UNIVERSITY OF THE PHILIPPINES VS.

DE LOS ANGELES 35 SCRA 102

FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from the Land Grant for a period starting from the date of
agreement to December 31, 1965, extendible for a period of 5 years by mutual agreement.

On December 8, 1964, ALUMCO incurred an unpaid account of P219, 362.94. Despite repeated demands, ALUMCO still
failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an instrument
entitled “Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president of UP, which
stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance
outstanding after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that
Creditor shall have the right to consider the Logging Agreement rescinded, without the necessity of any judicial suit…
ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19, 1965, UP informed
ALUMCO that it had, as of that date, considered rescinded and of no further legal effect the logging agreement, and that
UP had already taken steps to have another concessionaire take over the logging operation. ALUMCO filed a petition to
enjoin UP from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal.

ISSUE:
Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect?

RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right and the
power to consider the Logging Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit. As
to such special stipulation and in connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs.
Pan Oriental Shipping Co: “There is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words,
it is not always necessary for the injured party to resort to court for rescission of the contract.”

De Erquiaga v. CA

G.R. No. 47206, September 27, 1989, 178 SCRA 1

FACTS:

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

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

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

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

Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the
promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally
informed Reynoso that he was rescinding the sale of his shares in EDC.
Erquiaga filed a complaint for rescission with preliminary injunction against Reynoso and EDC, in CFI
Sorsogon, Branch I. The CFI ruled in favor of Erquiaga, rescinded the sale, and ordered Reynoso to: (a) return
and reconvey to Erquiaga the 3,100 paid up shares of stock of the EDC; (b) render a full accounting of the
fruits he received by virtue of said shares, and to return said fruits received by him to Erquiaga; (c) and pay
Erquiaga P12,000 as actual damages, P50,000 as attorney’s fees, the costs of this suit and expenses of
litigation (P62,000). Erquiaga was ordered to return to Reynoso P100,000 plus legal interest from November 4,
1968, and P310,000 plus legal interest from December 17, 1968, until paid (P410,000 total).

The CFI decision became final and executory. However, it issued another order holding in abeyance
Erquiaga’s payment of P410,000 plus interest, pending Reynoso’s accounting of the fruits he received on
account of the shares. In the same order, the CFI appointed a receiver since (a) the accounting of the fruits
received by Reynoso would take time; and (b) Erquiaga has shown sufficient and justifiable ground for the
appointment of a receiver ‘in order to preserve the Hacienda which has obviously been mismanaged by
Reynoso (arrears in DBP loan amounting to P503,510.70 and danger of foreclosure to Erquiaga’s damage).

On April 26, 1973, Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda. de
Reynoso and children, as defendants. The Reynoso heirs (Reynosos) filed a petition for certiorari in the CA
against the CFI order. The CA dismissed the petition. The SC affirmed. Upon Erquiaga’s motion, the CFI
issued an order on February 12, 1975: (a) dissolving the receivership and ordering the delivery of the
possession of the Hacienda San Jose to Erquiaga, (b) ordering Erquiaga to file a P410,000 bond conditioned
to the payment of whatever may be due to the Reynoso heirs after the approval of Reynoso’s accounting
report; and (c) allowing Erquiaga’s counsel to inspect, copy and photograph certain documents related to the
accounting report.

The CFI approved Erquiaga’s submitted bond and turned over the possession, management and control of the
hacienda to him. Upon Erquiaga’s Omnibus Motion, opposed by Reynosos, the CFI ordered the latter to deliver
to Erquiaga within 5 days from receipt of the order the 1,600 shares which are in their possession. The CFI
also denied the prayer to (a) strike out all expenses allegedly incurred by Reynosos in the production of the
fruits of Hacienda San Jose; (b) declare Erquiaga’s obligation to pay Reynosos P410,000 with interest as fully
compensated by the fruits earned by Reynosos from the property; and (c) issue a writ of execution against
Reynosos to pay Erquiaga P62,000.

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

At the time of the CA decision:

o Hacienda San Jose was returned to Erquiaga;

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

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

o Erquiaga has not returned P410k required by the decision.

Erquiaga alleged that the CA decision of requiring him to pay Reynosos P410,000 plus interest, without first
awaiting Reynoso’s accounting of the fruits of the Hacienda San Jose, violates the law of the case and Art.
1385, CC, alters the final order dated February 12, 1975 of the trial court, and is inequitous.

ISSUE:

WON Erquiaga’s allegation has merit

HELD:

NO. The CA order is in full accord with Art. 1385, CC:

“ART. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.

“Neither shall rescission take place when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.

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

However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga’s obligation
to deliver to Reynoso the legal interest earned by his money, should await the rendition and approval of his
accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable
and oppressive to require Erquiaga to pay the legal interest earned by Reynoso’s P410,000 since 1968 or for
the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the
fruits of Erquiaga’s hacienda which he allegedly squandered while it was in his possession from November
1968 up to March 3, 1975.

ANGELES VS. CALASANZ 135 SCRA 323

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

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

The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in their favor
the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they
found out that they have already paid the total amount including interests, realty taxes and incidental expenses. The
defendants alleged in their answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused
to pay and/or offer to pay monthly installments corresponding to the month of August, 1966 for more than 5 months,
thereby constraining the defendants to cancel the said contract.

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

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

RULING:
No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum of P3,920
plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to the buyer
upon payment of the said price.

The contract to sell, being a contract of adhesion, must be construed against the party causing it. The Supreme Court
agree with the observation of the plaintiffs-appellees to the effect that the terms of a contract must be interpreted
against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after
having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a
contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and its
entirety is most unfair to the buyers.

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

Ong v. CA
Facts:

Petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and
Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale"
respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. On May 15,
1983, petitioner Ong took possession of the subject parcels of land together with the
piggery, building, ricemill, residential house and other improvements thereon.

For failure of the vendee to pay the price as agreed upon, a complaint for rescission of
contract and recovery of properties with damages. Later, while the case was still pending
with the trial court, petitioner introduced major improvements on the subject properties.
These prompted the respondent spouses to ask for a writ of preliminary injunction. The
trial court granted the application and enjoined petitioner from introducing improvements
on the properties except for repairs. Eventually, the trial court ordered the rescission of
the contract.

Issues:

(1) whether the contract entered into by the parties may be validly rescinded under Article
1191 of the New Civil Code

(2) whether the parties had novated their original contract as to the time and manner of
payment

Held:

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

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the
nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale,
the title to the property passes to the vendee upon the delivery of the thing sold; while in a
contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price. In a contract to sell, the payment of
the purchase price is a positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force. The non-fulfillment of the condition of full payment
rendered the contract to sell ineffective and without force and effect. It must be stressed
that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to
comply with an obligation. Failure to pay, in this instance, is not even a breach but merely
an event which prevents the vendor's obligation to convey title from acquiring binding
force. Hence, the agreement of the parties in the case at bench may be set aside, but not
because of a breach on the part of petitioner for failure to complete payment of the
purchase price. Rather, his failure to do so brought about a situation which prevented the
obligation of respondent spouses to convey title from acquiring an obligatory force.

Novation is never presumed, it must be proven as a fact either by express stipulation of the
parties or by implication derived from an irreconcilable incompatibility between the old
and the new obligation. In order for novation to take place, the concurrence of the
following requisites is indispensable: (1) there must be a previous valid obligation; (2)
there must be an agreement of the parties concerned to a new contract; (3) there must be
the extinguishment of the old contract; and (4) there must be the validity of the new
contract. The aforesaid requisites are not found in the case at bench. The subsequent acts
of the parties hardly demonstrate their intent to dissolve the old obligation as a
consideration for the emergence of the new one.