Cui v. Sun Chan, G.R. No. 16224.

March 27, lessee's breach of the construction clause justifies

1921 the rescission of the contract.

Facts:

- The case involves a contract of lease between Ratio:

Pedro Cui (plaintiff-appellant) and Sun Chan - The court explained that even if the contract did

(defendant-appellee). not explicitly provide for rescission in case of

- The contract stated that the lessee (Sun Chan) is breach of the construction clause, the obligations

not allowed to make any construction on the arising from the contract of lease are reciprocal.

property without the lessor's (Pedro Cui) - Therefore, the power to resolve the contract in

permission. case one of the parties fails to fulfill their part is

- Sun Chan made additions to the property without implied, as stated in Article 1124 of the Civil Code.

obtaining the lessor's consent. - The injured party (lessor) has the right to choose

- The trial court found Sun Chan guilty of breaching between exacting the fulfillment of the obligation or

the contract by making unauthorized constructions the resolution of the contract, with the obligation to

on the property. pay damages and interest in either case.

- In this case, the lessor chose to exercise the right

Issue: of option granted by law and filed a rescissory

- Whether the lessor has the right to rescind the action.

lease contract due to the lessee's breach of the - The court concluded that the lessor has the right to

construction clause. rescind the contract and ordered the resolution of

Ruling: the contract.

- The court ruled in favor of the lessor, Pedro Cui. - The court also mentioned that the lessor could

- The court held that the breach of any condition of have asked for the fulfillment of the obligation not

a lease contract is considered a cause for ouster and to construct any work without permission, but since

rescission of the contract, as stated in Article 1569, the lessor opted for rescission, the court must grant

case No. 3, of the Civil Code. the resolution unless there are justifiable causes to

- The court emphasized that compliance with what fix a term.

is lawfully agreed upon is obligatory, and the

- Overall, the court ruled that a lessor can rescind a Cabaraguis v. Vicente, G.R. No. L-14304, March

lease contract due to the lessee's breach of a 23, 1960

construction clause, even without an explicit Facts:

provision for rescission. - On March 15, 1955, Antonia A. Cabarroguis, a

- The court emphasized the obligation to comply nurse and midwife, was injured in a vehicular

with the conditions of the lease contract. accident involving a jeepney owned by Telesforo B.

Vicente.

- To avoid litigation, Vicente agreed on July 13,

1955, to pay Cabarroguis P2,500 for damages.

- Vicente paid P1,500, leaving an unpaid balance of

P1,000, with an additional P200 as liquidated

damages if not paid within sixty days.

- Vicente failed to pay the remaining amount

despite repeated demands.

- Cabarroguis filed a suit in the Municipal Court of

Davao City.

- Vicente argued the injury was not serious and

sought reformation of the agreement, citing

mistake, fraud, or accident.

- The Municipal Court ruled against Vicente, and

the Court of First Instance upheld the decision,

ordering Vicente to pay P1,200 with legal interest

from the complaint filing date.

- Vicente appealed to the Court of Appeals, which

certified the case to the Supreme Court.

Issue: - Since Vicente refused to pay the penalty upon

- Can interest be awarded on the principal demand, Cabarroguis is entitled to interest on the

obligation in an obligation with a penal clause? penalty amount.

- Is the plaintiff entitled to interest on the penalty - Article 2210 of the new Civil Code allows the

amount due to the defendant's refusal to pay? court to award interest on damages for breach of

contract from the time of delay.

Ruling: - As there was no evidence of when the demand

- No, interest can be awarded on the principal was made, the court considered the demand to have

obligation in an obligation with a penal clause. been made from the filing date of the complaint.

The plaintiff is entitled to interest on the penalty - The lower court's decision was modified to allow

amount from the date of the filing of the complaint. interest only on the penalty amount, and the

decision was affirmed without costs.

Ratio:

- The Supreme Court applied Article 1226 of the

new Civil Code, stating that in obligations with a

penal clause, the penalty substitutes the indemnity

for damages and payment of interest.

Exceptions to this rule are:

When the contrary is stipulated.

When the debtor refuses to pay the penalty,

entitling the creditor to interest on the penalty

amount as per Article 2209.

When the obligor is guilty of fraud in

fulfilling the obligation.

- In this case, there was no contrary stipulation, and

the breach was not due to fraud.

- Therefore, no interest can be awarded on the

principal obligation.
Pryce Corp v. PAGCOR, G.R. No. 157480, May - The Court of Appeals affirmed the decision with

6, 2005 modifications, leading to the present petition before

Facts: the Supreme Court.

- Pryce Corporation (formerly Pryce Properties

Corporation) entered into a lease contract with the Issue:

Philippine Amusement and Gaming Corporation - Did the Court of Appeals err in holding that Pryce

(PAGCOR) on November 11, 1992. Corporation was not entitled to future rentals for the

- The lease was for the ballroom of Pryce Plaza unexpired period of the lease contract?

Hotel in Cagayan de Oro City, intended for casino - Are the provisions of Sections 20(a) and 20(c) of

operations by PAGCOR. the lease contract, which allow Pryce to terminate

- An addendum to the contract was signed on the contract and collect future rentals, valid and

November 13, 1992, to include additional hotel binding?

grounds for casino personnel. - Does Article 1659 of the Civil Code supersede

- Local opposition, public rallies, and city Sections 20(a) and 20(c) of the lease contract?

ordinances prohibiting casino operations led to the - Would the collection of future rentals by Pryce

suspension and eventual cessation of PAGCOR's Corporation result in unjust enrichment?

casino activities. - Can Article 1659 of the Civil Code and Article 20

- PAGCOR pre-terminated the lease, citing of the lease contract be harmonized?

unforeseen circumstances, and sought - Is Article 1659 of the Civil Code deemed written

reimbursement for rental deposits and into the Pryce-PAGCOR lease contract?

improvements.

- Pryce Corporation demanded payment for accrued Ruling:

and future rentals, invoking the contract's penalty - The Supreme Court partly granted the petition.

clause. It affirmed the Court of Appeals' decision to award

- The Regional Trial Court ruled in favor of Pryce - Pryce Corporation the accrued rentals for

Corporation for accrued rentals but denied future September to November 1993, with interest and

rentals. penalty, and attorney's fees.

- The decision was modified to include a penalty Barons Marketing Corp. v. CA, G.R. No. 126486

equivalent to the advanced rental deposits of February 9, 1998

P687,289.50, which may be set off against Facts:

PAGCOR's liability. - The dispute involves Barons Marketing Corp.

- The claim for future rentals was denied as it (petitioner) and Phelps Dodge Phils., Inc. (private

would result in unjust enrichment. respondent) over unpaid purchases of electrical

wires and cables.

Ratio: - On August 31, 1973, Phelps Dodge appointed

- The lease contract's provisions were clear and Barons Marketing as one of its dealers, granting a

binding, and PAGCOR was liable for accrued 60-day credit term for purchases.

rentals due to its breach. - Between December 1986 and August 17, 1987,

- The Court distinguished between termination and Barons Marketing purchased electrical wires and

rescission of contracts: termination releases parties cables worth P4,102,438.30 on credit.

from future obligations, while rescission restores - These products were sold to MERALCO, with

them to their original positions. Barons Marketing being an accredited supplier.

- Since Pryce Corporation terminated the contract, - On September 7, 1987, Barons Marketing paid

it could not claim future rentals as compensation for P300,000, leaving an unpaid balance of

the use of the property after termination. P3,802,478.20.

- The penalty clause in the contract was valid but - Phelps Dodge demanded full payment, but Barons

subject to equitable reduction by the courts. Marketing requested to pay in monthly installments

- Given the circumstances, including PAGCOR's of P500,000 plus 1% interest per month, which

efforts to comply with the contract and the external Phelps Dodge rejected.

pressures it faced, the Court found the claim for - Consequently, Phelps Dodge filed a complaint on

future rentals iniquitous and reduced the penalty to October 29, 1987, before the Pasig Regional Trial

the amount of the advanced rental deposits. Court to recover the unpaid balance, interest,

attorney's fees, exemplary damages, litigation

expenses, and costs of suit.

- The trial court ruled in favor of Phelps Dodge, - The Court emphasized that good faith is

ordering Barons Marketing to pay P3,108,000 plus presumed, and the burden of proving bad faith lies

12% interest, 25% attorney's fees, P10,000 with the party alleging it.

exemplary damages, and costs of suit. - Barons Marketing failed to provide evidence of

- Both parties appealed, leading to a Court of bad faith or intent to prejudice.

Appeals decision on June 25, 1996, modifying the - The Court found that Phelps Dodge had legitimate

trial court's decision by increasing the unpaid reasons for rejecting the installment offer, such as

balance to P3,802,478.20 and reducing attorney's protecting its cash position to meet its own

fees to 5%. obligations.

- Barons Marketing then brought the case to the - The Court also noted that accepting partial

Supreme Court. payments could set a precedent for other debtors,

which would be detrimental to Phelps Dodge's

Issue: interests.

- Is Phelps Dodge guilty of abuse of rights? - Regarding the interest and attorney's fees, the

- Is Phelps Dodge entitled to interest and attorney's Court upheld the contractual stipulation of 12%

fees? interest per annum on overdue accounts.

- However, it found the 25% attorney's fees and

Ruling: collection fees to be excessive, given that the

- Phelps Dodge is not guilty of abuse of rights. interest alone amounted to approximately P4.5

- Phelps Dodge is entitled to interest and attorney's million, exceeding the principal debt of nearly P4

fees, but the attorney's fees are reduced to 10% of million.

the principal. - The Court reduced the attorney's fees to 10% of

the principal, citing Articles 1229 and 2227 of the

Ratio: Civil Code, which allow for the reduction of

- The Supreme Court held that Phelps Dodge did iniquitous or unconscionable penalties.

not abuse its rights when it rejected Barons - The Court also dismissed Phelps Dodge's

Marketing's offer to pay in installments and argument that Barons Marketing waived its right to

subsequently filed the collection suit. question the attorney's fees by not raising the issue
on appeal, stating that the Court has the authority to Tibajia v. CA, GR No. 100290, 04 June 1993

review matters necessary for a just decision. Facts:

- Petitioners: Spouses Norberto Tibajia, Jr. and

Carmen Tibajia.

- Respondent: Eden Tan.

- Initial Case: Collection of a sum of money by

Eden Tan against the Tibajia spouses.

- Timeline:

August 17, 1987: Trial court issued a writ of

attachment.

September 17, 1987: Deputy Sheriff

garnished a deposit of P442,750.00 in another case.

March 10, 1988: RTC, Branch 151 of Pasig,

ruled in favor of Eden Tan, ordering the Tibajia

spouses to pay over P300,000.00.

Court of Appeals: Modified the decision by

reducing moral and exemplary damages.

Post-Final Decision: Eden Tan moved for

execution, and the garnished funds were levied

upon.

December 14, 1990: Tibajia spouses

delivered payment of P398,483.70 in the form of a

cashier's check and cash.

Refusal: Eden Tan refused this payment and

insisted on withdrawing the garnished funds.

January 15, 1991: Tibajia spouses filed a

motion to lift the writ of execution, arguing the

judgment debt had been paid.

 January 29, 1991: Trial court denied the Ratio:

motion, stating payment by cashier's check is not Legal Tender: Payment by check,

legal tender. including a cashier's check, is not considered legal

February 8, 1991: Motion for tender under the Civil Code, Republic Act No. 529,

reconsideration was also denied. and the Central Bank Act.

April 24, 1991: Court of Appeals dismissed Civil Code Article 1249: Requires payment

the petition for certiorari, prohibition, and of debts in the currency stipulated or in legal tender

injunction. if the stipulated currency is not available.

May 27, 1991: Motion for reconsideration Republic Act No. 529 Section 1: Mandates

denied by the Court of Appeals. discharge of obligations with payment in legal

tender.

Issue: Central Bank Act Section 63: States that

- Whether the BPI cashier's check amounting to checks do not have legal tender power and their

P262,750.00 tendered by the petitioners for acceptance is optional for the creditor.

payment of the judgment debt is considered "legal Past Rulings: Philippine Airlines, Inc. vs.

tender." Court of Appeals and Roman Catholic Bishop of

- Whether Eden Tan may validly refuse the tender Malolos, Inc. vs. Intermediate Appellate Court

of payment partly in check and partly in cash made established that checks are not legal tender and may

by the petitioners for the satisfaction of their be refused by creditors.

monetary obligation. Misplaced Reliance: The petitioners'

reliance on a dissenting opinion in the Philippine

Ruling: Airlines case was misplaced.

The Supreme Court denied the petition and Affirmation: The Supreme Court affirmed

affirmed the decision of the Court of Appeals, with the Court of Appeals' ruling, reinforcing that checks

costs against the petitioners. are not legal tender and creditors may validly refuse

them.
CCC Insurance v. Kawasaki Steel, GR No. The RTC dismissed Kawasaki's complaint,

156162, 22 June 2015 but the Court of Appeals reversed the decision,

Facts: holding CCCIC liable.

The dispute involves CCC Insurance CCCIC filed a Petition for Review on

Corporation (CCCIC) and Kawasaki Steel Certiorari before the Supreme Court.

Corporation (Kawasaki) regarding CCCIC's

liability under Surety and Performance Bonds. Issue:

On August 16, 1988, Kawasaki and F.F. Ma Is CCCIC liable to Kawasaki under the

Acop Construction Company, Inc. (FFMCCI) Surety and Performance Bonds despite the Republic

formed a consortium to build a fishing port network not making a claim against the PCIB Letter of

in Pangasinan for the Philippine Government. Credit?

The project was awarded for Does the extension of the project

P62,000,441.00, with FFMCCI's share being completion period granted by the Republic without

P20,692,026.00. CCCIC's consent extinguish CCCIC's liability

Kawasaki secured a Letter of Credit from under Article 2079 of the Civil Code?

the Philippine Commercial International Bank Did the Agreement dated August 24, 1989,

(PCIB) to guarantee the consortium's performance. between Kawasaki and FFMCCI novate the

FFMCCI obtained Surety and Performance Consortium Agreement, releasing CCCIC from its

Bonds from CCCIC to guarantee the repayment of obligations?

advance payment and completion of its portion of Is CCCIC liable for the full amount of the

the work. Surety and Performance Bonds despite FFMCCI's

FFMCCI defaulted due to financial partial performance and Kawasaki's compensation

problems, causing Kawasaki to take over the work. for the Transferred Portion of Work?

Kawasaki demanded payment from CCCIC under Is the award of attorney's fees to Kawasaki

the bonds, which CCCIC refused, leading Kawasaki justified?

to file a complaint. Was there valid service of summons upon

FFMCCI?
Ruling: and Performance Bonds or the Consortium

Yes, CCCIC is liable to Kawasaki under the Agreement.

Surety and Performance Bonds. The Agreement dated August 24, 1989, was

No, the extension of the project completion a modification, not a novation, of the Consortium

period does not extinguish CCCIC's liability. Agreement, as it did not extinguish the original

No, the Agreement dated August 24, 1989, obligations.

did not novate the Consortium Agreement. CCCIC's liability remains because the

Yes, CCCIC is liable for the full amount of Agreement did not make its obligations more

the Surety and Performance Bonds. onerous.

No, the award of attorney's fees to Kawasaki There is no basis for awarding attorney's

is not justified. fees to Kawasaki as there was no evidence of bad

Yes, there was valid service of summons faith by CCCIC.

upon FFMCCI. The service of summons upon FFMCCI was

valid as it was served on one of its directors, in

Ratio: accordance with the Rules of Court.

CCCIC's liability under the Surety and The Third-Party Complaint against

Performance Bonds is direct, primary, and absolute, FFMCCI was dismissed for lack of cause of action

not dependent on the Republic claiming against the since CCCIC had not paid Kawasaki and thus had

PCIB Letter of Credit. no right to indemnification or subrogation.

The bonds guaranteed the repayment of the

advance payment and the completion of FFMCCI's

work without requiring a prior claim by the

Republic.

Article 2079 of the Civil Code, which

extinguishes a guaranty if the creditor grants an

extension to the debtor without the guarantor's

consent, does not apply since the extension was

granted by the Republic, not a party to the Surety