ANG V FULTON FIRE INSURANCE CO.
the insurer, or if the claim is made and rejected
Labrador, J. | July 31, 1961
Art 1155, Prescription, Resolutory Clause
Art 1155
The prescription of actions is interrupted when
they are filed before the court, when there is a
written extrajudicial demand by the creditors,
when there is any written acknowledgement of the
debt by the debtor.
Facts:
The present action was instituted by the spouses
Paulo Ang and Sally C. Ang against the Fulton Fire
Insurance Company and the Paramount Surety and
Insurance Company, Inc. to recover from them the
face value of a fire insurance policy issued in
plaintiffs' favor covering a store owned and
operated by them in Laoag, Ilocos Norte. From a
judgment of the court ordering the defendant
Fulton Fire Insurance Co. to pay the plaintiffs the
sum of P10,000.00, with interest, and an additional
sum of P2,000.00 as attorney's fees, and costs, the
defendants have appealed directly to this Court.
On September 9, 1953, defendant Fulton Fire
Insurance Company issued a policy in favor of P. &
S. Department Store (Sally C. Ang) over stocks of
general merchandise, consisting principally of dry
goods, contained in a building occupied by the
plaintiffs at Laoag, Ilocos Norte.
On December 27, 1954, the store containing the
goods insured was destroyed by fire. On December
30, following, plaintiffs executed the first claim
form.
On April 6, 1956, the Fulton Fire Insurance
Company wrote the plaintiffs that their claim was
denied. This denial of the claim was received by
the plaintiffs on April 19, 1956.
The present action was instituted on May 5, 1958.
The action was originally instituted against both
the Fulton Fire Insurance Company and the
Paramount Surety and Insurance Company, Inc.,
but on June 16, 1958, upon motion of the
Paramount Surety, the latter was dropped from the
complaint.
On May 26, 1958, the defendant Fulton Fire
Insurance Company filed an answer to the
complaint, admitting the existence of the contract
of insurance, its renewal and the loss by fire of the
department store and the merchandise contained
therein, but denying that the loss by the fire was
accidental, alleging that it was occasioned by the
willful act of the plaintiff Paulo Ang himself. It
claims that under paragraph 13 of the policy, if the
loss or damage is occasioned by the willful act of
but no action is commenced within 12 months
after such rejection, all benefits under the policy
would be forfeited, and that since the claim of the
plaintiffs was denied and plaintiffs received notice
of denial on April 18, 1956, and they brought the
action only on May 5, 1958, all the benefits under
the policy have been forfeited.
On February 12, 1959, plaintiffs filed a reply to the
above answer of the Fulton Fire Insurance, alleging
that on May 11, 1956, plaintiffs had instituted Civil
Case No. 2949 in the Court of First Instance of
Manila, to assert the claim; that this case was
dismissed without prejudice on September 3, 1957,
and that deducting the period within which said
action was pending, the present action was still
within the 12 months period from April 12, 1956.
The court below held that the bringing of the
action in the Court of First Instance of Manila on
May 11, 1956 tolled the running of the 12 months
period within which the action must be filed. The
court rendered decision in favor of the plaintiffs.
On the appeal before this Court, defendant-
appellant argues that the court below erred in
holding that the filing of the previous suit tolled or
suspended the running of the prescriptive period.
Counsel for appellees contends that the action of
the plaintiffs against the defendant had not yet
prescribed at the time of the bringing of the
action, because the period of prescription was
interrupted by the filing of the first action
against the Paramount Surety & Insurance Co., in
accordance with Article 1155 of the Civil Code.
Issue:
W/N action of Ang Spouses had already prescribed
pursuant to the prescription stipulated in their
contract with Fulton Fire Insurance Co.
Held:
YES.
NOT MERELY A PROCEDURAL ERROR
The basic error committed by the trial court is its
view that the filing of the action against the agent
of the defendant company was "merely a
procedural mistake of no significance or
consequence, which may be overlooked."
The condition contained in the insurance policy
that claims must be presented within one year
after rejection is not merely a procedural
requirement.
The condition is an important matter, essential to
a prompt settlement of claims against insurance
companies, as it demands that insurance suits be
brought by the insured while the evidence as to
the origin and cause of destruction have not yet
disappeared.
It is in the nature of a condition precedent to the
liability of the insurer, or in other terms, a
resolutory clause, the purpose of which is to
terminate all liabilities in case the action is not
filed by the insured within the period stipulated.
NO CONDITION IN POLICY RE: BRINGING SUIT
AGAINST AGENT AND NOT THE PRINCIPAL
The bringing of the action against the Paramount
Surety & Insurance Company, the agent of the
defendant company, cannot have any legal effect
except that of notifying the agent of the claim.
There is no law giving any effect to such action
upon the principal. Besides, there is no condition
in the policy that the action must be filed against
the agent, and this Court cannot by interpretation
extend the clear scope of the agreement beyond
what is agreed upon by the parties.
E. MACIAS & CO. VS. CHINA FIRE INSURANCE &
CO.
The contractual limitation in an insurance policy
prevails over the statutory limitation, as well as
over the exceptions to the statutory limitations;
that the contract necessarily supersedes the
statute (of limitations) and the limitation is in all
phases governed by the former.
RIDDLESBARGER VS. HARTFORD FIRE INSURANCE
CO.
The rights of the parties flow from the contract of
insurance, hence they are not bound by the statute
of limitations nor by exemptions thereto.
PERMANENT SAVINGS AND LOAN BANK V.
VELARDE
GR NO. 140608 | September 23, 2004 | AUSTRIA-
MARTINEZ
Prescription
Bank Loan; Letter of Demand; Prescription
The SC ruled that the prescriptive period is
interrupted upon receipt of written extrajudicial
demand, which commences anew the prescriptive
period.
FACTS
 Petitioner Permanent Savings and Loan Bank
sought to recover from respondent Mariano
Velarde the sum of P1,000,000.00 plus accrued
interests and penalties, based on a loan
obtained by respondent from petitioner bank,
evidenced by: (1) promissory note; (2) loan
release sheet; (3) loan disclosure statement.
 Petitioner bank, represented by its Deputy
Liquidator, sent a letter of demand on July 27,
1988, demanding full payment of the loan.
Another letter of demand was sent on February
22, 1994.
 Respondent, through counsel, alleges that while
the signature appearing at the back of the
promissory note “seems to be that of
defendant,” the receipt of the P1-M amount
shows that the amount was received by another
person, not the defendant. This Answer was
contained in a Denial under Oath.
 Both the trial court and Court of Appeals
dismissed petitioner’s complaint. The CA found
that petitioner failed to present any evidence to
prove the existence of respondent’s alleged
loan obligations, considering that respondent
denied petitioner’s allegations. It also found
that petitioner bank’s cause of actions is
already barred by prescription.
ISSUE
 W/N respondent really denied the existence of
the loan
 W/N petitioner’s cause of action is barred by
prescription
HELD
 Petition is GRANTED. Respondent is ordered to
pay P1,000,000.00 plus 25% interest and 24%
penalty charge per annum beginning October
13, 1983 until fully paid, and 25% of the amount
due as attorney’s fees.
 A reading of Respondent’s Answer shows that
respondent did not specifically deny that he
signed the loan documents. What he merely
stated was that the signature seems to be his,
and he that he also denied any liability on the
promissory note as he allegedly did not receive
the amount stated therein, and the loan
documents do not express the true intention of
the parties. Respondent’s denials do not
constitute an effective specific denial as
contemplated by law. This means that the
defendant must declare under oath that he did
not sign the document or that it is otherwise
false or fabricated.
 In fact, respondent’s allegations amount to an
implied admission of the due execution and
genuineness of the promissory note.
Respondent is deemed to have admitted the
loan documents and acknowledged his
obligation with petitioner.
 Although respondent claims that he did not
receive the amount as stated in the Loan
Release Sheet, the document bears his
signature. Res ipsa loquitur. The document
 speaks for itself. A person cannot accept and
reject the same instrument.
 The Court also finds that petitioner’s claim is
not barred by prescription.
 Petitioner’s action for collection of a sum of
money was based on a written contract and
prescribes after 10 years from the time its right
of action arose (Art. 1144, Civil Code). The
prescriptive period is interrupted when there is
a written extrajudicial demand by creditors. The
interruption of the prescriptive period means
that the said period would commence anew
from the receipt of the demand.
 The Court categorically stated in Overseas
Bank of Manila v. Geraldez that the correct
meaning of interruption as distinguished from
mere suspension or tolling of the prescriptive
period is that said period would commence
anew from the receipt of the demand.
 Respondent’s obligation under the promissory
note became due and demandable on Oct. 13,
1983. On July 27, 1988, petitioner’s counsel
made a written demand for petitioner to settle
his obligation. From the time respondent’s
obligation became due and demandable on Oct.
13, 1983, up to the time the demand was made,
only 4 years, 9 months, and 14 days had
elapsed. The prescriptive period then
commenced anew when respondent received
the demand letter on August 5, 1988. Thus,
when petitioner sent another demand letter on
February 22, 1994, the action still had not yet
prescribed as only 5 years, 6 months, and 17
days had elapsed. It was thus filed well before
the lapse of the 10-year prescriptive period.
PABLO ANTONIO V ENGR. EMILIO MORALES
Justice Sandoval-Gutierrez; January 23, 2007
-------------------------------------------------------------------------------
Prescription, Snail Pace of Case, Withdraw from
RTC
Facts
1. On December 18, 1995 E.M Morales and
Associates filed with the RTC of Makati a
complaint for a sum of money against Pablo
Antonio and Design Consultancy Inc.
2. Petitioner Antonio filed a motion to dismiss the
complaint on two grounds— the failure to
attach to the complaint a certificate of non-
forum shopping, and the lack of legal capacity
to sue being a sole proprietorship.
3. On September 30, 1996 Engr. Emilio Morales
filed an Amended Complaint attaching the
certificate of non-forum shopping. The RTC
issued an Order admitting the amended
complaint.
4. Morales, feeling that the case would remain
pending in an indefinite time, he filed a motion
to dismiss his complaint.
5. On August 1, 2001, the RTC dismissed Civil
Case No. 95-1796 without prejudice pursuant to
Section 2, Rule 17 of the 1997 Rules of Civil
Procedure, as amended.
6. On August 3, 2001, respondent filed with the
Court of Appeals a manifestation that the RTC
dismissed without prejudice Civil Case No. 95-
1796. However, it was only on August 27, 2002,
or after more than one year, that the Court of
Appeals issued a Resolution directing
petitioner to comment on respondent's
manifestation.
7. The Court of Appeals dismissed the petition.
8. Morales then filed a new complaint for the
collection of a sum of money, this time with the
RTC Quezon City.
9. Antonio now, filed a motion to dismiss the
complaint on the ground that the action has
prescribed considering that under Article 1145
 of the Civil Code, action based on oral abandoning his claim but because of the
contracts prescribe in six years. From August intention to expedite the enforcement of his
14, 1995 when he received respondent’s last rights. He felt frustrated at the pace at which
letter of demand, to September 23, 2002 when his case was moving. (It remained in the CA for
respondent filed this case, more than 7 years 6 years). He acted swiftly after the dismissal of
had elapsed, and that the first case did not his case and immediately filed with the CA. But
interrupt the running period. the CA only acted on his manifestation only
10. RTC denied the motion to dismiss the after one year.
complaint by reason of prescription 15. This delay, beyond respondent's control, in turn
further caused delay in the filing of his new
Issue complaint with the Quezon City RTC. Clearly,
W/N the Court of Appeals erred in holding that the there was no inaction or lack of interest on his
trial court did not gravely abuse its discretion in part
denying petitioner’s motion to dismiss the 16. Statute of limitations was devised to operate
complaint by reason of prescription [NO] primarily against those who slept on their
rights and not against those desirous to act but
Decision could not do so for causes beyond their control
1. Court of Appeals did not err in holding that the
RTC of QC did not gravely abuse its discretion
when it denied petitioner’s motion to dismiss
respondent’s complaint and ruled that he is not
barred by prescription
11. Article 1139: Actions prescribe by the mere
lapse of time fixed by law; 1145: The following
actions must be commenced within 6 years—
upon an oral contract, upon a quasi-contract;
1155: Prescription of actions is interrupted
when they are filed before the court, when
there is written extra-judicial demand by the
creditors, when there is any written
acknowledgement of the debt by the debtor.
12. In US v Serapio, Court held that under the Civil
Code, the prescription of an action refers to the
time within which an action must be brought
after the right of action has accrued. The
prescriptive statutes serve to protect those
who are diligent and vigilant, not those who
sleep on their rights. The rationale behind the
prescription of actions is to prevent fraudulent
and stale claims from springing up at great
distances of time, thus surprising the parties or
their representatives when the facts have
become obscure from the lapse of time or the
defective memory or death or removal of the
witnesses
13. Prescription as understood and used in this
jurisdiction does not simply mean a mere lapse
of time. Rather, there must be a categorical
showing that due to plaintiff's negligence,
inaction, lack of interest, or intent to abandon a
lawful claim or cause of action, no action
whatsoever was taken, thus allowing the
statute of limitations to bar any subsequent
suit.
14. Petitioner's invocation of prescription is
misplaced. On December 18, 1995 Morales
initially filed with the RTC of Makati. While it
was later dismissed without prejudice to his
own motion, we note that the dismissal sought
was not for the purpose of voluntarily
ANTONIO P. TAMBUNTING, JR. v. SPOUSES EMILIO
SUMABAT
Justice Corona; September 16, 2005
Mortgage
Facts:
On May 3, 1973, respondents spouses Emilio
Sumabat and Esperanza Baello mortgaged a parcel
of land situated in Caloocan City to petitioner
Antonio Tambunting, Jr. and his assignee,
Commercial House of Finance, Inc. (CHFI) to
secure the payment of a P7,727.95 loan.
In August 1976, respondents were informed that
their indebtedness had ballooned to P15,000 for
their failure to pay the monthly amortizations. By
May 1977, because respondents defaulted in their
obligation, CHFI, as assignee of the mortgage,
initiated foreclosure proceedings on the
mortgaged property but the same did not push
through. It was restrained by the then Court of
First Instance (CFI) of Caloocan City, Branch 33
(now RTC Branch 123) in Civil Case No. C-6329, a
complaint for injunction filed by respondents
against petitioners. However, the case was
subsequently dismissed for failure of the parties to
appear at the hearing on November 9, 1977.
On March 16, 1979, respondents filed an action for
declaratory relief with the CFI, seeking a
declaration of the extent of their actual
indebtedness. It was docketed as Civil Case No. C-
7496. Petitioners were declared in default for
failure to file an answer within the reglementary
period. On January 8, 1981, the CFI rendered its
decision. It fixed respondents liability
at P15,743.83 and authorized them to consign the
amount to the court for proper disposition. In
compliance with the decision, respondents
consigned the required amount on January 9, 1981.
In March 1995, respondents received a notice of
sheriffs sale indicating that the mortgage had
been foreclosed by CHFI on February 8, 1995 and
that an extrajudicial sale of the property would be
held on March 27, 1995.
On March 27, 1995, respondents instituted Civil
Case No. C-16822, a petition for preliminary
injunction, damages and cancellation of
annotation of encumbrance with prayer for the
issuance of a temporary restraining order, with the
RTC of Caloocan City, Branch 120. However, the
public auction scheduled on that same day
proceeded and the property was sold to CHFI as
the highest bidder. Respondents failed to redeem
the property during the redemption period. Hence,
title to the property was consolidated in favor of
CHFI and a new certificate of title (TCT No.
310191) was issued in its name. In view of these
developments, respondents amended their
complaint to an action for nullification of
foreclosure, sheriffs sale and consolidation of title,
reconveyance and damages.
On February 11, 2000, the RTC issued the assailed
decision. It ruled that the 1981 CFI decision in Civil
Case No. C-7496 had long attained finality. The
mortgage was extinguished when respondents
paid their indebtedness by consigning the amount
in court. Moreover, the ten-year period within
which petitioners should have foreclosed the
property was already barred by prescription. They
abused their right to foreclose the property and
exercised it in bad faith. As a consequence, the
trial court nullified the foreclosure and
extrajudicial sale of the property, as well as the
consolidation of title in CHFIs name in 1995. It
then ordered the register of deeds of Caloocan
City to cancel TCT No. 310191 and to reconvey the
property to respondents. It also held petitioners
liable for moral damages, exemplary damages and
attorneys fees.
Issue:
Whether or not the trial court erred when it
affirmed the validity of the consignation
Held:
Yes. The trial court erred when it ruled that the
1981 CFI decision in Civil Case No. C-7496 was
already final and executory. Where the law or
contract has already been contravened prior to the
filing of an action for declaratory relief, the court
can no longer assume jurisdiction over the action.
Here, an infraction of the mortgage terms had
already taken place before the filing of Civil Case
No. C-7496. Thus, the CFI lacked jurisdiction when
it took cognizance of the case in 1979. And in the
absence of jurisdiction, its decision was void and
without legal effect.
Article 1142 of the Civil Code is clear. A mortgage
action prescribes after ten years. An action to
enforce a right arising from a mortgage should be
enforced within ten years from the time the right
of action accrues. Otherwise, it will be barred by
prescription and the mortgage creditor will lose
his rights under the mortgage.
Here, petitioners right of action accrued in May
1977 when respondents defaulted in their
obligation to pay their loan amortizations. It was
from that time that the ten-year period to enforce
the right under the mortgage started to run. The
period was interrupted when respondents filed
Civil Case No. C-6329 sometime after May 1977
and the CFI restrained the intended foreclosure of
the property. However, the period commenced to
run again on November 9, 1977 when the case was
dismissed.
The respondents institution of Civil Case No. C-
7496 in the CFI on March 16, 1979 did not interrupt
the running of the ten-year prescriptive period
because, as discussed above, the court lacked
jurisdiction over the action for declaratory relief.
All proceedings therein were without legal effect.
Thus, petitioners could have enforced their right
under the mortgage, including its foreclosure, only
until November 7, 1987, the tenth year from the
dismissal of Civil Case No. C-6329. Thereafter,
their right to do so was already barred by
prescription.
The foreclosure held on February 8, 1995 was
therefore some seven years too late. The same
thing can be said about the public auction held on
March 27, 1995, the consolidation of title in CHFIs
favor and the issuance of TCT No. 310191 in its
name. They were all void and did not exist in the
eyes of the law.
WHEREFORE, the petition is hereby DENIED.
RCBC v. COURT OF APPEALS and FELIPE LUSTRE
Justice Kapunan; March 25, 1999
Damages; Good Faith Compliance
FACTS
In March 1991, private respondent Atty. Felipe
Lustre purchased a Toyota Corolla. He made a
down payment of P164,620.00, the balance of
which was to be paid in 24 equal monthly
installments thru RCBC as the financing agent. He
issued 24 postdated checks in the amount of
P14,976.00 each.
All the checks were thereafter encashed and
debited from private respondent's account, except
for the check representing the payment for August
1991 which was unsigned and because of which
the amount representing it was recalled and re-
credited to private respondent's account.
Because of the recall, the last two checks dated
February 10, 1993 and March 10, 1993 were no
longer presented for payment, purportedly in
conformity with petitioner bank's procedure. It
demanded payment of the balance including
liquidated damages, but private respondent
refused to pay, prompting petitioner to file an
action for replevin1 and damages before the RTC.
The RTC decided against RCBC and granted the
counterclaim of Atty. Lustre for damages. The CA
affirmed the RTC decision; hence this petition
before the SC.
ISSUE
W/N Atty. Lustre defaulted on the payment on the
last check? [NO]
DECISION
Petitioner claims that private respondent's check
representing the fifth installment was "not
encashed," such that the installment for August
1991 was not paid. Using as basis the Chattel
Mortgage, petitioner submits that it "was justified
in treating the entire balance of the obligation as
due and demandable." Despite demand by
petitioner, however, private respondent refused to
pay the balance of the debt. Petitioner, in sum,
imputes delay on the part of private respondent.
Article 1170 of the Civil Code states that those
who in the performance of their obligations are
guilty of delay are liable for damages.2 The delay in
the performance of the obligation, however, must
be either malicious or negligent.
Thus, assuming that private respondent was guilty
of delay in the payment of the value of the
unsigned check, private respondent cannot be held
liable for damages. There is no imputation, much
less evidence, that private respondent acted with
malice or negligence in failing to sign the check.
1 A procedure whereby seized goods may be
provisionally restored to their owner pending the
outcome of an action to determine the rights of the
parties concerned
2 Civil Code, art. 1170.
Indeed, we agree with the Court of Appeals' finding
that such omission was mere "inadvertence" on
the part of private respondent.
Toyota salesperson Jorge Geronimo testified that
he even verified whether private respondent had
signed all the checks and in fact returned three or
four unsigned checks to him for signing.
On the other hand, Petitioner's conduct, in the light
of the circumstances of this case, can only be
described as mercenary. Petitioner had already
debited the value of the unsigned check from
private respondent's account only to re-credit it
much later to him. Thereafter, petitioner encashed
checks subsequently dated, then abruptly refused
to encash the last two. More than a year after the
date of the unsigned check, petitioner, claiming
delay.
Good faith not only in compliance with its
contractual obligations3, but also in observance of
the standard in human relations, for every person
"to act with justice, give everyone his due, and
observe honesty and good faith," behooved the
bank to do so.
Failing thus, petitioner is liable for damages
caused to private respondent. These include moral
damages for the mental anguish, serious anxiety,
besmirched reputation, wounded feelings and
social humiliation suffered by the latter.
3 Civil Code, art. 1159.
DEIPARINE, JR. V. COURT OF APPEALS
G.R. No. 96643. APRIL 23, 1993 CRUZ, J.
(Unsafe building; rescission of contract)
[Article 1191- power to rescind obligations implied
in reciprocal obligations]
FACTS:
1. On August 13, 1982, spouses Cesario and
Teresita Carungay entered into an agreement with
contractor Ernesto Deiparine, Jr. for the
construction of a three-story dormitory in Cebu, for
which the Carungays agreed to pay P970,000.00.
Deiparine bound to erect the building in strict
accordance to plans and specifications. Nicanor
Trinidad, a civil engineer, was designated as
representative of the Carungay spouses with
power to inspect and coordinate with the
contractor.
2. Upon the start of construction, Trinidad sent
Deiparine the General Conditions and
Specifications which prescribed 3,000 psi as
minimum compressive strength of the building. In
the course of the construction, Trinidad reported
to Cesario Carungay that Deiparine had been
deviating from the plans and specifications, thus
impairing the strength and safety of the building.
3. Carungay ordered Deiparine to first seek his
approval before pouring cement. The latter did not
heed the former so Carungay sent Deiparine a
memorandum complaining that the construction
works are faulty and done haphazardly mainly due
to lax supervision coupled with inexperienced and
unqualified staff. This memorandum was also
ignored.
4. After several conferences, the parties agreed to
conduct cylinder tests to test the structure’s
safety. Carungay suggested core-testing which is a
more reliable test. Deiparine was first reluctant
but eventually agreed and even promised that if
the tests should show total failure, or even above
10%, he would shoulder all expenses; otherwise,
the tests should be for the account of Carungay.
5. The core tests revealed that the building was
structurally unsafe so the Carungays filed with the
RTC of Cebu for the rescission of the construction
contract and for damages. Deiparine moved to
dismiss, alleging that the court had no jurisdiction
over construction contracts, which were now
cognizable by the Philippine Construction
Development Board.
6. The RTC rendered judgment: a) declaring the
construction agreement rescinded; b) condemning
Deiparine to have forfeited his expenses in the
construction in the same of P244,253.70; c)
ordering Deiparine to reimburse to the spouses
Carungay the sum of P15,104.33 for the core
testing; d) ordering Deiparine to demolish and
remove all the existing structures and restore the
premises to their former condition before the
construction began, being allowed at the same
time to take back with him all the construction
materials belonging to him; and e) ordering
Deiparine to pay the Carungay spouses attorney's
fees in the amount of P10,000.00 as well as the
costs of the suit. Judgment was affirmed by the
Court of Appeals.
ISSUES:
1. Whether or not the trial court has jurisdiction
over the matter
2. Whether or not the trial and appellate court
erred in rescinding the contract
HELD:
1. YES.
Contrary to the malicious and misleading
contention of the petitioners, the adjudicatory
powers of the Philippine Domestic Construction
Board are meant to apply only to public
construction contracts. Its power over private
construction contracts is limited to the
formulation and recommendation of rules and
procedures for the adjudication and settlement of
disputes involving such (private) contracts. It
therefore has no jurisdiction over cases like the
one at bar which remain cognizable by the regular
courts of justice.
2. NO.
The Court sees no reason to disturb the factual
finding of the courts below that Deiparine did not
deal with the Carungays in good faith. His breach
of this duty constituted a substantial violation of
the contract correctible by judicial rescission.
(Records show that Deiparine admitted that under
the General Conditions and Specifications sent by
Engr. Trinidad, a structural compressive strength
of 3,000 psi is required. Such belies Deiparine’s
contention that no compressive strength
requirement was required.)
The contention of the petitioner that Articles 1358
(providing that rescission can only be carried out if
he who demands the same can return whatever he
may be obliged to restore) and 1725 of the Civil
Code (providing that owner may withdraw at will
from construction contract although s/he must
indemnify contractor for expenses, work, damages,
etc.) is erroneous since the said provisions do not
apply to the construction agreement at hand.
The trial court was correct in applying Article 1191
because the latter relates to contracts involving
reciprocal obligations like the subject construction
contract. The construction contract fails squarely
under the coverage of Article 1191 because it
imposes upon Deiparine the obligation to build the
structure and upon the Carungays the obligation to
pay for the project upon its completion.
Article 1191, unlike Article 1385, is not predicated
on economic prejudice to one of the, parties but on
breach of faith by one of them that violates the
reciprocity between them. The violation of
reciprocity between Deiparine and the Carungay
spouses, to wit, the breach caused by Deiparine's
failure to follow the stipulated plans and
specifications, has given the Carungay spouses
the right to rescind or cancel the contract.
Article 1725 cannot support the petitioner's
position either, for this contemplates a voluntary
withdrawal by the owner without fault on the part
of the contractor, who is therefore entitled to
indemnity, and even damages, for the work he has
already commenced.There is no such voluntary
withdrawal in the case at bar. On the contrary, the
Carungays have been constrained to ask for
judicial rescission because of the petitioner's
failure to comply with the terms and conditions of
their contract.
The Court also held that while it is true that the
stress test was not required in any of the contract
documents, conducting the test was the only
manner by which the owner could determine if the
contractor had been faithfully complying with his
presentations under their agreement. Furthermore,
both parties later agreed in writing that the core
test should be conducted. When the structure
failed under this test the Carungay spouses were
left with no other recourse than to rescind their
contract.
Other applicable provisions according to the Court:
Articles 1714, 1715 and 1727.
SPOUSES VASQUEZ V AYALA CORPORATION
Tinga, J. | November 19, 2004
Delay
Art. 1169
Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares;
or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to
be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
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 is incumbent upon him. From
the moment one of the parties fulfills his obligation,
delay by the other begins.
Article 1193
Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come
or not, the obligation is conditional, and it shall be
regulated by the rules of the preceding Section.
Article 1197
If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts,
the period cannot be changed by them.
Facts:
On April 23, 1981, spouses Daniel Vasquez and Ma.
Luisa M. Vasquez (hereafter, Vasquez spouses)
entered into a Memorandum of Agreement (MOA)
with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the
latter's shares of stock in Conduit Development,
Inc. (hereafter, Conduit).
The main asset of Conduit was a 49.9 hectare
property in Ayala Alabang, Muntinlupa, which was
then being developed by Conduit under a
development plan where the land was divided into
Villages 1, 2 and 3 of the "Don Vicente Village."
The development was then being undertaken for
Conduit by G.P. Construction and Development
Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire
property, less what was defined as the "Retained
Area" consisting of 18,736 square meters. This
"Retained Area" was to be retained by the Vazquez
spouses. The area to be developed by Ayala was
called the "Remaining Area". In this "Remaining
Area" were 4 lots adjacent to the "Retained Area"
and Ayala agreed to offer these lots for sale to the
Vazquez spouses at the prevailing price at the time
of purchase.
"5.7. The BUYER hereby commits that it will develop
the 'Remaining Property' into a first class residential
subdivision of the same class as its New Alabang
Subdivision, and that it intends to complete the first
phase under its amended development plan within
three (3) years from the date of this Agreement"
The parties are agreed that the development plan
referred to in paragraph 5.7 is not Conduit's
development plan, but Ayala's amended
development plan which was still to be formulated
as of the time of the MOA. While in the Conduit
plan, the 4 lots to be offered for sale to the
Vasquez Spouses were in the first phase thereof or
Village 1, in the Ayala plan which was formulated a
year later, it was in the third phase, or Phase II-c.
After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the Don Vicente
Project. Ayala then received a letter from one
Maximo Del Rosario of Lancer General Builder
Corporation informing Ayala that he was claiming
the amount of P1,509,558.80 as the subcontractor
of G.P. Construction. The suit was terminated only
on February 19, 1987, when it was dismissed with
prejudice after Ayala paid both Lancer and GP
Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell
the 4 lots adjacent to the "Retained Area" within 3
years from the date of the MOA, the Vasquez
spouses sent several "reminder" letters of the
approaching so-called deadline. However, no
demand after April 23, 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots.
On the contrary, one of the letters signed by their
authorized agent, Engr. Eduardo Turla,
categorically stated that they expected
"development of Phase 1 to be completed by
February 19, 1990, three years from the settlement
of the legal problems with the previous
contractor."
The trial court rendered a decision in favor of
Spouses Vasquez but the Court of Appeals
reversed.
The Court of Appeals ruled that there was no delay
as petitioners never made a demand for Ayala
Corporation to sell the subject lots to them.
According to the appellate court, what petitioners
sent were mere reminder letters the last of which
was dated prior to April 23, 1984 when the
obligation was not yet demandable. At any rate,
the Court of Appeals found that petitioners in fact
waived the three (3)-year period when they sent a
letter through their agent, Engr. Eduardo Turla,
stating that they "expect that the development of
Phase I will be completed by 19 February 1990,
three years from the settlement of the legal
problems with the previous contractor."
Issue:
W/N Ayala Corporation was in delay in selling the
lots to the Spouses Valdez.
Held:
NO.
REQUISITES IN DECLARING DEFAULT
In order that the debtor may be in default it is
necessary that the following requisites be present:
(1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance
judicially or extrajudicially.
NO DAY CERTAIN FIXED IN CASE AT BAR
Under Article 1193 of the Civil Code, obligations for
whose fulfillment a day certain has been fixed
shall be demandable only when that day comes.
However, no such day certain was fixed in the
MOA.
In Par 5.7 of the MOA, it is unmistakable that it
merely expresses an intention (“that it intends to
complete the first phase under its amended
development plan within three (3) years from the
date of this Agreement”) on Ayala Corporation's
part to complete the first phase under its amended
development plan within three (3) years from the
execution of the MOA.
Petitioners, therefore, cannot demand
performance after the three (3) year period fixed
by the MOA for the development of the first phase
of the property since this is not the same period
contemplated for the development of the subject
lots.
Since the MOA does not specify a period for the
development of the subject lots, petitioners should
have petitioned the court to fix the period in
accordance with Article 1197 of the Civil Code. As
no such action was filed by petitioners, their
complaint for specific performance was
premature, the obligation not being demandable at
that point.
NO DEMAND MADE BY PETITIONERS
Accordingly, Ayala Corporation cannot likewise be
said to have delayed performance of the
obligation. Even assuming that the MOA imposes
an obligation on Ayala Corporation to develop the
subject lots within three (3) years from date
thereof, Ayala Corporation could still not be held to
have been in delay since no demand was made by
petitioners for the performance of its obligation.
As found by the appellate court, petitioners' letters
which dealt with the three (3)-year timetable were
all dated prior to April 23, 1984, the date when the
period was supposed to expire. In other words, the
letters were sent before the obligation could
become legally demandable. Moreover, the letters
were mere reminders and not categorical demands
to perform. More importantly, petitioners waived
the three (3)-year period as evidenced by their
agent, Engr. Eduardo Turla's letter to the effect
that petitioners agreed that the three (3)-year
period should be counted from the termination of
the case filed by Lancer.
Excerpts from some of the letters:
In this regard, we would like to remind you
of Articles 5.7 and 5.9 of our Memorandum
of Agreement which states respectively…
…and that we expect from your
goodselves compliance with our
Memorandum of Agreement, and a definite
date as to when the road to our property
and the development of Phase I will be
completed
Manifestly, this letter expresses not only
petitioners' acknowledgement that the delay in the
development of Phase I was due to the legal
problems with GP Construction, but also their
acquiescence to the completion of the
development of Phase I at the much later date of
February 19, 1990. More importantly, by no stretch
of semantic interpretation can it be construed as a
categorical demand on Ayala Corporation to offer
the subject lots for sale to petitioners as the letter
merely articulates petitioners' desire to exercise
their option to purchase the subject lots and
concern over the fact that they have not been
provided with the specifications of these lots.
At best, petitioners' letters can only be construed
as mere reminders which cannot be considered
demands for performance because it must appear
that the tolerance or benevolence of the creditor
must have ended.

MEGAWORLD GLOBUS ASIA, INC. V. TANSECO
GR NO. 181206| October 9, 2009 | CARPIO-
MORALES,
Exceptions to Extrajudicial Demand; Default; Force
Majeure/Caso Fortuito
Contract To Buy And Sell; Condominium Unit;
Delay; Financial Crisis; Laches
The SC ruled that Tanseco need not have sent an
extrajudicial demand for Megaworld to be in
default because such demand would be useless.
Also, the Asian financial crisis was not considered
a fortuitous event.
FACTS
 Petitioner Megaworld and respondent Mila S.
Tanseco entered into a Contract to Buy and Sell
a 224 square-meter condominium unit at a pre-
selling project, “The Salcedo Park,” located
along Senator Gil Puyat Avenue, Makati City.
 The purchase price was P16,802,037.32, t0 be
paid in installments. A remaining balance of
P2,520,305.63 was, according to the contract,
to be paid on October 31, 1998, the stipulated
delivery date of the unit.
 The construction schedule in §4 of the Contract
provided that the unit shall be completed and
delivered no later than Oct. 31, 1998, with
addition grace period of 6 months, barring
delays due to fire, earthquakes, the elements,
acts of God, war, civil disturbances, strikes, or
other labor disturbances, government controls,
etc.
 Tanseco paid all installments due up to January
1998, leaving unpaid the balance of
P2,520,305.63 pending delivery of the unit.
Megaworld, however, failed to deliver the unit
within the stipulated period on October 31,
1998, or April 30, 1999, the last day of the 6-
month grace period.
 Almost 3 years later, Megaworld, by notice of
turnover, informed Tanseco that the unit was
ready for inspection preparatory to delivery.
Tanseco replied through counsel that in view of
Megaworld’s failure to deliver the unit on time,
she was demanding the return of
P14,281,731.70, representing the total
installment payment she had made, with
interest. Tanseco pointed out that none of the
expected causes of delay existed.
 Megaworld attributed the delay to the 1997
Asian financial crisis which was beyond its
control, and argued that default had not set in,
Tanseco not having made any judicial or
extrajudicial demand for delivery.
ISSUE
 W/N petitioner Megaworld is in default
HELD
 Petition is GRANTED. Petitioner Megaworld is
declared in default and ordered to pay Tanseco
the amount she had paid totaling P14,281,31.70,
with interest and damages.
 The Contract to Buy and Sell of the parties
contains reciprocal obligations, i.e., to complete
and deliver the condominium unit on October
31, 1998 or six months thereafter on the part of
Megaworld, and to pay the balance of the
purchase price at or about the time of delivery
on the part of Tanseco. Megaworld having failed
to comply with its obligation under the contract,
it is liable therefor.
 That Megaworld’s sending of a notice of
turnover preceded Tanseco’s demand for refund
does not abate her cause. For demand would
have been useless (Art. 1169, exception 3, Civil
Code), Megaworld admittedly having failed in its
obligation to deliver the unit on the agreed date.
 The Court cannot generalize the 1997 Asian
financial crisis to be unforeseeable and beyond
the control of a business corporation. A real
estate enterprise engaged in the pre-selling of
condominium units is concededly a master in
projections on commodities and currency
movements, as well as business risks. The
fluctuating movement of the Philippine peso in
the foreign exchange market is an everyday
occurrence, hence, not an instance of caso
fortuito. Megaworld’s excuse for its delay does
not lie.
 Tanseco’s claim is not barred by laches either.
Laches is a creation of equity and its
application is controlled by equitable
considerations. It bears noting that Tanseco
religiously paid all the installments due up to
January 1998, whereas Megaworld reneged on
its obligations to deliver within the stipulated
period. A circumspect weighing of equitable
considerations thus tilts the scale of justice in
favor of Tanesco. AEROSPACE CHEMICAL INDUSTRIES V CA, PHIL.
 Pursuant to §23 of PD 957, Tanseco is entitled to PHOSPHATE FERTILIZER CORP.
be reimbursed the total amount she paid Justice Quisumbing; September 23, 1999
Megaworld. ----------------------------------------------------------------------------
 Finally, since Art. 1191 of the Civil Code does Sulfuric Acid, Delay, Mora Solvendi
not apply to a contract to buy and sell, the Facts
suspensive condition of full payment of the 1. On June 27 1986, petitioner Aerospace
purchase price not having occurred to trigger Industries Inc. purchased f500 metric tons of
the obligation to convey title, cancellation, not sulfuric acid from private respondent Philippine
rescission, of the contract is thus the correct Phosphate Fertilizer Corporation (Philphos). The
remedy. contract was in letter-form stating that the
letter is to confirm of their agreement to supply
Sulfuric Acid under conditions agreed upon.
2. Petitioner agreed to secure the means of
transport to pick-up the sulfuric acid from
private respondents’ loadports— 100 MT in
Basay Negros Oriental and 400 MT from Sangi,
Cebu.
3. On August 6, 1986 Philphos sent Aerospace an
advisory letter to withdraw the sulfuric acid
purchased at Basay because they had been
incurring expenses of P2,000 each day of delay.
4. On October 3 1986, Aerospace paid P553,280
for the 500 MT sulfuric acid. On November 19
 1986, Aerospace chartered M/T Sultan
Kayumanggi owned by Ace Bulk Head Services
to carry the agreed volumes of freight from the
designated loading areas.
5. M/T Kayumanggi was able to withdraw only 70
MT of sulfuric acid from Basay because the
vessel was heavily tilted on its port side.
6. In a demand letter sent on December 12, 1986
Philphos asked Aerospace to retrieve the
remaining sulfuric acid in Basay so that the
tanks can be emptied on or before December
15, 1986. It said that Philphos will charge
Aerospace the storage and conseqeuntial costs
for the Basay tanks.
7. On December 18, 1986, the vessel docked at
Sangi, Cebu but withdrew only 157.51 MT of
acid. Again the vessel tilted. Later, the vessel
sank with a total of 227.51 MT of acid on board.
8. Aerospace chartered another vessel M/T Don
Victor with a capacity of 500 MT. On January 26
and March 20 1987, Aerospace addressed
letters to Philphos regarding additional orders
of acid to replace its sunken purchases. The
same letter was sent on May 15.
9. On January 25 1988, Aerospace’s counsel, Atty.
Santos, sent a demand letter to Philphos for the
delivery of the 272.49 MT of acid paid by his
client or the return of the purchase price of
P307,530. Philphos in reply on March 8,
instructed Aerospace to lift the remaining 30
MT of acid in Basay or pay the maintenance
and storage expenses since August 1, 1986. But
Aerospace again, wrote a letter on July 6
insisting on picking up the purchase of 272 MT
because he had paid the full capacity of 500
MT.
10. On May 4 1989, Aerospace filed a complaint for
specific performance and/or damages before
the RTC of Pasig. Philphos filed its answer
stating that it was Aerospace who was remiss
in the performance of its obligation in
arranging the shipping requirements of its
purchases and thus should pay damages.
11. RTC favored Aerospace finding that it was
absolved in its obligation to pick up the
remaining acid because its failure was due to
force majeure (unforeseeable circumstance).
And that it was Philphos who committed
breach when it failed to accommodate the
additional order.
12. CA reversed the decision and found Aerospace
guilty of delay and negligence in the
performance of its obligation.
Issue
W/N Philphos commit a breach of contract when it
did not sell the additional orders of Aerospace [NO]
Decision
1. Court held that the claim that Aerospace’s
delay and failure to lift he cargo is untenable.
The storm, as the petitioner claims it, was not
the proximate cause of the delay. According to
a survey report submitted by a 3rd party
surveyor, the vessel was unstable and
incapable of carrying the full load of sulfuric
acid.
13. Note that there was a premature termination of
loading in Basay, Negros Oriental. The vessel
had to undergo several repairs before
continuing its voyage to pick-up the balance of
cargo at Sangi, Cebu. Despite repairs, the
vessel still failed to carry the whole lot of 500
MT
14. It is not true that the defendant was not in a
position to deliver the 272.481 MT which was
the balance of the original 500 MT purchased
by the plaintiff. The whole lot of 500 MT was
ready for lifting as early as August 15, 1986.
What the defendant could not sell to the
plaintiff was the additional 227.51 MT which
said plaintiff was ordering, for the reason that
the defendant was short of the supply needed.
The defendant, however, had no obligation to
agree to this additional order and may not be
faulted for its inability to meet the said
additional requirements of the plaintiff. And the
defendant's incapacity to agree to the delivery
of another 227.51 MT is not a legal justification
for the plaintiff's refusal to lift the remaining
272.481
15. Damages can be properly awarded to the
private respondent and not the petitioner.
Where there has been breach of contract by the
buyer, the seller has a right of action for
damages. Following this rule, a cause of action
of the seller for damages may arise where the
buyer refuses to remove the goods, such that
buyer has to remove them (Art. 1170) Delay
begins from the time the obligee judicially or
extrajudicially demands from the obligor the
performance of an obligation. In order that the
debtor may be in default, it is necessary that
the following requisites be present: (1) that the
obligation be demandable and already
liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires
the performance judicially or extrajudicially. In
the present case, private respondent required
petitioner to ship out or lift the sulfuric acid as
agreed, otherwise petitioner would be charged
for the consequential damages owing to any
delay
16. Philphos incurred expenses in its Basay ports
because of the partial lifting of Aerospace. It
also extended its lease agreement for Sangi,
Cebu because the petitioner was not able to
get there. It stands to reason that petitioner
should reimburse private respondent's rental
expenses of P32,000 monthly, commencing
 December 15, 1986, up to August 31, 1987, the
period of the extended lease.
17. As pointed out earlier, petitioner is guilty of
delay, after private respondent made the
necessary extrajudicial demand by requiring
petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply
with its obligations under the contract it
became liable for its shortcomings. Petitioner
is indubitably liable for proven damages.
18. Considering, however, that petitioner made an
advance payment for the unlifted sulfuric acid
in the amount of three hundred three thousand,
four hundred eighty three pesos and thirty
seven centavos (P303,483.37), it is proper to
set-off this amount against the rental expenses
initially paid by private respondent. It is worth
noting that the adjustment and allowance of
private respondent's counterclaim or set-off in
the present action, rather than by another
independent action, is encouraged by the law.
Such practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience,
expense, and unwarranted consumption of the
court's time
FELSAN REALTY & DEV’T CORP. V
COMMONWEALTH OFAUSTRALIA
Justice Nachura; October 11, 2007
Contract of Lease
Facts:
Petitioner Felsan Realty & Development
Corporation is the owner of a three-storey duplex
residential house located at San Lorenzo Village,
Makati City. Respondent Commonwealth of
Australia entered into a contract of lease over the
said property with the petitioner. The lease was for
two years from February 22, 1997 until February
21, 1999. The respondent paid P200K as two
months deposit and P2.4M as advance rentals for
the entire duration of the lease.
On November 4, 1997, Fire broke out at the ground
floor of the leased premises, which destroyed a
major portion of the house. According to the Fire
Investigation Report, the cause of the fire was
[a]ccidental due to overheated electric fan that
produce[d] intense heat/sparks and subsequently
ignited the combustible materials thereat and
burst into flame
Respondent, on November 21, 2007, informed the
petitioner that the property has become
uninhabitable. Its Facilities Manager indicated that
it would take 3 months to complete restoration and
that the alternate property offered was not
suitable. The respondent then demanded the pre-
termination of the lease contract
effective November 4, 1997, and reimbursement of
the advance rentals and security deposit.
The petitioner rejected the respondents demand
on the ground that the fire was caused by the
gross negligence of the occupants. Instead, the
petitioner offered to refund the balance, if any, of
the advance rentals and security deposit from the
time it is able to find a new lessee until February
22, 1999.
On May 29, 1998, petitioner informed the
respondent of the completion of the repairs of the
premises and asked whether the latter will
reoccupy the same. The respondent, however,
replied that it was no longer interested in
reoccupying the subject property and reiterated its
request for the refund of the advance rentals paid.
Consequently, the petitioner informed the
respondent that it has advertised the property as
available for lease and that it was willing to refund
the balance, if any, of the advance rentals and
security deposit from the time of the new lease up
to and including February 22, 1999, less the
amount spent for the repairs of the damage
caused to the property. The respondent did not
agree.
Respondent filed a complaint against the
petitioner claiming that under Section 13 of the
Contract of Lease, it is entitled to the
reimbursement ofP1,556,666.67 as balance of the
prepaid rental. (It also prayed for exemplary
damages, attorneys fees and the costs of suit.)
In its Answer with Counterclaim, the petitioner
averred that the respondent did not comply with
the mandatory requirement under Article 1358 of
the Civil Code of the Philippines that a pre-
termination or rescission of a contract of lease
over real property shall appear in a public
document. It claimed that the respondent is not
entitled to reimbursement because the subject
property was damaged by fire due to its
negligence.
During trial, Edgardo A. Nogales, who was the
Chief of the Investigation and Intelligence Unit of
Fire Station 2- Fire District III, and Reynaldo D.
Gonzales, the Fire and Arson Investigator assigned
to the case, had slightly conflicting testimonies on
the overheating of the electric fan. Nogales
testified that it was “off,” while Gonzales, who did
a personal, ocular inspection after the firemen
forcibly opened the maid’s room, testified that the
fan was in the “on” position. Both testified that the
source of ignition could only be the burnt electric
fan that was still plugged in.
The trial court found for the respondent. Upon
appeal, the CA rendered a Decision affirming the
RTC decision upholding the right of the respondent
to pre-terminate the contract of lease. At the
outset, the appellate court agreed with the
petitioner that the terms accident and accidental
do not exclude, without qualification, events
resulting in damage or loss due to the fault,
recklessness or negligence of third
parties. However, in view of the conflicting
testimonies of the fire investigators, it held that it
cannot reasonably conclude that the accident was
attended by negligence or fault. It, therefore,
sustained the trial courts findings that the
respondent cannot be held liable since the
petitioner failed to establish by preponderance of
evidence of the respondent’s negligence. It agreed
with the trial court that non-compliance with the
requirement under Article 1358 of the Civil Code
does not affect the validity or enforceability of the
rescission of the contract as between the parties
[as it is “a mere formality for the convenience of
the parties”].
Issue:
Whether or not the CA committed a grave and
reversible error in ruling that the respondent has
the right to pre-terminate the Contract of Lease
Held:
The Court finds no reversible error in the appellate
court’s ruling that the respondent has the right to
pre-terminate the Contract of Lease. The first
paragraph of Section 13 plainly states that, where
the leased property is damaged by fire, the lessee
has the right to automatically pre-terminate the
contract when it finds that the damage to the
property rendered it uninhabitable or unsuitable
for living. In this case, the respondent determined
that the leased property has become uninhabitable
after it was damaged by fire. Accordingly, it
immediately exercised its right to pre-terminate
the contract.
When the terms of the contract are clear and leave
no room for interpretation, the literal meaning of
its stipulations shall, therefore, control. A court
has no alternative but to enforce the contractual
stipulations in the manner they have been agreed
upon and written.
On the matter of the conflicting testimonies, the
Court quoted with favor the respondent court’s
ruling:
x x x [T]he Court cannot reasonably conclude
therefrom that the accident was attended by
negligence or fault on the part of appellee. As
the trial court correctly pointed out, the
cause of the fire could have been faulty
wiring either of the fan itself or the electrical
socket but no evidence was presented to
establish the same. Thus, bereft of sufficient
evidence to establish that the fire was
caused by the negligence of appellee, the
finding of the trial court that the cause of the
fire was accidental in nature must be
sustained. Besides, appellants witness
himself admitted that Felsan requested for
the certification of SPO4 Nogales and used
the same to establish that the fire was
caused by pure accident to recover indemnity
in the amount of more than one million pesos
from the insurer and it is now estopped from
disputing the said finding.”
Considering the foregoing, the petitioner cannot
use the respondent’s alleged fault or negligence as
an excuse to prevent the pre-termination of the
lease contract.
It must be noted that the various stipulations in a
contract must be interpreted together, attributing
to the doubtful ones that sense which may
result from all of them taken jointly. Section 13 of
the Contract of Lease enumerates the grounds for
pre-termination as fire, lightning, earthquake,
typhoon, or by any cause in the nature of force
majeure. The second and third sentences of
Section 13 use accident or force majeure in
referring to the grounds for the pre-termination of
the Contract. Except for fire, none of the other
causes can occur through accident because they
are all natural calamities. The only logical
conclusion is that the word accident qualifies
fire; the lessee does not have the right to pre-
terminate only when fire is not accidental or is
deliberate. No other qualification can be read into
the Contract. Accident and negligence are
intrinsically contradictory; one cannot exist with
the other. Accident occurs when the person
concerned is exercising ordinary care, which is not
caused by fault of any person and which could not
have been prevented by any means suggested by
common prudence. Hence, a statement that the
cause was accidental necessarily implies that it
was not due to the fault or negligence of any party.
Clearly, the respondent had the right to pre-
terminate the Contract of Lease considering that it
was well established that the fire was accidental
in nature.

* As to the award of attorney’s fees in favor of the

respondent, the Court finds that this is not
warranted under the circumstances; hence, it
should be deleted. An adverse decision does
not ipso facto justify an award of attorneys fees to
the winning party. The power of the court to
award attorneys fees under Article 2208 demands
factual, legal, and equitable justification. Even
when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights,
still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected
in a party’s persistence in a case other than an
erroneous conviction of the righteousness of his
cause

ANTONIO TAN v. COURT OF APPEALS and CCP

Justice De Leon, Jr.; October 19, 2001
Obligations with a Penal Clause; Interest when
Judicially Demanded

FACTS
On May 14, 1978 and July 6, 1978, petitioner
Antonio Tan obtained two (2) loans each in the
principal amount of P2,000,000 (totaling
P4,000,000)or in the total principal amount of Four
Million Pesos (P4,000,000.00), from respondent
CCP, evidenced by two (2) promissory notes with
maturity dates on May 14, 1979 and July 6, 1979,
respectively.
Petitioner defaulted but after a few partial
payments he had the loans restructured by
respondent CCP, and petitioner accordingly
executed a promissory note on August 31, 1979 in
the amount of P3,411,421.32)payable in five (5)
installments, which he failed to pay.
In a letter dated January 26, 1982, petitioner
requested and proposed to respondent CCP a
mode of paying the restructured loan: 20% upon
confirmation by CCP to the proposal, and the
remaining balance paid in 36 equal installments.
On October 20, 1983, petitioner again sent a letter
to respondent CCP requesting for a moratorium on
his loan obligation until the following year
allegedly due to a substantial deduction in the
volume of his business and on account of the peso
devaluation. No favorable response was made to
said letters. Instead, respondent CCP, through
counsel, wrote a letter dated May 30, 1984 to the
petitioner demanding full payment of the loan, now
amounting to P6,088,735.03.
On August 29, 1984, respondent CCP filed in the
RTC of Manila a complaint for collection of a sum
of money against Tan.
The RTC ruled in favor of CCP and ordered Tan to
pay the amount of more than seven million pesos
representing his outstanding account with
interest, surcharges, and attorney's fees. The CA
affirmed the RTC’s decision imposing interest, and
surcharges but reduced the amount of attorney's
fees and deleted the exemplary damages.
On appeal, Tan asked for the non-imposition of
interest on the surcharges inasmuch as the
compounding of interest on surcharges is not
provided in the promissory note marked Exhibit
"A."
ISSUE
W/N the CA erred in affirming the RTC’s decision,
imposing interest and attorney’s fees. [NO]
DECISION
First, the petitioner imputed error on the part of
the appellate court in not totally eliminating the
award of attorney's fees and in not reducing the
penalties considering that the petitioner, contrary
to the CA’s findings, has allegedly made partial
payments on the loan. The SC disagreed with this,
citing Art. 1226 of the Civil Code4 as basis.
4 Civil Code, art. 1226:
In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if
In the case at bar, the promissory note (Exhibit
"A") expressly provides for the imposition of both
interest and penalties in case of default on the
part of the petitioner in the payment of the subject
restructured loan. The stipulated fourteen percent
(14%) per annum interest charge until full payment
of the loan constitutes the monetary interest on
the note and is allowed under Article 1956 of the
New Civil Code.5 On the other hand, the stipulated
two percent (2%) per month penalty is in the form
of penalty charge which is separate and distinct
from the monetary interest on the principal of the
loan.
Second, according to the petitioner, there is no
legal basis for the imposition of interest on the
penalty charge for the reason that the law only
allows imposition of interest on monetary interest
but not the charging of interest on penalty.
However, the SC explained that penalty clauses
can be in form of penalty or compensatory
interest. Thus, the 2% penalty is sanctioned and
allowed by law. In addition, interest became due
from the time CCP filed a complaint in Court, as
this constituted a judicial demand as required by
law.6
Third, petitioner sought the elimination of the
compounded interest imposed on the total amount
based allegedly on the case of National Power
Corporation v. National Merchandising Corporation,
wherein the SC ruled that the imposition of
interest on the damages from the filing of the
complaint is unjust where the litigation was
prolonged for twenty-five (25) years through no
fault of the defendant.
The SC explained that this ruling did not apply to
the Tan case because there was an express
stipulation in the present case stating Tan’s
agreement to the penalty of compound interest.
there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of
this Code.
5 Civil Code, art. 1956: No interest shall be due
unless it has been expressly stipulated in writing.
6 Civil Code, art. 2212: Interest due shall earn legal
interest from the time it is judicially demanded,
although the obligation may be silent upon this
point.
However, the SC found the continued monthly
accrual of the two percent (2%) penalty charge on
the total amount due to be unconscionable
inasmuch as the same appeared to have been
compounded monthly.
Considering Tan’s several partial payments and the
fact that he was liable for the 2% penalty charge
per month on the total amount due, the SC found it
fair and equitable to reduce the penalty charge to
a straight 12% per annum on the total amount.
Fourth, petitioner imputed error on the CA for not
declaring the suspension of the running of the
interest during that period when the respondent
allegedly failed to assist the petitioner in applying
for relief from liability.
The SC disagreed with this, saying that the said
letter did not contain any categorical agreement
on the part of respondent CCP that the payment of
the interest and surcharge on the loan was
deemed suspended while his appeal for
condonation of the interest and surcharge was
being processed.
BRUCAL v. DESIERTO
G.R. No. 152188. JULY 8, 2005
QUISIMBING, J.
(DPWH Officials convicted with Dishonesty and
Gross Neglect of Duty; Definition of dishonesty and
gross negligence)
[No mention of any article of the Civil Code]
FACTS:
1. Petitioners Florentino Brucal and Cesar Cruz
were members of the members of the Second
Engineering District Prequalification, Bids and
Awards Committee (PBAC) of the Department of
Public Works and Highways (DPWH). Brucal was
the project engineer while Cruz was the chief of
the construction section of the
Inaclagan Barangay High School Project. They
were charged by the Ombudsman Task Force on
Public Works and Highways with Dishonesty,
Falsification of Official Documents, Grave
Misconduct, Violation of Office Rules and
Regulations, and Conduct Prejudicial to the Best
Interest of the Service for irregularities in
connection with the bidding, award, and
implementation of contracts in the province of
Quezon.
2. Said OMB Task Force found out that petitioners
awarded the P281,475.30 construction of a three-
classroom building at Inaclagan Barangay High
School, Gumaca, Quezon to contractor RAM
Builders which allegedly committed substantial
deviations from the approved plans and
specifications of the DPWH by using substandard-
size steel bars instead of standard-size steel bars.
RAM Builders was required to make additional
reinforcements to attain the strength required for
the foundation and to pour additional mix
concrete.
3. In its claim for payment, RAM Builders reported
that petitioner Cruz certified that all work items
have been accomplished in accordance with the
approved plans, specification and program of work
and that petitioner Brucal signed the certificate of
clearance for equipment rental and other
obligations which allowed RAM Builders to claim
payment. The latter also submitted and signed the
Statement of Time Elapsed of Work Accomplished.
The OMB Task Force however, concluded after its
investigation that there were major defects in the
construction of the school building as a direct
result of the contractors improper methods and its
use of substandard materials and that the school
building was far weaker in strength than that
envisioned by the planners. Said task force also
found that the deviation from the plan had been
deliberate considering that RAM Builders is
already a regular supplier and dealer of
construction materials in Lucena City.
4. The Administrative Adjudication Bureau of the
OMB found the petitioners administratively liable
for dishonesty and gross neglect of duty and
recommended the dismissal of the petitioners with
forfeiture of leave credits and retirement benefits
and disqualification for reemployment in the
government service. On appeal, the Court of
Appeals affirmed the conviction of Cruz and
Brucal.
ISSUES:
Whether or not petitioners Brucal and Cruz could
legally and validly be held liable for dishonesty and
gross neglect of duty in signing the statement of
work accomplished and statement of time elapsed
Their contentions:
a. For the charge of dishonesty, the petitioners
contend that the questioned decision is based on a
misapprehension of facts. They allege that they
signed the Statement of Work Accomplished as
well as the Statement of Time Elapsed on April 4,
1990, after corrective measures were undertaken
on the project.
b. On the charge of gross neglect of duty,
petitioners submit that there could be no
administrative culpability as they acted in good
faith. They both attended to other simultaneous
on-going projects and thus could not be physically
present everyday during the construction of the
Inaclagan project. They asked
the barangay officials to oversee the project.

HELD:
YES.
For petitioner Cruz, signing the Statement of Work
Accomplished, despite the fact that the proper
methods of construction were not complied with,
amounts to dishonesty. On Brucal’s part, signing
the Statement of Time Elapsed constitutes fraud
and dishonesty vis--vis the contractors obligation
relative to the plans and specifications as it
allowed payment to RAM Builders. Clearly, the
petitioners factual averment that the said
statements were signed after corrections were
made need to be ascertained to determine their
liability on the charge for dishonesty. As
defined, dishonesty is intentionally making a false
statement in any material fact, or practicing or
attempting to practice any deception or fraud in
securing his examination, registration,
appointment or promotion. Dishonesty is
understood to imply a disposition to lie, cheat,
deceive, or defraud; untrustworthiness; lack of
integrity.
Anent the charge of gross neglect, the Court is in
accord with the findings of the OMB Adjudication
Bureau, as affirmed by the Court of Appeals,
finding herein petitioners liable for gross neglect
of duty. Gross negligence refers to negligence
characterized by the want of even slight care,
acting or omitting to act in a situation where there
is a duty to act, not inadvertently but wilfully and
intentionally, with a conscious indifference to
consequences in so far as other persons may be
affected. It is the omission of that care which even
inattentive and thoughtless men never fail to take
on their own property. In cases involving public
officials, there is gross negligence when a breach
of duty is flagrant and palpable.
The Court finds that petitioners were unable to
satisfactorily explain their failure to oversee the
project in its critical stages. Their defense that
corrections were nevertheless employed and that
they handled other projects do not negate their
administrative liability. Instead, it is indicative of a
conscious design to delegate the vital task
incumbent upon them as engineers whose
appointment to such position is by reason of their
academic preparation and work experience to
conceptualize, plan, implement and manage a
development project of the government.
Evidently, they failed to timely perform their
assigned duties with dedication, efficiency, and
utmost responsibility, ideals which men and
women in public service ought to cherish and
dutifully observe. On the whole, petitioners as
construction engineers in charge of the Inaclagan
project, should be fully cognizant not only of the
professional nature and responsibilities of the task
but its impact as well on the efficiency of public
service. As public servants, petitioners are
expected to exhibit the highest degree of
dedication in deference to their foremost duty of
accountability to the people.
RODZSSEN SUPPLY CO. INC. V FAR EAST BANK &
TRUST CO.
Panganiban, J. | May 9, 2001
Debtor and creditor both negligent
Facts:
TRIAL COURT
Rodzssen Supply, Inc. opened with Far East Bank
and Trust Co. a 30-day domestic letter of credit
(LC) in the amount of P190,000.00 in favor of
Ekman and Company, Inc. (Ekman) for the
purchase from the latter of 5 units of hydraulic
loaders, to expire on February 15, 1979; that
subsequent amendments extended the validity of
said LC up to October 16, 1979.
On March 16, 1979, 3 units of the hydraulic loaders
were delivered to Rodzssen for which Far East
Bank on March 26, 1979, paid Ekman the sum of
P114,000.00, which amount Rodzssen paid Far East
Bank before the expiry date of the LC.
The shipment of the remaining 2 units of hydraulic
loaders valued at P76,000.00 sent by Ekman was
'readily received by Rodzssen before the expiry
date [of] subject LC.
Upon Ekman's presentation of the documents for
the P76,000.00 'representing final negotiation' on
the LC before the expiry date, and 'after a series of
negotiations', Far East Bank paid to Ekman the
amount of P76,000.00; and that upon Far East
Bank’s demand on Rodzssen to pay for said
amount (P76,000.00), Rodzssen refused to pay
without any valid
reason.
Rodzssen contends that there was a breach of
contract by Far East Bank who in bad faith paid
Ekman, knowing that the 2 units of hydraulic
loaders had been delivered to Rodzssen after the
expiry date of subject LC; and that in view of the
breach of contract, Rodzssen offered to return to
Far East Bank the 2 units of hydraulic loaders,
'presently still with Rodzssen’ but Far East Bank
refused to take possession thereof.
The trial court ruled that Far East Bank was
entitled to recover from Rodzssen the amount of
P76,000 on the ground that acceptance by,
Rodzssen of the 2 remaining units of the 5 loaders,
Rodzssen became liable to Ekman for the payment
of said 2 units. However, as Rodzssen did not pay
Ekman, the latter pressed Far East Bank for the
payment of said two loaders in the amount of
P76,000.00.
While Rodzssen, indeed offered to return the two
loaders to Far East Bank, this offer was made 3
years after Rodzssen’s receipt of the goods, when
Far East Bank pressed for payment. By said
voluntary acceptance of the 2 loaders, estoppel
works against Rodzssen who should have refused
delivery of, and/or immediately offered to return,
the goods.
The Court of Appeals affirmed trial court’s
decision.
Issue:
W/N petitioner is liable to pay respondent.
Held:
YES.
UNEXPLAINED INACTION OF PETITIONER
Granting that petitioner was bound under such
arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for
almost four years with regard to the status of the
ownership or possession of the loaders.
Bewildering was its lack of action to validate the
ownership and possession of the loaders, as well
as its stolidity over the purported failed sales
transaction. Significant too is the fact that it
formalized its offer to return the two pieces of
equipment only after respondent's demand for
payment, which came more than three years after
it accepted delivery.
BOTH PARTIES NEGLIGENT
When both parties to a transaction are mutually
negligent in the performance of their obligations,
the fault of one cancels the negligence of the
other and, as in this case, their rights and
obligations may be determined equitably under the
law proscribing unjust enrichment.

DEFENDANT PAYED FOR PETITIONER AFTER

EXPIRY
Clearly, the bank paid Ekman when the former was
no longer bound to do so under the subject Letter
of Credit. The records show that respondent paid
the latter P76,000 for the last 2 hydraulic loaders
on March 14, 1980, 5 months after the expiration of
the Letter of Credit on October 16, 1979.

In fact, on December 27, 1979, the bank had

informed Rodzssen of the cancellation of the
commercial paper and credited P22,800 to the
account of the latter. The amount represented the
marginal deposit, which petitioner had been
required to put up for the unnegotiated portion of
the Letter of Credit — P76,000 for the two
hydraulic loaders.

The subject Letter of Credit had become invalid

upon the lapse of the period fixed therein. Thus,
respondent should not have paid Ekman; it was not
obliged to do so.
PETITIONER STILL HAS TO PAY DEFENDANT
Be that as it may, we agree with the CA that
petitioner should pay respondent bank the amount
the latter expended for the equipment belatedly
delivered by Ekman and voluntarily received and
kept by petitioner.
SOUTHEASTERN COLLEGE, INC. V. COURT OF
APPEALS
GR NO. 126389| July 10, 1998 | PURISIMA, J.
Force Majeure
SCHOOL BUILDING; TYPHOON SALING; OCULAR
INSPECTION; ROOFINGS

The Supreme Court held that petitioner school

True, it erred in paying Ekman, but petitioner itself
should not be held to account for the damage
was not without fault in the transaction. It must be
caused to respondents’ house as there was no
noted that the latter had voluntarily received and
clear and convincing evidence that they were
kept the loaders since October 1979.
negligent in the construction and maintenance of
their school building.
FACTS
 This is a petition for review seeking to set aside
the Decision of the Court of Appeals which
reduced the moral damages awarded to private
respondent from P1,000,000 to P200,000.
 Private respondents are owners of a house at
326 College Road, Pasay City, while petitioner
owns a 4-storey school building along the same
College Road. On October 11, 1989, a powerful
typhoon named “Saling” hit Metro Manila.
Buffeted by very strong winds, the roof of
petitioner’s building ripped off and blown away,
landing on and destroying portions of the
roofing of private respondents’ house.
After the typhoon had passed, an ocular
inspection conducted by a team of engineers
headed by the city buildings official, Engr. Jesus
L. Reyna. Their report indicated that one of the
reasons for the dislodging of the roofing’s
structural trusses is the improper anchorage of
the said trusses on roof beams. It then
recommended that the fourth floor of subject
school building be declared as a “structural
hazard.”
 In their complaint for damages based on cupla
aquliana, private respondents alleged that the
damage to their house rendered the same
uninhabitable, forcing them to stay temporarily
in other’s houses.
ISSUE
 W/N the damage on the roof the building of
private respondents was due to fortuitous event
 W/N petitioner was negligent when its roofings
caused damage to respondents’ house
HELD
 Petition is GRANTED and the challenged
decision is REVERSED. The complaint of private
respondent is DISMISSED. Private respondents
are ordered to return to petitioner any amount
received from them.
 In order that a fortuitous event may exempt a
person from liability, it is necessary that he be
free from any previous negligence or
misconduct by reason of which the loss may
have been occasioned. When a person’s
negligence concurs with an act of God in
producing damage or injury to another, such
person is not exempt from liability by showing
that the immediate or proximate cause of the
damage was a fortuitous event.
 In the case under consideration, the lower court
accorded full credence to the finding of the
investigating team that subject school
building’s roofing had “no sufficient anchorage
to hold it in position.” Based on such finding,
the trial court imputed negligence to the
petitioner.
 The Court believes otherwise. After a careful
scrutiny of the records and the pleadings
submitted by the parties, the Court finds that
the trial court misappreciated the evidence
proffered.
 There is no question that a typhoon or storm is
a fortuitous event, a natural occurrence which
may be foreseen but is unavoidable. But private
respondents merely relied on the
aforementioned report submitted by a team
which made an ocular inspection of petitioner’s
school. As the term imparts, an ocular
inspection is one by means of actual sight or
viewing. What is visual to the eye though is not
always reflective of the real cause behind. The
relationship of cause and effect must be clearly
shown.
 In the present case, other than said ocular
inspection, no investigation was conducted to
determine the real cause of the partial
unroofing of petitioner’s school building. Private
respondent did not even show that the plans,
specifications and design of said building were
deficient and defective. Neither did they prove
any substantial deviation from the approved
plans and specifications. Nor did they
conclusively establish that the construction of
such building was basically flawed.
 ‘On the other hand, petitioner elicited from Engr.
Reyna that the original plans and design were
approved prior to its construction. Having
obtained both building permit and certificate of
occupancy, these are, at the very least, prima
facie evidence of regular and proper
construction of subject school building.
 Petitioner also presented its VP for Finance and
Administration who testified that an annual
maintenance inspection and repair of subject
school building were regularly undertaken.
 Moreover, Engr. Reyna admitted that no
complaint regarding any defect on the same
structure has even been lodged before his
office. It is a matter of judicial notice that
typhoons are common occurrences in the
country.
 Thus, there is no clear and convincing evidence
to sustain the judgment of the appellate court.
Petitioner has not been shown to be negligent
or at fault regarding the construction and
maintenance of its school building and that
typhoon “Saling” was the proximate cause of
the damage suffered by private respondents’
house.

SPOUSES ALFEDO AND SUSANA BUOT V CA,
ENCARNACION DIAZ
Justice De Leon; May 18 2001
-----------------------------------------------------------------
Contract of Sale, Contract to Sell
Facts
1. Spouses Alfredo and Susana Buot, alleged in
their complaint that on December 6, 1974,
Encarnacion Diaz Vda. de Reston sold to them
the eastern portion of her property with an area
of 19,042 sqm in Tulay, Cebu as evidenced by a
Memorandum of Agreement
2. The Memorandum of Agreement stated
✓ The Purchase Price of P19,042 shall be
paid— 1,000 in the concept of earnest
money upon the execution of the said
instrument; and the balance of 18,042
within 6 months from the date the
vendees and notified by the vendor of the
fact that the Certificate of Title is ready
for transfer in the names of the vendees.
✓ The title to, ownership, possession and
enjoyment of the portion sold shall remain
with the vendor until the full consideration
of the sale shall have been received by her
and acknowledged in a document duly
executed for said purpose
✓ Expenses for the registration of the lot
under the Torrens system, with a view to
securing a certificate of title for the same,
as well as for the portion sold, shall be
borne by the parties share and share alike
3. The Buot spouses, as vendees, paid
Encarnacion the earnest money of 1,000. And
paid additional sums of money totalling P2,774
duly receipted as part payment of the subject
lot.
4. The controversy arose when Alfredo Buot, to
protect his interest, informed the Provincial
Assessor of Cebu that he had acquired certain
rights on the said parcel of land, which was not
titled. The Provincial Assessor annotated his
said right on a tax declaration.
5. On May 18, 1977 Alfredo Buot received a
subpoena requiring him to appear for a
confrontation with Encarnacion Diaz. It was
then when they found out that Encarnacion
executed a Deed of Absolute Sale to spouses
Mariano Del Rosario for the whole parcel of
land including the portion which was sold to
them.
6. Mariano was able to secure a Free Patent Title
to the entire property.
7. Encarnacion filed his answer stating that she
offered the land to spouses Buot if he could
furnish amounts in order to have the land
registered. She said that she exerted effort to
register the property but the amount the
petitioners provided were in small insufficient
amounts to pay for the registration expenses.
Because she was in financial distress, she
informed petitioners she could not wait any
longer and just offered to reimburse. But the
latter refused.
8. On the part of Mariano Del Rosario, he testified
that Encarnacion Diaz mortgaged the land to
him evidenced by a deed of real estate
mortgage executed on May 17, 1977. As a
mortgagee he was given an option to purchase
the property, and thus purchased it about 3
months later.
9. Mariano invoked that Encarnacion represented
to him that she was the absolute owner of the
property; and that at the time of free patent he
did not know of any transaction between
Encarnacion and the buot spouses. However
he admitted that he did not check whether
Encarnacion was the owner of the mortgaged
property and merely relied on the
representation of Encarnacion, he did not also
check with the Office of the Provincial
Assessor whether there was an annotation on
the tax declaration of the property.
10. The trial Court declared the Buot spouses the
absolute owners of the eastern portion of land,
but the decision was reversed by the CA.
11. The Buot spouses filed this petition submitting
that contrary to the holding of the Court of
Appeals, the MOA was not an option to
purchase but a valid and partially executed
 contract of sale; thus the subject property
could not anymore be the valid subject of
another sales contract in favor of Mariano
regardless of the allegation of good faith.
Issue
W/N petitioners are entitled to recover the property
in question this resolving that the MOA entered
into by them with Encarnacion is a contract of sale
[NO]
Decision
1. The Court dismissed the petition and affirmed
the decision of the Court of Appeals but
ordered the return of the partial payments
made by spouses Buot to Encarnacion Diaz.
12. Petitioners assert that the MOA was a contract
of sale which was perfected from the moment
the parties agreed on the object of the contract
and the price. The downpayment of P1,000 was
proof that the contract had been perfected.
13. The Court disagrees. An examination of the
MOA shows that is is neither a contract of sale
nor an option to purchase, but it is a contract to
sell. An option is a contract granting a privilege
to buy or sell at a determined price within an
agreed time, the element of specific length or
duration was not present in the MOA.
14. In a contract to sell, the title over the subject
property is transferred ti the vendee only upon
the full payment of the stipulated
consideration. Unlike in a contract of sale, the
title in a contract to sell does not pass the
vendee upon the execution of the agreement or
the delivery of the thing sold.
15. This is shown in the proviso found in the MIA
where it states that “title to, ownership,
possession and enjoyment of that portion
herein sold, shall remain with the vendor until
the full consideration of the sale thereof shall
have been received by the vendor and duly
acknowledged by her in a document duly
executed for said purpose”
16. From the nature of the contract to sell, vendor,
Encarnacion Diaz clearly reserved to herself
ownership and possession of the property until
full payment of the purchase price, such
payment being a suspensive condition, the
failure of which is not considered a breach but
simply an event which prevented the obligation
from acquiring obligatory force.
17. Petitioners argue that their obligation to pay
the balance had not arisen due to the fact that
the vendor did not notify them that the
certificate of title could already be transferred
in their names.
18. Such argument does not change the nature of
the contract they entered into. Being a contract
to sell, there was no actual sale until full
payment was made by the vendees. However, it
is only fair that the Buot spouses be allowed to
recover what they had paid in expectancy that
the condition would happen, otherwise there
would be unjust enrichment on the part of
Encarnacion Diaz.
19. Respondent Mariano on the other hand, held a
contract of sale evidenced by the Deed of
Definite sale covering the said entire property
of Encarnacion.
SILVESTRE DIGNOS V. COURT OF APPEALS
Justice Bidin; February 29, 1988
Contract of Sale/Contract to Sell
Facts:
Petitioners Dignos spouses were owners of a
parcel of land in Opon, Lapu-Lapu City. On June 7,
1965, they sold the said parcel of land to
respondent Atilano J. Jabil payable in two
installments, the first installment in the sum of
P12,000.00, was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in
favor of respondent. The next installment in the
sum of P4,000.00 wasto be paid on or before
September 15, 1965.
On November 25, 1965, the Dignos spouses sold
the same land in favor of Luciano Cabigas and
Jovita L. De Cabigas. A deed of absolute sale was
executed and which was registered in the Office of
the Register of Deeds.
As the Dignos spouses refused to accept from
respondent the balance of the purchase price of
the land, and as respondent discovered the second
sale made by petitioner to the Cabigas spouses,
respondent initially brought suit.
On this motion for reconsideration, petitioners
contend that the Deed of Sale is a mere contract
to sell and not an absolute sale; that the same is
subject to 2 positive suspensive conditions,
namely:
1. the payment of the balance of P4,000.00 on or
before September 15,1965 and the immediate
assumption of the mortgage of P12,000.00 with
the First Insular Bank of Cebu
2. title or ownership over the property was
expressly reserved in the vendor, the Dignos
spouses until the suspensive condition of full
 and punctual payment of the balance of the
purchase price shall have been met.
Further, Petitioners insist that Exhibit "C" is a
private instrument and the absence of a formal
deed of conveyance is a very strong indication that
the parties did not intend "transfer of ownership
and title but only a transfer after full payment".
Issues:
1. Whether or not subject is a deed of absolute
sale or a contract to sell
2. Whether or not there was a valid rescission
thereof.
Held:
1. The contract is a deed of absolute sale. It has
been held that a deed of sale is absolute in nature,
although denominated as a "Deed of Conditional
Sale," where nowhere in the contract in question is
a proviso or stipulation to the effect that title to
the property sold is reserved in the vendor until
full payment of the purchase price, nor is there a
stipulation giving the vendor the right to
unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period.
All the elements of a valid contract of sale under
Article 1458 of the Civil Code, are present, such
as:
(1) consent or meeting of the minds;
(2) determinate subject matter; and
(3) price certain in money or its equivalent.
In addition, Article 1477 of the same Code provides
that "The ownership of the thing sold shall be
transferred to the vendee upon actual or
constructive delivery thereof." In the absence of
stipulation to the contrary, the ownership of the
thing sold passes to the vendee upon actual or
constructive delivery thereof.
While it may be conceded that there was no
constructive delivery of the land sold in the case
at bar, as subject Deed of Sale is a private
instrument, it is beyond question that there was
actual delivery thereof. As found by the trial court,
the Dignos spouses delivered the possession of
the land in question to Jabil as early as March
27,1965 so that the latter constructed thereon
Sally's Beach Resort also known as Jabil's Beach
Resort in March, 1965; Mactan White Beach Resort
on January 15,1966 and Bevirlyn's Beach Resort on
September 1, 1965. Such facts were admitted by
petitioner spouses. It is evident that when
petitioners sold said land to the Cabigas spouses,
they were no longer owners of the same and the
sale is null and void.
2. No. Under Article 1358 of the Civil Code, it is
required that acts and contracts which have for
their object the extinguishment of real rights over
immovable property must appear in a public
document.
The contract of sale being absolute in nature is
governed by Article 1592 of the Civil Code. It is
undisputed that petitioners never notified private
respondents Jabil by notarial act that they were
rescinding the contract, and neither did they file a
suit in court to rescind the sale. The most that
they were able to show is a letter of Cipriano
Amistad who, claiming to be an emissary of Jabil,
informed the Dignos spouses not to go to the
house of Jabil because the latter had no money
and further advised petitioners to sell the land in
litigation to another party. As correctly found by
the Court of Appeals, there is no showing that
Amistad was properly authorized by Jabil to make
such extra-judicial rescission for the latter who, on
the contrary, vigorously denied having sent
Amistad to tell petitioners that he was already
waiving his rights to the land in question.
Petitioners laid considerable emphasis on the fact
that private respondent Jabil had no money on the
stipulated date of payment on September 15,1965
and was able to raise the necessary amount only
by mid-October 1965. It has been ruled, however,
that "where time is not of the essence of the
agreement, a slight delay on the part of one party
in the performance of his obligation is not a
sufficient ground for the rescission of the
agreement" Considering that private respondent
has only a balance of P4,000.00 and was delayed
in payment only for one month, equity and justice
mandate as in the aforecited case that Jabil be
given an additional period within which to
complete payment of the purchase price.
WHEREFORE, the petition filed is hereby Dismissed
for lack of merit and the assailed decision of the
Court of Appeals is Affirmed in toto.
 JACINTO v. KAPARAZ
Justice Davide, Jr.; May 22, 1992
Contract of Sale v. Contract to Sell
FACTS
On 11 March 1966, herein petitioners and private
respondents entered into an agreement
(hereinafter referred to as Agreement) under which
the private respondents agreed to sell and convey
to petitioners a portion consisting of six hundred
(600) square meters of a lot located in Matiao,
Mati, Davao Oriental and covered by Transfer
Certificate of Title No. T- 3694 for a total
consideration of P1,800.00.
A downpayment of P800.00 was paid upon
execution of the Agreement. The balance of
P1,000.00 was to be paid by petitioners on
installment at the rate of P100.00 a month to the
Development Bank of the Philippines (DBP) to be
applied to private respondents' loan accounts.
Upon the execution of the agreement, petitioners
paid the downpayment of P800.00 and were placed
in possession of the portion described therein. As
to the P1,000.00 which was to be paid directly to
the DBP, petitioners claim that they had even made
an excess payment of P100.00.cdphil
In view of the refusal of private respondents to
execute the deed of sale, petitioners filed against
them a complaint for specific performance with
the then Court of First Instance (RTC) of Davao
Oriental. Respondents on the other hand, alleged
that the sale did not materialize because Jacinto
fail to pay DBP on timely basis as stipulated in
their agreement.
On 19 November 1981, the CFI rendered a decision
in favor of the petitioners, declaring them the
owners of the property, as it found that the
petitioners paid the stipulated installments to the
DBP.. The CA reversed the CFI’s decision, stating
that petitioners had not fully discharged their
obligation under the agreement considering the
delayed payments of P300 and P200 to DBP. In
addition, granting that there was no evidence as to
who violated the agreement first, then the
contract is deemed extinguished pursuant to the
second sentence of Article 1192 of the Civil Code:
If it cannot be determined which of the parties
first violated the contract, the same shall be
deemed extinguished, and each shall bear his own
damage.
Petitioners then brought this up to the Supreme
Court.
ISSUE
W/N respondents have the right to rescind the
agreement? [NO]
DECISION
CONTRACT OF SALE v. CONTRACT TO SELL
Vital to the resolution of the controversy is the
determination of the true nature of the questioned
agreement. Is it a contract of sale or a contract to
sell?
In the latter case [a contract to sell], ownership is
retained by the seller and is not to pass until full
payment of the price. Such payment is a positive
suspensive condition the failure of which is not a
breach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey
title from acquiring binding force. In such a
situation, to argue that there was only a casual
breach is to proceed from the assumption that the
contract is one of absolute sale, where non-
payment is a resolutory question.
On the other hand, since in a contract of sale, the
non-payment of the price is a resolutory condition,
the remedy of the seller under Article 1191 of the
Civil Code is to exact fulfillment or to rescind the
contract. In respect, however, to the sale of
immovable property, this Article must be read
together with Article 1592 of the same Code.
This Article applies to instances where no
stipulation for automatic rescission is made
because it says "even though"
JUDGMENT ON THE MERITS
In this case, the agreement is a contract of sale.
The possession of the portion sold was
immediately delivered to the petitioners. They
were granted the right to enjoy all the
improvements therein effective from the date of
the execution of the agreement. Private
respondents unqualifiedly bound themselves to
execute the final deed of sale "as soon as the
settlement or partition of the estate of the
deceased Narcisa R. Kaparaz shall have been
consummated and effected, but not later than
March 31, 1967" and only upon full payment of the
unpaid portion of the purchase price. The private
respondents did not reserve unto themselves the
ownership of the property until full payment of the
unpaid balance of P1,000.00. Finally, there is no
stipulation giving the private respondents the right
to unilaterally rescind the contract the moment
the vendee fails to pay within a fixed period.
Second, it is not denied that petitioners made two
(2) payments in the sums of P200.00 and P300.00
at a time when what remained unsettled under the
agreement was only P400.00. There was then an
excess payment of P100.00. These payments were
made to the DBP which applied them to an
outstanding account of the private respondents.
Private respondents neither complained of the
delay in these payments nor rejected their
application to their account. They were,
undoubtedly, benefited by the application because
it either satisfied their account or correspondingly
reduced it. There was no stipulation as to where
the payments would be allocated to, and therefore
the petitioners were in compliance with payment.

Third, the delay incurred by petitioners was but a

casual or slight breach of the agreement, which
did not defeat the object of the parties in entering
into the agreement. A mere casual breach does not
justify rescission.7

Therefore, the CA erred in declaring the agreement

extinguished pursuant to Art. 1192 of the Civil
Code.

7 Philippine Amusement Enterprises, Inc. vs.

Natividad, 21 SCRA 284 [1967]; Angeles vs.
Calasanz, 135 SCRA 323 [1985].