terms
and conditions of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate
the resolution of this controversy. Considering that the rescission of the
contract is based on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000
and the corresponding mortgage payments in the amounts of P27,225,
P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich
themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract.
It can be earned out only when the one who demands rescission can
return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no
contract has been made.
CANNU V. GALANG
FACTS: Respondents-spouses Gil and Fernandina Galang obtained a loan
from Fortune Savings & Loan Association for P173,800.00 to purchase a
house and lot located at Pulang Lupa, Las Piñas in the names of
respondents-spouses. To secure payment, a real estate mortgage was
constituted on the said house and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan Association for
P173,800.00.
Respondent Fernandina Galang authorized her attorney-in-fact, Adelina R.
Timbang, to sell the subject house and lot. Petitioner Leticia Cannu
agreed to buy the property for P120,000.00 and to assume the balance
of the mortgage obligations with the NHMFC and with CERF Realty (the
Developer of the property).
Of the 120,000, there is a pending balance of 45,000. A Deed of Sale with
Assumption of Mortgage Obligation dated 20 August 1990 was made
and entered into by and between spouses Fernandina and Gil Galang
(vendors) and spouses Leticia and Felipe Cannu (vendees) over the
house and lot in question.
Petitioners immediately took possession and occupied the house and lot.
Petitioners paid the “equity” or second mortgage to CERF Realty.
Despite requests from Adelina R. Timbang and Fernandina Galang to
pay the balance of P45,000.00 or in the alternative to vacate the
property in question, petitioners refused to do so.
In a letter, petitioner Leticia Cannu informed Mr. Fermin T. Arzaga, Vice
President, Fund Management Group of the NHMFC, that the ownership
rights over the landin the names of respondents-spouses had been
ceded and transferred to her and her husband per Deed of Sale with
Assumption of Mortgage, and that they were obligated to assume the
mortgage and pay the remaining unpaid loan balance. Petitioners’
formal assumption of mortgage was not approved by the NHMFC. Because
the Cannus failed to fully comply with their obligations, respondent
Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment
of her remaining mortgage loan with NHMFC.
Petitioners opposed the release of TCT No. T-8505 in favor of
respondents-spouses insisting that the subject property had already been
sold to them. Consequently, the NHMFC held in abeyance the release of
said TCT.
CANNU: they be declared the owners of the property involved subject to
reimbursements of the amount made by respondents-spouses
(defendants therein) in preterminating the mortgage loan with NHMFC.
NHMFC: petitioners have no cause of action against it because they
have not submitted the formal requirements to be considered assignees
and successors-in-interest of the property under litigation.
SPS. GALANG: because of petitioners-spouses’ failure to fully pay the
consideration and to update the monthly amortizations with the
NHMFC, they paid in full the existing obligations with NHMFC as an
initial step in the rescission and annulment of the Deed of Sale with
Assumption of Mortgage. In their counterclaim, they maintain that the
acts of petitioners in not fully complying with their obligations give rise
to rescission of the Deed of Sale with Assumption of Mortgage with the
corresponding damages.
RTC: plaintiffs have no cause of action either against the spouses Galang
or the NHMFC. Plaintiffs have admitted on record they failed to pay the
amount of P45,000.00 the balance due to the Galangs in consideration
of the Deed of Sale With Assumption of Mortgage Obligation.
Consequently, this is a breach of contract and evidently a failure to
comply with obligation arising from contracts.
In this case, NHMFC has not been duly informed due to lack of formal
requirements to acknowledge plaintiffs as legal assignees, or legitimate
tranferees and, therefore, successors-in-interest to the property, plaintiffs
should have no legal personality to claim any right to the same
property.

CA: The rescission of the Contract of Sale is warranted and justified.

Obligations arising from contract have the force of law between the
contracting parties and should be complied in good faith. The terms of
a written contract are binding on the parties thereto. Plaintiffs-
appellants therefore are under obligation to pay defendants-appellees
spouses Galang the sum of P250,000.00, and to assume the mortgage.

Out of the P250,000.00 purchase price which was supposed to be paid

on the day of the execution of contract in July, 1990 plaintiffs-
appellants have paid, in the span of eight (8) years, from 1990 to
present, the amount of only P75,000.00. Plaintiffsappellants should have
paid the P250,000.00 at the time of the execution of contract in 1990.
Eight (8) years have already lapsed and plaintiffs-appellants have not yet
complied with their obligation.

ISSUE: WON the petitioner’s breach of the obligation was substantial, the
rescission of the Contract of Sale is warranted and justified.
RULING: Settled is the rule that rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 is predicated
on a breach of faith by the other party that violates the reciprocity
between them.

Rescission will not be permitted for a slight or casual breach of the

contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in
making the agreement. The question of whether a breach of contract is
substantial depends upon the attending circumstances and not merely on
the percentage of the amount not paid.

In the case at bar, we find petitioners’ failure to pay the remaining

balance of P45,000.00 to be substantial. Even assuming arguendo that
only said amount was left out of the supposed consideration of
P250,000.00, or eighteen (18%) percent thereof, this percentage is still
substantial. Taken together with the fact that the last payment made
was on 28 November 1991, eighteen months before the respondent
Fernandina Galang paid the outstanding balance of the mortgage loan
with NHMFC, the intention of petitioners to renege on their obligation is
utterly clear. Their failure to fulfill their obligation gave the respondents-
spouses Galang the right to rescission.

From the foregoing, it is clear that rescission (“resolution” in the Old

Civil Code) under Article 1191 is a principal action, while rescission
under Article 1383 is a subsidiary action. The former is based on breach
by the other party that violates the reciprocity between the parties,
while the latter is not. In the case at bar, the reciprocity between the
parties was violated when petitioners failed to fully pay the balance of
P45,000.00 to respondents-spouses and their failure to update their
amortizations with the NHMFC.