EASTERN SHIPPING LINES, INC. v.

CA (1994)
FACTS:
Two fiber drums of riboflavin were shipped from Yokohama, Japan for a delivery vessel owned by the
petitioner. The shipment was insured under plaintiffs Marine Insurance Policy.
Upon arrival of the shipment in Manila, it was discharged into the custody of Metro Port Service, Inc. The latter
received one drum, said to be in bad order, which damage was unknown to the Mercantile Insurance Company, Inc.
Allied Brokerage Corporation received the shipment from Metro Port Service, Inc., one drum opened and
without seal; and later made deliveries of the shipment to the consignees warehouse. The latter received one drum
which contained spillages, while the rest of the contents was adulterated/fake.
The insurer contended that due to the losses/damage sustained by said drum, the consignee suffered losses
due to the fault and negligence of defendants.
As a consequence of the losses sustained, the insurer was compelled to pay the consignee under the marine
insurance policy. It became subrogated to all the rights of action of said consignee against the petitioner.
The trial court ruled in favor of the insurer, ordering the petitioner to pay to the subrogee for the amount it paid
to the consignee. The Court of Appeals affirmed the lower court ruling.
ISSUES:
(1) Whether the payment of legal interest on an award for loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed from is rendered;
(2) Whether the applicable rate of interest referred to above is 12% or 6%
RULING:
First, the Court ruled on the duty of a common carrier, that there was a duty to observe the requisite diligence
in the shipment of goods from the time the articles are unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to, or until the lapse of a reasonable time for the acceptance by, the person
entitled to receive them. When the goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to
hold it liable.
On the issue of legal interest, the Court reviewed previous major rulings and segregated them into two groups.
The first group, consisting of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz
(1986), Florendo v. Ruiz (1989), and National Power Corporation v. Angas (1992), focused on the application of either
the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. In these cases, there has
been a consistent holding that the 12% interest per annum applies only to loans or forbearance of money, goods or
credits, as well as to judgments involving such loans or forbearance of money, goods or credits. The 6% interest
governs when the transaction involves the payment of indemnities in the concept of damages arising from the breach
or a delay in the performance of obligations in general. The time frame in the computation of the 6% interest per
annum has been applied from the time the complaint is filed until the adjudged amount is fully paid.
The second group, consisting of the cases of Malayan Insurance Company v. Manila Port Service (1969),
Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court
(1988), did not alter the pronounced rule on the application of the 6% or 12% interest per annum. However, the
second group varied on the commencement of the running of the legal interest. Malayan held that the amount
awarded should bear legal interest from the date of the decision of the court. American Express International v. IAC
ordered the 6% interest to be computed from the finality of the decision until paid. Nakpil and Sons ruled that the 12%
interest per annum should be imposed from the finality of the decision until the judgment amount is paid.
The Court then laid out the following rules:
(1) When the obligation is breached, and it consists in the payment of a sum of money, the interest due should be
that which may have been stipulated in writing. The interest due shall earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default;
(2) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudically. When such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made;
(3) When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
Cristina Garments v. CA (1999)
Petitioners: CRISMINA GARMENTS, INC.
Respondents: CA AND NORMA SIAPNO
Ponente: PANGANIBAN
Topic: Remedies for Breach
FACTS:
Cristina Garments, engaged in the export of girls denim pants, contracted the services of Norma Siapno, the owner of
DWilmar Garments, for the sewing of 20,762 pieces of assorted girls denims for P76,410.
The pants were delivered in good condition but Cristina Garments told Siapno that some were defective. She offered
to take them back but Cristina Garments said that the pants were already good. She was told to just return for her
check of P76,410.00. However, Cristina Garments failed to pay her the aforesaid amount. Siapno hired the services of
counsel who wrote a letter to Cristina Garments demanding payment within 10 days from receipt thereof.
Cristina Garments vice-president-comptroller wrote to Siapno's counsel, averring that 6,164 pairs were defective and
that she was liable for P49,925.51 and demanded its refund.
The trial court and CA decided in favor of Siapno, ordering Crismina Garments to pay the former P76,140 with interest
of 12% per annum, to be counted from the filing of the complaint until fully paid.
Because the case before us is "an action for the enforcement of an obligation for payment of money arising from a
contract for a piece of work," Crismina Garments submits that the interest rate should be 6%, pursuant to A2209,
NCC.
Siapno maintains that the interest rate should be 12% per annum, in accordance with Central Bank (CB) Circular No.
416.
ISSUES:
WON it is proper to impose an interest rate of 12% per annum for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties
o NO. Because the amount due in this case arose from a contract for a piece of work, not from a loan or
forbearance of money, the legal interest of 6% per annum should be applied.
o Furthermore, since the amount of the demand could be established with certainty when the Complaint was
filed, the 6% interest should be computed from the filing of the said Complaint. But after the judgment becomes final
and executory until the obligation is satisfied, the interest should be reckoned at 12% per year.
o Siapno maintains that the 12% interest should be imposed, because the obligation arose from a forbearance
of money.This is erroneous. In Eastern Shipping, the Court observed that a "forbearance" in the context of the usury
law is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." Using this standard, the obligation in this case was
obviously not a forbearance of money, goods or credit.
Keng Hua Products vs CA 286 SCRA 257 (1998)
FACTS:

Respondent Sea-Land Service Inc., a shipping company, received at its Hong Kong terminal a sealed container
containing 76 bales of unsorted waste paper for shipment to petitioner Keng Hua Paper Products, Co. in Manila.

A bill of lading to cover the shipment was issued by the plaintiff. On July 9, 1982, the shipment was discharged at the
Manila International Container Port.

Notices of arrival were transmitted to the petitioner but the latter failed to discharge the shipment from the container
during the grace period.

The said shipment remained inside the respondents container from the moment the grace period expired until the
time the shipment was unloaded from the container on November 22, 1983 or a total of 481 days.

During this period, demurrage charges accrued. Letters demanding payment were sent to the petitioner who refused
to settle its obligation which eventually amounted to P67,340.00.
Petitioner alleges that it had purchased 50 tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper,
as manifested in the Letter of Credit; that, under the letter of credit, the remaining balance of the shipment was only 10
metric tons; that the shipment respondent was asking petitioner to accept was 20 metric tons; that if petitioner were to
accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that
respondent had no cause of action against petitioner because the latter did not hire the former to carry the
merchandise. Petitioner contends that it should not be bound by the bill of lading because it never gave its consent
thereto. Although petitioner admits physical acceptance of the bill of lading, it argues that its subsequent actions
belie the finding that it accepted the terms therein.

Petitioner cites as support the Notice of Refused or On Hand Freight it received on November 2, 1982 from
respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner points to its January 24,
1983 letter to respondent stressing that its acceptance of the bill of lading would be tantamount to an act of smuggling
as the amount it had imported was only for 10,000 kilograms. The discrepancy in the amount of waste paper it
actually purchased vis--vis the excess amount in the bill of lading allegedly justified its refusal to accept the shipment.

ISSUES

1. WON petitioner is bound by the bill of lading

2. WON the amount of demurrage charges is correct

3. WON petitioner was correct in not accepting the overshipment

4. WON the award of interest is correct

5. WON the award of attorneys fees is correct

HELD

1. Yes. A bill of lading serves 2 functions. 1st, it is a receipt for the goods shipped. 2nd, it is a contract by which three
parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated
obligations. The acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents,
gives rise to the presumption that the same was a perfected and binding contract. In the case at bar, both lower courts
held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (petitioner
Keng Hua), and the carrier (respondent Sea -Land). Section 17 of the bill of lading provided that the shipper and the
consignee were liable for the payment of demurrage charges for the failure to discharge the shipment beyond the
grace period allowed by tariff rules. Petitioner admits that its received the bill of lading immediately after the arrival of
the shipment on July 8, 1982. It was only 6 months later that petitioner sent a letter to respondent saying that it could
not accept the shipment. Petitioners inaction for such a long time conveys the clear inference that it accepted the
terms and conditions of the bill of lading. Mere apprehension of violating customs, tariff and central bank laws without
a clear demonstration that taking delivery of the shipment has become legally impossible cannot defeat the petitioners
contractual obligation and liability under the bill of lading. In any event, the issue of whether or not petitioner accepted
the bill of lading was raised for the first time on appeal to this Court and cannot be entertained. Questions not raised in
the trial court cannot be raised for the first time on appeal.

2. Yes. Petitioners argument that it is not obligated to pay any demurrage charges because respondent made no
demand for the sum of P67,340 prior to the filing of the complaint is puerile. The amount of demurrage charges is a
factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court.
3. No. The contract of carriage, as stipulated in the bill of lading, must be treated independently of the contract of sale
between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the
issuing bank. Any discrepancy between the amount of the goods described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of
carriage as embodied in the bill of lading. Petitioners remedy in the case of overshipment lies against the
seller/shipper, not against the carrier.

4. No. The case involves an obligation not arising from a loan or forbearance of money, thus pursuant to Art. 2209 of
the Civil Code the applicable interest rate is 6% per annum to be computed from the date of the trial courts decision.
The rate of 12% per annum shall be charged on the total then outstanding from the time the judgment becomes final
and executory until its satisfaction.

5. No. The Court notes that the matter of attorneys fees was taken up only in the Disposition portion of the trial courts
decision. The settled requirement is that the text of the decision should state the reason for the award of attorneys
fees.

Disposition Decision is AFFIRMED with the MODIFICATION that legal interest be computed at 6% per annum from
September 28, 1990, then at 12% per annum from finality of judgment until full satisfaction. The award of attorneys
fees is DELETED.

SECURITY BANK vs RTC MAKATI

Petitioner: Security Bank and Trust Company,

Respondent: Regional Trial Court of Makati, Branch 61, Magtanggol Eusebio and Leila Ventura

Date October 23, 1996

DOCTRINE CB Circular No. 905 did not repeal nor un any way amends the Usury Law but simply suspended the
latters effectivity

Respondent Eusebio executed 3 promissory notes in favour of petitioner SBTC with an interest rate of 23% per
annum. After awhile, Eusebio stopped paying and SBTC filed a collection case against he former. RTC ruled in favour
of SBTC but the interest rate of the payable amount was decreased to 12%. SBTC alleged that the interest should
remain in 23%. SC ruled in their favour.

FACTS

Private respondent Magtanggol Eusebio executed 3 Promissory notes in favor of petitioner Security Bank and Trust
Co. (SBTC) with co-respondent Leila Venture signed as co-maker.

(1) April 27, 1983- total of P100,000 payable in 6 months with a stipulated interest of 23% per annum up to the fifth
installment

(2) July 28, 1983- total of P100,000 payable in 6 monthly installment plus 23% interest per annum

(3) August 31, 1983- in amount of P65,000 payable in 6 monthly installment plus interest at the rate of 23% per
annum.
After some time, when Eusebio failed and refused to pay the remaining principal payable a collection case was filed
by the petitioner SBTC. RTC ruled in favor of the petitioner and against defendant Eusebio and is hereby ordered to
pay the remaining balance plus interest of 12% per annum and the cost of the suit.

Not satisfied with the ruling, petitioner SBTC filed a motion for partial reconsideration contending that:

(1) the interest rate agreed upon by the parties during the signing of the promissory notes was 23% per annum;

(2) the interest awarded should be compounded quarterly from due date as provided in the three (3) promissory note;

(3) defendant Leila Ventura should likewise be liable to pay the balance on the promissory notes since she has signed
as co-maker and as such, is liable jointly and severally with defendant Eusebio without a need for demand upon her.

ISSUES/HELD

(1) WoN the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not
against the Usury Law - YES

RATIO

(1) The applicable provision of law is the Central Bank Circular No. 905 which took effect on December 22, 1982,
particularly Sections 1 and 2 which state:

Sec1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury law, as amended.

Sec2. The rate of interest for the load or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent(12%)
per annum.

CB Circular 905 was issued by the Central Banks Monetary Board pursuant to P.D. 1684 empowering them to
prescribe the maximum rates of interests for loans and certain forbearances.

The court cited the ruling in PNB vs. CA which says that: PD No. 1684 and CB Circular No. 905 no more than allow
contracting parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on a
loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the interest
previously stipulated.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905. Contrary
to the claim of respondent court, this circular did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity.

The rate of interest was agreed upon by the parties freely. Significantly, the respondent did not question that rate. It is
not for respondent court a quo (RTC Makati) to change the stipulations in the contract where it is not illegal.

DECISION
Judgment affirmed with modifications. Rate of interest should be imposed at 23% per annum.

Almeda v. CA (1996)

Petitioners: SPOUSES PONCIANO ALMEDA AND EUFEMIA P. ALMEDA

Respondents: CA AND PNB

Ponente: KAPUNAN

Topic: Remedies for Breach

FACTS:

- Ponciano and Eufemia Almeda acquired several loan/credit accommodations totalling P18 million from PNB,
at an interest rate of 21% per annum. To secure the loan, spouses executed a Real Estate Mortgage Contract
covering a parcel of their land at Pasong Tamo, Makati and the building erected thereon (Marvin Plaza).

- A credit agreement was also executed by the parties, which provides: the Bank reserves the right to increase
the interest rate within the limits allowed by law at any timeprovided, that the interest rate on this/these
accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take
effect on the effectivity date of the increase or decrease of the maximum interest rate.

- the Almedas made several partial payments on the loan totaling P7,735,004.66, a substantial portion of which
was applied to accrued interest.

- Then, over the Almedas protests, PNB raised the interest rate to 28% pursuant to their credit agreement, and
thereafter increased it to a high of 68% before the loan matured.

- Thus, the Almedas filed a petition for declaratory relief with prayer for a writ of preliminary injunction and TRO
to enjoin PNB from unilaterally raising the interest rates on the loan, pursuant to the credit agreements escalation
clause.

- The RTC Makati issued the TRO, but by this time the Almedas were already in default of their loan obligations.

- Invoking the law on Mandatory Foreclosure (Act 3135 and PD 385), PNB countered by ordering the
extrajudicial foreclosure of the Almedas mortgaged properties and scheduling an action sale.

- The RTC granted a supplemental writ of preliminary injunction, staying the public auction. The RTC later
dissolved the writ. PNB then set a new date for the sale.

- Before the sale, the Almedas tendered to PNB P40,142,518, which covered the remaining principal amount of
the loan plus interest at 21%.

- PNB refused to accept the tender of payment, thus the Almedas consigned the P40M with the RTC. The RTC
granted the Almedas prayer for a writ of preliminary injunction against the sale anew.

- PNB appealed to the CA, which set aside the trial courts order granting the writs and upheld PNBs right to
foreclosure pursuant to Act 3135 and PD 385.

- Thus, this petition.

- PNB vigorously denied that the increases in the interest rates were illegal, unilateral, excessive and arbitrary,
it argued that the escalated rates of interest it imposed was based on the agreement of the parties.

ISSUES:

WoN PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement;

o NO. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Likewise, any stipulation regarding the validity or compliance of the contract which is left
solely to the will of one of the parties is invalid.

o The binding effect of any agreement between parties to a contract is premised on two settled principles: that
any obligation arising from contract has the force of law between the parties; and that there must be mutuality
between the parties based on their essential equality.
o PNB unilaterally altered the terms of its contract with the Almedas by increasing the interest rates on the loan
without prior assent of the latter, in violation of the mutuality principle of contracts expressed in A1308, NCC.

o While interest escalation clauses in credit agreements are perfectly valid and do not contravene public policy,
they are still subject to laws and provisions.

o The stipulation in the credit agreement, which requires that the increase be within the limits allowed by law
refers to legislative enactments, not administration circulars, otherwise the credit agreement would not have made the
distinction between law and the Monetary Board in the phrase that the interest rate on this/these accommodations
shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the
Monetary Board.

o The increased interest rates, to which the Almedas never assented, thereby resulting to PNBs contravention
of their credit agreement by implementing the same, are patently unconscionable and excessive, unjustly disabling the
Almedas from fulfilling their obligation due to the new amount of the loan that is way above the original amount of the
old interest rate.

First Metro Investment vs. Estate of Del Sol (2001)

Petitioners: FIRST METRO INVESTMENT CORPORATION

Respondents: ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA.
ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO M. LADORES, VICENTE M. DE VERA, JR., AND
FELIPE B. SESE

Ponente: DE LEON, JR.

Topic: Remedies for Breach

FACTS:

- January 31, 1978: FMIC loaned Este del Sol P7.3M for the construction of a resort in Montalban, Rizal with
16% interest per annum, subject to (a) a onetime penalty of 20% of the amount due which shall bear interest at the
highest rate permitted by law from the date of default until full payment, (b) liquidated damages at 2% per month
compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or
charges until the balance is fully paid, and (c) Attorneys fees equivalent to 25% for the sum sought to be recovered.
The loans were released on a staggered basis.

- On the same day, as provided in the loan agreement, the parties also entered into an Underwriting
Agreement, (a) whereby FMIC shall underwrite on a best-efforts basis the public offering of 120,000 common shares
of Este del Sol's capital stock for a one-time underwriting fee of P200,000.00; (b) an annual supervision fee of
P200,000 for four consecutive years to be paid to FMIC for supervising the public offering of the shares; (c) and a
consultancy fee of P332,500.00 per annum for 4 consecutive years to FMIC.

- Simultaneously, a Consultancy Agreement was executed whereby Estedel Sol engaged FMICs services for a
fee as consultant to render general consultancy services

- February 22, 1978: FMIC billed Este del Sol for the underwriting (P200k) and supervision fees (P200k), as
well as P1.3M worth of consultancy fees for 4 years. These were all deducted from the first release of the loan.

- June 23, 1980: Este del Sol failed to meet the payment schedules, incurring P12.6M due to FMIC.

- FMIC caused the foreclosure of P7.5M worth of properties mortgaged by Este del Sol. Of the P9M from the
foreclosure and auction, P3.1M was deducted for attorneys fees and P5.8M for interests and penalties, and partly on
the principal.

- November 11: FMIC initiated a collection suit against respondents-sureties for the remaining P6.8M owed by
Este del Sol.

- The respondents argued that the Underwriting and Consultancy Agreements were integral parts of the Loan
Agreement and were merely subterfuges to camouflage the usurious interest charged by FMIC.

- The trial court sided with FMIC and ordered respondents to pay the P6.8M balance.

- The CA reversed. It found and declared that the fees provided for in the Underwriting and Consultancy
Agreements were mere subterfuges to camouflage the excessively usurious interest charged by FMIC on the loan of
Este del Sol; and that the stipulated penalties, liquidated damages and attorney's fees were "excessive, iniquitous,
unconscionable and revolting to the conscience. It declared that in lieu thereof, the stipulated one time 20% penalty
on the amount due and 10% of the amount due as attorney's fees would be reasonable and suffice to compensate
FMIC for those items. Thus, it ordered FMIC to pay or reimburse Este del Sol P971,000.00 representing the difference
between what is due to FMIC and what is due to Este del Sol.

- Thus, this appeal by FMIC, assailing the factual findings and conclusion of the CA. (SC: We are not a trier of
facts.)

ISSUES:

WoN the Underwriting and Consultancy Agreements were merely camouflages for usurious interest

o YES. First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 905 which took
effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of
maturity, should be applied retroactively to a contract executed on January 31, 1978, as in this case, while the Usury
Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was
made and entered into, govern it. More significantly, Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latter's effectivity.

o Second, the form of the contract is not conclusive for the law will not permit a usurious loan to hide itself
behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a
device to cover usury.

o Several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements
were simply cloaks or devices to cover an illegal scheme employed by FMIC to conceal and collect excessively
usurious interest:

The Underwriting and Consultancy Agreements were executed simultaneously with the Loan Agreement and
were set to mature or shall remain effective during the same period of time.

The P1.3M for four years worth of consultancy fees was charged in February 1978 when the agreement is for
P332.5K for every year.

The P1.3M, along with the underwriting and supervision fees, were charged from the first release of the loan.
Thus, P1.73M reverted to FMIC as part of the loan to Este del Sol.

FMIC failed to comply with its underwriting and consultancy obligations, notwithstanding the fact that these
were not necessary since Este del Sols marketing arm and officers were more than capable.

o The underwriting and consultancy agreements were essential conditions for the grant of the loan. An
apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by the borrower for the lenders services which are of little value or
which are not in fact to be rendered.

o Art. 1957: Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws
against usury shall be void. The borrower may recover in accordance with the laws on usury.

o In usurious loans, the entire obligation does not become void because of an agreement for usurious interest;
the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void,
consequently, the debt is to be considered without stipulation as to the interest.

Angel Jose Warehousing Co., Inc. v. Child Enterprises: In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only
should be deemed void, since it is the only one that is illegal.

Tanguling v. CA (1997)

Petitioners: JACINTO TANGUILIG, DOING BUSINESS UNDER THE NAME AND STYLE J.M.T. ENGINEERING
AND GENERAL MERCHANDISING

Respondents: COURT OF APPEALS AND VICENTE HERCE JR.,

Ponente: BELLOSILLO
Topic: Remedies for Breach

SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

FACTS:

- In April 1987, Tanguilig of JMT Engineering and General Merchandising proposed to construct a windmill
system for Herce, Jr. They agreed on the construction of the windmill for P60,000.00 with a one-year guaranty from
the date of completion and acceptance by Herce of the project.

- Herce paid PHP 30k as down payment and PHP 15k as installment, leaving a balance of PHP 15k.

- In March 1988, Tanguilig filed a complaint to collect PHP 15k due to Herces refusal and failure to pay the
balance.

- Herce contends that the PHP 15k was already paid to San Pedro General Merchandising Inc. (SPGMI) which
constructed a deep well to which the windmill system was to be connected. He claimed that since the deep well
formed part of the system, Tanguilig should credit the amount to Herces account. Moreover, assuming that Herce
owed Tanguilig, this should be offset by defects in the windmill system which caused the structure to collapse after it
was hit by strong wind.

- Tanguilig replied that the deep well was not included in the agreement, for the P60k was solely for the windmill
assembly and its installation. He disowned any obligation to repair or reconstruct the system, claiming that the
windmill system was delivered in good and working condition, and that Herce accepted it without protest. Besides,
since the collapse was attributable to a typhoon, a force majeure, he believed he is relieved from liability.

- The trial court ruled that the deep well was not part of the windmill project as evidenced by the proposal letters
of Tanguilig to Herce. It said that if such was the intention of the parties, it should have been included. With respect to
the repair of the windmill, there was no clear and convincing proof that it fell down due to defect of construction.

- The CA reversed the trial courts ruling, saying that the construction of the deep well was part of the windmill
system. Credence was given to the testimony of Guillermo Pili of SPGMI that Tanguilig told him that the deep well
construction cost would be deducted from the contract price of P60k. It also rejected Tanguiligs claim of force
majeure. Thus, it ordered Tanguilig to reconstruct the windmill in accordance with the stipulated one-year guaranty.

ISSUES:

WON Tanguilig is under obligation to reconstruct the collapsed windmill

RATIO:

o YES. In order for a party to claim exemption from liability by reason of fortuitous event, the event should be
the sole and proximate cause of the loss or destruction of the object of the contract.

o According to Nakpil vs. CA, four requisites must concur: 1) the cause of the breach must be independent of
the will of the debtor; 2) the event must be unforeseeable or unavoidable; 3) the event must such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and 4) the debtor must be free from any
participation in or aggravation of the injury to the creditor.

o Tanguilig failed to show that the collapse of the windmill was due solely to a fortuitous event. The evidence
does not disclose that there was actually a typhoon on the day the windmill collapsed. Tanguilig merely stated that
there was a "strong wind." But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the
contrary, a strong wind should be present in places where windmills are constructed; otherwise the windmills will not
turn.

o Tanguiligs argument that Herce was already in default and hence should bear his own loss is untenable.
When the windmill failed to function properly it became incumbent upon Tanguilig to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, Herce cannot be said to have incurred delay. Instead, it is
Tanguilig who should bear the expenses for the reconstruction of the windmill. A1167 of the Civil Code is explicit that if
a person obliged to do something fails to do it, the same shall be executed at his cost.

NOTES:

WoN the agreement to construct the windmill included the installation of a deep well

o NO. Although the words deep well and deep well pump appear in the proposal, they are preceded by the
prepositions for and suitable for which were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump of a specific size. If the real intent was to include the deep well, and or with would
have been used.
o In case of doubt in the interpretation of contracts, contemporaneous and subsequent acts shall be principally
considered. An examination of such acts of respondent as well as the attendant circumstances does not persuade the
court to uphold respondent.

o Herce insists that Tanguilig verbally agreed that the contract price covered the installation of a deep well and
that since petitioner did not have the capacity to do so, SPGMI was hired to do the work, the cost of which was to be
deducted from the contract price. Such agreement is unsubstantiated since no evidence of such agreement was
presented to the court. Moreover, it was Herce who paid P15k to Pili, indicating that the contract for the deep well was
not part of the windmill project but a separate agreement between Herce and Pili.

o Neither can Herce claim that Pili accepted his payment on behalf of Tanguilig as per NCC, A1240 since it does
not appear that Pili was authorized to do so.

o A1236 and 1237 do not apply because no creditor-debtor relationship between Tanguilig and Pili has been
established regarding the deep well construction.

BOYSAW V INTERPHIL PROMOTIONS INC

GR. NO. L-22590 / MARCH 20, 1987 / J. FERNAN / AABPAYAD

NATURE: Appeal

PETITIONER: Solomon Boysaw and Alfredo Yulo

RESPONDENT: Interphil Promotions, Inc. et. al.

DOCTRINE: Where one party did not perform the undertaking which he was bound by the terms of the agreement to
perform, he is not entitled to insist upon the performance of the contract by the other party, or recover damages by
reason of his own breach.

FACTS:

On May 1, 1961, Boysaw and manager Ketchum signed with Interphil (represented by Sarreal) a
contract to engage Flash Elorde in a boxing match at Rizal Memorial Stadium on Sept 30, 1961 or not later than 30
days should a postponement be mutually agreed upon. Boysaw, according to contract, should not engage in other
bouts prior to the contest.

Interphil signed Elorde to a similar agreement.

Boysaw fought and defeated Louis Avila in Nevada.

Ketchum assigned to Amado Araneta his managerial rights, who later transferred the rights to Alfredo Yulo.

Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of managers because they
werent notified.

GAB called for conferences and decided to schedule the Elorde-Boysaw bout on

On Nov 4, 1961, USA National Boxing Assoc approved.

Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable postponement in the contract.
Yulo refused. He was willing to approve the fight on Nov 4 provided it will be promoted by a certain Mamerto Besa.

The fight contemplated in the May 1 contract never materialized.

Boysaw and Yulo sued Interphil, Sarreal and Nieto.

Boysaw was abroad when he was scheduled to take the witness stand. Lower court reset the trial. Boysaw
was still absent on the later date. Court reset. On the third instance, a motion for postponement was denied.

Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal.
ISSUES & RATIO:

WON the offending party in a reciprocal obligation may compel the other party for specific performance? - No.

The evidence established that the contract was violated by appellant Boysaw himself when, without the approval or
consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Another violation of the contract in
question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the
managerial rights over Boysaw without the knowledge or consent of Interphil. The power to rescind is given to the
injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of
the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or
recover damages by reason of his own breach " Under the law when a contract is unlawfully novated by an applicable
and unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.
However, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission
or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that
Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to
postpone the fight date could neither be unlawful nor unreasonable.

DECISION

WHEREFORE, except for the award of moral damages which is herein deleted, the decision of the lower court is
hereby affirmed.

University of the Philippines v. De Los Angeles

G.R. No. L-28602 September 29, 1970

Facts: On November 2, 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further
period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration
of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber there from but, as of 8
December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to
pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an
instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which
was approved by the president of UP, which expressly states that, upon default by the debtor ALUMCO, the creditor
(UP) has the right and the power to consider the Logging Agreement as rescinded without the necessity of any
judicial suit.

ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19, 1965, petitioner UP
informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the
logging agreement that they had entered in 1960. UP filed a complaint against ALUMCO for the collection or payment
of the herein before stated sums of money and it prayed for and obtained an order for preliminary attachment and
preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. Respondent
ALUMCO contended that it is only after a final court decree declaring the contract rescinded for violation of its terms
that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or
effect.

Issue: Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may disregard the same
before any judicial pronouncement to that effect.

Held: UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the
Logging Agreement as rescinded without the necessity of any judicial suit." In connection with Article 1191 of the
Civil Code, the Court stated in Froilan vs. Pan Oriental Shipping Co that there is nothing in the law that prohibits
the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof,
even without court intervention. In other words, it is not always necessary for the injured party to resort to court for
rescission of the contract.
It must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by
the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny
and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action
in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of
the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

De Erquiaga v. CA (1989)

Petitioners: GLORIA M. DE ERQUIAGA, AS ADMINISTRATRIX OF THE ESTATE OF THE LATE SANTIAGO DE

ERQUIAGA & HON. FELICIANO S. GONZALES

Respondents: HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSE V. REYNOSO, JR.,
ERNESTO REYNOSO, BENEDICT REYNOSO, SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO,
EDNA REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO

Ponente: GRIO-AQUINO

Topic: Remedies for Breach

FACTS:

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development
Corporation (EDC) which owns the Hacienda San Jose in Irosin, Sorsogon.

On November 4, 1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of EDC for P900,000, payable in installments on definite dates fixed in the contract but not later than November
30, 1968.

- Reynoso failed to pay the second and third installments on time. Thus, the total price of the sale was
increased to P971,371.70 payable on or before December 17, 1969. The increase represented brokers' commission
and interest.

- As of December 17, 1968, Reynoso was able to pay P410,000 to Erquiaga who thereupon transferred all his
shares to Reynoso, as well as the possession of the Hacienda San Jose, EDCs only asset. However, as provided in
paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security
for the balance of his obligation.

- Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the
promissory notes he delivered to Erquiaga.

- So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale
of his shares in EDC.

- Erquiaga filed a complaint for rescission with preliminary injunction against Reynoso and EDC, in CFI
Sorsogon, Branch I.

- The CFI ruled in favor of Erquiaga, rescinded the sale, and ordered Reynoso to: (a) return and reconvey to
Erquiaga the 3,100 paid up shares of stock of the EDC; (b) render a full accounting of the fruits he received by virtue
of said shares, and to return said fruits received by him to Erquiaga; (c) and pay Erquiaga P12,000 as actual
damages, P50k as attorney's fees, the costs of this suit and expenses of litigation (P62k). Erquiaga was ordered to
return to Reynoso P100k plus legal interest from November 4, 1968, and P310k plus legal interest from December 17,
1968, until paid (P410k total).

- The CFI decision became final and executory. However, it issued another order holding in abeyance
Erquiagas payment of P410k plus interest, pending Reynosos accounting of the fruits he received on account of the
shares.

- In the same order, the CFI appointed a receiver since (a) the accounting of the fruits received by Reynoso
would take time; and (b) Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver in
order to preserve the Hacienda which has obviously been mismanaged by Reynoso (arrears in DBP loan amounting
to P503,510.70 and danger of foreclosure to Erquiagas damage).

- On April 26, 1973, Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda.
de Reynoso and children, as defendants.

- The Reynoso heirs (Reynosos) filed a petition for certiorari in the CA against the CFI order. The CA dismissed
the petition. The SC affirmed.

- Upon Erquiagas motion, the CFI issued an order on February 12, 1975: (a) dissolving the receivership and
ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, (b) ordering Erquiaga to file a P410-k
bond conditioned to the payment of whatever may be due to the Reynoso heirs after the approval of Reynosos
accounting report; and (c) allowing Erquiagas counsel to inspect, copy and photograph certain documents related to
the accounting report.

- The CFI approved Erquiagas submitted bond and turned over the possession, management and control of
the hacienda to him.

- Upon Erquiagas Omnibus Motion, opposed by Reynosos, the CFI ordered the latter to deliver to Erquiaga
within 5 days from receipt of the order the 1,600 shares which are in their possession. The CFI also denied the prayer
to (a) strike out all expenses allegedly incurred by Reynosos in the production of the fruits of Hacienda San Jose; (b)
declare Erquiagas obligation to pay Reynosos P410k with interest as fully compensated by the fruits earned by
Reynosos from the property; and (c) issue a writ of execution against Reynosos to pay Erquiaga P62k.

- Reynosos filed a petition for certiorari against the last order. The CA ruled in their favor, holding that the CFI
acted with GADALEJ in refusing to order the reimbursement of the P410k purchase price plus interests awarded in the
final decision and the setoff therewith of P62k as damages and attorney's fees in Erquiagas favor. Thus, the CA
directed Erquiaga to return P410,000 (or net P348,000 after deducting P62,000 due from Reynoso) as the price paid
by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares
with the fruits.

- At the time of the CA decision:

o Hacienda San Jose was returned to Erquiaga;

o Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock;

o Reynoso has not complied with (b) and (c) of the decision;

o Erquiaga has not returned P410k required by the decision.

- Erquiaga alleged that the CA decision of requiring him to pay Reynosos P410,000 plus interest, without first
awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates the law of the case and A1385, NCC,
alters the final order dated February 12, 1975 of the trial court, and is inequitous

ISSUES:

WON Erquiagas allegation has merit

o NO. The CA order is in full accord with A1385, CC:

"ART. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore. / "Neither shall rescission take place when the things
which are the object of the contract are legally in the possession of third persons who did not act in bad faith. / "In this
case, indemnity for damages may be demanded from the person causing the loss."

o The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon
the return to him of the remaining 1,600 shares, Erquiaga should return to Reynoso P410k which the latter paid for
those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual
restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This
should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in
the possession of Erquiaga, and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the
time the hacienda was delivered to him on November 4, 1968 until it was placed under receivership by the court on
March 3, 1975.

o However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's
obligation to deliver to Reynoso the legal interest earned by his money, should await the rendition and approval of his
accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and
oppressive to require Erquiaga to pay the legal interest earned by Reynoso's P410k since 1968 or for the past 20
years (amounting to over P400k by this time) without first requiring Reynoso to account for the fruits of Erquiaga's
hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3, 1975.

ANGELES VS. CALASANZ

135 SCRA 323

FACTS:

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura Angeles
and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00
plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the
contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installment being due
and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966,
when their aggregate payment already amounted to P4,533.38.

On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the remittance of
past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs
failed to meet subsequent payments. The plaintiffs letter with their plea for reconsideration of the

said cancellation was denied by the defendants.

The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant 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 including interests, realty taxes and incidental expenses. The
defendants alleged in their answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused
to pay and/or offer to pay monthly installments corresponding to the month of August, 1966 for more than 5 months,
thereby constraining the defendants to cancel the said contract.

The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal.

ISSUE: Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants?

RULING: No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum
of P3,920 plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to
the buyer upon payment of the said price. The contract to sell, being a contract of adhesion, must be construed
against the party causing it. The Supreme Court 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 lop-
sidedness and injurious in its effect which, in essence, and its entirety is most unfair to the buyers.

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid
an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not
uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the
defendant must immediately execute the final deed of sale in favor of the plaintiffs and execute the necessary transfer
of documents, as provided in par.12 of the contract.

Ong vs. Court of Appeals, 310 SCRA 1(1999)

Facts:

Petitioner Jaime Ong and respondent spouses Miguel Robles and Alejandra Robles executed an Agreement of
Purchase and Sale respecting two parcels of land. On May 15, 1983, petitioner took possession of the subject
parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon.
Pursuant to the terms of the contract, petitioner paid respondent spouses the sum of P103,499.91 by depositing it with
the United Coconut Planters Bank and paid the loan of respondents to Bank of Philippine Islands (BPI). To answer for
the balance, petitioner issued 4 post-dated checks payable to respondent spouses. When presented for payment,
however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the checks but failed to
do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the BPI, which petitioner
should have paid, petitioner only managed to dole out less than the said amount. When the bank threatened to
foreclose the respondent spouses mortgage, they sold three transformers of the rice mill to pay off their outstanding
obligation with said bank, with the knowledge and conformity of petitioner. He, however, continued to be in possession
of the two parcels of land while private respondents were forced to use the rice mill for residential purposes. On
August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the
properties which was left unheeded. Subsequently, they filed with the RTC, a complaint for rescission of contract and
recovery of properties with damages. The trial court rendered a decision in favour of private respondents which the
CA affirmed but deleted the award of exemplary damages. In affirming the decision of the trial court, the CA noted that
the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the
private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.

Issues:

Whether or not the contract entered into by the parties fall under those mentioned in Article 1181?

How is Article 1191 distinguished from Article 1383?

Ruling:

A.) No. Article 1381 of the New Civil Code expressly enumerates the following rescissible contracts:

1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than
one fourth of the value of the things which are the object thereof;

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them;

4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial authority;

5. All other contracts specially declared by law to be subject to rescission

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those mentioned by
Article 1381. Consequently, Article 1383 is inapplicable.

B.) Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from
rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and
both require mutual restitution when proper, they are not entirely identical. Article 1383 is a subsidiary action limited to
cases of rescission for lesion under Article 1381.

Rescission, as contemplated in Articles 1380- (1389), of the New Civil Code, is a remedy granted by law to the
contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even
if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It
implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone.

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned upon the simultaneous fulfilment of the other.

Visayan Sawmill v. CA (1993)

Petitioners: VISAYAN SAWMILL COMPANY, INC.

Respondents: CA and RJH TRADING, REPRESENTED BY RAMON J. HIBIONADA, PROPRIETOR

Ponente: DAVIDE, JR.

Topic: Remedies for Breach

FACTS:

1.) On May 1, 1983 RJH Trading and Visayan Sawmill Company (VSC) entered into a Purchase and Sale of
Scrap Iron located at VSCs stockyard at Negros Oriental, subject to the condition that RJH will open a Letter of Credit
(LOC) of P250,000 in favor of VSC on or before May 15, 1983.

2.) On May 17, 1983, RJH through his men started to dig and gather and scrap iron at the VSC's premises,
proceeding until May 30 when VSC allegedly directed RJH's men to desist from pursuing the work in view of an
alleged case filed against RJH by Alberto Pursuelo.

3.) VSC denies this, alleging that on May 23, 1983, they sent a telegram to RJH canceling the contract of sale
because of the failure of the latter to comply with the conditions thereof.

4.) On May 24, 1983, RJH informed VSC that the LOC was opened May 12, 1983 at BPI main office in Ayala, but
the transmittal was delayed.

5.) On May 26, 1983, VSC received a letter advice from BPI Dumaguete stating that an irrevocable domestic
LOC P250,000 was opened in favor of Ang Tay c/o VSC on account of Armaco-Armsteel Alloy Corporation.

6.) On July 19, 1983, RJH Trading sent a series of telegrams stating that the case filed against him by Pursuelo
had been dismissed and demanding that VSC comply with the deed of sale, otherwise a case will be filed against
them.

7.) On July 20, 1983, VSC informed RJH that they were unwilling to continue with the sale due to RJH's failure to
comply with essential pre-conditions of the contract.

8.) On July 29, 1983, RJH filed the complaint, praying for judgment ordering VSC to comply with the contract by
delivering to him the scrap iron subject thereof; he further sought actual, moral and exemplary damages, attorney's
fees and the costs of the suit.

9.) VSC insisted that the cancellation of the contract was justified because of RJHs noncompliance with essential
pre-conditions, among which is the opening of an irrevocable and unconditional LOC not later than 15 May 1983.

10.) RTC ruled in RJHs favor, awarding the damages sought.

11.) CA affirmed, holding:

- VSC argued that under Articles 1593 and 1597 of the Civil Code, automatic rescission may take place by a
mere notice to the buyer if the latter committed a breach of the contract of sale. Even if one were to grant that there
was a breach of the contract by the buyer, automatic rescission cannot take place because delivery had already been
made. And, in cases where there has already been delivery, the intervention of the court is necessary to annul the
contract.

- Rescission in cases falling under Article 1191 of the Civil Code is always subject to review by the courts and
cannot be considered final. In this, the trial court ruled that rescission is improper because the breach was very slight
and the delay in opening the LOC was only 11 days.

12.) Hence, the appeal to SC by VSC.

ISSUES:

WON VSC properly rescinded the contract

o YES. What obtains in this case is a mere contract to sell or promise to sell, and not a contract of sale.

o The RTC assumed that the transaction is a contract of sale and, influenced by its view that there was an
"implied delivery" of the object of the agreement, concluded that A1593, NCC was inapplicable. It ruled that rescission
under A1191, NCC could only be done judicially. It further classified the breach committed by the private respondent
as slight or casual, foreclosing, thereby, VSCs right to rescind the agreement.

"ART. 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest
of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have
appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer
period has been stipulated for its payment."

o Sustaining RTC, CA cited A1497: The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee."

o VSC's obligation to sell is unequivocally subject to a positive suspensive condition, i.e., RJHs opening,
making or indorsing of an irrevocable and unconditional LOC. VSC agreed to deliver the scrap iron only upon payment
of the purchase price by means of an irrevocable and unconditional LOC. Otherwise stated, the contract is not one of
sale where the buyer acquired ownership over the property subject to the resolutory condition that the purchase price
would be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the
irrevocable and unconditional LOC. Since what obtains here is a mere promise to sell, RJHs failure to comply with the
positive suspensive condition cannot even be considered a breach casual or serious but simply an event that
prevented the obligation of petitioner corporation to convey title from acquiring binding force.

o Not only did RJH fail to open, make or indorse an irrevocable and unconditional LOC on or before 15 May
1983 despite his earlier representation in his 24 May 1983 telegram that he had opened one on 12 May 1983, the
letter of advice VSC received on 26 May 1983 from BPI Dumaguete City branch explicitly makes reference to the
opening on that date of a LOC in favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on
ARMACOMARSTEEL ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably not in
accordance with the stipulation in the contract signed by the parties on at least three (3) counts: (1) it was not opened,
made or indorsed by RJH, but by a corporation which is not a party to the contract; (2) it was not opened with the bank
agreed upon; and (3) it is not irrevocable and unconditional, for it is without recourse, it is set to expire on a specific
date and it stipulates certain conditions with respect to shipment. In all probability, RJH may have sold the subject
scrap iron to ARMACOMARSTEEL, or otherwise assigned to it the contract with VSC. RJH 's complaint fails to
disclose the sudden entry into the picture of this corporation.

o Consequently, the obligation of VSC to sell did not arise; it therefore cannot be compelled by specific
performance to comply with its prestation. In short, A1191 does not apply; on the contrary, pursuant to A1597, VSC
may totally rescind, as it did in this case, the contract.

"ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract
of sale, or has manifested his inability to perform his obligations, thereunder, or has committed a breach thereof, the
seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer."
Deiparine vs CA 221 SCRA 503 1993)

FACTS

1. Spouses Carungay entered into an agreement with Deiparine for the construction of a 3-storey dormitory.

2. The Carungays agreed to pay Php970K, and Deiparine bound himself to erect the building in strict
accordance to the plans and specifications.

3. In the General Conditions and Specifications document, the minimum acceptable compressive strength of the
building was set at 3,000 psi (pounds per square inch).

4. However, the Carungays found out that Deiparine was deviating from the plans and specifications, thus
impairing the strength and safety of the building.

5. The spouses even issued a memorandum complaining that the construction works were faulty and done
haphazardly mainly due to lax supervision coupled with inexperienced and unqualified staff. The memorandum was
ignored.

6. After several conferences, the parties agreed to conduct cylinder tests to ascertain compliance with safety
standards.

7. Carungay suggested core testing (a more reliable test of safety and strength), and although Deiparine was
relunctant at first, he agreed to it and even promised that should the structure fail the test, he would shoulder the test
expenses.

8. The core test was conducted, and the building was found to be structurally defective.

9. The spouses then filed in the RTC for rescission of the construction contract and for damages. Deiparine
alleged that RTC did not have jurisdiction for construction contracts are now cognizable by the Philippine Construction
Development Board.

10. RTC declared the contract rescinded, Deiparine to have forfeited his expenses in the construction, and
ordered Deiparine to reimburse the spouses for the core testing and restore the premises to their former condition
before the construction began.

11. CA affirmed RTC.

ISSUES

1. WON RTC had jurisdiction over the case

2. WON rescission is the proper remedy

HELD

1. Yes. Firstly, there is no Philippine Construction Development Board in existence. There is however, a Philippine
Domestic Construction Board (PDCB), but this body has jurisdiction to settle claims and disputes in the
implementation of PUBLIC construction contracts (only), and thus does not have jurisdiction over private construction
contracts. (Deiparines counsel is even held in contempt of court for changing the wording of the relevant provision in
the law, making it appear that the PDCB had jurisdiction over the instant case.)

2. Yes. The facts show that Deiparine deliberately deviated from the specifications of the Carungays (changing the
minimum strength, concrete mixture, etc.), possibly to avoid additional expenses so as to avoid reduction in profits.
His breach of duty constituted a substantial violation of the contract, which is correctible by judicial rescission.

Particularly for reciprocal obligations, Art.1191 CC provides that: The power to rewind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
- The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible. Decision affirmed

Iringan v. CA (2001)

Petitioners: ALFONSO L. IRINGAN

Respondents: CA, ANTONIO PALAO, REPRESENTED BY HIS ATTORNEY-IN-FACT, FELISA P.DELOS SANTOS

Ponente: QUISUMBING

Topic: Remedies for Breach

SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

FACTS:

March 22, 1985: Antonio Palao sold to Alfonso Iringan an undivided portion of a lot in Tuguegarao. The parties
executed a Deed of Sale with the purchase price of P295, 000, payable as follows:

a. P10, 000 upon the execution of this instrument, and for this purpose, the vendor acknowledges having received
the said amount from the vendee;

b. P140, 000 on or before Apr. 30, 1985;

c. P145, 000 on or before Dec. 31, 1985

When the second payment was due, Iringan only paid P40,000. Thus, on July, 18, 1985, Palao sent a letter to Iringan
stating that he considered the contract as rescinded for Iringans failure to comply with his obligation, and that Palao
would no longer accept any future payments.

Iringan agreed to the rescission but asked for the reimbursement of the P50,000 he paid as well as geodetic
engineers fee, attorneys fee, and current interest. Palao refused.

Iringan then proposed that the P50,000 he paid be reimbursed or Palao could sell to him an equivalent portion of the
land. Still, Palao refused. Needless to say, they failed to reach an agreement.

On July 1, 1991, Palao filed a Complaint for Judicial Confirmation of Rescission of Contract and Damages against
Iringan and his wife.

Iringans argued that the contract of sale was a consummated contract, hence, the remedy of Palao was for collection
of the balance of the purchase price and not rescission. Moreover, they had always been ready and willing to comply
w/ their obligations in accordance w/ said contract.

RTC and CA ruled in favor of Palao.

Iringan contended that no rescission was effected simply by virtue of the letter sent by Palao stating that he
considered the contract of sale rescinded. He also asserted that a judicial or notarial act is necessary before one party
can unilaterally effect a rescission.

Palao contended that the right to rescind is vested by law on the obligee and since Iringan did not oppose the intent to
rescind the contract, he in effect agreed to it and had the legal effect of a mutually agreed rescission.

ISSUES:

WON the contract of sale was validly rescinded

o YES. A1592. In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even
after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new term.

o A1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract.

o Both RTC and CA affirmed the validity of the alleged mutual agreement to rescind based on A1191, par. 1 and
2.

o Even if Article 1191 were applicable, Palao would still not be entitled to automatic rescission. In Escueta v.
Pando, SC ruled that under A1124, OCC (now A1191), the right to resolve reciprocal obligations, is deemed implied in
case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially.
The same article also provides: "the court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period."

o However, when Palao filed an action for Judicial Confirmation of Rescission and Damages before the RTC, he
complied with the requirement of the law for judicial decree of rescission. The complaint categorically stated that the
purpose was 1) to compel appellants to formalize in a public document, their mutual agreement of revocation and
rescission; and/or 2) to have a judicial confirmation of the said revocation/rescission under terms and conditions fair,
proper and just for both parties.

o Iringan contends that even if the filing of the case were considered the judicial act required, the action should
be deemed prescribed based on the provisions of A1389.

o A1389 applies to rescissible contracts, as enumerated and defined in A1380 and 1381. However, that the
"rescission" in A1381 is not akin to the term "rescission" in A1191 and 1592.

o In A1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the
contract while in A1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said
article.

o The prescriptive period applicable to rescission under A1191 and 1592, is found in A1144, which provides that
the action upon a written contract should be brought within ten years from the time the right of action accrues.

o The suit was brought on July 1, 1991, or six years after the default. It was filed within the period for rescission.
Thus, the contract of sale between the parties as far as the prescriptive period applies, can still be validly rescinded.

Vda. de Mistica v. Sps. Naguiat (2003)

Petitioners: FIDELA DEL CASTILLO VDA. DE MISTICA

Respondents: SPOUSES BERNARDINO NAGUIAT AND MARIA PAULINA GERONA-NAGUIAT

Ponente: PANGANIBAN

Topic: Remedies for Breach

FACTS:

- Eulalio Mistica, Fidelas predecessor-in-interest, is the owner of a parcel of land in Malhacan, Meycauayan, Bulacan.
A portion thereof was leased to Bernardino Naguiat (Naguiat) sometime in 1970.

- On 5 April 1979, Eulalio entered into a contract to sell with Naguiat over a portion of the aforementioned lot
containing an area of 200 m2. This agreement was reduced to writing in a document entitled Kasulatan sa
Pagbibilihan.

`Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng
BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.
`Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay magbabayad ng
pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa ito'y mabayaran tuluyan ng Bumibili

- Naguiat gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He
failed to make any payments thereafter.

- Eulalio Mistica died sometime in October 1986.

- On 4 December 1991, Fidela filed a complaint for rescission alleging: that Naguiats failure and refusal to pay the
balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same.

- Naguiats contended that the contract cannot be rescinded on the ground that it clearly stipulates that in case of
failure to pay the balance as stipulated, a yearly interest of 12% is to be paid. Naguiat likewise alleged that sometime
in October 1986, during Eualalios wake, he offered to pay the remaining balance to Fidela but the latter refused and
hence, there is no breach or violation committed by them and no damages could yet be incurred by the late Eulalio,
his heirs or assigns pursuant to the said document.

- RTC disallowed rescission. CA affirmed. It held that the conclusion of the ten-year period was not a resolutory term,
because the Contract had stipulated that payment with interest of 12% could still be made if Naguiats failed to pay
within the period. Fidela did not disprove the allegation of Naguiats that they had tendered payment of the balance of
the purchase price during her husband's funeral, which was well within the ten-year period. Moreover, rescission
would be unjust to Naguiats, because they had already transferred the land title to their names. The proper recourse,
the CA held, was to order them to pay the balance of the purchase price, with 12% interest.

- Before SC, Fidela claimed that she is entitled to rescind the Contract under A1191, because Naguiats committed a
substantial breach when they did not pay the balance of the purchase price within the 10-year period.

ISSUES:

WON there is a breach of obligation that warrants rescission under A1191

o NO. The transaction between Eulalio and Naguiats, as evidenced by the Kasulatan, was clearly a Contract of
Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the
property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

o In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Under A1191,
the right to rescind an obligation is predicated on the violation of the reciprocity between parties, brought about by a
breach of faith by one of them. Rescission, however, is allowed only where the breach is substantial and fundamental
to the fulfillment of the obligation.

o Naguiats failure to pay the balance of the purchase price within 10 years from the execution of the Deed did
not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be made even after ten
years from the execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the contract
constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed upon and
written.

o Moreover, it is undisputed that during the ten-year period, Fidela and her deceased husband never made any
demand for the balance of the purchase price. Fidela even refused the payment tendered by Naguiats during her
husband's funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she
accepted the tender, payment would have been made well within the agreed period.

NOTES: The issuance of a certificate of title in favor of Naguiats does not determine whether Fidela is entitled to
rescission.

Khe Hong Seng v. CA (2001)

Petitioners: KHE HONG CHENG, ALIAS FELIX KHE, SANDRA JOY KHE AND RAY STEVEN KHE
Respondents: COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY AND PHILAM INSURANCE
CO., INC.

Ponente: KAPUNAN

Topic: Remedies for Breach

SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

FACTS:

- Khe Hong Cheng/Felix Khe (Khe) is the owner of Butuan Shipping Lines.

- Phil. Agricultural Trading Corp. (consignee) shipped onboard M/V Prince Eric, owned by Khe, 3,400 bags of
copra from Masbate to Dipolog City, Zamboanga del Norte. The shipment was covered by a marine insurance policy
issued by American Home Insurance Co. (Philam). However, somewhere between Negros and Northeastern Mindano,
the ship sank resulting in total loss of the shipment.

- Because of the loss, Philam paid P354k (value of copra) to the consignee.

- Philam, having been subrogated into the rights of the consignee, filed in the RTC of Makati an action for
recovery of money against Khe.

- Pending the case, or on Dec. 20, 1989, Khe executed deeds of donation of parcels of land in Butuan in favor
of his children Sandra Joy and Ray Stevens and new TCTs were issued in their names.

- The trial court ordered Khe to pay 354k. After the decision became final, a writ of execution was issued and
despite earnest efforts of the sheriff he could not find any property under Butuan Shipping Lines or Khes names.

- On Jan. 17, 1997, the sheriff and Philams counsel went to Butuan and discovered that Khe had no property
and that he had conveyed the subject properties to his children.

- Thus, on Feb. 25, 1997, Philam filed before RTC Makati a complaint for the rescission of the deeds of
donation and for the nullification of the TCTs in the name of Khes children. Philam alleged that Khe executed the
deeds in fraud of his creditors, including Philam.

- In his motion to dismiss (MD), Khe contended that the registration of the deeds of donation on Dec. 1989
constituted constructive notice, and since the complaint was filed only on Feb 1997 (more than 4 years later), the
action was barred by prescription.

- The RTC denied the MD, holding that the prescriptive period began to run only from Dec. 29, 1993, the date of
the decision in Civil Case No. 13357.

- The CA affirmed, holding that the four year period to institute the action for rescission began to run only in Jan.
1997. Prior thereto, Philam had not yet exhausted all legal means for the satisfaction of the decision in its favor, as
prescribed under A1383, NCC.

ISSUES:

When did the 4 year prescriptive period as provided for in A1389, NCC for Philam to file its action for
rescission of the deeds of donation commence to run?

o Jan. 1997. A1389: The action of rescission must be commenced w/in 4 years.

o Since the provision is silent as to when the prescriptive period shall commence, A1150 is instructive: The time
for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted
from the day they may be brought.
o It is the legal possibility of bringing the action which determines the starting point for the computation of the
prescriptive period for the action.

o An action to rescind or an accion pauliana must be of last resort, availed of only after all other legal remedies
have been exhausted and have been proven futile. For an accion pauliana to accrue, the following requisites must
concur:

1) that the plaintiff asking for rescission has a credit prior to, the alienation, although demandable later;

2) that the debtor has made a subsequent contract conveying a patrimonial benefit to a third person;

3) that the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the
conveyance to the third person;

4) that the act being impugned is fraudulent;

5) that the third person who received the property conveyed, if by onerous title, has been an accomplice in the
fraud.

o Khes contention that the cause of action of Philam against them for the rescission of the deeds of donation
accrued as early as Dec.27, 1989, when he registered the deeds with the Register of Deeds is unmeritorious. Even if
Philam was aware, as of Dec. 27, 1989, that he had executed the deeds of donation in favor of his children, the
complaint against Butuan Shipping Lines and/or Khe was still pending before the trial court. Thus, Philam had no
inkling, at the time, that the trial courts judgment would be in its favor and further, that such judgment would not be
satisfied due to the deeds of donation executed by Khe during the pendency of the case. Had Philam filed this
complaint on Dec. 27, 1989, such complaint would have been dismissed for being premature. Not only were all other
legal remedies for the enforcement of Philam's claims not yet exhausted at the time the deeds of donation were
executed and registered, Philam would also not have been able to prove then that Khe had no more property other
than those covered by the subject deeds to satisfy a favorable judgment by the trial court.

o Philam only learned about the unlawful conveyances made by Khe in Jan. 1997 when its counsel
accompanied the sheriff to Butuan City to attach the properties of Khe. There they found that he no longer had any
properties in his name. Only then did Philam's action for rescission of the deeds of donation accrue because then it
could be said that Philam had exhausted all legal means to satisfy the trial court's judgment in its favor.

o Since Philam filed its complaint for accion pauliana against petitioners on February 25, 1997, barely a month
from its discovery that Khe had no other property to satisfy the judgment award against him, its action for rescission of
the subject deeds clearly had not yet prescribed.

Maria Antonia Siguan vs. Rosa Lim, Linde Lim, Ingrid Lim and Neil Lim

318 SCRA 725; G.R. No. 134685; November 19, 1999

Facts: A criminal case was filed against LIM with RTC-Cebu city for issuing 2 bouncing checks in the amounts of
P300,000 and P241,668, respectively to Siguan

Meanwhile, on 2 July 1991, a Deed of Donation conveying the following parcels of land and purportedly executed by
LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of
Deeds of Cebu City. New transfer certificates of title were thereafter issued in the names of the donees. On 23 June
1993, petitioner filed an accion pauliana against LIM and her children before RTC-Cebu City to rescind the questioned
Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the
questioned Deed.

Petitioners contention: claimed therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently
transferred all her real property to her children in bad faith and in fraud of creditors, including her; that LIM conspired
and confederated with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations.
LIMs contention: As regards the questioned Deed of Donation, LIM maintained that it was not antedated but was
made in good faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation was
registered only on 2 July 1991 because she was seriously ill.

Issue: Whether the Deed of Donation executed by Rosa Lim (LIM) in favor of her children be rescinded for being in
fraud of petitioner Maria Antonia Siguan?

Ruling:

Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of donation,
still her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil
Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner
collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by
the prejudiced creditor to collect claims due him before rescission is resorted to." It is, therefore, "essential that the
party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim.
Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned
deed is not maintainable even if the fraud charged actually did exist."