WINDY A.

MALAPIT
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the contract
of sale and that it is the Corporation alone that was remiss in the performance of its
OBLICON CASE DIGEST obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because neither
has completed their part in their reciprocal obligation. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default,
such that it is as if no one is guilty of delay.
CORTES vs CA Cortes argument would have been correct if he actually surrendered the Deed and the TCTs to the
(G.R. No. 126083) Corporation. With such delivery, the Corporation would have been placed in default if it chose not
to pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment
FACTS: This is a petition for reversal of decision made by the Court of Appeals setting aside the one of the parties fulfills his obligation, delay by the other begins.
decision of Trial Court to rescind the contract between Antonio Cortes and Villa Ezperenza The Court of Appeals therefore correctly ordered the parties to perform their respective obligation
Development Corporation for the contract of sale of land amounting to 3.7 million pesos located at in the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
Baclaran, Metro Manila with the following terms: Corporation and for the latter to pay in full, not only the down payment, but the entire purchase
price.
 The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver
the TCT for the 3 lots.

 The balance of 1.5M shall be payable within a year from the date of the execution.
The Corporation paid the partial the amount of P1,213,000.00 as downpayment but Cortes failed
to deliver the CTC and the original copy of the Deed of Sale arising resulting to the filing of this
instant case by the Corporation praying for specific performance to deliver the CTC and the Deed
of sale from the petitioner.
Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the HEIRS OF GAITE vs THE PLAZA, INC.
Corporation and it is the latter which refused to pay in full the agreed down payment. ( G.R. No. 177685)
RTC ruled rescinding the contract of sale and return the downpayment with interest for the
Corporation having failed to pay in full the amount of P2,200,000.00 despite Cortes’ delivery of the
Deed of Absolute Sale and the TCTs, rescission of the contract is proper. FACTS: This is a petition for review seek to reverse and set aside the decision of CA terminating
On appeal by the respondents, CA reversed the decision of the RTC directed Cortes to execute the Construction contract between Gaite and Plaze Corporation.
the Deed of Sale simultaneous with the Corporation payment of the full balance of purchase. It The Plaze Corporation thru Jose Reyes (President) contracted Rhogen Buiders represented by
found that the parties agreed that the Corporation will fully pay the balance of the down payment Ramon Gaite to construct a restaurant in Makati for 7.6 million. Plaze paid downpayment of 1, 155,
upon Cortes’ delivery of the three TCTs to the Corporation. The records show that no such 000 and the construction started but the Municipality of Makati ordered Gaite to cease the
delivery was made, hence, the Corporation was not remiss in the performance of its obligation and construction in violation of the National Building Code as follows:
therefore justified in not paying the balance. 1. No permit for Temporary Structure.
However, Cortes file a petition praying for the reinstatement of rescinding the contract by RTC 2. No notice of concrete pouring.
since the Corporation failed in the performance of their obligation. 3. Some workers have no safety devices.
4. The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage
dated September 10, 1980.
ISSUE: Whether or not there is delay in the performance of the parties’ obligation that would justify 5. Mr. Ramon Gaite [is] questioning the authority of the Building Official’s Inspector.
the rescission of the contract of sale? 6. Construction plans use[d] on the job site is not in accordance to the approved plan.
Gaite communicated with Reyes and the project manager to resolve the following issues but failed
RULING: NO. There is no doubt that the contract of sale in question gave rise to a reciprocal to get the needed cooperation instead the Plaza, through Reyes, countered that it will hold Gaite
obligation of the parties.
and Rhogen fully responsible for failure to comply with the terms of the contract and to deliver the complete the works within the stipulated period and in accordance with approved plans
finished structure on the stipulated date. and other specifications by the owner.
Plaze Corporation filed suits against Gaite and Rhogen for breach of contract, sum of money and
damages and nullification of the project development contract – RTC of Makati granted the
decision in favor of Plaze Corporation. The trial court pointed out that Rhogen is not only expected
to be aware of standard requirements and pertinent regulations on construction work, but also
expressly bound itself under the General Construction Contract to comply with all the laws, city
and municipal ordinances and all government regulations. Having failed to complete the project
within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of
breaching the Construction Contract and is liable for damages.
Petitioners filed an appeal to CA invoking Article 1191 of the Civil Code, which states that the PCIC vs PETROLEUM DISTRIBUTORS AND SERVICE
power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. CORPORATION
(G.R. No. 180898)
ISSUES:
1. Whether of not the Plaza Corporation has a legal ground in terminating the construction FACTS: A petition for review seeking to reverse the decision of CA which affirmed the decision of
contract? RTC Pasay with modification on damages.
2. Whether or not the CA gravely erred in not holding that there were valid and legal Petroleum Distributors and Services Corporation (PDSC), through its president, Conrado P.
grounds for Rhogen to terminate the contract? Limcaco, entered into a building contract[3]with N.C. Francia Construction Corporation (FCC),
represented by its president and chief executive officer, Emmanuel T. Francia, for the construction
of a four-story commercial and parking complex located at Domestic Road, Pasay City, known as
RULINGS: Park ‘N Fly Building (Park ‘N Fly) for the price of ₱45,522,197.72.
1. YES. According to the CA, The Plaza cannot now be demanded to comply with its Both parties agreed that the construction work would begin on February 1, 1999 and to finish
obligation under the contract since Rhogen has already failed to comply with its own October 20, 1999 with stipulations that that in the event FCC failed to finish the project within the
contractual obligation. Thus, The Plaza had every reason not to pay the progress billing period specified, liquidated damages equivalent to 1/10 of 1% of the contract price for every day of
as a result of Rhogen’s inability to perform its obligations under the contract. Clearly, delay shall accrue in favor of PDSC.
Rhogen cannot blame The Plaza for its own failure to comply with its contractual To further ensure compliance, FCC singed Surety Bonds holding themselves personally liable for
obligations. CA therefore did not err in holding that Rhogen committed a serious breach the accountabilities and Performance Bonds from PCIC for secure and faithful performance of the
of its contract with The Plaza, which justified the latter in terminating the contract. obligation.
Petitioners are thus liable for damages for having breached their contract with respondent Since there was behind the schedule of the projected work path, PDSC and FCC likewise
The Plaza. Article 1170 of the Civil Code provides that those who in the performance of executed a memorandum of agreement (MOA), wherein the parties agreed to revise the work
their obligations are guilty of fraud, negligence or delay and those who in any manner schedule of the project was extended up to March 2, 2000.
contravene the tenor thereof are liable for damages. For failure of FCC to accomplish the project within the agreed completion period, PDSC, in a letter
2. NO. Reciprocal obligations are those which arise from the same cause, and in which dated December 3, 1999, informed FCC that it was terminating their contract based on Article 12,
each party is a debtor and a creditor of the other, such that the obligation of one is Paragraph 12.1 of the Building Contract. Despite notice, PDSC did not receive any reply from
dependent upon the obligation of the other. They are to be performed simultaneously either FCC or PCIC, constraining it to file a complaint for damages, recovery of possession of
such that the performance of one is conditioned upon the simultaneous fulfillment of the personal property and/or foreclosure of mortgage with prayer for the issuance of a writ of replevin
other. Respondent The Plaza predicated its action on Article 1191of the Civil Code, which and writ of attachment, against FCC and its officers before the RTC.
provides for the remedy of “rescission” or more properly resolution, a principal action FCC claimed that the contract price was reduced because of outsourcing of different materials and
based on breach of faith by the other party who violates the reciprocity between denied the liability to PDSC since such claim by the latter had been waived, abandoned or
them. The breach contemplated in the provision is the obligor’s failure to comply with an otherwise extinguished by the execution of the September 10, 1999 MOA.
existing obligation. Thus, the power to rescind is given only to the injured party. The However, PCIC alleged that its obligation under the performance bond was terminated when it
injured party is the party who has faithfully fulfilled his obligation or is ready and willing to expired on October 15, 1999 and the extension of the performance bond until March 2, 2000 was
perform his obligation. The construction contract between Rhogen and The Plaza not binding as it was made without its knowledge and consent.
provides for reciprocal obligations whereby the latter’s obligation to pay the contract price RTC rendered its Decision in favor of PDSC. The RTC found FCC guilty of delay when it failed to
or progress billing is conditioned on the former’s performance of its undertaking to finish and turn over the project on October 15, 1999. It pronounced FCC and PCIC jointly and
severally liable and ordered them to pay PDSC the amount of ₱9,000,000.00 as damages and possesses no direct or personal interest over the obligations of the latter, nor does it
₱50,000.00 as attorney’s fees plus interest. receive any benefit therefrom.
But CA modified the RTC’s decision. The CA agreed that FCC incurred delay in the construction of 2. NO. Court also found untenable the contention of PCIC that the principal contract was
the project. It, however, found that the computation of the liquidated damages should be based on novated when PDSC and FCC executed the September 10, 1999 MOA, without informing
the reduced contract price. the surety, which, in effect, extinguished its obligation.
A surety agreement has two types of relationship: (1) the principal relationship between
the obligee and the obligor; and (2) the accessory surety relationship between the
principal and the surety. The obligee accepts the surety’s solidary undertaking to pay if
ISSUES: the obligor does not pay. Such acceptance, however, does not change in any material
1. Whether or not PCIC is liable for liquidated damages under the performance bond? way the obligee’s relationship with the principal obligor. Neither does it make the surety
2. Whether or not the September 10, 1999 MOA executed by PDSC and FCC extinguished an active party in the principal obligor-obligee relationship. It follows, therefore, that the
PCIC’s liability under the performance bond? acceptance does not give the surety the right to intervene in the principal contract.
3. Whether or not the amounts of ₱2,793,000.00 and ₱662,836.50 are deductible from the In order that an obligation may be extinguished by another which substitutes the same, it
liquidated damages awarded by the CA.? is imperative that it be so declared in unequivocal terms, or that the old and new
obligation be in every point incompatible with each other. Novation of a contract is never
presumed. In the absence of an express agreement, novation takes place only when the
RULINGS: old and the new obligations are incompatible on every point.
No new contract was concluded and perfected between PDSC and FCC. A reading of
the September 10, 1999 MOA reveals that only the revision of the work schedule
1. YES. Paragraph 2.3 of the Building Contract clearly provides a stipulation for the originally agreed upon was the subject thereof. The parties saw the need to adjust the
payment of liquidated damages in case of delay in the construction of the project. Such is work schedule because of the various subcontracting made by PDSC. In fact, it was
in the nature of a penalty clause fixed by the contracting parties as a compensation or specifically stated in the MOA that “all other terms and conditions of the Building Contract
substitute for damages in case of breach of the obligation. The contractor is bound to pay of 27 January 1999 not inconsistent herewith shall remain in full force and effect. There
the stipulated amount without need for proof of the existence and the measures of was no new contract/agreement which could be considered to have substituted the
damages caused by the breach. Building Contract.
Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated 3. YES. The ruling of the CA on the matter is very clear – whether the value of the securities
damages to be paid in case of breach. It is attached to an obligation in order to insure given as well as the proceeds of the sale of chattels should be deducted from the claim of
performance and has a double function: (1) to provide for liquidated damages, and (2) to liquidated damages.
strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach. As a general rule, contracts constitute the law between the parties, and
they are bound by its stipulations. For as long as they are not contrary to law, morals,
good customs, public order, or public policy, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient.
By the language of the performance bond issued by PCIC, it guaranteed the full and
faithful compliance by FCC of its obligations in the construction of the Park ‘N Fly. In fact,
the primary purpose for the acquisition of the performance bond was to guarantee to STRONGHOLD INSURANCE COMPANY vs REPUBLIC-ASAHI GLASS
PDSC that the project would proceed in accordance with the terms and conditions of the CORPORATION
contract and to ensure the payment of a sum of money in case the contractor would fail in (G.R. No. 147561)
the full performance of the contract. This guaranty made by PCIC gave PDSC the right to
proceed against it (PCIC) following FCC’s non-compliance with its obligation.
Thus, suretyship arises upon the solidary binding of a person deemed the surety with the FACTS: A petition for review seeking to reverse the CA’s decisions that SICI’s obligation is not
principal debtor for the purpose of fulfilling an obligation. A surety is considered in law as extinguished upon the death of the principal obligor.
being the same party as the debtor in relation to whatever is adjudged touching the Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with Jose D. Santos,
obligation of the latter, and their liabilities are interwoven as to be inseparable. Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage
Therefore, as surety, PCIC becomes liable for the debt or duty of FCC although it system in Republic-Asahi’s compound in Barrio Pinagbuhatan, Pasig City amounting to five million
three hundred thousand pesos (P5,300,000.00) to be completed within a period of two hundred Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor
forty (240) days beginning May 8, 1989. and the petitioner herein, in view of the solidary nature of their liability. The death of the principal
To guarantee the faithful and satisfactory performance of its undertakings JDS, shall post a debtor will not work to convert, decrease or nullify the substantive right of the solidary
performance bond of seven hundred ninety five thousand pesos (P795,000.00). JDS executed, creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner
jointly and severally with Stronghold Insurance Co., Inc. (SICI). alone, in accordance with the solidary nature of the latter’s liability under the performance bond.
However, the slowness of construction resulted to fear of respondent that construction will not be
finished on the stipulated time and dissatisfied with the performance of JDS, extrajudicially
rescinded the contract but letters to JDS informing the demands were unheeded.
Respondent then files a complaint against JDS and SICI but report from sheriff stated that Jose
D. Santos, Jr. died the previous year (1990), and JDS Construction was no longer at its address
and its whereabouts were unknown.
SICI filed its answer, alleging that the [respondent’s] money claims against [petitioner and JDS]
have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case,
[petitioner] SICI had been released from its liability under the performance bond because there
was no liquidation, said liquidation was impossible because of the death of Santos, who as such
can no longer participate in any liquidation. And was deprived of Santos’ death and the unilateral
rescission of the contract thus deprived the right to protect its interests as surety of the
performance bond – therefore shall be released from all the liability.
Lower court issued an order dismissing the complaint of respondent against JDS and SICI, on the
ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos,
Jr.
WILLIAM GOLANGCO CONSTRUCTION CORP. vs PHILIPPINE
ISSUE: Whether petitioner’s liability under the performance bond was automatically extinguished
by the death of the principal?
COMMERCIAL INTERNATIONAL BANK
(G.R. No. 142830)

RULING: NO. CA ruled that SICI’s obligation under the surety agreement was not extinguished by
FACTS: William Golangco Construction Corporation (WGCC) and the Philippine Commercial
the death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the
International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
bond.
Tower II including the application of a granitite wash-out finish [3] on the exterior walls of the
Appellate court also found that the lower court had erred in pronouncing that the performance of
building.
the Contract in question had become impossible by respondent’s act of rescission. The Contract
To answer for any defect arising within a period of one year, WGCC submitted a guarantee bond
was rescinded because of the dissatisfaction of respondent with the slow pace of work and
dated July 1, 1992 issued by Malayan Insurance Company, Inc. in compliance with the
pursuant to Article XIII of its Contract with JDS.
construction contract but controversy arose when portions of the granitite wash-out finish of the
As a general rule, the death of either the creditor or the debtor does not extinguish the obligation.
exterior of the building began peeling off and falling from the walls wherein WGCC made some
Obligations are transmissible to the heirs, except when the transmission is prevented by the law,
minor repairs.
the stipulations of the parties, or the nature of the obligation. Only obligations that are personal or
But PCIB end up hiring another contractor to re-do the entire granitite wash-out finish after WGCC
are identified with the persons themselves are extinguished by death.
manifested that it was “not in a position to do the new finishing work,” though it was willing to share
In the present case, whatever monetary liabilities or obligations Santos had under his contracts
part of the cost and filed a request for arbitration with the Construction Industry Arbitration
with respondent were not intransmissible by their nature, by stipulation, or by provision of
Commission (CIAC) for the reimbursement of its expenses for the repairs made by another
law. Hence, his death did not result in the extinguishment of those obligations or liabilities, which
contractor. It complained of WGCC’s alleged non-compliance with their contractual terms on
merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out
materials and workmanship.
the obligations under the performance bond. Consequently, petitioner as surety cannot use his
CIAC declared WGCC liable for the construction defects in the project. WGCC filed a petition for
death to escape its monetary obligation under its performance bond.
review with the Court of Appeals (CA) which dismissed it for lack of merit.
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code articles
2047 and 1216.
ISSUE: Whether or not petitioner WGCC is liable for defects in the granitite wash-out finish that
occurred after the lapse of the one-year defects liability period provided in Art. XI of the
FACTS: David Raymundo is the absolute and registered owner of a parcel of land, together with
construction contract?
the house and other improvements thereon, located at Dasmariñas Village, Makati. George
Raymundo who negotiated with plaintiffs Avelina and Mariano Velarde for the sale of said property,
which was under lease – and the Deed of Sale was executed by David Raymundo, as vendor, in
RULING: NO. We rule in favor of WGCC. As to the Art. XI of construction contract, stated that “the favor of plaintiff Avelina Velarde, as vendee.
CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the
defect in materials and workmanship which [becomes] evident within one (1) year after the final aforementioned mortgage for three months but on the 4 th month, plaintiffs were advised that the
acceptance of the work.” Application for Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to
Obligations arising from contracts have the force of law between the parties and should be make any further payment.
complied with in good faith. In characterizing the contract as having the force of law between the On a letter dated Jan. 7, 1987, plaintiff wrote letter to respondents stating:
parties, the law stresses the obligatory nature of a binding and valid agreement. “willingness to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver
The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the actual possession of the property to her not later than January 15, 1987 for her immediate
Philippines for private and government construction contracts. The contract did not specify a occupancy; (b) you cause the release of title and mortgage from the Bank of P.I. and make the title
different period for defects in the granitite wash-out finish; hence, any defect therein should have available and free from any liens and encumbrances; and (c) you execute an absolute deed of
been brought to WGCC’s attention within the one-year defects liability period in the contract. sale in her favor free from any liens or encumbrances not later than January 21, 1987.
The Article 1719 of Civil Code clearly stated that: “Acceptance of the work by the employer But the defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of
relieves the contractor of liability for any defect in the work, unless: (1) The defect is hidden and the subject property allegedly due to the latter’s failure to comply with the terms and conditions of
the employer is not, by his special knowledge, expected to recognize the same; or (2) The the Deed of Sale.
employer expressly reserves his rights against the contractor by reason of the defect. Petitioners filed on February 9, 1987 a Complaint against private respondents for specific
Thus, the lower courts conjectured that the peeling off of the granitite wash-out finish was probably performance, nullity of cancellation, writ of possession and damages but was dismissed. In a
due to “defective materials and workmanship.” This they characterized as hidden or latent defects motion for reconsideration – the decision was reversed ordering the petitioners to pay the balance
was not tenable. of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute
First, PCIB’s team of experts (who were specifically employed to detect such defects early on) sale.
supervised WGCC’s workmanship. Second, WGCC regularly submitted progress reports and However, CA reinstated the former ruling of trial court upholding the validity of rescission made by
photographs. Third, WGCC worked under fair and transparent circumstances. PCIB had access the private respondents.
to the site and it exercised reasonable supervision over WGCC’s work. Fourth, PCIB issued CA ruled, the application with BPI for the approval of the assumption of mortgage would mean
several “punch lists” for WGCC’s compliance before the issuance of PCIB’s final certificate of that, in case of approval, payment of the mortgage obligation will now be in the name of
acceptance. Fifth, PCIB supplied the materials for the granitite wash-out finish. And finally, PCIB’s Velarde. And in the event said application is disapproved, Velarde had to pay in full.
team of experts gave their concurrence to the turnover of the project. The disapproval by BPI of the application for assumption of mortgage cannot be used as an
Under the circumstances, there were no hidden defects for which WGCC could be held liable. excuse for Velarde’s non-payment of the balance of the purchase price. As borne out by the
Neither was there any other defect for which PCIB made any express reservation of its rights evidence, Velarde had to pay in full in case of BPI’s disapproval of the application for assumption
against WGCC. of mortgage and It was likewise agreed that in case of violation of the mortgage obligation, the
Deed of Sale with Assumption of Mortgage would be deemed ‘automatically cancelled and of no
further force and effect, as if the same had never been executed or entered into.

ISSUES:
1. Whether or not The Court of Appeals erred in holding that the non-payment of the
mortgage obligation resulted in a breach of the contract?
2. Whether or not the Court of Appeals erred in holding that the rescission (resolution) of the
contract by private respondents was justified?
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF 3. Whether or not the Court of Appeals erred in holding that petitioners’ January 7, 1987
letter gave three ‘new conditions’ constituting mere offers or an attempt to novate
APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO
necessitating a new agreement between the parties?
(G.R. No. 108346)
RULINGS:
1. NO. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver
a determinate thing, and the buyer to pay therefor a price certain in money or its
equivalent. Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the property to
petitioner through constructive delivery. Prior physical delivery or possession is not REYES vs TUPARAN
legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. (G.R. No. 188064)
Petitioners did not perform their correlative obligation of paying the contract price in the
manner agreed upon. Worse, they wanted private respondents to perform obligations FACTS: A petition for review on the decision of CA which affirmed with modification an action for
beyond those stipulated in the contract before fulfilling their own obligation to pay the full Rescission of Contract with Damages.
purchase price. Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent,
2. NO. The right of rescission of a party to an obligation under Article 1191 of the Civil Code Victoria Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from being
is predicated on a breach of faith by the other party who violates the reciprocity between a tenant, respondent also invested in petitioner's financing business. On June 20, 1988, Petitioner
them. The breach contemplated in the said provision is the obligor’s failure to comply with borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building
an existing obligation. When the obligor cannot comply with what is incumbent upon it, and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to liquidate her
the obligee may seek rescission and, in the absence of any just cause for the court to loan and finance her business. Respondent offered to conditionally buy the real properties for P4.2
determine the period of compliance, the court shall decree the rescission. Million on installment basis without interest and to assume the bank loan. The conditions are the
In the present case, private respondents validly exercised their right to rescind the following:
contract, because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very essence of 1. Sale will be cancelled if the petitioner can find a buyer of said properties for the
reciprocity in the contract of sale, a violation that consequently gave rise to private amount of P6.5 Million within the next three months. All payments made by the
respondents’ right to rescind the same in accordance with law. respondent to the petitioner and the bank will be refunded to Tuparan with an
True, petitioners expressed their willingness to pay the balance of the purchase price one additional 6% monthly interest.
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation.
Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed 2. Petitioner Reyes will continue using the space occupied by her drug store without
upon private respondents new obligations as preconditions to the performance of their rentals for the duration of the installment payments.
own obligation.
Rescission creates the obligation to return the object of the contract. It can be carried out 3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000
only when the one who demands rescission can return whatever he may be obliged to after full payment has been made by the defendant.
restore. To rescind is to declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release the parties from further 4. The defendant will undertake the renewal and payment of the fire insurance
obligations to each other, but to abrogate it from the beginning and restore the parties to policies of the 2 buildings, following the expiration of the current policies, up to the time
their relative positions as if no contract has been made. the respondent has fully paid the purchase price.
3. NO. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of
petitioners to private respondents were not part of the original contract. By that time, it They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank
was already incumbent upon the former to pay the balance of the sale price. They had approved on the condition that the petitioner would remain as co-maker of the mortgage obligation.
no right to demand preconditions to the fulfillment of their obligation, which had become Petitioner’s contention: Under their Deed of Conditional Sale, the respondent is obliged to pay a
due. lump sum of P1.2 Million in three fixed installments. Respondent, however defaulted in the
payment of the installments. To compensate for her delayed payments, respondent agreed to pay
*** A substantial breach of a reciprocal obligation, like failure to pay the price in the manner petitioner monthly interest. But again, respondent failed to fulfill this obligation. The petitioner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission further alleged that despite her success in finding another buyer according to their conditional sale
abrogates the contract from its inception and requires a mutual restitution of benefits received. *** agreement, respondent refused to cancel their transaction. The respondent also neglected to
renew the fire insurance policy of the buildings.
Respondent’s answer: Respondent alleges that the deed of Conditional Sale of Real Property CONTRACT TO SELL: may not be considered as a Contract of Sale because the first essential
with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of
It could not be considered a conditional sale because the performance of the obligation therein did title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to
not depend upon a future and uncertain event. She also averred that she was able to fully pay the transfer ownership of the property subject of the contract to sell until the happening of an event,
loan and secure the release of the mortgage. Since she also paid more than the P4.2 Million which for present purposes we shall take as the full payment of the purchase price. What the
purchase price, rescission could not be resorted to since the parties could no longer be restored to seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the
their original positions. entire amount of the purchase price is delivered to him. In other words, the full payment of the
As the ruling of RTC, also considered the Deed of Conditional Sale of Real Property with purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, obligation to sell from arising and, thus, ownership is retained by the prospective seller without
and not a contract of sale. It was of the opinion that although the petitioner was entitled to a further remedies by the prospective buyer.
rescission of the contract, it could not be permitted because her non-payment in full of the A contract to sell may thus be defined as a bilateral contract whereby the prospective
purchase price “may not be considered as substantial and fundamental breach of the contract as seller, while expressly reserving the ownership of the subject property despite delivery
to defeat the object of the parties in entering into the contract - which was also affirmed by CA. thereof to the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
ISSUE: Whether or not CA was correct in ruling that there was no legal basis for the rescission of the purchase price.
the Deed of Conditional Sale with Assumption of Mortgage?
*** In this case, the contract entitled “Deed of Conditional Sale” is actually a contract to
RULING: NO. The petition was lack of merit. The Court agrees with the ruling of the courts below sell and there can be no rescission of an obligation (to turn over title) that did not yet exist
that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among since the suspensive condition had not taken place. ***
the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of
sale.
The title and ownership of the subject properties remains with the petitioner until the respondent
fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter,
FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner
shall execute the corresponding deed of absolute sale in favor of the respondent.
The petitioner’s obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent’s full payment of the
purchase price. Without respondent’s full payment, there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the
purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code
but rather just an event that prevents the petitioner from being bound to convey title to the
respondent.
As per ruling – explained the difference between contract to sell and contract of sale.

CONTRACT OF SALE: [Art. 1458 CC] By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent;
Sale, by its very nature, is a consensual contract because it is perfected by mere LAND BANK OF THE PHILS vs ONG
consent. The essential elements of a contract of sale are the following: (G.R. No. 190755)
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; FACTS: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the
b) Determinate subject matter; and amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks,
c) Price certain in money or its equivalent. and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and
would mature on February 28, 1997, while the balance of PhP 10 million would be payable in
seven (7) years and any default in payment of amortizations or other charges would accelerate
the maturity of the loan.
Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three (3) We do not agree, then, with the CA in holding that there was a novation in the
of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, contract between the parties. Not all the elements of novation were
under a Deed of Sale with Assumption of Mortgage. present. Novation must be expressly consented to. Moreover, the conflicting
Alfredo Ong immediately went to Land Bank to inform it about the sale and assumption of intention and acts of the parties underscore the absence of any express disclosure
mortgage and was informed to pay 750, 000 pesos so the assumption of mortgage could easily or circumstances with which to deduce a clear and unequivocal intent by the parties
be approved so as the transfer of certificate of title in his name to novate the old agreement.
Alfredo later found out that his application for assumption of mortgage was not approved by Land 2. NO. Land Bank is still liable for the return of the PhP 750,000 based on the principle
Bank due to credit investigation and only learned of the foreclosure when he saw the subject of unjust enrichment. Land Bank is correct in arguing that it has no obligation as
mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC creditor to recognize Alfredo as a person with interest in the fulfillment of the
in Tabaco, Albay. obligation. But while Land Bank is not bound to accept the substitution of debtors in
Alfredo Ong filed a case for recovery of sum of money plus damages and said that Land Bank’s the subject real estate mortgage, it is estopped by its action of accepting Alfredo’s
foreclosure without informing him of the denial of his assumption of the mortgage was done in bad payment from arguing that it does not have to recognize Alfredo as the new debtor.
faith and that he was made to believed that P750,000 would cause Land Bank to approve his We turn then on the principle upon which Land Bank must return Alfredo’s payment.
assumption to the mortgage. Unjust enrichment exists “when a person unjustly retains a benefit to the loss of
RTC held that the contract approving the assumption of mortgage was not perfected as a result of another, or when a person retains money or property of another against the
the credit investigation conducted on Alfredo. It noted that Alfredo was not even informed of the fundamental principles of justice, equity and good conscience.” [18] There is unjust
disapproval of the assumption of mortgage but was just told that the accounts of the spouses Sy enrichment under Art. 22 of the Civil Code when (1) a person is unjustly benefited,
had matured and gone unpaid. Ordering bank to pay Ong the amount of 750, 000 pesos with 12% and (2) such benefit is derived at the expense of or with damages to another.
interest per annum.
CA affirmed the decision of RTC.

ISSUES:
1. Whether or not the Court of Appeals erred in holding that Art. 1236 of the
Civil Code does not apply and in finding that there is novation?
2. Whether or not the Court of Appeals misconstrued the evidence and the law
when it affirmed the trial court decision’s ordering Land Bank to pay Ong the
amount of Php750,000.00 with interest at 12% annum?
HEIRS OF PAULINO ATIENZA vs ESPIDOL
RULINGS: (G.R. No. 180665)
1. YES. We agree with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredo’s payment, since as far as FACTS: Petitioners owned a registered agricultural land at Cabanatuan City which they
the former was concerned, he did not have an interest in the payment of the loan of have acquired under emancipation patent thru land reform program.
the Spouses Sy. However, in the context of the second part of said paragraph, On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a
Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell
made a conditional payment so that the properties subject of the Deed of Sale with land with a down payment) covering the property. They agreed on a price of P130.00 per
Assumption of Mortgage would be titled in his name. It is clear from the records that square meter or a total of P2,854,670.00, payable in three installments:P100,000.00 upon
Land Bank required Alfredo to make payment before his assumption of mortgage the signing of the contract; P1,750,000.00 in December 2002, and the
would be approved. He was informed that the certificate of title would be transferred remaining P974,670.00 in June 2003.
accordingly. He, thus, made payment not as a debtor but as a prospective However, respondents failed to pay the second installment resulted to the action of the
mortgagor. petitioner to annul the contract because of breached of obligation.
Novation would have dual functions ─ one to extinguish an existing obligation, the Respondent argued that his failure to pay did not amount to breach since the non-
other to substitute a new one in its place ─ requiring a conflux of four essential payment of an installment is not a legal ground for annulling a perfected contract of sale.
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned RTC ruled, inasmuch as the non-payment of the purchase price was not considered a breach in a
to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a contract to sell on installment but only an event that authorized the vendor not to convey title. any
valid new obligation. attempt by the Atienzas to cancel the contract would have to comply with the provisions of
Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly one done outside of court,[25] which is not the mode availed of here. The Atienzas
the giving of the required notice of cancellation, that they omitted in this case. The RTC thus came to court to seek the declaration of its obligation under the contract to sell
declared the contract between the parties valid and subsisting and ordered the parties to comply cancelled. Thus, the absence of that notice does not bar the filing of their action.
with its terms and conditions.
CA affirmed the decision of RTC.

ISSUES:
1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land
which they acquired through land reform under Presidential Decree 27[15] (P.D. 27)?
2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell
they entered into with respondent Espidol on the ground of the latter’s failure to pay AGRIFINA AQUINTEY vs SPOUSES FELICIDAD AND RICO TIBONG
the second installment when it fell due? (G.R. No. 166704)
3. Whether or not the Atienzas’ action for cancellation of title was premature absent the
notarial notice of cancellation required by R.A. 6552?
FACTS: Petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of
money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina
RULINGS: alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates
1. YES. The Atienzas’ title shows on its face that the government granted title to them of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan,
on January 9, 1990 by virtue of P.D. 27. This law explicitly prohibits any form of amounting to P773,000.00 exclusive of interests.
transfer of the land granted under it except to the government or by hereditary Respondents failed to pay the amount of 773, 000 pesos despite of demands. So as the check
succession to the successors of the farmer beneficiary. issued by the respondents for partial payment was dishonored due to insufficient funds.
Upon the enactment of Executive Order 228 in 1987, however, the restriction ceased Felicidad presented copies of promissory notes but have lost some of the receipts sigend by the
to be absolute. Land reform beneficiaries were allowed to transfer ownership of their respondent. However, Felicidad admitted that they had secured loans from the petitioner and that
lands provided that their amortizations with the Land Bank of the Philippines (Land were re-lent to other borrowers for a much higher interest.
Bank) have been paid in full. In this case, the Atienzas’ title categorically states that An assistance of Atty. A-ayo was hired by the petitioner to collect the sum of money and was
they have fully complied with the requirements for the final grant of title under P.D. advised that respondent debtor’s execute a promissory notes in favor of the petitioner for the
27. This means that they have completed payment of their amortization with Land purpose of turning over their loans from respondent.
Bank. Consequently, they could already legally transfer their title to another. The Deed of Execution in the assignment of credits was transferred and assigned to the petitioner.
2. YES. In the first place, since Espidol failed to pay the installment on a day certain However, when he tried to collect the balance on respondents, Felicidad told her to wait until her
fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the debtor’s payment will due.
contract to sell because their obligation to sell under it did not arise. Since the Petitioner then filed a complaint wherein trial court rendered its Decision in favor of Agrifina. RTC
suspensive condition did not arise, the parties stood as if the conditional obligation ruled:
had never existed. The trial court ruled that Felicidad’s obligation had not been novated by the deeds of assignment
Secondly, it was not a pure suspensive condition in the sense that the Atienzas made and the promissory notes executed by Felicidad’s borrowers. It explained that the documents did
no undertaking while the installments were not yet due. not contain any express agreement to novate and extinguish Felicidad’s obligation. It declared that
Although the Atienzas filed their action with the RTC four months before the last the deeds and notes were separate contracts which could stand alone from the original
installment of P974,670.00 fell due in June 2003, it cannot be said that the action indebtedness of Felicidad. Considering, however, Agrifina’s admission that she was able to collect
was premature. Given Espidol’s failure to pay the second installment from Felicidad’s debtors the total amount ofP301,000.00, this should be deducted from the latter’s
of P1,750,000.00 in December 2002 when it was due, the Atienzas’ obligation to turn accountability. Hence, the balance, exclusive of interests, amounted to P472,000.00.
over ownership of the property to him may be regarded as no longer existing. [24] The CA affirmed the decision of the RTC with modification. The appellate court sustained the trial
Atienzas had the right to seek judicial declaration of such non-existent status of that court’s ruling that Felicidad’s obligation to Agrifina had not been novated by the deeds of
contract to relieve themselves of any liability should they decide to sell the property assignment and promissory notes executed in the latter’s favor.
to someone else. ISSUE: Whether or not the obligation of respondents to pay the balance of their loans, including
3. NO. Notice of cancellation by notarial act need not be given before the contract interest, was partially extinguished by the execution of the deeds of assignment in favor of
between the Atienzas and respondent Espidol may be validly declare non- petitioner?
existent. R.A. 6552 which mandated the giving of such notice does not apply to this
case. The cancellation envisioned in that law pertains to extrajudicial cancellation or
RULING: YES. There is no longer a need for the Court to still resolve the issue of whether The parties executed a Deed of Absolute Sale whereby Villamar transferred the subject parcel of
respondents’ obligation to pay the balance of their loan account to petitioner was partially land to Mangaoil for and in consideration of [P]150,000.00.
extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, However, Mangaoil informed Villamar that he was backing out from the sale agreed upon giving
Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, as one of the reasons that the area is not yet fully cleared by incumbrances as there are tenants
she was able to collect the amounts under the notes from said debtors and applied them to who are not willing to vacate the land without giving them back the amount that they mortgaged
respondents’ accounts. the land.” – and filed a case before RTC for tne rescission of contract against the petitioner.
Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which RTC then ordered the rescission of the agreement and the deed of absolute sale executed
obligations are extinguished. Obligations may be modified by changing their object or principal between the respondent and the petitioner. RTC ruled, As such, in a contract of sale, the
creditor or by substituting the person of the debtor. The burden to prove the defense that an obligation of the vendee to pay the price is correlative of the obligation of the vendor to deliver the
obligation has been extinguished by novation falls on the debtor. thing sold. It created or established at the same time, out of the same course, and which result in
Novation which consists in substituting a new debtor (delegado) in the place of the original one mutual relations of creditor and debtor between the parties.
(delegante) may be made even without the knowledge or against the will of the latter but not The claim of the plaintiff that the LAND has not been delivered to him was not refuted by the
without the consent of the creditor. Substitution of the person of the debtor may be effected defendant. Considering that defendant failed to deliver to him the certificate of title and of the
by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person possession over the LAND to the plaintiff, the contract must be rescinded pursuant to Article 1191
who consents to the substitution and assumes the obligation. Thus, the consent of those three of the Civil Code – RTC further explained.
persons is necessary. In this kind of novation, it is not enough to extend the juridical relation to a Petitioner applead to CA but was dismissed.
third person; it is necessary that the old debtor be released from the obligation, and the third
person or new debtor take his place in the relation. Without such release, there is no novation; the ISSUE: Whether or not the failure of the petitioner to deliver to the respondent both the physical
third person who has assumed the obligation of the debtor merely becomes a co-debtor or a possession of the subject property and the certificate of title covering the same amount to a
surety. If there is no agreement as to solidarity, the first and the new debtor are considered substantial breach of the former's obligations to the latter constituting a valid cause to rescind the
obligated jointly. agreement and deed of sale entered into by the parties?
We find in this case that the CA correctly found that respondents’ obligation to pay the balance of
their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit
executed by respondent Felicidad in favor of petitioner.
RULING: NO. The RTC and the CA both found that the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of the subject property and the
certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the
seller to deliver to the buyer the physical possession of the property subject of a contract of sale
and the certificate of title covering the same, the agreement entered into by the petitioner and the
respondent provides otherwise. However, the terms of the agreement cannot be considered as
violative of law, morals, good customs, public order, or public policy, hence, valid.
We agree with the RTC and the CA that the petitioner failed to prove that she delivered the TCT
covering the subject property to the respondent. What the petitioner attempted to establish was
that she gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the transfer
of the title in the respondent's name. Although Atty. Antonio's existence is certain as he was the
petitioner’s counsel in the proceedings before the RTC, there was no proof that the former indeed
received the TCT or that he was commissioned to process the transfer of the title in the
respondent's name.
VILLAMAR vs MANGAOIL Notwithstanding the absence of stipulations in the agreement and absolute deed of sale entered
(G.R. No. 188661) into by Villamar and Mangaoil expressly indicating the consequences of the former's failure to
deliver the physical possession of the subject property and the certificate of title covering the
FACTS: Villamar is the registered owner of a 3.6080 hectares parcel of land in San Francisco, same, the latter is entitled to demand for the rescission of their contract pursuant to Article 1191
Manuel, Isabela covered by Transfer Certificate of Title (TCT) No. T-92958-A. On March 30, 1998, of the NCC.
she entered into an Agreement with Mangaoil for the purchase and sale of said parcel of land for a Article 1191 of the NCC is clear that “the power to rescind obligations is implied in reciprocal ones,
total selling price of 630, 000 pesos. in case one of the obligors should not comply with what is incumbent upon him.” The respondent
cannot be deprived of his right to demand for rescission in view of the petitioner’s failure to abide
with item nos. 2 and 3 of the agreement. This remains true notwithstanding the absence of express
stipulations in the agreement indicating the consequences of breaches which the parties may
commit. To hold otherwise would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution of a public instrument as constructive
delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar,
however, falls among the exceptions to the foregoing rule since a mere presumptive and not
conclusive delivery is created as the respondent failed to take material possession of the subject
property.
RTC and the CA found that the petitioner failed to deliver to the respondent the possession of the
subject property due to the continued presence and occupation of Parangan and Lacaden. We find
no ample reason to reverse the said findings. Considered in the light of either the agreement
entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking
to deliver the subject property to the respondent.