OBLICON CASE DIGEST
Gertrude
PAY V. VDA. DE PALANCA
FACTS:
 Petitioer George Pay is a creditor of Late Justo Palanca : died : 1963
 Claim of petitioner based o promissory note dated 1952 whereby late Justo
Palannca and Rosa Gonzzales Vda de Carlos Palanca promised to pay
George Php 26,900 + 12% interest/annum
 George Pay now before the Court asig Segundina Chua vda. De Palanca :
appointed as administratrix of certain property in Manila assessed at Php
41,800.00
 There was refusal on the part of Segundina to be appointed stating that
property sought to be administered no longer belonged to debtor and that
rights of petitioner creditor had already prescribed.
Ruling of Lower court : DISMISSAL
 “For value receied from time to time since 1947, we promise to pay Mr.
George in his office Php 29,900.00 with interest at rate of 12%/annum
upon receipt by either of the undersigned of cash payments from the
Estate of late Don Carlos Palanca and Justo Palanca.
 Then came this paragraph :“court has inquired whether any cash payment
has been received either of signers of promissory note from Estate of late
Carlos Palanca. Petitioner informed that he does no insist on this provision
but that petitioner is only claiming on his right under promissory note”
 After which then came the ruling that wording of promissory note “upon
demand” obligation was immediately due.
 Since it was dated 1952: it was clear that more than 10 years have already
transpired from time until to date. Action therefore has prescribed.
Appeal:SC
 Only question: prescription.
1|Page
Held: Decision affirmed
 Promissory note was executed: Appear that petitioner was hopeful that the
satisfaction of his credit could be realized either through debtor sued
receiving cash payments form he estate of Carlos Palanca presumptively
as one of his heirs or as expressed “upon demand”
 Undeniable : more than 15 years after execution of promissory note---
when this petition was filed
 Art 1179 of CC: “Every obligation whose performance does not depend
upon future or uncertain event or upon a past event unknown to parties is
demandable at once.
 Obligation being due and demandable it would appear that filling of suit
after 15 years was much too late. --- Prescriptive period : 10 years.
GONZALES V. HEIRS OF THOMAS AND PAULA CRUZ
FACTS:
 1983 Paula Ano Cruz together with plaintiffs entered into contract of
lease/purchase with defendant Felix Gonzales, sole proprietor and
manager of Felgon Farms.
Important details in contract of lease :
 For a period of 1 year upon signing
 After the period of contract, Lessee shall purchase property with the price
of P1M + 12%/ annum.
 Upon execution of deed of slae 50% and 25% thereafter shall be paid
every 6 months thereafter
 Annual rental of Php 2,500
 Lessors commit themselves and shall undertake to obtain a separate and
distinct TCT over herirn leased portion to Lessee within reasonable period
of time which shall not n any case exceed 4 years.
 OBLICON CASE DIGEST
 Rentals where paid but upon end of Contract, defendant Gonzales did not
however exercise his option to purchase the property immediately after
expiration of lease.
 He remained in possession of property without paying purchase price
provided in contract of Lease/Purchase and without paying any further
rentals.
 Letter was sent by one of plaintiffs-heirs Ricardo Cruz to defendant
Gonzales informing him of lessor’s decision to rescind the contract of
Lease/Purchase due to breach committed by defendant + It also served as
a demand for the defendant to vacate the premises.
 Defendant Gonzales refused to vacate and continued the possession
thereof.
 Property subject of Contract of Lease/Purchase is currently the subject of
Extra-Judicial Partition Title of which remains in name of plaintiff’s
predecessor in interest Bernardina Calixto and Severo Cruz.
 Par 9 of contract: clearly indicates that lessors-plaintiffs shall obtain
transfer Cert of Title within 4 years before new contract is to be entered
into. Thus before a deed of sale can be entered ito between parties,
plaintiffs have to obtain the TCT in favor of the Defendant.
TRIAL COURT
 Art 1181 of the New CC: In conditional obligations, the acquisition of rights
as well as the extinguishment or loss of those already acquired shall
depend upon the happening of an event which constitutes as the condition.
 When obligation is assumed by party to a contract is expressly subjected
to a condition, the obligation cannot be enforced against him unless
condition is complied with.
 Failure of plaintiffs to secure the TCT as provided for in the contract does
not entitle them to rescind the contract
 Art 1191 of the New CC: Power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
2|Page
Gertrude
incumbent upon him. The injured party may choose between the fulfillmet
of obligation, with payment of damages in either case. He may seek
rescission even after he has chosen fulfillment, if the latter should become
impossible.xxx the power to rescind is given to the injured party Where the
plaintiff is the party who did not perform, he is not entitled to insist upon
that the performance of contract by the defendant or recover damages by
reason of his own breach.
CA: REVERSED
 Transfer of title to the property in the appelee’s name cannot be
interpreted as a condition precedent to the payment of agreed
purchase price.
 Terms of contract are explicit and require no interpretation. Upon the
expiration of contract of lease, lessee shall purchase the property.
There must first be payment before transfer of title to vendee’s name
can be made.
 4 year period only starts to run the moment lessee exercises his right
to purchase.
ISSUES:
INTERPRETATION OF PARAGRAPH 9
 Basic to the rule of interpretation of contracts : understood as bearing that
import most adequate to render it effectual
 Record shows that at time the contract was executed land in question was
still registered to the name of Calixto and Cruz, respondent’s predecessor
in interest. No showing whether respondents were the onl heirs of Cruz or
whether the other half of land named to Calixto was adjudicated to them by
any means.
 Hence when the contract of lease/purchase was executed, there was no
assurance that the respondents were indeed the owners of the lot, in what
concept and to what extent.
 OBLICON CASE DIGEST
Gertrude

 Clear intent of the 9th par. Was for respondents to obtain separate and
distinct TCT in their names. This was necessary to enable them to show
their ownership of stipulated portion and their concomitant right to dispose
of it.
 Nemo dat quod non habet “ no one can give what he does not have”
SMITH BELL & CO V. SOTELO MATTI
Facts :
 1918, Plantiff Corporation and defendant Sotello entered into contracts
whereby former obliged itself to sell and the latter to purchase

 In a contract of sale title to property passes to vendee upon delivery of TANKS Php New york 3-4 months NO FIXED
thing sold. In this case, the respondent could not deliver ownership or title 21,000.00 PERIOD
to a specific of a portion of the yet undivided property.
EXPELLERS Php 25,000 San Month of
Francisco Sept/ ASAP
 Par 9 requires respondent to obtain a TCT.
ELECTRIC 2,000 each Approximate
MOTORS delivery
 Petitioner cannot be compelled to perform his obligation under the contract
within 90
only after respondents complied with his obligation. days—not
guaranteed
NINTH CLAUSE: CONDITIONAL PRECEDENT  Plaintiff corp notified the defendant Mr. Sotelo of the arrival of these gods
but Mr Sotelo refused o received them and to pay for the prices stipulated.
 Undertaking was a contition precedent to the latter’s obligation to purchase
and pay for thel and.  Plaintiffs brought suit against defendant Mr. Sotelo of the arrival of these
goods, but Mr.Sotelo refused to receive them and to pay for pries
 Art 1181:
stipulated.
 Condition: every future and uncertain event upon which an obligation or
 Defendant Mr.Sotelo and intervenor ManilaOil Refining denied plaintiff’s
provision is made to depend. It is the future and uncertain event upon
allegation
which the acquisition or resolution of rights was made
- It was only in May 1919 that it notified the intervenor that said tanks
 When the obligation assumed by party to a contract is expressly subject to
arrived, motors and expellers having arrived incomplete and long
a condition, the obligation cannot be enforced against him unless condition
after date stipulated.
is complied with.
- Plaintiff’s delay in making delivery
 Obligatory force of conditional obligation is subordinated to the happening
of a future and uncertain event so that if event does not take place, parties
- Suffered damages due to nondelivery of thanks and motors in due
would stand as if conditional obligation has never existed.
time.
RESPONDENT CANNOT RESCIND CONTRACT
LOWER COURT : absolved the defendants : but rendered judgment against
them ordering them to pay amount of money for sum of goods with legal
 Because they have not caused he transfer of TCT to their names, which is
interest
a condition precedent t the petitioner’s obligation

3|Page
 OBLICON CASE DIGEST
ISSUE: WON UNDER CONTRACTS ENTERED INTO AND THE
CIRCUMSTANCES ESTABLISHED IN THE RECORD, THE PLAINTIFF HAS
FULFILLED IN DUE TME ITS OBLIGATION TO BRNG THE GOODS IN
QUESTION IN MANILA
HELD:
 It appears that these contracts were executed at time of world war when
there existed rigid restrictions on the export from US of articles like the
machinery in question. (which in fact was known to parties)
 At time of execution, parties were not unmindful of the contingency of US
govt not allowing the export of goods nor of the fact hat the other foreseen
circumstances therein stated might prevent it.
 Considering these contracts in light of civil law, we cannot but conclude
that the term which parties attempted to fix is so uncertain that one cannot
just tell whether as a matter of fat, those goods could be brought to MNL or
not.
 Obligation must bee regarded as conditional.
 Obligations for the performance of which a day certain has been fixed shall
be demandable only when the day arrives.
 A day certain= must necessarily arrive, even though its date be unknown.
 If uncertainty consists of the arrival or non-arrival of the day, the obligation
is conditional and shall be governed by the rules of the next proceeding
section.
 In cases lie this, which is not expressly provided for but impliedly covered
by the Civil Code, the obligor will be deemed to have sufficiently performed
his part if he has done all that was in is power even if the conistion has not
been fulfilled in reality.
 Obligee having done all that was in his power, was entitled to enforce
performance of obligation
 First: When fulfillment of condition does not depend on will of the obligor
but on that of a third person who can in no way be compelled to carry it out
4|Page
Gertrude
--- judgment of said court ordering other party to comply with his part is not
contrary t aw of contracts
 Fulfullment of condition does not depend on will of obligor but on that of 3 rd
person who can in no way be compelled to carry it out, obligor’s part of
contract is complied with if he does all that is in his power and has he right
to demand performance of the contract by the other party.
 It is sufficiently proved in the records that plaintiff has made all the efforts it
could possible be expected to make under the circumstances to bring the
goods in question to manila as soon as possible.
 When time of delivery: not fixed = reasonable time: determined by
circumstances
 Plaintiff did all within his power to comply = reasonable time. Not guilty of
delay
SECURITY BANK AND TRUST COMPANY V. CA
FACTS:
 Private respondent Ysmael ferrer was contracted by petitioners to
construct building of SBTC in Davao for Php 1,760,000.00/
 Contract dated Feb 4,1980 provided that Ferrer would finish construction
within 200 working days
 Ferrer was able to complete said building within stipulated period but he
was compelled by drastic increase in the cost of construction materials to
incur expenses of about Php 300,000.00 on top of original cost.
 Additional expenses made known to SBTC through its VP as early as
March 1980, demands were supported by documentary proofs
 March 1981, SBTC Assitant VP Guanio and archi representative consulted
by SBTC verified Ferrer’s claims of additiona cost. Recommendation was
made to settle ferrer’s claim but only for Php 200,000.00.
 SBTC instead of paying denied ever authorizing payment of any amount
beyond its original cost
 OBLICON CASE DIGEST
 SBTC likewise denied any liability for additional cost based on Art 9 of
building contract
 --- if an time prior to completion, increasein prices of construction/lbor shall
supervene through no fault on part of contractor whatsoever or any act of
government and its instrumentalities which directly or indirectly affects the
increase of cost of project, OWNER shall equitably make appropriate
adjustments on mutual agreement/
 Ysmael Ferrer filed a complaint for breach of contract with damages.
 TC ruled for Ferre and ordered SBTC and Rosito Manhit to pay.
 CA affirmed TC decision
Petitioner’s argument:
 Petitioners argue that under Art 9, any increase will not automatically make
petitioners liable to pay for such increase cost .
 Appropriate adjustment will be made upon mutual agreement of both
parties. It is contended that since here was no mutual agreement between
parties, petitioner’s obligation to pay amounts above original price never
materialized.
HELD:
 Art 22 of CC: No man ought to be made rich out of another’s injury
 In the present case: petitioner’s argument to support absence of liability for
the cost of construction beyond original contract price in case the cost of
rpoheect increases through no fault of conractor.
 Private respondent informed petitioner of drastic increase in construction
as early as March 1980.
 It is not denied that private respondent incurred additional expenses in
constructing petitioner bank’s building due to drastic and unexpected
increase.
5|Page
Gertrude
 In fact, petitioner bank admitted liability for increased cost when
recommendation was made to settle private respondents claim for 200k .
 Claim was adequately proven
 Art 1182 of CC: conditional obligation shall be void if its fulfillment depends
upon the sole will of the debtor, In present case, mutual agreement, the
absence of which petitioner bank relies upon to support non-liability for
increased construction cos is in effet a condition depending on bank’s sole
will
 Petitioner bank derived benefits when private resp completed building.
 To allow petitioner ban to acquire building at price far below its actual
construction cost would undoubtedly constitute unjust enrichment for bank
to the prejudice of the private respondent.
ROMERO V. CA
FACTS:
 Romero : Civil Engineer. In 1998, petitioner and his partners decided to put
up a ware house in Manila
 Flores spouses accompanied by a broker offered a parcel of land in the
name of private respondents Chua Vda de Ongsiong
 Property w/ squatters but suitable for central warehouse
 Flores Proposal : should petitioner advance P50,000.00 which could be
used in taking up ejectment case against squatters, private respondent
would agree to sell property for only P800/sqm ---petitioner agreed
Important parts of deed of conditional sale
o Balance paid 45 days after removal of all squatters from property
o If after 60 days from signin, Vendor shall not be able to remove squatters
from property being purchased, downpayment made by buyer shall be
reimbursed/returned
o Vendee shall not be able to pay vendor, Php50,000 –forfeited in favor of
vendor
 Private respondent : filed complaint for ejectment
 OBLICON CASE DIGEST
 But on a latter date sought return of Php50,000 since she could not get rid
of squatters.
 Atty.Apostol counsel of petitioners refused tender and stated that he shall
take it upon himself to remove the squatters, expenses thereof shall be
chargable to the purchase of land
 PCUP asked for MTC 45 days to relocate the squatters
 Thereafter Atty.Apostol reminded private respondents of expir of 45 day
period and client’s willingness to underwrite the expenses for execution of
judgment and ejectment of occupants
 Atty.Yuseco Jr. counsel of privae respondents advised Atty.Apostol that
Deed of Conditional sale has been rendered null and void by virtue of his
client’s failure to evct squatters from premises within agreed 60 day period
Atty. Apostol : letter
o Contract of sale : perfected from the moment there was a meeting of minds
of parties upon subject lot and price.
o Contract has been partially fulfilled upon receipt of down payment
o Provisions of Deed of Conditional sale do not grant private respondent the
option or prerogative to rescind the contract and to retain the property
should she fail to comply with the obligation she assumed under the
contract.
o Petitioner even opted to take it upon himself to eject said squatters
o Power to rescind belongs to the injured party and under this case, it is the
petitioner/buyer.
o Vendor did not comply with his obligation in good faith
RTC  Vendor does not have right to rescind—she violated her obligation
 Petitioner : Injured party who under Art 1191 has right to rescind.
 Not convinced with the reasons of private respondent in failing to comply with such
obligation (1) Afraid of Squatters (2) Spending too much
CA  Contract entered into b parties was subject to a resolutory condition (ejectment of
squatters from land and non-concurrence of which resulted in failure of object of
contract
 Private respondent substantially complied with her obligation to evict squatters
 It wwas petitioner who was not ready to pay purchase price
ISSUE: NATURE OF CONTRACT X REMITTANCE
HELD:
 Condition : compliance of party : undertake fulfillment of which
demandability of reciprocal resentation of another party
 In the case – vendee: payment & vendor : fulfillment of certain express
warranties (timely eviction of squatters on the property
6|Page
Gertrude
 Sale: perfected when a person obligates himself, for a price certain to
deliver and to transfer ownership of specified thing/right to another over
which latter agrees.
 Private Respondents : obliged to evict squatters : ejectment (condition sets
into motion the compliance of the petitioner)
 Option to rescind or to proceed clearly belongs to petitioner and not private
respondents
 Mixed condition: dependent upon will of vendor alone but also of third
persons like squatters and government agencies and personnel
concerned.
 Where so called potestative condition is imposed not on the birth of
obligation but on its fulfillment, only condition is avoided leaving unaffected
the obligation itself.
 In any case: private respondent’s action for rescission is not warranted.
She is not the injured arty. He right of resolution of party to an obligation
under Art 1191 is predicated on breach of faith by party that violates
reciprocity.
 Petitioners have opted to proceed with the sale, neither may petitioner
demand its reimbursement from private respondent nor may prvate
respondent subject it to forfeiture.
DUCUSIN V. CA
FACTS:
Agapito Ducusin (Lessor) Spouses Baiola (Lessee)
1 door apartment in Sta.Mesa
 Baiola spouses occupied said property for 2 years
 Jan 1977: petitioner gave notice to terminate contract and that they have
until March 1977 to vacate premises since two of their children are getting
married and needs such apartment for their residence.
 Petitioner filed a case for ejectment in City Court
 Lessor claims: Agapito Jr. has decided to live independently and needs the
apartment unit as his place of residence + lessees have violated the terms
of contract
 Lessee claim: well planned scheme to rid them + circumvent law
prohibiting raising of rentals in apartments
City Court  Defendantss contract with plaintiff has already terminate dwith the
notice of termination sent by plaintiff on the ground that he needs the
 OBLICON CASE DIGEST
Gertrude

premises for his own children  Recommended stoppage of delivery

CFI  Affirmed LC  Ironic : Stoppage via letter on Speteber because petitioners
 Mere allegation of landlord due to use of immediate members of
family and marriage of son evidenced by photographs and a
never really stopped accepting deliveries from private
marriage certificate – already a sufficient cause respondents until December.
CA:  Clause in contract : terminate in lieu of the need of his children to  Accepting of supplies from other suppliers
occupy premises  resolutory condition  Such acts are illogical and contrary to business practice
 Resolutory condition – (x) condition depending solely on will of  Rustan: liable for breach of contract.
debtor but that of third person (lessor’s child) ISSUE: WON RUSTAN PULP AND PAPER MILLS MAY LEGALLY EXERCISE
 Need : satisfactorily proven by clear, strong and substantial
RIGHT OF STOPPAGE
evidence.
SC Affirms
 Lease contract expressly stipulates that lessor may terminate HELD: NO
the lease when his children shall need the same, such
condition is valid as happening of such dodition depends not  There is a cogent basis for private respondent’s apprehension on illusory
on the lessor but on a third party resumption of deliveries inasmuch as the prerogative suggests a condition
 Testimony that lessor’s son wh got married in Canada solely dependent upon will of petitioners
intends to Settle in PH sufficient evidene to establish lessor’s  Petitioners can stop delivery of pulp wood from private respondents if the
son’s need for leased premises. supply at plant is sufficient as ascertained by petitioners subject t re-
 Contention of the petitioner that contract of lease In question is for a delivery when need arises as determined by the petitioners
definte period being on a month to month basis beginning Feb 1975, not  A purely potestative imposition of this character must be obliterated from
covered with PD 20 . the face of contract without affecting the rest of the stipulations considering
 Definite : Disict/Certain limit. /Ascertainable time that the condition relates to the fulfillment of an already existing obligation
 Month to month -30 days (repeating until Llave exercised right/prerogative and not its inception.
to terminate.  President and Manager of corporation who entered into and signed a
conrtact in his official capacity cannot be made liable thereunder in his
RUSTAN PULP & PAPER MILLS INC V. IAC
individual capacity in absence of stipulation to that effect due to personality
of corporation being separate and distinct from persons composing it.
FACTS:
LIM V DEVELOPMENT BANK OF THE PHILIPPINES
 1966: Rustans Pup & Paper Mill
 1967: Lluch holder of forest license transmitted a letter to petitioner Facts:
Rustan for suppy of raw materials.
Spouses Lim DBP
PETITIONER RUSTAN PROPOSED: 1969 Php 40,000
9% / annum
o Rustan : option to buy from other suppliers 11% / annum : penalty charge
o Lluch (Seler) 30/cm of pulp wood raw material 1970 Php 960,000.00
o #7 Clause: buyer has right to stop delivery of raw materials when suppl of 12% /annum
same shall become sufficient until such time when need of said raw 1/3 /month penalty charge on overdue amortization
materials shall have become necessary provided the seller is given Secured by mortage over real properties
sufficient notice.
 Test Run of Pup Mills: Major defects

7|Page
 OBLICON CASE DIGEST
Gertrude

 Due to violent confrontations between Government and Muslim Rebels : WON AS A RESULT OF RESPONDENT’S ACTS AND OMISSIONS,
Spouses li were forced to abandon business , and failed to pay the loan PETITIONERS OBLIGATION SHOULD BE DEEMED FULLY COMPLIED
amortizations WITH AND EXTINGUISHED IN ACCORDANCE WITH PRINCIPLE OF
 1978 : made partial payment on the amount of Php 902,800.00 leaving CONSTRUTIVE FULFILLMENT
outsanding loan balance of Php 610,498.00 Petitioner’s argument Respondent’s argument
 Notice of foreclosure-- to stop foreclosure respondent spouses paid 60 k  Obligation should be deemed  No bad faith
 They had several negotiations about computations, proposals to settle fulfilled  Computation were based on
 DBP Prevented them by charging different cut off dates and
amount , restructuring agreements however there was non-compliance on excessive interests and penalties different incentive schemes
the part of Edmundo. not stipulated in promsory notes  Foreclosure sale is valid because
 Jan 1994: DBP sent Edmundo a final demand letter asking that he pay the  Foreclosure void for lack of notice gross inadequacy of bid price as
outstanding amout of Php 6,404,412.92 exclusive of interest and penalty and inadequacy of bid price. a ground for annulment of sale
charges.  At time of foreclosure, petitioner’s applies only in judicial foreclosure
obligation was not yet due and  Promissory notes and
 Jul 1994: Auction sale of mortagaged properties for the satisfaction of
demandable and that mortgrages were not novated by
petitioner’s total obligations. restructuring agreement novated the proposed restructuring
 1995: Lim filed with RTC against DBP for annulment of foreclosure and and extinguished petitioner’s loan agreement.
damages. Petitioners allege that DBP’s acts and omissions prevented obligation.
them from fulfilling their obligation; thus they prayed that they be
discharged from their obligation and that their foreclosure mortgage be Held:
declared void. Obligation was not extinguished or discharged
 DBP : peitioners have no cause of action, that petitioners failed to pay their  Art 1186 of CC: Condition shall be deemed fulfilled when the obligor
loan obligation . DBP gave written and verbal demands as well as voluntarily prevents its fulfillment does not apply in this case.
sufficient time to settle their obligations and that under Act 3135, DBP has  3 requisites : Constructive fulfillment of suspensive condtion
the right to foreclose their properties, 1. Condition is suspensive
2. Obligor actually prevents fulfillment of condition
RTC In favor of Lim Spouses 3.He acts voluntarily
 Petitioners have fully extinguished or discharged their obligation to  Suspensive condition: happening of which gives rise to obligation
respondent bank  Petitioner has only himself to blame : failure to pay
 Foreclosure null and void
 The DBP therefore had reason to cancel the restructuring agreement
CA Reversed
 Extrajudicial foreclosure valid  Since restructuring agreement was cancelled, it could not have novated or
 Ordering petitioners to pay the respondent the amount of extinguished petitioner’s oan obligation.
2,592,000.00 plus interests and penalties  And in absence of perfected restructuring agreement, there was no
ISSUES: impediment for DBP to exercise its right to foreclose mortgage properties
The foreclosure sale is not valid
WON RESPONDENT’S OWN WANTON, RECKLESS AND OPPRESIVE  While DBP had right to foreclose the mortgage, there was failure upon its
ACTS AND OMISSIONS IN DISCHARGING ITS RECIPROCAL part to send notice of foreclosure to petitioners
OBLIGATIONS TO PEITIONERS EFFETIVELY PREVENTED THE  unless the parties stipulate “personal notice to the mortgagor in
PETITIONERS FROM PAYING THEIR LOAN OBLIGATIONS IN A PROPER extrajudicial foreclosure proceeding is not necessary.”
AND SUITABLE MANNER  Par 11 of mortgage: “ All correspondence relative to this mortgage
including demand letters, summons, subpoenas or notification of any

8|Page
 OBLICON CASE DIGEST
judicial or extra-judicial action shall be sent to mortgage at xxx or at the
address that may hereafter be given in writing
 However no notice of extrajudicial foreclosure was sent by DBP to
petitioners about foreclosure sale
 When petitioner failed to send notice of foreclosure sale to respondent, he
committed a contractial breach sufficient to render such sale void.
Penalties and interest rates should be expressly stipulated in writing
 Imposition of additional interest and penalties not stipulated in Promissory
notes should not be allowed.
 Art 1957 of CC: “ no interest shall be due uness it has been expressly
stipulated in writing.
 Payment of interest and penalties in loans is allowed only if parties agreed
to it and reduced their agreement in writing.
 In thi case, petitioners never agreed to pay additional interests and
penalties. = illegal and void.
 The act of respondent bank in unilaterally changing stipulated interest rate
is violative of principle of mutuality of contracts under 1308 of CC and
contravenes Art 1956 of CC.
DBP did not act in bad faith or in a wanton, reckless or oppressive
manner.
 DBP had reason to cancel restructuring agreement because petitioeners
failed to pay amount required by it when it reconsidered request to
restructure loan.
 DBP’s failure to send notice of foreclosure= (x) bad faith. There is no
showing that these contractual breach were done in bad faith or in a
wanton, reckless or oppressive manner.
UNIVERSAL FOOD CORP V. CA
Facts:
 1938: Magdalo Francisco invented the Mafran sause
 1942: registered s trademark in his anme and as an owner and inventor
with Bureau of Patents .
 1960: entered into Bills of Assignment with Universal Food Corp
 Magdalo : Chief Chemist
 Victoriano : Auditor and Superintendent
 1960: Only Supervisor Ricaro Francisco should be retained in factory and
that plaintiff Magdalo Fancisco Sr. should be stopped for the time until the
corporation should resume it operations.
9|Page
Gertrude
 5 days later, Reyes (President and General Manager) issued a
memorannndum to Victoriano ordering him to produce Mafran sause and
to take only necessary daily employees without employing permanent
employees.
 Another memorandum was issued : instructing that Assistant Chief
Chemist Ricardo Francisico to recall all daily employees who are
connected in production of mafran sause and porky pops
 Plaintiff Magdalo received his salary as Chief Chemist in amount of
P300/month only untl his services were terminated on Nov 3,1960.
 Due to successive memoranda without plaintiff Magdalo being recalled
back to work, latter filed the present action on Feb 14,1961.
 A month afterwards, he was required to report for duty, but he declined
because the present action was already filed in court.
Petioner’s contention
o Respondents not entitled to rescission.
o Under Art 1191 of CC: right to rescind reciprocal obligation is not asolute
and can be demanded only if one is ready, willing and able to comply with
his own obligations and the other is not.
o Under Art 1169 of CC: in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper
manner with what s incumbent upon him
o Magdalo: remiss in the compliance of his contractual obligation to cede
and transfer to defendant the formula of Mafran sauce
ISSUE:
WON BY VIRTUE OF TERMS OF BILL OF ASSIGNMENT RESPONDENT
MAGDALO FRANCISCO SR. CEDED AND TRASFEERRED TO PETITIONER
CORPORATION THE FORMULA FOR MAFRAN SAUCE.
HELD:
NO.
 He did not surrender formulaa
 What was actually ceded and transferred was only the use of Mafran
sauce formula only. Magdalo returns ownership.
 Royalty : paid for use of patented invention.
 Magdalo intends to preserve the secrecy of Mafran sauce.
 In order to preserve the secrecy of Mafran formula, and to prevent its
unauthorized proliferation, patentee would be appointed as chief chemist :
permanent character and in case of his death or other disabilities, his heirs
and assigns who may have necessary qualifications shall be preferred to
succeed him
 OBLICON CASE DIGEST
 Bill of assignment clearly shows tha intention of respondent patentee at
time of its execution was to part not with formula but only with its use.
ISSUE:
WON RESPONDENT MAGDALO WAS DISMISSED FROM IS POSITION
WITHIOUT JUSTIFIABLE CAUSE AND IN VIOLATION OF PAR 5 (A) OF BILL
OF ASSIGNEMNT WHICH IN PART PROVIDES “ APPOINTED IN
PERMANENT CHARACTER”
 Petitioner acting throg its corporate officers, schemed and maneuvered to
ease out, separate and dismiss said respondent from service as
permanent chemist in flagrant violation of Bill of Assignment.
ISSUE:
WHETHER OR NOT THERE IS A VALID RECISISSION OF BILL OF
ASSIGNMENT
HELD:
Art 1191 provides:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what s incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation with
the payment of damages in either case. He may also seek rescission even after he has
chosen fulfillment if latter should become impossible.
The court shall decree the rescission claimed unless there be just cause authorizing the
fixing of period
This should be understood without prejudice to the rights of third persons who have
acquired the thing in accordance with Art 1385 and 1388 of Mortgage law
 Bills of Assignment : reciprocal in nature.
 The petitioner corporation violated Bill of assignments by terminating
services of respondent patentee without lawful and justifiable cause.
 The general rule is that rescission of contract will not be permitted for slight
or casual breach but only for such substantial and fundamental breach as
would defeat the very object of the parties in making assignment.
 Sailent provisions of Bill of assignment namely, the transfer of corporation
of only use of the formula; appointment of respondent patentee as second
VP and chief chemist on a permanent status; obligation of said respondent
patentee to continue research to improve the quality of products of corp;
need of absolute control and supervision over laboratory assistants and
personnel and in purchase and safekeeping of chemicals and other
10 | P a g e
Gertrude
mixtures –all these provisions of Bill of Assignment are so interdependent
that violation of one would result in nullification of the rest.
 One of the considerations for transfer of use was the undertaking made by
petitioner corporation to employ respondent patentee on a permanent
status, its monthly salary and the right of succession of his heir as priority
in case of his death/disability.
MAGDALENA ESTATE V. LOUIS MYRICK
Magdalena Estate (seller) Louis Myrick (Buyer)
Lot in San Juan Rizal
P7,953 shall be payable in 120 equal monthly installments of P96.39 each on
the 2nd day of every month beginning the date of execution of the agreement.
Facts:
 In pursuance of said agreement, the vendee made several monthly
payments amounting to P2,596.08, the last being on October 4, 1930,
although the first installment due and unpaid was that of May 2, 1930.
 By reason of this default, the vendor, notified the vendee that, in view of
his inability to comply with the terms of their contract, said agreement had
been cancelled as of that date, thereby relieving him of any further
obligation thereunder, and that all amounts paid by him had been forfeited
in favor of the vendor, who assumes the absolute right over the lots in
question.
 On July 22, 1936, Louis J. Myrick, respondent herein, commenced the
present action in the Court of First Instance of Albay, praying for an entry
of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08
with legal interest thereon from the filing of the complaint until its payment,
and for costs of the suit.
 Said defendant, the herein petitioner, on September 7, 1936, filed his
answer consisting in a general denial and a cross-complaint and
counterclaim, alleging that contract SJ-639 was still in full force and effect
and that, therefore, the plaintiff should be condemned to pay the balance
plus interest and attorneys' fees.
CFI ordering the defendant to pay the plaintiff the sum of P2,596.08 with
legal interest from December 14, 1932 until paid and costs, and
dismissing defendant's counterclaim.
CA confirmed the decision of the lower court, with the only modification
that the payment of interest was to be computed from the date of the
filing of the complaint instead of from the date of the cancellation of
the contract.
 OBLICON CASE DIGEST
Petitioner’s claim:
 Petitioner holds that contract SJ-639 has not been rendered inefficacious
by its letter to the respondent, dated December 14, 1932, and submits the
following propositions: (1) That the intention of the author of a written
instrument shall always prevail over the literal sense of its wording; (2) that
a bilateral contract may be resolved or cancelled only by the prior mutual
agreement of the parties, which is approved by the judgment of the proper
court; and (3) that the letter of December 14, 1932 was not assented to
by the respondent, and, therefore, cannot be deemed to have
produced a cancellation, even if it ever was intended.
 Petitioner contends that the letter in dispute is a mere notification and, to
this end, introduced in evidence the disposition of Mr. K. H. Hemady,
president of the Magdalena Estate, Inc., wherein he stated that the word
"cancelled" in the letter of December 14, 1932
HELD:
 The intent to resolve the contract is expressed unmistakably not only in the
letter of December 14, 1932, but is reiterated in the letters which the
president of the defendant corporation states that plaintiff 'lost his rights for
the land for being behind more than two years,' and of April 10, 1935
where defendant's president makes the following statement: 'Confirming
the verbal arrangement had between you and our Mr. K. H. Hemady
regarding the account of Mr. Louis J. Myrick under contract No. SJ-639,
already cancelled.' "
 Some circumstances of record which demonstrate the unequivocal
determination of the petitioner to cancel their contract. They are: (1) the act
of the petitioner in immediately taking possession of the lots in question
and offering to resell them to Judge M. V. del Rosario, as demonstrated by
his letter marked Exhibit G, shortly after Dcember 14, 1932; (2) his failure
to demand from the respondent the balance of the account after the
mailing of the disputed letter; and (3) the letters of January 10, 1933 and
April 10 1935
 In clear terms, the intention to cancel first announced by petitioner since
December 14, 1932
It is next argued that contract SJ-639, being a bilateral agreement, in the
absence of a stipulation permitting its cancellation, may not be resolved
by the mere act of the petitioner.
 The fact that the contracting parties herein did not provide for resolution is
now of no moment, for the reason that the obligations arising" from the
11 | P a g e
Gertrude
contract of sale being reciprocal, such obligations are governed by article
1124 of the Civil Code which declares that the power to resolve, in the
event that one of the obligors should not perform his part, is implied.
 Upon the other hand, where, as in this case, the petitioner cancelled the
contract, advised the respondent that he has been relieved of his
obligations thereunder, and led said respondent to believe it so and act
upon such belief.
 The contract of sale, contract SJ-639, contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of
the stipulated monthly installments, to retain the amounts paid to him on
account of the purchase price.
 The claim, therefore, of the petitioner that it has the right to forfeit said
sums in its favor is untenable.
 Under article 1124 of the Civil Code, however, he may choose between
demanding the full- fillment of the contract or its resolution. These
remedies are alternative and not cumulative, and the petitioner in this
case, having elected to cancel the contract, cannot avail himself of the
other remedy of exacting performance: which can be approximated only by
ordering, as we do now, the return of the things which were the object of
the contract, with their fruits and of the price, with its interest (article 1295,
Civil Code), computed from the date of the institution of the action.
UP V. DE LOS ANGELES
UP ALMUCO
Logging agreement
- Latter grated exclusive authority from 1960 to Dec 31,1965 extendible
to 5 years by mutual agreement to cut collect and remove timber from
Land grant
- Payment to UP of royalties, forest fees, etc.
Facts:
 As of December 1964, ALMUCO incurred an unpaid account of Php 219,
362.94, which, despite repeated demands, it had failed to pay
 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,"
Material Content :
o In the event that the payments called for in Nos. 1 and 2 of this paragraph are not
sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said payments have been applied
shall be paid by the DEBTOR in full no later than June 30, 1965;
 OBLICON CASE DIGEST
Gertrude

o Failure to comply any of its promises or undertakings in this document, the
DEBTOR agrees without reservation that the CREDITOR shall have the right and
the power to consider the Logging Agreement dated December 2, 1960 as
rescinded without the necessity of any judicial suit, and the CREDITOR shall be
entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for
liquidated damages;
 19 July 1965, petitioner UP informed respondent ALUMCO : it considered
as rescinded and of no further legal effect the logging agreement that they
had entered in 1960
 UP filed complaint against ALUMCO in CFI for the collection or payment of
the herein before stated sums of money and alleging the facts
hereinbefore specified, together with other allegations; it prayed for and
obtained an order, dated 30 September 1965, for preliminary attachment
 Before the issuance of the aforesaid preliminary injunction UP had taken
steps to have another concessionaire take over the logging operation, by
advertising an invitation to bid;, and the concession was awarded to Sta.
Clara Lumber Company, Inc.; the logging contract was signed on 16
February 1966.
 That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner
University from conducting the bidding; on 27 November 1965, it filed a
second petition for preliminary injunction; and, on 25 February 1966,
 Respondent judge issued the first of the questioned orders, enjoining UP
from awarding logging rights over the concession to any other party.
 That UP received the order of 25 February 1966 after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said company had
started logging operations.
 It reiterated, however, its defenses in the court below, which maybe boiled
down to: blaming its former general manager, Cesar Guy, in not turning
over management of ALUMCO, thereby rendering it unable to pay the sum
of P219,382.94; that it failed to pursue the manner of payments, as
stipulated in the "Acknowledgment of Debt and Proposed Manner of
Payments" because the logs that it had cut turned out to be rotten and
could not be sold to Sta. Clara Lumber Company, Inc., under its contract
"to buy and sell" with said firm, and which contract was referred and
annexed to the "Acknowledgment of Debt and Proposed Manner of
Payments";
 UP's unilateral rescission of the logging contract, without a court order,
was invalid; that petitioner's supervisor refused to allow respondent to cut
new logs unless the logs previously cut during the management of Cesar
Guy be first sold; that respondent was permitted to cut logs in the middle of
June 1965 but petitioner's supervisor stopped all logging operations on 15
July 1965;
ISSUE:
WON PETITIONER UP CAN TREAT ITS CONTRACTWITH ALMUCO
RESCINDED AND MAY DISREGAR THE SAME BEFORE ANY JUDICIAL
PRONOUNCEMENT TO THAT EFFECT
Held: YES
 Respondent ALUMCO contended, and the lower court, in issuing the
injunction order of 25 February 1966, 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.
We find that position untenable.
 In the first place, 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 dated 2 December 1960 as
rescinded without the necessity of any judicial suit."
 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.
 It is not always necessary for the injured party to resort to court for
rescission of the contract.
 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.

12 | P a g e
 OBLICON CASE DIGEST
 In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk.
 For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not
correct in law.
 But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest.
 Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own damages
 in case of abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder.
ZULUETA V. MARIANO
Jose Zulueta (seller) Lamberto Avellana (buyer)
Contract to sell house and lot
- P75,000.00 payable in 20 years with respondent buyer assuming to
pay a down payment of P5,000.00
- Monthly installment of P630.00 payable in advance before the 5th day
of the corresponding month, starting with December, 1964
- Failure of the BUYER to fulfill any of the conditions herein stipulated,
BUYER automatically and irrevocably authorizes OWNER to recover
extra-judicially, physical possession of the land, building and other
improvements which are the subject of this contract, and to take
possession also extra-judicially whatever personal properties may be
found within the aforesaid premises from the date of said failure to
answer for whatever unfulfilled monetary obligations BUYER may
have with OWNER; and this contract shall be considered as without
force and effect also from said date
- All payments made by the BUYER to OWNER shall be deemed as
rental payments without prejudice to OWNER's right to collect from
BUYER whatever other monthly installments and other money
obligations which may have been paid until BUYER vacates the
aforesaid premises;
- in all cases herein, demand is waived;
 Respondent Avellana occupied the property from December, 1964, but title
remained with petitioner Zulueta.
13 | P a g e
Gertrude
 Upon the allegation that respondent Avellana had failed to comply with the
monthly amortizations stipulated in the contract, despite demands to pay
and to vacate the premises, petitioner, on June 22, 1966, commenced an
Ejectment suit against respondent before the Municipal Court of Pasig (CC
No. 1190), praying that judgment be rendered ordering respondent 1) to
vacate the premises; 2) to pay petitioner the sum of P11,751.30
representing respondent's balance owing as of May, 1966; 3) to pay
petitioner the sum of P 630.00 every month after May, 1966, and costs.
 Respondent controverted by contending that
- the Municipal Court had no jurisdiction over the nature of the action as
it involved the interpretation and/or rescission of the contract;
- that prior to the execution of the contract to sell, petitioner was
already indebted to him in the sum of P31,269.00 representing the
cost of two movies respondent made for petitioner and used by the
latter in his political campaign in 1964 when petitioner ran for
Congressman, as well as the cost of one 16 millimeter projector
petitioner borrowed from respondent and which had never been
returned, which amounts, according to their understanding, would be
applied as down payment for the property and to whatever obligations
respondent had with petitioner
MTC respondent Avellana had failed to comply with his financial obligations
under the contract and ordered him to vacate the premises and deliver
possession thereof to petitioner; finding that breach of any of the
conditions by private respondent converted the agreement into a lease
contractual and upon the following considerations:
CFI Dismssed : lack of jurisdiction
Although the contract to sell object of this case states that the same
may be converted into a lease contract upon the failure of the
defendant to pay the amortization of the property in question, there is
no showing that before filing this case in the lower court, the plaintiff
has exercised or has pursued his right pursuant to the contract which
should be the basis of the action in the lower court.
ISSUE:
WON ACTION BEFORE MUNCIPAL COURT ESSENTIALLY FOR DETAINER
AND THEREFORE WITHIN ITS DECISION OR ONE FOR RESCISSION OR
ANNULMEN OF CONTRACT WHICH SHOULD BE LITIGATED BEFORE CFI?
 OBLICON CASE DIGEST
 In his Complaint, petitioner had alleged violation by respondent Avellana of
the stipulations of their agreement to sell and thus unilaterally considered
the contract rescinded.
 Respondent Avellana denied any breach on his part and argued that the
principal issue was one of interpretation and/or rescission of the contract
as well as of set-off. Under those circumstances, proof of violation is a
condition precedent to resolution or rescission. It is only when the violation
has been established that the contract can be declared resolved or
rescinded. Upon such rescission, in turn, hinges a pronouncement that
possession of the realty has become unlawful.
 Thus, the basic issue is not possession but one of rescission or
annulment of a contract. which is beyond the jurisdiction of the
Municipal Court to hear and determine.
 True, the contract between the parties provided for extrajudicial rescission.
This has legal effect, however, where the other party does not oppose it.
Where it is objected to, a judicial determination of the issue is still
necessary.
 A stipulation entitling one party to take possession of the land and building
if the other party violates the contract does not ex proprio vigore confer
upon the former the right to take possession thereof if objected to without
judicial intervention and' determination.
PALAY INC V CLAVE
Play Inc (Pres Onstott) Nazario Dumpit
Contract to sell parcel of land
- P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42
until fully paid
Paragraph 6 of the contract provided for automatic extrajudicial rescission
upon default in payment of any monthly installment after the lapse of 90
days from the expiration of the grace period of one month, without need of
notice and with forfeiture of all installments paid.
 Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5,
1967 for installments up to September 1967.
 6 years later, private respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon.
14 | P a g e
Gertrude
 Replying petitioners informed respondent that his Contract to Sell had long
been rescinded pursuant to paragraph 6 of the contract, and that the lot
had already been resold.
 Questioning the validity of the rescission of the contract, respondent filed a
letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund
NHA rescission void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott in his capacity as President of
the corporation, jointly and severally, to refund immediately to Nazario
Dumpit the amount of P13,722.50 with 12% interest from the filing of
the complaint on November 8, 1974
OP affirmed the Resolution of the NHA. Reconsideration sought by
petitioners was denied for lack of merit
ISSUES x HELD
Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
 On the first issue, petitioners maintain that it was justified in cancelling the
contract to sell without prior notice or demand upon respondent in view of
paragraph 6
 Well settled is the rule, that judicial action for the rescission of a contract is
not necessary where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions.
 However, there was at least a written notice sent to the defaulter informing
him of the rescission.
 Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved in 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.
 In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk.
 For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not
correct in law.
 since in every case where the extrajudicial resolution is contested only the
final award of the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense that judicial
 OBLICON CASE DIGEST
action win be necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation unless attack
thereon should become barred by acquiescense, estoppel or prescription.
 In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination.
In this case, private respondent has denied that rescission is justified and
has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.
 We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as
held in the U.P. vs. Angeles case, supra
 It should be noted that even in that case notice in writing was made to the
vendee of the cancellation and annulment of the contract although the
contract entitled the seller to immediate repossessing of the land upon
default by the buyer.
 The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
 The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private
respondent had no freedom to stipulate.
 A waiver must be certain and unequivocal, and intelligently made; such
waiver follows only where liberty of choice has been fully accorded.
Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
 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.
 In this case, indemnity for damages may be demanded from the person
causing the loss.
15 | P a g e
Gertrude
 As a consequence of the resolution by petitioners, rights to the lot should
be restored to private respondent or the same should be replaced by
another acceptable lot.
 However, considering that the property had already been sold to a third
person and there is no evidence on record that other lots are still available,
private respondent is entitled to the refund of installments paid plus interest
at the legal rate of 12% computed from the date of the institution of the
action.
 It would be most inequitable if petitioners were to be allowed to retain
private respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
Whether the doctrine of piercing the veil of corporate fiction has
application to the case at bar.
Whether respondent Presidential Executive Assistant committed grave
abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments
made by respondent Nazario M. Dumpit thereby denying substantial
justice to the petitioners, particularly petitioner Onstott
 We find no badges of fraud on petitioners' part. They had literally relied,
albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
ANGELES V. CALASANZ
Ursula Torres Calasanz and Tomas Buenaventura Angeles and Teofila
Calasan (defendants-appellants) Juani(plaintiffs-appellees)
Contract to sell a piece of land located in Cainta, Rizal
- P3,920.00 plus 7% interest per annum.
- downpayment of P392.00 upon the execution of the contract
- Promised to pay the balance in monthly installments of P 41.20 until
fully paid, the installments being due and payable on the 19th day of
each month.
Facts:
 Plaintiffs-appellees paid the monthly installments until July 1966, when
their aggregate payment already amounted to P4,533.38.
 On numerous occasions, the defendants-appellants accepted and received
delayed installment payments from the plaintiffs-appellees.
 On December 7, 1966, the defendants-appellants wrote the plaintiffs-
appellees a letter requesting the remittance of past due accounts.
 OBLICON CASE DIGEST
 On January 28, 1967, cancelled the said contract because the plaintiffs-
appellees failed to meet subsequent payments.
 The plaintiffs-appellees filed with the Court of First Instance of Rizal, to
compel the defendants-appellants to execute in their favor the final deed of
sale alleging inter alia that after computing all subsequent payments for the
land in question, they found out that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.
 The defendants-appellants alleged in their answer that the complaint
states no cause of action and that the plaintiffs-appellees violated
paragraph six (6) of the contract to sell when they failed and refused to pay
and/or offer to pay the monthly installments corresponding to the month of
August, 1966 for more than five (5) months,
CFI in favor of the plaintiffs-appellees.
Contract subject matter of the instant case was NOT VALIDLY cancelled
by the defendants.
Consequently, the defendants are ordered to execute a final Deed of
Sale in favor of the plaintiffs
CA certified the case to us considering that the appeal involves pure
questions of law.
ISSUE:
Whether or not the contract to sell has been automatically and validly
cancelled by the defendants-appellants.
Defendant Appellants Argument:
 The contract was validly cancelled pursuant to paragraph six of the
contract.
 The defendants-appellants argue that the plaintiffs-appellees failed to pay
the August, 1966 installment despite demands for more than four (4)
months.
 The defendants-appellants also argue that even in the absence of the
aforequoted provision, they had the right to cancel the contract to sell
under Article 1191 of the Civil Code of the Philippines.
Plaintiff-Appellee’s Argument:
 Paragraph 6 of the contract to sell is contrary to law insofar as it provides
that in case of specified breaches of its terms, the sellers have the right to
declare the contract cancelled and of no effect, because it granted the
sellers an absolute and automatic right of rescission.
16 | P a g e
Gertrude
Article 1191 of the Civil Code on the rescission of reciprocal obligations
provides:
The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
Held:
 Article 1191 is explicit. In reciprocal obligations, either party the right to
rescind the contract upon the failure of the other to perform the obligation
assumed thereunder. Moreover, there is nothing in the law that prohibits
the parties from entering into an agreement that violation of the terms of
the contract would cause its cancellation even without court intervention.
 The rule that it is not always necessary for the injured party to resort to
court for rescission of the contract when the contract itself provides that it
may be rescinded for violation of its terms and conditions, was qualified by
this Court in University of the Philippines v. De los Angeles
 The party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law.
 The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement.
 In this case the breach of the contract adverted to by the defendants-
appellants is so slight and casual when we consider that apart from the
initial downpayment of P392.00 the plaintiffs-appellees had already paid
the monthly installments for a period of almost nine (9) years
 In other words, in only a short time, the entire obligation would have been
paid. Furthermore, although the principal obligation was only P 3,920.00
excluding the 7 percent interests, the plaintiffs- appellees had already paid
an aggregate amount of P 4,533.38.
 To sanction the rescission made by the defendants-appellants will work
injustice to the plaintiffs- appellees..
 OBLICON CASE DIGEST
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
 The defendants-appellants cannot rely on paragraph 9 of the contract
 We agree with the plaintiffs-appellees that when the defendants-
appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the
plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants have
waived and are now estopped from exercising their alleged right of
rescission.
 It is admitted that the delayed payments were received without protest or
qualification
 The plaintiffs-appellees on the other hand are firm in their submission that
since they have already paid the defendants-appellants a total sum of
P4,533.38, the defendants-appellants must now be compelled to execute
the final deed of sale pursuant to paragraph 12 .
 The contract to sell entered into by the parties has some characteristics of
a contract of adhesion.
 The defendants-appellants drafted and prepared the contract. The
plaintiffs-appellees, eager to acquire a lot upon which they could build a
home, affixed their signatures and assented to the terms and conditions of
the contract. They had no opportunity to question nor change any of the
terms of the agreement. It was offered to them on a "take it or leave it"
basis.
 While it is true that paragraph 2 of the contract obligated the plaintiffs-
appellees to pay the defendants-appellants the sum of P3,920.00 plus 7%
interest per annum, it is likewise true that under paragraph 12 the seller is
obligated to transfer the title to the buyer upon payment of the P3,920.00
price sale.
 The contract to sell, being a contract of adhesion, must be construed
against the party."
 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.
17 | P a g e
Gertrude
 Upon payment of the balance of P671.67 without any interest thereon, the
defendants-appellants must immediately execute the final deed of sale in
favor of the plaintiffs-appellees and execute the necessary transfer
documents as provided in paragraph 12 of the contract.
BOYSAW V. INTERPHIL PROMOTIONS INC
Boysaw and Manager Ketchum Interphil Promotions Inc (Lope Sarrea Sr)
Contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior
lightweight championship of the world.
- held at the Rizal Memorial Stadium in Manila on September 30, 1961
or not later than thirty [30] days thereafter should a postponement be
mutually agreed upon,
- and that Boysaw would not, prior to the date of the boxing contest,
engage in any other such contest without the written consent of
Interphil Promotions, Inc.
Facts:
 Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar agreement,
that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on
September 30, 1961.
 On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round
non-title bout held in Las Vegas, Nevada, U.S.A.
 July 2, 1961, Ketchum on his own behalf, assigned to J. Amado Araneta
the managerial rights over Solomon Boysaw.
 On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr.
the managerial rights over Boysaw that he earlier acquired from Ketchum
and Ruskay.
 On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of
his acquisition of the managerial rights over Boysaw and indicating his and
Boysaw's readiness to comply with the boxing contract of May 1, 1961
 Sarreal wrote a letter to the Games and Amusement Board [GAB]
expressing concern over reports that there had been a switch of managers
in the case of Boysaw, of which he had not been formally notified, and
requesting that Boysaw be called to an inquiry to clarify the situation.
 The GAB called a series of conferences of the parties concerned
culminating in the issuance of its decision to schedule the Elorde-Boysaw
fight for November 4, 1961.
 Yulo, Jr. refused to accept the change in the fight date.
 While an Elorde-Boysaw fight was eventually staged, the fight
contemplated in the May 1, 1961 boxing contract never materialized.
 OBLICON CASE DIGEST
 Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in
the CFI for damages allegedly occasioned by the refusal of Interphil and
Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor
their commitments under the boxing contract of May 1,1961.
CFI judgment dismissing the plaintiffs' complaint
ISSUE x HELD:
Whether or not there was a violation of the fight contract of May 1, 1961;
and if there was, who was guilty of such violation.
 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.
 While the contract imposed no penalty for such violation, this does not
grant any of the parties the unbridled liberty to breach it with impunity.
 Our law on contracts recognizes the principle that actionable injury inheres
in every contractual breach. Thus: Those who in the performance of their
obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the terms thereof, are liable for damages. [Art. 1170,
Civil Code].Also: The power to rescind obligations is implied, in reciprocal
ones, in case one of the obligors should not comply with what is incumbent
upon him. [Part 1, Art. 1191, Civil Code].
 There is no doubt that the contract in question gave rise to reciprocal
obligations.
 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 he is not entitled to insist upon the
performance of the contract by the defendant, or recover damages by
reason of his own breach”
 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 assignments, from Ketchum to Araneta, and from Araneta to Yulo,
were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil.
 Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will
of the latter, but not without the consent of the creditor. [Art. 1293, Civil
Code,
18 | P a g e
Gertrude
 That appellant Yulo, Jr., through a letter, advised Interphil on September 5,
1961 of his acquisition of the managerial rights over Boysaw cannot
change the fact that such acquisition, and the prior acquisition of such
rights by Araneta were done without the consent of Interphil.
 There is no showing that Interphil, upon receipt of Yulo's letter, acceded to
the "substitution" by Yulo
 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.
 The refusal of appellants to accept a postponement without any other
reason but the implementation of the terms of the original boxing contract
entirely overlooks the fact that by virtue of the violations they have
committed of the terms thereof, they have forfeited any right to its
enforcement.
 On the validity of the fight postponement, the violations of the terms of the
original contract by appellants vested the appellees with the right to
rescind and repudiate such contract altogether. That they sought to seek
an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.
PILIPINAS BANK V. IAC
1961- Hacienda Benito, Inc. and private respondents, as vendees
(petitioner's predecessor-in-interest)
as vendor
Contract to Sell over a parcel of land with an area of 5,936 square meters of
the Victoria Valley Subdivision in Antipolo, Rizal
- P47,488.00
- total sum, an amount of Pl2,182.00 was applied thereto so as to
reduce the balance on the principal to P35,306.00;
- aforesaid balance, together with the stipulated interest of 6% per
annum, was to be paid over a period of 8-1/2 years starting on May 1,
1961
- monthly installment of P446.10 until fully paid-although this monthly
installment was later adjusted to the higher amount of P797.86,
starting on April 1, 1965
- complete payment by the vendee of the total price of the lot the
vendor shall execute a deed of sale in favor of the vendee;
- contract shall be considered automatically rescinded and cancelled
and of no further force and effect upon failure of the vendee to pay
when due, three or more consecutive installments as stipulated
 OBLICON CASE DIGEST
therein or to comply with any of the terms and conditions thereof, in
which case the vendor shall have right to resell the said parcel of land
to any person interested, forfeiting payments made by the vendee as
liquidated damages.
Facts:
 Petitioner requested remittance of installment arrears showing partial
payments for the month of April 1965 and May 1965 and complete default
for June, July and August, 1965; with the incoming installment for
September 1965
 In partial compliance with the aforesaid Statements of Account, private
respondents paid on September 3, 1965 the sum of Pl,397.00 which
answers for the installments for the months of June 1965 to August 1965;
 On March 17, 1967, petitioner sent private respondents a simple demand
letter showing a delinquency in their monthly amortizations for 19 months
 On April 17, 1967, petitioner again sent private respondents a demand
letter showing total arrearages of 20 months as of April 1965, but this time
advising that unless they up-date their installment payments, petitioner
shall be constrained to avail of the automatic rescission clause
 On May 17, 1967, private respondents made a partial payments
continuously requesting for an extention to pay all their arrearages and
update their payments
 ;
 After almost three (3) years, or on July 16, 1970, private respondents
wrote a letter to petitioner requesting for a Statement of Account as of date
in arrears and interests
 On May 19, 1971, petitioner wrote a letter to private respondents,
reminding them of their balance which will be due on the 31st instant
 More than two (2) years from May 19, 1971 or on July 5, 1973, private
respondents wrote a letter to petitioner expressing their desire to fully
settle their obligation, requesting for a complete statement of all the
balance due including interests;
 On March 27, 1974, petitioner wrote a letter to private respondents,
informing them that the contract to sell had been rescinded/cancelled by a
notarial act, to which letter was annexed a "Demand for Rescission of
Contract", notarized on March 25,
 In view of the foregoing, private respondents filed Complaint for Specific
Performance with Damages to compel petitioner to execute a deed of sale
in their favor, and to deliver to them the title of the lot in question.
19 | P a g e
Gertrude
 Petitioner filed an Answer with counterclaim for damages in the form of
attorney's fees, claiming that Contract to Sell No. VV-18(a) has been
automatically rescinded or cancelled by virtue of private respondents'
failure to pay the installments due in the contract under the automatic
rescission clause.
LC: decision in private respondents' favor, holding that petitioner could not
rescind the contract to sell, because: (a) petitioner waived the automatic
rescission clause by accepting payment on September 1967, and by
sending letters advising private respondents of the balances due, thus,
looking forward to receiving payments thereon; (b) in any event, until
May 18, 1977 (when petitioner made arrangements for the acquisition of
additional 870 square meters) petitioner could not have delivered the
entire area contracted for, so, neither could private respondents be liable
in default, citing Art. 1 189 of the New Civil Code.
CA: Affirrmed
ISSUE:
whether or not the Contract to Sell No. VV-18(a) was rescinded or
cancelled, under the automatic rescission clause contained therein.
HELD:
 A contractual provision allowing "automatic rescission" (without prior need
of judicial rescission, resolution or cancellation) is VALID, the remedy of
one who feels aggrieved being to go to Court for the cancellation of the
rescission itself, in case the rescission is found unjustified under the
circumstances.
 In the instant case there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions granted
private respondents by the petitioner.
 In all these extensions, the petitioner never called attention to the proviso
on "automatic rescission."
ONG V. CA
1983- Jaime Ong (buyer) Spouses Robles (seller)
Agreement of Purchase and Sale respecting two parcels of land situated at
Barrio Puri, San Antonio, Quezon
- P2,000,000.00
- initial payment P600,000.00
- P103,499.91 shall be paid, and as already paid by the BUYER to the
SELLERS on March 22, 1983
- P496,500.09 shall be paid directly by the BUYER to the Bank of
Philippine Islands to answer for the loan of the SELLERS which as of
 OBLICON CASE DIGEST
March 15, 1983 amounted to P537,310.10, and for the interest that
may accrued (sic) from March 15, 1983, up to the time said obligation
of the SELLERS with the said bank has been settled, provided
however that the amount in excess of P496,500.09, shall be
chargeable from the time deposit of the SELLERS with the aforesaid
bank.
- balance P1,400,000.00 paid by the BUYER to the SELLERS in four
(4) equal quarterly installments of THREE HUNDRED FIFTY
THOUSAND PESOS (P350,000.00),
- promise to sell to said BUYER the two (2) parcels of agricultural land
including the rice mill and the piggery which are the most notable
improvements thereon, situated at Barangay Puri, San Antonio
Quezon,
- upon the payment of the total purchase price by the BUYER the
SELLERS bind themselves to deliver to the former a good and
sufficient deed of sale and conveyance for the described two (2)
parcels of land, free and clear from all liens and encumbrances
- immediately upon the execution of this document, the SELLERS shall
deliver, surrender and transfer possession of the said parcels of land
including all the improvements that may be found thereon, to the
BUYER, and the latter shall take over from the SELLER the
possession, operation, control and management of the RICEMILL and
PIGGERY found on the aforesaid parcels of land.
 On May 15, 1983, petitioner Ong took possession of the subject parcels of
land together with the piggery, building, ricemill, residential house and
other improvements thereon.
 Pursuant to the contract they executed, petitioner paid respondent
spouses the sum of P103,499.91[2] by depositing it with UCPB.
Subsequently, petitioner deposited sums of money with BPI
 To answer for his balance of P1,400,000.00 petitioner issued four (4) post-
dated Metro Bank checks payable to respondent spouses in the amount of
P350,0000.00 each,
 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 Bank of the Philippine Islands, which petitioner, as per
agreement, should have paid, petitioner only managed to dole out no more
than P393,679.60.
20 | P a g e
Gertrude
 When the bank threatened to foreclose the respondent spouses
mortgage, they sold three transformers of the rice mill worth P51,411.00 to
pay off their outstanding obligation with said bank, with the knowledge and
conformity of petitioner.
 Petitioner, in return, voluntarily gave the spouses authority to operate the
rice mill.[ He, however, continued to be in possession of the two parcels of
land.
 On August 2, 1985, respondent spouses, through counsel, sent petitioner
a demand letter asking for the return of the properties. Their demand was
left unheeded.
 Spouses filed with the Regional Trial Court of Lucena City, Branch 60, a
complaint for rescission of contract and recovery of properties with
damages. Later, while the case was still pending with the trial court,
petitioner introduced major improvements on the subject properties
 Writ of preliminary injuction was issued by RTC
RTC Ordering defendant, Jaime Ong to deliver the two (2) parcels of land
which are the subject matter of Exhibit A together with the
improvements thereon to the spouses Miguel K. Robles and Alejandro
M. Robles
Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to
return to Jaime Ong the sum of P497,179.51;
CA Affirmed
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
ISSUES:
Whether the contract entered into by the parties may be validly rescinded under
Article 1191 of the New Civil Code; and
Whether the parties had novated their original contract as to the time and
manner of payment.
 Petitioner contends that Article 1191 of the New Civil Code is not
applicable since he has already paid respondent spouses a considerable
sum and has therefore substantially complied with his obligation. He cites
Article 1383 instead, to the effect that where specific performance is
available as a remedy, rescission may not be resorted to.
Art 1380 Art 1191
 remedy granted by law to the  Refers to rescission applicable to

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.
rescission under Article 1383 is a
subsidiary action limited to cases of
rescission for lesion under Article
1381 of the New Civil Code
1. Entered into by guardians
2. Those agreed upon in
representation of absentees
3. Undertaken in fraud of creditors
when the latter cannot in any manner
collect the claims due them
4. 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.
May the contract entered into between the parties, however, be rescinded
based on Article 1191?
Contract to Sell
ownership is, by agreement, reserved
in the vendor and is not to pass to the
vendee until full payment of the
purchase price
payment of the purchase price is a
positive suspensive condition
21 | P a g e
OBLICON CASE DIGEST
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 fulfillment of the
other
Resolution is a principal action which
is based on breach of a party
Contract of Sale
the title to the property passes to the
vendee upon the delivery of the thing
sold
ownership is transferred to the buyer
right upon its execution
Gertrude
 Respondents in the case at bar bound themselves to deliver a deed of
absolute sale and clean title covering the two parcels of land upon full
payment by the buyer of the purchase price of P2,000,000.00. (suspensive
condition)
 Petitioner, however, failed to complete payment of the purchase price. The
non-fulfillment of the condition of full payment rendered the contract to sell
ineffective and without force and effect.
 It must be stressed that the breach contemplated in Article 1191 of the
New Civil Code is the obligors failure to comply with an obligation already
extant, not a failure of a condition to render binding that obligation.Failure
to pay, in this instance, is not even a breach but merely an event which
prevents the vendors obligation to convey title from acquiring binding force
 Hence, the agreement of the parties in the case at bench may be set
aside, but not because of a breach on the part of petitioner for failure to
complete payment of the purchase price. Rather, his failure to do so
brought about a situation which prevented the obligation of respondent
spouses to convey title from acquiring an obligatory force.
Petitioner insists, however, that the contract was novated as to the
manner and time of payment.
We are not persuaded.
 Article 1292 of the New Civil Code states that, In order that an obligation
may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other.
 Novation is never presumed, it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable
incompatibility between the old and the new obligation.
 Petitioner cites the following instances as proof that the contract was
novated: the retrieval of the transformers from petitioners custody and their
sale by the respondents to MERALCO on the condition that the proceeds
thereof be accounted for by the respondents and deducted from the price
of the contract; the take-over by the respondents of the custody and
operation of the rice mill; and the continuous and regular withdrawals by
respondent Miguel Robles of installment sums per vouchers on the
condition that these installments be credited to petitioners account and
deducted from the balance of the purchase price.
 Contrary to petitioners claim, records show that the parties never even
intended to novate their previous agreement.
 OBLICON CASE DIGEST
Gertrude

 records are bereft of evidence that respondent spouses willingly agreed to
modify their previous arrangement.
In order for novation to take place, the concurrence of the following
requisites :
(1) there must be a previous valid obligation;
(2) there must be an agreement of the parties concerned to a new contract;
(3) there must be the extinguishment of the old contract; and
(4) there must be the validity of the new contract.[
 aforesaid requisites are not found in the case at bench. The subsequent
acts of the parties hardly demonstrate their intent to dissolve the old
obligation as a consideration for the emergence of the new one. We repeat
to the point of triteness, novation is never presumed, there must be an
express intention to novate.
 petitioner is a builder in bad faith. He introduced the improvements on the
premises knowing fully well that he has not paid the consideration of the
contract in full and over the vigorous objections of respondent spouses.
 RSACC advised FEGDI of the sale to Vertex and FEGDI, in turn,
instructed Forest Hills to recognize Vertex as a shareholder. For this
reason, Vertex enjoyed membership privileges in Forest Hills.
Illustration
 Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote
FEDGI a letter demanding the issuance of a stock certificate in its name.
 FELI replied, initially requested Vertex to first pay the necessary fees for
the transfer. Although Vertex complied with the request, no certificate was
issued.
 Vertex filed on January 7, 2002 a Complaint for Rescission with Damages
and Attachment against FEGDI, FELI and Forest Hills. It averred that the
petitioners defaulted in their obligation as sellers when they failed and
refused to issue the stock certificate covering the subject share despite
repeated demands.
 On the basis of its rights under Article 1191 of the Civil Code, Vertex
prayed for the rescission of the sale and demanded the reimbursement of
the amount it paid (or ₱1,100,000.00), plus interest.

FIL-ESTATE GOLF AND DEVELOPMNET INC V. VERTEX SALES AND RTC  delay in the issuance of stock certificates does not warrant
TRADIG INC rescission of the contract as this constituted a mere casual or slight
FEGDI Stock corporation : primary business: dev’ of golf courses breach.
FELI Stock corporation : Real estate development  the issuance of the stock certificate is just a collateral matter to the
FEGDI developer of Forest Hills and in consideration for its efforts, was issued sale and the stock certificate is not essential to "the creation of the
several shares of stock of Forest Hills relation of shareholder."
Facts: CA Reversed
FEGDI  no valid transfer of shares where there is no delivery of the stock
certificate.
Class "C" Common  Prolonged issuance of the stock certificate a substantial breach that
Share of Forest served as basis for Vertex to rescind the sale.
Hills for FEGDI Argument
₱1,100,000.00 VERTEX - delay cannot be considered a substantial breach because Vertex was
unequivocally recognized as a shareholder of Forest Hills.
- RSACC also used its shareholder rights and eventually sold its share
to Vertex despite the absence of a stock certificate
RSACC FELI
- just recklessly dragged into the action due to a mistake committed by
prior to full FEGDI’s staff on two instances. The first was when their counsel used
paymen sold to
the letterhead of FELI instead of FEGDI in its reply-letter to Vertex; the
Vertex said shares
second was when they used the receipt of FELI for receipt of the
documentary stamp tax paid by Vertex.

22 | P a g e
 OBLICON CASE DIGEST
VERTEX Argument:
- fulfillment of its obligation to pay the purchase price called into action
the petitioners’ reciprocal obligation to deliver the stock certificate
- Since there was delay in the issuance of a certificate for more than
three years, then it should be considered a substantial breach
warranting the rescission of the sale
ISSUE
Whether the delay in the issuance of a stock certificate can be considered a
substantial breach as to warrant rescission of the contract of sale.
Held:
 Physical delivery is necessary to transfer ownership of stocks
 In this case, Vertex fully paid the purchase price by February 11, 1999 but
the stock certificate was only delivered on January 23, 2002 after Vertex
filed an action for rescission against FEGDI.
 Under these facts, considered in relation to the governing law, FEGDI
clearly failed to deliver the stock certificates, representing the shares of
stock purchased by Vertex, within a reasonable time from the point the
shares should have been delivered.
 This was a substantial breach of their contract that entitles Vertex the right
to rescind the sale under Article 1191 of the Civil Code.
 Vertex already enjoyed the rights a shareholder can exercise but the
enjoyment of these rights cannot suffice where the law, by its express
terms, requires a specific form to transfer ownership.
 Regarding the involvement of FELI in this case, no privity of contract exists
between Vertex and FELI.
 In the sale of the Class "C" Common Share, the parties are only FEGDI, as
seller, and Vertex, as buyer.
GOTESCO PROPERTIES INC V. FAJARDO
Spouses Fajardo (buyer) Gotesco properties Inc (seller)
Purchase of 100 sqm lot: a subjdivision owned and developed by GPI.
- ₱126,000.00 within a 10-year period, including interest at the rate of
nine percent (9%) per annum.
- GPI, on the other hand, agreed to execute a final deed of sale (deed)
in favor of Sps. Fajardo upon full payment of the stipulated
consideration
Facts:
23 | P a g e
Gertrude
 Despite its full payment of the purchase price on January 17, 2006 and
subsequent demands, GPI failed to execute the deed and to deliver the
title and physical possession of the subject lot.
 Thus, on May 3, 2006, Sps. Fajardo filed before the Housing and Land
Use Regulatory Board-Expanded National Capital Region Field Office () a
complaint for specific performance or rescission of contract with damages
against GPI and the members of its Board of Directors
 Sps. Fajardo averred that GPI violated Section 209 of Presidential Decree
No. 95710 (PD 957) due to its failure to construct and provide water
facilities, improvements, infrastructures and other forms of development
including water supply and lighting facilities for the subdivision project.
 GPI also failed to provide boundary marks for each lot and that the mother
title including the subject lot had no technical description and was even
levied upon by the Bangko Sentral ng Pilipinas (BSP) without their
knowledge
 For their part, petitioners maintained that at the time of the execution of the
contract, Sps. Fajardo were actually aware that GPI's certificate of title had
no technical description inscribed on it. Nonetheless, the title to the subject
lot was free from any liens or encumbrances.
 Petitioners claimed that the failure to deliver the title to Sps. Fajardo was
beyond their control
 Petitioners thus argued that Article 1191 of the Civil Code (Code) – the
provision on which Sps. Fajardo anchor their right of rescission – remained
inapplicable since they were actually willing to comply with their obligation
but were only prevented from doing so due to circumstances beyond their
control
HLURBENCRFO Infavor of Sps. Fajardo,
- GPI’s obligation to execute the corresponding
deed and to deliver the transfer certificate of title
and possession of the subject lot arose and thus
became due and demandable at the time Sps.
Fajardo had fully paid the purchase price for the
subject lot
- GPI’s failure to meet the said obligation
constituted a substantial breach of the contract
which perforce warranted its rescission.
HLURB Board of Affirmed
Commissioners
CA Affirmed
HELD:
 OBLICON CASE DIGEST
Gertrude

A. Sps. Fajardo’s right to rescind Since Article 1385 of the Civil Code expressly and clearly states that
"rescission creates the obligation to return the things which were the object
 In a contract to sell, the seller's obligation to deliver the corresponding of the contract, together with their fruits, and the price with its interest," the
certificates of title is simultaneous and reciprocal to the buyer's full Court finds no justification to sustain petitioners’ position that said Article
payment of the purchase price 1385 does not apply to rescission under Article 1191. x x x33 (Emphasis
Spouses Fajardo claim GPI claim supplied; citations omitted.)
GPI breached the contract due to its GPI could not have committed any  In this light, it cannot be denied that only GPI benefited from the contract,
failure to execute the deed of sale breach of contract considering that having received full payment of the contract price plus interests as early as
and to deliver the title and its purported non-compliance was January 17, 2000, while Sps. Fajardo remained prejudiced by the
possession over the subject lot, largely impelled by circumstances
persisting non-delivery of the subject lot despite full payment.
notwithstanding the full payment of beyond its control i.e., the legal
the purchase price mad as well as proceedings concerning the  As a necessary consequence, considering the propriety of the rescission
the latter’s demand for GPI to subdivision of the property into as earlier discussed, Sps. Fajardo must be able to recover the price of the
comply with the aforementioned individual lots property pegged at its prevailing market value consistent with the
obligations per the letter dated
September 16, 2002. REYES V. ROSSI
Teodoro Reyes (Buyer) Advanced Foundation (Seller)
deed of conditional sale involving the purchase by Reyes of equipment
 No plausible explanation was advanced by the petitioners as to why the consisting of a Warman Dredging Pump HY 300A worth ₱10,000,000.00
petition for inscription (docketed as LRC Case No. 4211) dated January 6, - Reyes would pay the sum of ₱3,000,000.00 as downpayment, and the
2000,25 was filed only after almost eight (8) years from the acquisition of balance of ₱7,000,000.00 through four post-dated checks
the subject property.  In January 1998, Reyes requested the restructuring of his obligation under
 Neither did petitioners sufficiently explain why GPI took no positive action the deed of conditional sale by replacing the four post-dated checks with
to cause the immediate filing of a new petition for inscription within a nine post-dated checks that would include interest at the rate of
reasonable time from notice of the July 15, 2003 CA Decision which ₱25,000.00/month accruing on the unpaid portion of the obligation.
dismissed GPI’s earlier petition based on technical defects, this  Advanced Foundation assented to Reyes’ request, and returned the four
notwithstanding Sps. Fajardo's full payment of the purchase price and prior checks. In turn, Reyes issued and delivered the following nine postdated
demand for delivery of title checks in the aggregate sum of ₱7,125,000.00 drawn against the United
 Clearly, the long delay in the performance of GPI's obligation from date of Coconut Planters Bank,
demand on September 16, 2002 was unreasonable and unjustified.  Rossi deposited three of the post-dated checks (i.e., No. 72807, No.
 It cannot therefore be denied that GPI substantially breached its contract 79125 and No. 72808) on their maturity dates in Advanced Foundation’s
to sell with Sps. Fajardo which thereby accords the latter the right to bank account at the PCI Bank in Makati. Checks were denied.
rescind the same pursuant to Article 1191 of the Code  In the meanwhile,Reyes commenced an action for rescission of contract
B. Effects of rescission and damages in and ordering Advanced Foundation to return the
 Rescission does not merely terminate the contract and release the parties ₱3,000,000.00 downpayment with legal interest from June 4, 1998 until
from further obligations to each other, but abrogates the contract from its fully paid; and to pay to him attorney’s fees, and various kinds and
inception and restores the parties to their original positions as if no contract amounts of damages.
has been made.  Rossi charged Reyes with cases of estafa and of violation of Batas
 This Court has consistently ruled that this provision applies to rescission Pambansa Blg. 22 in the Office of the City Prosecutor of Makati for the
under Article 1191: dishonor of Checks.

24 | P a g e
 OBLICON CASE DIGEST
 On September 29, 1998, Reyes submitted his counter-affidavit in the
Office of the City Prosecutor claiming that the checks had not been issued
for any valuable consideration; that he had discovered from the start of
using the dredging pump involved in the conditional sale that the
Caterpillar diesel engine powering the pump had been rated at only 560
horsepower instead of the 1200 horsepower Advanced Foundation had
represented to him; that welding works on the pump had neatly concealed
several cracks; that on May 6, 1998 he had written to Advanced
Foundation complaining about the misrepresentations on the specifications
of the pump and demanding documentary proof of Advanced Foundation’s
ownership of the pump; that he had caused the order to stop the payment
of three; that he had subsequently discovered other hidden defects,
prompting him to write another letter; and that instead of attending to his
complaints and request, Advanced Foundation’s lawyers had threatened
him with legal action.
Assistant recommended the dismissal of the charges of estafa and the
Prosecutor suspension of the proceedings relating to the violation of Batas
Pambansa Blg. 22 based on a prejudicial question.
City Approved recommendation
Prosecutor
Secretary Denied petition for Review
of Justice
CA Instant petition is GRANTED in so far as the issue of the
existence of prejudicial question is concerned. Accordingly, the
order suspending the preliminary investigation in I.S. No. 98-
40024-29 is REVERSED and SET ASIDE, and the dismissal of
the complaint for estafa is AFFIRMED.
 Reyes asserts that the CA erred in ruling that there was no prejudicial
question that warranted the suspension of the criminal proceedings against
him; that the petition suffered fatal defects that merited its immediate
dismissal;
 Rossi counters that the petition for review should be outrightly dismissed
because of its fatal defect; that the CA did not err in ruling that the action
for rescission of contract did not pose a prejudicial question that would
suspend the criminal proceedings.
ISSUE:
Whether or not the civil action for rescission of the contract of sale raised a
prejudicial question that required the suspension of the criminal prosecution for
violation of Batas Pambansa Blg. 22.
25 | P a g e
Gertrude
Ruling
The petition for review is without merit.
 A prejudicial question generally comes into play in a situation where a civil
action and a criminal action are both pending, and there exists in the
former an issue that must first be determined before the latter may
proceed, because howsoever the issue raised in the civil action is resolved
would be determinative juris et de jure of the guilt or innocence of the
accused in the criminal case.
Section 7. Elements of prejudicial question. – The elements of a prejudicial
question are: (a) the previously instituted civil action involves an issue similar or
intimately related to the issue raised in the subsequent criminal action, and (b)
the resolution of such issue determines whether or not the criminal action may
proceed
 Contending that the rescission of the contract of sale constitutes a
prejudicial question, Reyes posits that the resolution of the civil action will
be determinative of whether or not he was criminally liable for the
violations of Batas Pambansa Blg. 22.
 He states that if the contract would be rescinded, his obligation to pay
under the conditional deed of sale would be extinguished, and such
outcome would necessarily result in the dismissal of the criminal
proceedings for the violations of Batas Pambansa Blg. 22.
 The action for the rescission of the deed of sale on the ground that
Advanced Foundation did not comply with its obligation actually seeks one
of the alternative remedies available to a contracting party under Article
1191 of the Civil Code, to wit:
 Article 1191 of the Civil Code recognizes an implied or tacit resolutory
condition in reciprocal obligations. The condition is imposed by law, and
applies even if there is no corresponding agreement thereon between the
parties.
 The explanation for this is that in reciprocal obligations a party incurs in
delay once the other party has performed his part of the contract; hence,
the party who has performed or is ready and willing to perform may rescind
the obligation if the other does not perform, or is not ready and willing to
perform.
 However, until the contract is rescinded, the juridical tie and the
concomitant obligations subsist.
 OBLICON CASE DIGEST
Gertrude

 To properly appreciate if there is a prejudicial question to warrant the  In this light, it is clear that the pendency of the civil case does not bar the
suspension of the criminal actions, reference is made to the elements of continuation of the proceedings in the preliminary investigation on the
the crimes charged. The violation of Batas Pambansa Blg. 22 requires the ground that it poses a prejudicial question.
concurrence of the following elements, namely: (1) the making, drawing,  Considering that the contracts are deemed to be valid until rescinded, the
and issuance of any check to apply for account or for value; (2) the consideration and obligatory effect thereof are also deemed to have been
knowledge of the maker, drawer, or issuer that at the time of issue he does validly made, thus demandable. Consequently, there was no failure of
not have sufficient funds in or credit with the drawee bank for the payment consideration at the time when the subject checks were dishonored.
of the check in full upon its presentment; and (3) the subsequent dishonor
of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.
 His obligation to fund the checks or to make arrangements for them with
the drawee bank should not be tied up to the future event of
extinguishment of the obligation under the contract of sale through
rescission. Indeed, under Batas Pambansa Blg. 22, the mere issuance of a
worthless check was already the offense in itself. Under such
circumstances, the criminal proceedings for the violation of Batas
Pambansa Blg. 22 could proceed despite the pendency of the civil action
for rescission of the conditional sale.
 Accordingly, we agree with the holding of the CA that the civil action for the
rescission of contract was not determinative of the guilt or innocence of
Reyes. We consider the exposition by the CA of its reasons to be
appropriate enough, to wit:

- he posits that his consent to the contract was vitiated by the fraudulent
act of the company in misrepresenting the condition and quality of the
dredging pump.
- Alternatively, he claims that the company committed a breach of
contract which is a ground for the rescission thereof. Either way, he in
effect admits the validity and the binding effect of the deed pending
any adjudication which nullifies the same.
 Indeed, under the Law on contracts, vitiated consent does not make a
contract unenforceable but merely voidable, the remedy of which would be
to annul the contract since voidable contracts produce legal effects until
they are annulled.
 On the other hand, rescission of contracts in case of breach pursuant to
Article 1191 of the Civil Code of the Philippines also presupposes a valid
contract unless rescinded or annulled.

26 | P a g e