HSBC v.
Spouses Broqueza
G.R. No. 178610, November 17, 2010
FACTS:
Petitioners Gerong and Broqueza are
employees of Hongkong and Shanghai
Banking Corporation (HSBC). They
are also members of respondent
Hongkong Shanghai Banking
Corporation, Ltd. Staff Retirement
Plan.
In October 1990, petitioner Broqueza
obtained a car loan in the amount of
Php 175,000.00. In December 1991,
she again applied and was granted an
appliance loan in the amount of Php
24,000.00.
In 1993, a labor dispute arose between
HSBC and its employees. Majority of
HSBCs employees were terminated,
among whom are petitioners Editha
Broqueza and Fe Gerong.
ISSUE:
Whether or not the claim was
premature as the loan obligations have
not yet matured
RULING:
No. The Court affirms the findings of
the lower courts that there is no date of
payment indicated in the Promissory
Notes. The RTC is correct in ruling that
since the Promissory Notes do not
contain a period, HSBCL-SRP has the
right to demand immediate payment.
Article 1179 of the Civil Code applies:
Every obligation whose performance
does not depend upon a future or
uncertain event, or upon a past event
unknown to the parties, is demandable
at once. The spouses Broquezas
obligation to pay HSBCL-SRP is a
pure obligation. The fact that HSBCL-
SRP was content with the prior
monthly check-off from Editha
Broquezas salary is of no moment.
Once Editha Broqueza defaulted in her
monthly payment, HSBCL-SRP made
a demand to enforce e a pure
obligation.
The Court’s Ruling
The petition is meritorious.
We agree with the rulings of the MeTC
and the RTC.
The Promissory Notes
uniformly provide:
PROMISSORY NOTE
P_____
Makati, M.M. ____ 19__
FOR VALUE RECEIVED, Once Editha Broqueza defaulted in her
I/WE _____ jointly and severally
promise to pay to THE HSBC
RETIREMENT PLAN (hereinafter
called the “PLAN”) at its office in the
Municipality of Makati, Metro Manila,
on or before until fully paid the sum of
PESOS ___ (P___) Philippine
Currency without discount, with
interest from date hereof at the rate of
Six per cent (6%) per annum, payable
monthly.
I/WE agree that the PLAN
may, upon written notice, increase the
interest rate stipulated in this note at
any time depending on prevailing
conditions.
I/WE hereby expressly
consent to any extensions or renewals
hereof for a portion or whole of the
principal without notice to the other(s),
and in such a case our liability shall
remain joint and several.
In case collection is made by
or through an attorney, I/WE jointly
and severally agree to pay ten percent
(10%) of the amount due on this note
(but in no case less than P200.00) as
and for attorney’s fees in addition to
expenses and costs of suit.
In case of judicial execution,
I/WE hereby jointly and severally
waive our rights under the provisions
of Rule 39, Section 12 of the Rules of
Court.[1][15]
In ruling for HSBCL-SRP, we
apply the first paragraph of Article
1179 of the Civil Code:
Art. 1179. Every obligation
whose performance does not depend
upon a future or uncertain event, or
upon a past event unknown to the
parties, is demandable at once.
x x x. (Emphasis supplied.)
We affirm the findings of the
MeTC and the RTC that there is no
date of payment indicated in the
Promissory Notes. The RTC is correct
in ruling that since the Promissory
Notes do not contain a period, HSBCL-
SRP has the right to demand
immediate payment. Article 1179 of
the Civil Code applies. The spouses
Broqueza’s obligation to pay HSBCL-
SRP is a pure obligation. The fact that
HSBCL-SRP was content with the
prior monthly check-off from Editha
Broqueza’s salary is of no moment.
monthly payment, HSBCL-SRP made
a demand to enforce a pure obligation.
In their Answer, the spouses
Broqueza admitted that prior to Editha
Broqueza’s dismissal from HSBC in
December 1993, she “religiously paid
the loan amortizations, which HSBC
collected through payroll check-
off.”[2][16] A definite amount is paid to
HSBCL-SRP on a specific date. Editha
Broqueza authorized HSBCL-SRP to
make deductions from her payroll until
her loans are fully paid. Editha
Broqueza, however, defaulted in her
monthly loan payment due to her
dismissal. Despite the spouses
Broqueza’s protestations, the payroll
deduction is merely a convenient
mode of payment and not the sole
source of payment for the loans.
HSBCL-SRP never agreed that the
loans will be paid only through salary
deductions. Neither did HSBCL-SRP
agree that if Editha Broqueza ceases
to be an employee of HSBC, her
obligation to pay the loans will be
suspended. HSBCL-SRP can
immediately demand payment of the
loans at anytime because the
obligation to pay has no period.
Moreover, the spouses Broqueza have
already incurred in default in paying
the monthly installments.
Finally, the enforcement of a
loan agreement involves “debtor-
creditor relations founded on contract
and does not in any way concern
employee relations. As such it should
be enforced through a separate civil
action in the regular courts and not
before the Labor Arbiter.”[3][17]
WHEREFORE, we GRANT
the petition. The Decision of the Court
of Appeals in CA-G.R. SP No. 62685
promulgated on 30 March 2006 is
REVERSED and SET ASIDE. The
decision of Branch 139 of the Regional
Trial Court of Makati City in Civil Case
No. 00-787, as well as the decision of
Branch 61 of the Metropolitan Trial
Court of Makati City in Civil Case No.
52400 against the spouses Bienvenido
and Editha Broqueza, are AFFIRMED.
Costs against respondents.
Gonzales vs. Heirs of Thomas and
Paula Cruz
GR No. 131784
FACTS:
Petition for Review on Certiorari on
decision of CA:
“WHEREFORE, premises considered,
this Court hereby renders judgment in
favor of the defendant, Felix Gonzales,
and against the plaintiffs, as follows:
i.
Ordering the dismissal of the case;
ii.
Sentencing the plaintiffs, jointly and
severally, the sum of P20,000.00 as
moral damages and the other sum of
P10,000.00 as and for attorney’s fees;
and
iii. to pay
the costs.”
CRUZ entered into a Contract of
Lease/Purchase with Gonzales (sole
proprietor and manager of Felgon
Farms) of a half-portion of a ‘parcel of
land containing an area of 12 hectares,
more or less, and an accretion of 2
hectares, more or less, situated in
Rodriguez Town, Province of Rizal’
UNDER TERMS:
Term of contract is for a period of one
year upon the signing thereof.
After the period, GONZALES shall
purchase the property P1,000,000.00,
2 years payable with 12% per annum
interest subject to the devalued
amount of the Philippine Peso,
according to the following schedule of
payment:
i. Upon
the execution of deed 50%
ii. 25%
every 6 months thereafter
1. Payable within first 10 days of the
beginning of each 6 months
GONZALES shall pay annual rental
equivalent to P2,500.00 per hectare,
upon the signing of this contract
LESSORS (CRUZ) shall undertake to
obtain a separate certificate over
leased portion to the LESSEE within a
reasonable period of time which shall
not in any case exceed four (4) years
i. A
new Contract shall be executed by the
herein parties which shall be the same
in all respects with this Contract of
Lease/Purchase insofar as the terms
and conditions are concerned.
GONZALES paid the P2,500.00 per
hectare or P15,000.00 annual rental
on the half-portion of the property
covered by certificate in accordance
with the second provision of the
Contract of Lease/Purchase, took
possession of the property, installing
thereon the defendant Jesus
Sambrano as his caretaker.
Did not purchase the property
immediately after the expiration of the
one-year lease
Remained in possession of the
property without paying the purchase
price and without paying any further
rentals
CRUZ SENT LETTER TO GONZALES
INFORMING DECISION TO RESCIND
CONTRACT DUE TO GONZALES
BREACH
Demanded defendant to vacate the
premises within 10 days from receipt
of said letter.
GONZALES refused to vacate the
property and continued possession,
case brought against GONZALES.
LESSOR, PAULA CRUZ DIED.
Final demand letter to vacate the
premises was sent by the remaining
lessors.
Title to the property remains in the
name of CRUZ
Filed a complaint for recovery of
possession of the property - subject of
the contract with damages, both moral
and compensatory and attorney’s fees
and litigation expenses.
SAMBRANO (FOR GONZALES), upon
motion, declared in default for failure to
file an answer despite valid service of
summons.
ISSUES SUBMITTED AT THAT TIME:
WON PAR 9 is a condition precedent
before the defendant is to pay the
down payment;
i. PAR
9: LESSORS (CRUZ) shall undertake
to obtain a separate certificate over
leased portion to the LESSEE within a
reasonable period of time which shall
not in any case exceed four (4) years
ii. A
new Contract shall be executed by the
herein parties which shall be the same
in all respects with this Contract of
Lease/Purchase insofar as the terms
and conditions are concerned.
WON CRUZ can rescind the Contract
of Lease/Purchase
WON CRUZ can terminate the
Contract of Lease.
DECISION OF LOWER COURT:
COMPLAINT DISMISSED.
WON PAR 9 IS A CONDITION
PRECEDENT BEFORE
DOWNPAYMENT? –YES.
i. PAR
9 indicates CRUZ to obtain TCT for
GONZALES within 4 years.
1. Thus, before a deed of Sale can be
entered into between the plaintiffs and
the defendant, the plaintiffs have to
obtain TCT in favor of GONZALES
WON CRUZ can rescind the Contract
of Lease/Purchase –NO.
i.
Failure of the plaintiffs to secure TCT,
as provided for in the contract, does
not entitle them to rescind the contract
1. ART 1191: Power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him. The injured
party may choose between the
fulfillment of the obligation, with the
payment of damages in either case.
He may seek rescission, even after he
has chosen fulfillment, if the latter
should become impossible.’ The power
to rescind is given to the injured party.
2. Where the plaintiff is the party who
did not perform, he is not entitled to
insist upon the performance of the
contract by the defendant or recover
damages by reason of his own breach
ii.
CRUZ failed to comply with the
conditions precedent after 2-1/2 years
from the execution of the contract so
as to entitle them to rescind the
contract. Although the contract stated
that the same be done within 4 years
from execution, still, the defendant has
to be assured that the land subject of
the case will be transferred in his
name without any encumbrances
1. The failure to secure the Transfer
Certificate of Title in favor of the
defendant entitles not the plaintiffs but,
rather, the defendant to either rescind
or to ask for specific performances.
WON CRUZ can terminate the
Contract of Lease. –NO
i.
Article 1670 of the New Civil Code
states that:
1. If at the end of the contract the
lessee should continue enjoying the
thing leased for fifteen days with the
acquies[c]ence of the lessor and
unless a notice to the contrary by
either party has previously been given,
it is understood that there is an implied
new lease
10. CA REVERSED TRIAL COURT
DECISION.
Transfer of title to the property cannot
be interpreted as a condition
precedent to the payment of the
agreed purchase price because such
interpretation IS COUNTER-EXPLICIT
and CONTRARY TO NORMAL
COURTS OF SALE OF REAL
PROPERTIES.
Normal course: There must first be
payment of the agreed purchase price
before transfer of title to the vendee’s
name can be made.
Reason for this four (4) year period is
[that] title to the property still remains
in the name of the original owners, the
predecessors-in-interest of the herein
appellants and [transferring] the title to
their names and eventually to the
lessee-purchaser, appellee herein,
would take quite some time.
GONZALES wanted to have the title to
the property transferred in his name
first before he exercises his option to
purchase allegedly in accordance with
the ninth provision of the contract. But
the ninth provision does not give him
this right:
i. 4-
year period asked for by the appellants
within which to have title to the
property transferred in the appellee’s
name will only start to run when the
appellee exercises his option to
purchase.
Since the appellee never exercised his
option to purchase, then appellee is
not entitled to have the title to the
property transferred in his name.”
ISSUES:
WON CA has gravely erred and
committed grave abuse of discretion in
the interpretation of [the] law between
the parties.
WON CA committed serious mistakes
in the finding of facts which resulted
[in] departing from the usual course of
judicial proceedings.
For these issues to be resolved,
petitioner asks this Court to answer the
following questions:
Is there a conflict between the
statement in paragraph 1 of the
Lease/Purchase Contract and that [in]
paragraph No. 9 thereof?
Is paragraph 9 of the Lease/Purchase
Contract a condition precedent before
petitioner could exercise his option to
buy the property?
Can plaintiff rescind or terminate the
Contract of Lease after the one-year
period?”
HELD:
PETITION GRANTED; appealed
decision is REVERSED and SET
ASIDE.
The Decision of the trial court is
REINSTATED, but the award of moral
damages and attorney’s fees is
DELETED for lack of basis. No costs.
WON CA has gravely erred and
committed grave abuse of discretion in
the interpretation of [the] law between
the parties. –YES.
CA relied on a literal interpretation to
the effect that the TCT should be
obtained in the name of the petitioner-
vendee.
i. It
reasoned that the title could be
transferred to the name of the buyer
only after the completion of the
purchase. Thus, petitioner should first
purchase the property before
respondents could be obliged to
transfer the TCT to his name.
WE DISAGREE. PAR 9 does not say
that the TCT should be obtained in the
name of the lessee.
i. In
fact, PAR 9 requires respondents to
obtain a “TCT over the herein leased
portion to the LESSEE,” thereby
showing that the crucial phrase “to the
LESSEE” adverts to “the leased
portion” and not to the name which
should appear in the new TCT.
ii. If
GONZALES should purchase the
property first before the title can be
transferred to his name, why should
there be a waiting period of four years
before the parties can execute the new
contract evidencing the sale? Why
should the petitioner still be required to
pay rentals after it purchases and pays
for the property?
PAR 9 can only mean that the
respondents should first obtain a TCT
in their names, after which petitioner is
given time to purchase and pay for the
property.
RECORDS SHOW THAT the land in
question respondents’ predecessors-
in-interest.
i. No
showing whether respondents were
the only heirs.
ii. They
admit that extrajudicial proceedings
were still ongoing.
iii.
Hence, when the Contract of
Lease/Purchase was executed, there
was no assurance that the
respondents were indeed the owners
of the specific portion of the lot that
petitioner wanted to buy, and if so, in
what concept and to what extent.
iv. Thus,
the clear intent of the ninth paragraph
was for respondents to obtain a
separate and distinct TCT in their
names.
1. This was necessary to enable
them to show their ownership of the
stipulated portion of the land and their
concomitant right to dispose of it.
2. Absent any title in their names,
they could not have sold the disputed
parcel of land.
Because the property remained
registered in the names of their
predecessors-in-interest, private
respondents could validly sell only
their undivided interest in the estate of
predecessor, the extent of which was
however not shown in the records.
There being no partition of the estate
thus far, there was no guarantee as to
how much and which portion would be
adjudicated to respondents.
They could not deliver ownership or
title to a specific portion of the yet
undivided property.
Parties under PAR 9 wanted the
specific portion of the land to be
segregated, identified and specifically
titled.
i.
Hence, by the said Contract, the
respondents as sellers were given a
maximum of four years within which to
acquire a separate TCT in their
names, preparatory to the execution of
the deed of sale and the payment of
the agreed price in the manner
described in PAR 9.
1. P50,000 advance given by
GONZALES is proof of helping them
expedite the transfer of the TCT to
their names.
2. Ineluctably, intention of the parties
was to have the title transferred first to
respondents’ names as a condition for
the completion of the purchase.
WON CA committed serious mistakes
in the finding of facts which resulted
[in] departing from the usual course of
judicial proceedings.
PAR 9 required respondents to obtain
a separate and distinct TCT in their
names and not in the name of
petitioner
i.
Logically follows that it was condition
precedent to the latter’s obligation to
purchase and pay for the land.
ii.
CONDITION: every future and
uncertain event upon which an
obligation or provision is made to
depend.
1. It is a future and uncertain event
upon which the acquisition or
resolution of rights is made to depend
by those who execute the juridical act.
Without it, the sale of the property
under the contract cannot be
perfected, and petitioner cannot be
obliged to purchase the property.
When obligation assumed by a party to
a contract is expressly subjected to a
condition, the obligation cannot be
enforced against him unless the
condition is complied with.
i.
Obligatory force of a conditional
obligation is subordinated to the
happening of a future and uncertain
event, so that if that event does not
take place, the parties would stand as
if the conditional obligation had never
existed.
Can plaintiff rescind or terminate the
Contract of Lease after the one-year
period?” –NO. BECAUSE THEY HAVE
NOT CAUSED TRANSFER OF TCT
TO THEIR NAMES.
There can be no rescission (or more
properly, resolution) of an obligation as
yet non-existent, because the
suspensive condition has not
happened.
Gonzales vs. Heirs of Thomas
314 SCRA 585 (1999)
FACTS:
On December 1, 1983, Paula Ao Cruz
together with the plaintiffs heirs of
Thomas and Paula Cruz, entered into
a Contract of Lease/Purchase with the
defendant, Felix L. Gonzales, a certain
parcel of land. The defendant
Gonzales paid the annual rental on the
half-portion of the property covered by
Transfer Certificate of Title No. 12111
in accordance with the second
provision of the Contract of
Lease/Purchase and thereafter took
possession of the property, installing
thereon the defendant Jesus
Sambrano as his caretaker. The
defendant Gonzales did not, however,
exercise his option to purchase the
property immediately after the
expiration of the one-year lease. He
remained in possession of the property
without paying the purchase price
provided for in the Contract of
Lease/Purchase and without paying
any further rentals thereon.
A letter was sent by one of the
plaintiffs-heirs to the defendant
Gonzales informing him of the lessors
decision to rescind the Contract of
Lease/Purchase due to a breach
thereof committed by the defendant
which also served as a demand on the
defendant to vacate the premises
within 10 days from receipt of said
letter. However, the defendant refused
to vacate the property and continued
possession thereof.
Alleging breach of the provisions of the
Contract of Lease/Purchase, the
plaintiffs filed a complaint for recovery
of possession of the property – subject
of the contract with damages, both
moral and compensatory and
attorney’s fees and litigation expenses.
The defendant Gonzales filed his
answer praying for a dismissal of the
complaint filed against him and an
award of moral, exemplary and actual
damages, as well as litigation
expenses.
The trial court rendered a decision in
favor of the defendant. It held that he
failure of the plaintiffs to secure the
Transfer Certificate of Title, as
provided for in the contract, does not
entitle them to rescind the contract.
The plaintiff appealed to the Court of
Appeals which reversed the decision
of the Trial Court. Hence, this petition.
ISSUE:
Whether or not the express stipulation
of the contract which is to secure the
Transfer Certificate of Title a condition
precedent before the petitioner could
exercise his option to buy the property.
RULING:
Yes, it is a condition precedent. If a
stipulation in a contract admits of
several meanings, it shall be
understood as bearing that import
most adequate to render it effectual.
An obligation cannot be enforced
unless the plaintiff has fulfilled the
condition upon which it is premised.
Hence, an obligation to purchase
cannot be implemented unless and
until the sellers have shown their title
to the specific portion of the property
being sold.
We hold that the ninth provision was
intended to ensure that respondents
would have a valid title over the
specific portion they were selling to
petitioner. Only after the title is
assured may the obligation to buy the
land and to pay the sums stated in the
Contract be enforced within the period
stipulated. Verily, the petitioners
obligation to purchase has not yet
ripened and cannot be enforced until
and unless respondents can prove
their title to the property subject of the
Contract.
Therefore, respondents cannot rescind
the contract, because they have not
caused the transfer of the TCT to their
names, which is a condition precedent
to petitioners obligation. This Court
has held that there can be no
rescission (or more properly,
resolution) of an obligation as yet non-
existent, because the suspensive
condition has not happened.
Parks vs Province of Tarlac
FACTS
In 1910, Concepcion Cirer and James
Hill donated parcels of land to the
municipality of Tarlac on the condition
that it be used absolutely and
exclusively for the erection of a central
school and public parks, the work to
commence within six months. The
president of the municipality of Tarlac
accepted and registered the donation.
In 1921, Cirer and Hill sold the same
property to George L. Parks.Later on
the, the municipality of Tarlac
transferred their rights in the property
to the Province of Tarlac.
Parks filed a complaint seeking the
annulment of the donation and asking
that he be declared the absolute owner
of the property. Parks allege that the
conditions of the donation were not
complied with.
ISSUE
Whether or not the donation was
coupled with a condition precedent?
W/N the action to revoke has
prescribed?
HELD
No. The condition to erect a school
within six months is not a condition
precedent. The characteristic of a
condition precedent is that the
acquisiito of the right is not effected
while said condition is mot complied
with or is not deemed complied with.
Meanwhile nothing is acquired and
there is only an expectancy of a right.
Consequently, when a condition is
imposed, the compliance of which
cannot be effected except when the
right is deemed acquired, such
condition cannot be a condition
precedent. In the present case the
condition that a public school be
erected and a public park be made of
the donated land could not be
complied with except after giving effect
to the donation.
The action to revoke the donation has
prescribed. The prescriptive periods
are: 5 years for the revocation by the
subsequent birth of children, 1 year if
by reason of ingratitude. If no special
period is prescribed, 10 years, for an
onerous donation following the law of
contracts and general rules on
prescriptions. The donation was made
in 1910, the cause of action accrued in
1911, while the action to revoke was
filed 1924, twenty three years later.
Parks vs. Province of Tarlac
Art. 1181, Suspensive vs. Resolutory
Condition
Facts
Plaintiff bought the land from
Concepcon Ciper and James Hill
Prior to the sale, Ciper and Hill
donated the land to province of Tarlac
subject to the condition that it will be
absolutely used for erection of a
central school and a public park and
the work shall commence within six
months from the ratification for the
donation
Issue
W/N Parks has the right of action to
recover the land from municipality of
Tarlac on the condition that the
condition is suspensive and therefore
the said municipality had never
acquired a right thereto since the
condition was never performed
Ruling
The Condition is not suspensive it is
resolutory
In the present case, the condition that
a public school be erected and a public
park made on the donated land, work
on the same to commence within
6months from date of ratification of the
donation by parties, could not be
complied with except after giving effect
to the donation
The done could not do any work on the
donated land if the donation had not
really been effected, because it would
be an invasion if another’s title for the
land would have continued to belong
to the donor so long as the condition
was imposed was not complied with.
The condition was a condition
subsequent (resolutory)
Central Philippines University vs C.A.,
Remedias Franco, et al
FACTS:
In 1939, late Don Ramon Lopez, Sr.
executed a deed of donation in favor of
Central Philippines University (CPU) of
a parcel of land with the following
conditions:
The land shall be exclusively use for
the establishment of and use of a
medical college.
CPU shall not sell, transfer or convey
to any third party or any way the land.
The said land shall be called “Ramon
Lopez Campus”
However in 1989, the respondents
who are heirs of Don Ramon filed an
action for annulment of donation, re-
conveyance and damages against
CPU alleging that since 1939 has not
complied with the conditions of the
donation and that the University
negotiated with National Housing
Authority (NHA) to exchange the
donated land with another land.
ISSUE:
Whether or not all the rights of the
done are deemed lost and
extinguished because of the non-
fulfillment of the conditions?
SUPREME COURT RULING:
Supreme Court finds that since the
records are clear and facts are
undisputed that since the execution of
the deed of donation until filing of
instant action, petitioner has failed to
comply with its obligation as done.
CPU has slept its obligation for
unreasonable length of time so it is
only just and equitable to declare the
donation ineffective.
Supreme Court declared that the
conditions set forth in the donation
were resolutory conditions which mean
the fulfillment of the conditions
extinguishes the obligation.
CENTRAL PHIL UNIV. vs. Court of
Appeals 
246 SCRA 511
FACTS:
1. CPU: (1939) Don Ramon Lopez Sr.
executed a deed of donation
Conditions of the donation:
a) Land should be utilized
exclusively for the establishment & use
of medical college.
b) College shall not sell transfer or
convey to any 3rd party.
c) Land shall be called “Ramon
Lopez Campus”
d) Income from that land shall be
put in “Ramon Lopez Campus Fund”
for improvement of the facility.
2. HEIRS (LOPEZ): (1989) filed an
action for annulment of donation,
reconveyance & damages:
a) Non-compliance with the
conditions.
b) Negotiation with the NHA to
exchange the donated property with
another land.
*CPU argued: right to file action
has prescribed
no
violation because did not use property
*Lower Court sided with LOPEZ
HEIRS.
ISSUE:

1. WON CPU failed to comply
conditions given there was no fixed
period? YES

2. WON there is a need to fix the
period for compliance of the condition?
NO
HELD:
RTC ILOILO DECISION REINSTATED
CA DECISION MODIFIED
RECONVEYANCE TO LOPEZ HEIRS
WITH COSTS
1. RESOLUTORY CONDITION: upon
fulfillment, terminates an enforceable
obligation.
a. Rights are lost once the condition
is fulfilled.
b. Entitles parties to resort back to
original positions.
c. Takes effect if either parties do not
comply with his/her engagements (in
which complaining party may sue for
dissolution of contract with damages)
2. ARTICLE 1181: CONDITIONAL
OBLIGATIONS
Acquisition of rights,
extinguishment/loss of acquired, shall
depend on happening event that
constitutes the condition.
a. Donating land to another on the
condition that the latter would build
upon the land a school is
RESOLUTORY IN CONDITION. The
donation had to be valid before the
fulfillment of the condition. If there was
no fulfillment with the condition such
as what obtains in the instant case, the
donation may be revoked and all rights
the donee may have acquired shall be
lost and extinguished.
b. More than a reasonable period of
fifty (50) years has already been
allowed petitioner to avail of the
opportunity to comply with the
condition even if it be burdensome, to
make the donation in its favor forever
valid. But, unfortunately, it failed to do
so. Hence, there is no more need to fix
the duration of a term of the obligation
when such procedure would be a mere
technicality and formality and would
serve no purpose than to delay or lead
to an unnecessary and expensive
multiplication of suits.
c. Petitioner has slept on its
obligation for an unreasonable length
of time. Hence, it is only just and
equitable now to declare the subject
donation already ineffective and, for all
purposes, revoked so that petitioner as
donee should now return the donated
property to the heirs of the donor,
private respondents herein, by means
of reconveyance.
d. RECONVEYANCE: property held
by a trustee/mortgage is returned to its
owner on his request.
3. ARTICLE 1197: OBLIGATIONS
WITH NO FIXED PERIOD
GENERAL RULE: Period can be
inferred from its nature or
circumstances.
Court can fix the duration because the
fulfillment of the obligation itself cannot
be demanded until after the court has
fixed the period for compliance.
a. CASE AT HAND: General rule
cannot be applied in this case
considering the different set of
circumstances existing more than a
reasonable period of 50 years has
already been allowed to petitioner to
avail of the opportunity to comply but
unfortunately, it failed to do so.
b. Hence, there is no need to fix a
period when such procedure would be
a mere technicality & formality & would
serve no purpose than to delay or load
to unnecessary and expensive
multiplication of suits.
Central Philippine University v CA
(Obligations and Contracts)
Central Philippine University v CA
GR No. 112127
July 17, 1995
DONATION
FACTS: (1) In 1939, the late Don
Ramon Lopez, Sr., who was then a
member of the Board of Trustees of
the Central Philippine College (now
Central Philippine University [CPU]),
executed a deed of donation in favor of
the latter of a parcel of land identified
as Lot No. 3174-B-1 of the subdivision
plan Psd-1144, then a portion of Lot
No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was
issued in the name of the donee CPU
with the following annotations copied
from the deed of donation —
1. The land described shall be utilized
by the CPU exclusively for the
establishment and use of a medical
college with all its buildings as part of
the curriculum;
2. The said college shall not sell,
transfer or convey to any third party
nor in any way encumber said land;
3. The said land shall be called
"RAMON LOPEZ CAMPUS", and the
said college shall be under obligation
to erect a cornerstone bearing that
name. Any net income from the land or
any of its parks shall be put in a fund
to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for
improvements of said campus and
erection of a building thereon.
(2) On 31 May 1989, private
respondents, who are the heirs of Don
Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance
and damages against CPU alleging
that since 1939 up to the time the
action was filed the latter had not
complied with the conditions of the
donation.
RTC: On 31 May 1991, the trial court
held that petitioner failed to comply
with the conditions of the donation and
declared it null and void.
CA: 18 June 1993 ruled that the
annotations at the back of petitioner's
certificate of title were resolutory
conditions breach of which should
terminate the rights of the donee thus
making the donation revocable.
APPLICABLE LAW/S:
• Art. 1181. In conditional obligations,
the acquisition of rights, as well as the
extinguishment or loss of those
already acquired, shall depend upon
the happening of the event which
constitutes the condition. (1114)
• Art. 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. (1128a)
• Art. 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of
damages in either case. He may also
seek rescission, even after he has
chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and
1388 and the Mortgage Law. (1124)
HELD: (1) The donation was onerous.
A clear perusal of the conditions set
forth in the deed of donation executed
by Don Ramon Lopez, Sr., gives us no
alternative but to conclude that his
donation was onerous, one executed
for a valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a donation
imposes a burden equivalent to the
value of the donation. The donation
had to be valid before the fulfillment of
the condition. 5 If there was no
fulfillment or compliance with the
condition, such as what obtains in the
instant case, the donation may now be
revoked and all rights which the donee
may have acquired under it shall be
deemed lost and extinguished.

(2) The action has not prescribed. It
has been held that its absolute
acceptance and the acknowledgment
of its obligation provided in the deed of
donation were sufficient to prevent the
statute of limitations from barring the
action of private respondents upon the
original contract which was the deed of
donation.
(3) Courts fixing a period is now moot
and rescission is proper. Petitioner has
slept on its obligation for an
unreasonable length of time. Hence, it
is only just and equitable now to
declare the subject donation already
ineffective and, for all purposes,
revoked so that petitioner as donee
should now return the donated
property to the heirs of the donor,
private respondents herein, by means
of reconveyance.
Lao Lim vs. CA
G.R. No. 87047, October 31, 1990
FACTS:
Private respondent entered into a
contract of lease with petitioner for a
period of three (3) years, that is, from
1976 to 1979. After the stipulated term
expired, private respondent refused to
vacate the premises, hence, petitioner
filed an ejectment suit against the
former in the City Court of Manila. The
case was terminated by a judicially
compromise agreement. On 1985 Dy,
informed Lim of his intention to renew
the lease up to 1988, Lim did not
agree to the renewal. Another
ejectment suit was filed by Lim against
Dy due to the failure to vacate the
premises. The RTC dismissed the
case then later affirmed by the CA for
the following reasons: (1) the
stipulation in the compromise
agreement which allows the lessee
(Benito Dy) to stay on the premises as
long as he needs it and can pay rents
is valid, being a resolutory condition,
and therefore beyond the ambit of art
1308 of the NCC; and (2) the
compromise agreement has the effect
of res judicata.
ISSUE:
Whether or not the stipulation in the
compromise agreement which allows
the lessee to stay on the premises as
long as he needs it and can pay rents
is valid?
RULING:
No, the stipulation in the compromise
agreement is not valid. The statement
“for as long as the defendant needed
the premises and can meet and pay
said increases” is a purely potestative
condition because it leaves the
effectivity and enjoyment of leasehold
rights to the sole and exclusive will of
the lessee.
FACTS OF THE CASE:
Records show that Francisco Lim,
entered into a contract of lease with
Benito Dy for a period of 3 years, from
1976 to 1979. After the stipulated term
expired the respondent refused to
leave the premises, so Francisco Lim
filed an ejectment suit against Benito
Dy. This case was then taken over by
a judicially approved compromise
agreement which provides an
automatic increase in rent of 20%
every 3 years. On 1985 Dy, informed
Lim of his intention to renew the lease
up to 1988, Lim did not agree to the
renewal.
In 1987 another ejectment suit was
filed by Lim after the failure of Dy to
vacate the premises. It was dismissed
by the RTC and later affirmed by the
CA for the following reasons: (1) the
stipulation in the compromise
agreement which allows the lessee
(Benito Dy) to stay on the premises as
long as he needs it and can pay rents
is valid, being a resolutory condition,
and therefore beyond the ambit of art
1308 of the NCC; and (2) the
compromise agreement has the effect
of res judicata.
ISSUES OF THE CASE:
Was the stipulation in the compromise
agreement which allows the lessee to
stay on the premises as long as he
needs it and can pay rents is valid?
- No, since the stipulation “for as long
as the defendant needed the premises
and can meet and pay said increases”
is a purely potestative condition
because it leaves the effectivity and
enjoyment of leasehold rights to the
sole and exclusive will of the lessee.
- The continuance, effectivity, and
fulfillment of a contract of lease cannot
be made to depend exclusively upon
the free and uncontrolled choice of the
lessee between continuing payment of
the rentals or not, completely depriving
the owner of any say in the matter.
Mutuality does not obtain in such a
contract of lease and no equality exists
between the lessor and the lessee.
HELD:
The decision of the Court of Appeals is
REVERSED AND SET ASIDE. Benito
Dy is ordered to immediately vacate
and return the possession of the
premises and pay the monthly rentals
due thereon in accordance with the
compromise agreement until he shall
have actually vacated the same. This
Judgment is immediately executory.
Obligations and Contracts Terms:
• Potestative Condition- This can be
found in Art 1182 of the NCC. A
potestative condition speaks of
fulfillment of an obligation rests solely
upon the will of the debtor. An
obligation which is subject to a
suspensive potestative condition is
non- demandable, hence it is void. If it
is the debtor himself who determines
the fulfillment of the condition, such an
agreement produces no juridical effect
that can be enforced, and thus null
Osmena vs. Rama
G.R. No. 4437 September 9,
1909
FACTS:
RAMA EXECUTED CONTRACT TO
OSMENA:
1890:
i.Received P200 which will be paid in
sugar, with interest of half a
cuartillo/month on each peso
beginning on this date until the day of
the settlement
ii.If I can not pay in full, a balance shall
be struck, showing the amount
outstanding at the end of each June,
including interest.
iii.Sell to Señor Osmeña all the sugar
that I may harvest.
iv. As a guarantee, pledge as security
all of my present and future property,
and as special security the house with
tile roof and ground floor of stone.
1891
i. Asked for further loan: P70 and 50
from Don Penares which will be paid in
sugar.
2. Osmena died.
a. Property was passed to heir,
Agustina Rafols.
b. Rama did not pay the amount.
LOWER COURT FAVORED RAFOLS.
P200 plus 18% interest, P20 +20%
P50 of the P70 mentioned in Exhibit B
had been borrowed by the defendant,
but by one Evaristo Peñares; therefore
the defendant had no responsibility.
ISSUE:QUESTIONS OF FACT: proof
was not sufficient.
HELD:
JUDGMENT OF LOWER COURT
AFFIRMED
In the acknowledgment made by the
defendant, she imposed the condition
that she would pay the obligation if she
sold her house.
If that statement found in her
acknowledgment of the indebtedness
should be regarded as a condition, it
was a condition which depended upon
her exclusive will, and is therefore,
void.
Osmeña vs Rama
GR No. 4437 – September 9, 1909
FACTS:
Petitioner – defendant (Rama)
obtained a series of loans from
respondent – plaintiff (Osmena), with
which petitioner pledged her sugar
harvest, present and future properties
including her house. Sometime after
the execution and delivery of the
loans, respondent died. Plaintiff was
succeeded by his heir who filed a case
and presented evidence of an
acknowledgment by defendant of the
loan stating that the same shall be
paid “when her house is sold”.
Petitioner answered by setting up the
defense of prescription. The lower
court ruled in favor of the respondent.
Hence the petition.
ISSUE:
Whether or not the loan obligation had
prescribed.
RULING:
No. The loans did not prescribe.
Article 1182 of the Civil Code provides
that: “When the fulfillment of the
condition depends upon the sole will of
the debtor, the conditional obligation
shall be void. If it depends upon
chance or upon the will of a third
person, the obligation shall take effect
in conformity with the provisions of this
Code.”
The condition presented by the
petitioner in the acknowledgement is a
void condition being dependent on the
sole will (potestative) of the same. The
court ruled that since the said
condition is found on the
acknowledgment and not on the
original obligation, only the said
condition is void and the
acknowledgment thus becomes an
absolute recognition of the loans
contracted. There already being prior
acknowledgment, the debt is
considered to have not prescribed.
Petition is dismissed and lower court’s
decision is affirmed.
Romero vs. CA
G.R. No. 107207, November 23, 1995
Facts: Petitioner Virgilio R. Romero, a
civil engineer, was engaged in the
business of production, manufacture
and exportation of perlite filter aids,
permalite insulation and processed
perlite ore. In 1988, petitioner and his
foreign partners decided to put up a
central warehouse in Metro Manila on
a land area of approximately 2,000
square meters. Petitioner visited the
property of private respondent
Enriqueta Chua vda. de Ongsiong and,
except for the presence of squatters in
the area, he found the place suitable
for a central warehouse.
A contract, denominated “Deed of
Conditional Sale,” was executed
between petitioner and private
respondent with the pertinent clause “It
is hereby agreed, covenanted and
stipulated by and between the parties
hereto that if after 60 days from the
date of the signing of this contract the
VENDOR shall not be able to remove
the squatters from the property being
purchased, the downpayment made by
the buyer shall be returned/reimbursed
by the VENDOR to the VENDEE.”
Pursuant to the agreement, private
respondent filed a complaint for
ejectment against Melchor Musa and
29 other squatter families with the
MTC. Judgment was rendered
ordering the defendants to vacate the
premises. The decision was handed
down beyond the 60-day period.
Private respondent sought to return
the P50,000.00 she received from
petitioner since, she said, she could
not “get rid of the squatters” on the lot.
Atty. Sergio A.F. Apostol, counsel for
petitioner, in his reply, refused the
tender and proposes that his client will
take it upon himself to eject the
squatters, provided, that expenses
which shall be incurred by reason
thereof shall be chargeable to the
purchase price of the land.
Meanwhile, the Presidential
Commission for the Urban Poor
(“PCUD”), asked the MTC for a grace
period of 45 days within which to
relocate and transfer the squatter
families. This request was granted.
Atty. Joaquin Yuseco, Jr., counsel for
private respondent, advised Atty.
Apostol that the Deed of Conditional
Sale had been rendered null and void
by virtue of his client’s failure to evict
the squatters from the premises within
the agreed 60-day period. He added
that private respondent had “decided
to retain the property.”
Private respondent, prompted by
petitioner’s continued refusal to accept
the return of the P50,000.00 advance
payment, filed with the RTC rescission
of the deed of “conditional” sale, plus
damages, and for the consignation of
P50,000.00 cash.
MTC held that respondent has no right
to rescind since it was she who
“violated her obligation to eject the
squatters from the subject property”.
Issue: May the vendor demand the
rescission of a contract for the sale of
a parcel of land for a cause traceable
to his own failure to have the squatters
on the subject property evicted within
the contractually-stipulated period
Held: NO. A perfected contract of sale
may either be absolute or conditional
depending on whether the agreement
is devoid of, or subject to, any
condition imposed on the passing of
title of the thing to be conveyed or on
the obligation of a party thereto. When
ownership is retained until the
fulfillment of a positive condition the
breach of the condition will simply
prevent the duty to convey title from
acquiring an obligatory force. If the
condition is imposed on an obligation
of a party which is not complied with,
the other party may either refuse to
proceed or waive said condition (Art.
1545, Civil Code). Where, of course,
the condition is imposed upon the
perfection of the contract itself, the
failure of such condition would prevent
the juridical relation itself from coming
into existence.
In determining the real character of the
contract, the title given to it by the
parties is not as much significant as its
substance. For example, a deed of
sale, although denominated as a deed
of conditional sale, may be treated as
absolute in nature, if title to the
property sold is not reserved in the
vendor or if the vendor is not granted
the right to unilaterally rescind the
contract predicated on the fulfillment or
non-fulfillment, as the case may be, of
the prescribed condition.
The term “condition” in the context of a
perfected contract of sale pertains, in
reality, to the compliance by one party
of an undertaking the fulfillment of
which would beckon, in turn, the
demandability of the reciprocal
prestation of the other party. The
reciprocal obligations referred to would
normally be, in the case of vendee, the
payment of the agreed purchase price
and, in the case of the vendor, the
fulfillment of certain express warranties
(which, in the case at bench is the
timely eviction of the squatters on the
property).
The object of the sale, in the case
before us, was the lot. Under the
agreement, private respondent is
obligated to evict the squatters on the
property. The ejectment of the
squatters is a condition the operative
act of which sets into motion the period
of compliance by petitioner of his own
obligation, i.e., to pay the balance of
the purchase price. Private
respondent’s failure “to remove the
squatters from the property” within the
stipulated period gives petitioner the
right to either refuse to proceed with
the agreement or waive that condition
in consonance with Article 1545 of the
Civil Code. This option clearly belongs
to petitioner and not to private
respondent.
We share the opinion of the appellate
court that the undertaking required of
private respondent does not constitute
a “potestative condition dependent
solely on his will” that might, otherwise,
be void in accordance with Article
1182 of the Civil Code 17 but a
“mixed” condition “dependent not on
the will of the vendor alone but also of
third persons like the squatters and
government agencies and personnel
concerned.” We must hasten to add,
however, that where the so-called
“potestative condition” is imposed not
on the birth of the obligation but on its
fulfillment, only the obligation is
avoided, leaving unaffected the
obligation itself.
Romero vs. CA
G.R. No. 107207, November 23, 1995
FACTS:
Petitioner Virgilio Romero a civil
engineer together with his foreign
partners wants to put up a Central
Warehouse in Metro Manila. Alfonso
Flores and his wife accompanied by a
broker, offered a parcel of land
measuring 1,952 square meters,
owned by the private respondent
Enriqueta Chua vda. De Ongsiong.
The two entered into a “Conditional
deed of Sale”. The petitioner paid in
advance in the sum of P50,000.00 for
the eviction of squatters. Although
successful, private respondent sought
the return of the advance payment she
received because she could not get rid
of the squatters.
ISSUE:
1. May the vendor demand the
rescission of a contract of sale of a
parcel of land for a cause traceable to
his own failure to evict the squatters?
2. Is the condition of the contract
valid?
RULING:
A perfected contract of sale may either
be absolute or conditional depending
on whether the agreement is devoid of,
or subject to, any condition imposed
on the passing of title of the thing to be
conveyed or on the obligation of a
party thereto. When ownership is
retained until the fulfillment of a
positive condition the breach of the
condition will simply prevent the duty
to convey title from acquiring an
obligatory force. If the condition is
imposed upon the obligation of a party
thereto when ownership is retained
until the fulfillment of a positive
condition will simply prevent the duty
to convey title from acquiring an
obligatory force. If the condition is
imposed on an obligation of a party
which is not complied with the other
party may either refuse to proceed or
waive said condition. Where, of
course, the condition is imposed upon
the perfection of the contract itself, the
failure of such condition would prevent
the juridical relation itself from coming
into existence. The right of resolution
of a party to an obligation is predicted
on a breach of faith by the other party
that violates the reciprocity between
them. It is private respondent who has
failed in her obligation under the
contract. Petitioner did not breach the
agreement. He has agreed, in fact, to
shoulder the expense of the execution
of the judgment in the ejectment case
and to make arrangements with the
sherriff to effect such execution.
Facts:
Private respondent entered into a
“Conditional Deed of Sale” with
petitioner over a parcel of land in
Paranaque, the latter advancing
P50,000 for the eviction of squatters
therein. An ejectment suit was then
filed by the private respondent against
the squatters. Although successful,
private respondent sought the return of
the downpayment she received
because “she could not get rid of the
squatters”.
Issue:
May the vendor demand the rescission
of a contract for the sale of a parcel of
land for a cause traceable to his own
failure to have the squatters on the
subject property evicted within the
contractually-stipulated period?
Held:
A perfected contract of sale may either
be absolute or conditional depending
on whether the agreement is devoid of,
or subject to, any condition imposed
on the passing of title of the thing to be
conveyed or on the obligation of a
party thereto. When ownership is
retained until the fulfillment of a
positive condition the breach of the
condition will simply prevent the duty
to convey title from acquiring an
obligatory force. If the condition is
imposed on an obligation of a party
which is not complied with, the other
party may either refuse to proceed or
waive said condition. Where, of
course, the condition is imposed upon
the perfection of the contract itself, the
failure of such condition would prevent
the juridical relation itself from coming
into existence.
In determining the real character of the
contract, the title given to it by the
parties is not as much significant as its
substance. For example, a deed of
sale, although denominated as a deed
of conditional sale, may be treated as
absolute in nature, if title to the
property sold is not reserved in the
vendor or if the vendor is not granted
the right to unilaterally rescind the
contract predicated on the fulfillment or
non-fulfillment, as the case may be, of
the prescribed condition. The term
"condition" in the context of a perfected
contract of sale pertains, in reality, to
the compliance by one party of an
undertaking the fulfillment of which
would beckon, in turn, the
demandability of the reciprocal
prestation of the other party. The
reciprocal obligations referred to would
normally be, in the case of vendee, the
payment of the agreed purchase price
and, in the case of the vendor, the
fulfillment of certain express warranties
(which, in the case at bench is the
timely eviction of the squatters on the
property).
It would be futile to challenge the
agreement here in question as not
being a duly perfected contract. A sale
is at once perfected when a person
(the seller) obligates himself, for a
price certain, to deliver and to transfer
ownership of a specified thing or right
to another (the buyer) over which the
latter agrees. From the moment the
contract is perfected, the parties are
bound not only to the fulfillment of
what has been expressly stipulated but
also to all the consequences which,
according to their nature, may be in
keeping with good faith, usage and
law. Under the agreement, private
respondent is obligated to evict the
squatters on the property. Private
respondent's failure "to remove the
squatters from the property" within the
stipulated period gives petitioner the
right to either refuse to proceed with
the agreement or waive that condition
in consonance with Article 1545 of the
Civil Code. This option clearly belongs
to petitioner and not to private
respondent.
In contracts of sale
particularly, Article 1545 of the Civil
Code allows the obligee to choose
between proceeding with the
agreement or waiving the performance
of the condition. Here, evidently,
petitioner has waived the performance
of the condition imposed on private
respondent to free the property from
squatters.
The right of resolution of a
party to an obligation is predicated on
a breach of faith by the other party that
violates the reciprocity between them.
It is private respondent who has failed
in her obligation under the contract.
Petitioner did not breach the
agreement. He has agreed, in fact, to
shoulder the expenses of the
execution of the judgment in the
ejectment case and to make
arrangements with the sheriff to effect
such execution.
Roman Catholic Archbishop vs.
CA/RIETA
G.R. No. 77425 June 19, 1991
FACTS:
RIETA FILED NULLIFICATION OF
DEED OF DONATION, RECISSION
OF CONTRACT AND
RECONVEYANCE OF REAL
PROPERTY WITH DAMAGES against
Ignao and ROMAN CATHOLIC
BISHOP OF IMUS, CAVITE/MANILA.
Executed deed of donation covering a
parcel of land
i.CONDITION: Donee shall not
dispose or sell the property within a
period of one hundred (100) years
from the execution of the deed of
donation, otherwise would render ipso
facto null and void; deed and property
would revert back to donors.
Bishop of Imus executed a deed of
absolute sale to Ignao for P114,000
IGNAO: MOTION TO DISMISS
No legal capacity to sue
No cause of action
Prescribed (added by Roman Catholic
Bishop of Imus)
Not a real party in interest (Bishop of
Manila)
Was ruled that the complaint for cause
of action has already prescribed.
APPEALED TO CA:
WON the action for rescission of
contracts (deed of donation and deed
of sale) has prescribed
WON the dismissal of the action for
rescission of contracts (deed of
donation and deed of sale) on the
ground of prescription carries with it
the dismissal of the main action for
reconveyance.
CA held that action not prescribed.
ISSUE:
Has the cause of action already
prescribed? NO.
ARTICLE 764: "(t)his action shall
prescribe after 4 years from the non-
compliance with the condition, may be
transmitted to the heirs of the donor,
and may be exercised against the
donee's heirs.
Is there a cause of action?
UNJUSTIFIED CAUSE OF ACTION
HELD:
Judgment SET ASIDE and another
judgment DISMISSED.
1. DEED HAS AUTOMATIC
REVERSION EXPRESSED, JUDICIAL
DECLARATION NOT NECESSARY
HENCE.
a.Judicial action for rescission of a
contract is not necessary where the
contract provides that it may be
revoked and cancelled for violation of
any of its terms and conditions.
b. Judicial action is proper only when
there is absence of a special provision
granting the power of cancellation.
2. UNDUE RESTRICTION ON
RIGHTS OF OWNERSHIP,
CONTRARY TO PUBLIC POLICY.
a. DONATION: effective transfer of
title over the property from the donor to
the donee. Once a donation is
accepted, the donee becomes the
absolute owner of the property
donated. Although the donor may
impose certain conditions in the deed
of donation, the same must not be
contrary to law, morals, good customs,
public order and public policy.
b. Condition imposed must not be
perpetual or for an unreasonable
period of time.
Song Fo & Company vs Hawaiian
Philippine Co.
G.R. No. 23769 – September 16, 1925
FACTS:
Hawaiian-Philippine Co (HPC) entered
into a contract with Song Fo and Co
(SFC) where it would deliver molasses
to the latter evidenced by a letter
containing their contract. The same
states that Mr. Song Fo agreed to the
delivery of 300,000 gallons of
molasses and the same requested for
an additional 100,000 molasses which
the HPC promised that it will do its
best to comply with the additional
shipment. However, the HPC was only
able to deliver 55,006 gallons. SFC
thereafter filed a complaint with two
causes of action for breach of contract
against the HPC and asked for
P70,369.50. HPC answered that there
was a delay in the payment from
SFC and that HPC has the right to
rescind the contract because of the
same· The trial court condemned HPC
to pay SFC a total of P35,317.93, with
legal interest.
ISSUES:
1. Whether or not SFC is entitled to
damages
2. Whether or not HPC has a right to
rescind the contract?
RULING:
As to the first question, yes, SFC is
entitled to damages. Article 1170 of
the Civil Code provides “Those who in
the performance of their obligations
are guilty of fraud, negligence, or
delay, and those who in any manner
contravene the tenor thereof, are liable
for damages”
The failure of HPC to deliver the rest of
the molasses constitutes a breach of
contract by contravention of tenor and
is thus liable for damages. The bases
for damages is the cost in excess of
the agreed price in the contract when
SFC was made to acquire the needed
molasses from another supplier and
the expenses related to the
transportation of the same. Loss of
profits would have been included as
part of damages had SFC been able to
substantiate such a claim.
As to the second question, no, HPC
has no right to rescind the contract.
The court provided that the general
rule is that rescission will not be
permitted for a slight or casual breach
of the contract, but only for such
breaches as are so substantial and
fundamental as to defeat the object of
the parties in making the agreement.
It should be noted that the time of
payment stipulated for in the contract
should be treated as of the essence of
the contract. There was only a slight
breach of contract when the payment
was delayed for 20 days and does not
violate essential condition of the
contract which warrants rescission for
non-performance. Furthermore, HPC
accepted the payment of the overdue
accounts and continued with the
contract, waiving its right to rescind the
same.
Petition of partly granted, and the
judgment appealed is modified.
Plaintiff shall have and recover from
the defendant the sum of P3,000, with
legal interest from date of judgment,
no special costs.
Boysaw vs. Interphil Promotions
Boxer (P) vs. Promoter (D)
GR L-22590
Summary: A boxer signed an
agreement with a promotions agency
to arrange and promote a boxing
match with Flash Elorde. The boxer
violated the terms of the contract, but
in spite of these, the agency
proceeded except it negotiated for a
new date for the match. Eventually, the
match as originally stated in the
contract did not materialize. Boxer and
manager is now suing the promotion
agency for breach of contract.
Rule of Law: Where one party did not
perform the undertaking which he was
bound by the terms of the agreement
to perform, he is not entitled to insist
upon the performance of the contract
by the other party, or recover damages
by reason of his own breach.
Facts: Solomon Boysaw (P), signed
with Interphil Promotions, Inc. (D), a
contract to engage Gabriel "Flash"
Elorde in a boxing contest for the
junior lightweight championship of the
world. Thereafter, Interphil (D) signed
Gabriel "Flash" Elorde to a similar
agreement—that is, to engage Boysaw
in a title fight.
The managerial rights over Boysaw (P)
was assigned and eventually
reassigned to Alfredo Yulo, Jr. (P)
without the consent of Interphil (D) in
violation of their contract. When
informed of the change, Interphil (D)
referred the matter to the Games and
Amusement Board culminating to a
decision by the board to approve a
new date for the match. Yulo (P)
protested against the new date even
when another proposed date was
within the 30-day allowable
postponements.
Boysaw (P) and Yulo (P) filed for
breach of contract when the fight
contemplated in the original boxing
contract did not materialize.
Issues: May the offending party in a
reciprocal obligation compel the other
party for specific performance?
Ruling: No. Evidence established that
the contract was violated by Boysaw
(P) when, without the approval or
consent of Interphil (D), he fought a
boxing match in Las Vegas. Another
violation was the assignment and
transfer of the managerial rights over
Boysaw (P) without the knowledge or
consent of Interphil (D).
While the contract imposed no penalty
for such violation, this does not grant
any of the parties the unbridled liberty
to breach it with impunity. Our law on
contracts recognizes the principle that
actionable injury inheres in every
contractual breach.
Those who in the performance of their
obligations are guilty of fraud,
negligence or delay, and those who in
any manner contravene the terms
thereof, are liable for damages.
—Article 1170, Civil Code.
The power to rescind obligations is
implied, in reciprocal ones, in case one
of the obligors should not comply with
what is incumbent upon him.
—Article 1191, Civil Code.
The contract in question gave rise 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, so that
the performance of one is conditioned
upon the simultaneous fulfillment of
the other.
—Tolentino, Civil Code of the
Philippines, Vol. IV, p. 175.
The power to rescind is given to the
injured party.
Where the plaintiff is the party who did
not perform the undertaking which he
was bound by the terms of the
agreement to perform, he is not
entitled to insist upon the performance
of the contract by the defendant, or
recover damages by reason of his own
breach.
—Seva vs. Alfredo Berwin, 48 Phil.
581.
Under the law, when a contract is
unlawfully novated by an applicable
and unilateral substitution of the
obligor by another, the aggrieved
creditor is not bound to deal with the
substitute. However, from the
evidence, it is clear that the Interphil
(D), instead of availing themselves of
the options given to them by law of
rescission or refusal to recognize the
substitute obligor, really wanted to
postpone the fight date owing to an
injury that Elorde sustained in a recent
bout. That Interphil (D) had justification
to renegotiate the original contract,
particularly the fight date is undeniable
from the facts. Under the
circumstances, Interphil's (D) desire to
postpone the fight date could neither
be unlawful nor unreasonable.
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.”
UP vs. De Los Angeles
G.R. No. L-28602, 29 September 1970
FACTS:
Petitioner and respondent ALUMCO
entered into a logging agreement
under which the latter was granted
exclusive authority, for a period
starting from the date of the agreement
to 31 December 1965, extendible for a
further period of five (5) years by
mutual agreement, to cut, collect and
remove timber from the Land Grant, in
consideration of payment to UP of
royalties, forest fees, etc. The Land
Grant, situated at the Lubayat areas in
the provinces of Laguna and Quezon,
was segregated from the public
domain and given as an endowment to
UP, an institution of higher learning, to
be operated and developed for the
purpose of raising additional income
for its support, pursuant to Act 3608.
ALUMCO cut and removed timber
therefrom but, as of 8 December 1964,
it had incurred an unpaid account of
P219,362.94, which, despite repeated
demands, it had failed to pay. After a
notice was given by the petitioner that
they would rescind or terminate the
logging agreement, ALUMCO
executed an instrument, entitled
“Acknowledgment of Debt and
Proposed Manner of Payments,” dated
9 December 1964, which was
approved by the president of UP, and
which stipulated the following:
3. In the event that the payments
called for in Nos. 1 and 2 of this
paragraph are not sufficient to liquidate
the foregoing indebtedness of the
DEBTOR in favor of the CREDITOR,
the balance outstanding after the said
payments have been applied shall be
paid by the DEBTOR in full no later
than June 30, 1965;
5. In the event that the DEBTOR fails
to comply with any of its promises or
undertakings in this document, the
DEBTOR agrees without reservation
that the CREDITOR shall have the
right and the power to consider the
Logging Agreement dated December
2, 1960 as rescinded without the
necessity of any judicial suit, and the
CREDITOR shall be entitled as a
matter of right to Fifty Thousand Pesos
(P50,000.00) by way of and for
liquidated damages;
ALUMCO continued its logging
operations, but again incurred an
unpaid account, for the period from 9
December 1964 to 15 July 1965, in the
amount of P61,133.74, in addition to
the indebtedness that it had previously
acknowledged. Four days later,
petitioner UP informed respondent
ALUMCO that it had, as of that date,
considered as rescinded and of no
further legal effect the logging
agreement that they had entered in
1960.
ISSUE:
Whether or not petitioner UP treat its
contract with ALUMCO rescinded, and
may disregard the same before any
judicial pronouncement to that effect.
RULING:
Yes to both. UP and ALUMCO had
expressly stipulated in the
“Acknowledgment of Debt and
Proposed Manner of Payments” that,
upon default by the debtor ALUMCO,
the creditor (UP) has “the right and the
power to consider, the Logging
Agreement dated 2 December 1960 as
rescinded without the necessity of any
judicial suit.” As to such special
stipulation, and in connection with
Article 1191 of the Civil Code, this
Court stated in Froilan vs. Pan Oriental
Shipping Co., et al., L-11897, 31
October 1964, 12 SCRA 276:
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.
Of course, it must be understood that
the act of party in treating a contract as
cancelled or resolved on account of
infractions by the other contracting
party must be made known to the
other and is always provisional, being
ever subject to scrutiny and review by
the proper court. If the other party
denies that rescission is justified, it is
free to resort to judicial action in its
own behalf, and bring the matter to
court. Then, should the court, after due
hearing, decide that the resolution of
the contract was not warranted, the
responsible party will be sentenced to
damages; in the contrary case, the
resolution will be affirmed, and the
consequent indemnity awarded to the
party prejudiced.
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.
Facts:
Petitioner Jaime Ong and
respondents, Robles couple executed
an “Agreement of Purchase and Sale”
with regard to 2 parcels of land, on
which a rice mill and a piggery were
found and thus included. The terms
and conditions of the contract included
an initial payment, payment for the
loan of the sellers including interest,
and the balance to be satisfied in 4
equal quarterly installments.
As agreed, petitioner took possession
of the subject property and everything
else thereon upon satisfaction of the
initial payment. However, petitioner
failed to comply with the payment for
the loan. Plus, the checks that the
petitioner issued to the couple as
payment for the balance were
dishonored due to insufficient funds.
To avoid foreclosure, the respondent
couple sold the ricemill with the
knowledge and conformity of
petitioner.
Respondents sought for the rescission
of the properties due to the latter’s
failure to comply with the terms and
conditions on the contract.
RTC ruled in favor of the Robles
couple and ordered the restitution of
the properties. The couple were also
ordered to return an amount, as
determined by the court, to Ong.
CA affirmed the decision in
contemplation of Article 1191 of The
New Civil Code
Issue:
(1) whether the contract entered into
by the parties may be validly rescinded
under Article 1191 of the New Civil
Code as distinguished to Article 1383
of the same.
(2) whether the parties had novated
their original contract as to the time
and manner of payment.
HELD:
The Contract entered into by the
parties was a “Contract to Sell” which
means that 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.
Respondents bound themselves to
deliver a deed of absolute sale and
clean title covering the two parcels of
land upon full payment by the buyer of
the purchase price of P2,000,000.00
subject to the fulfillment of the
suspensive condition of full payment of
the purchase price by the petitioner.
Petitioner, however, failed to complete
payment of the purchase price. The
non-fulfillment of the condition of full
payment rendered the contract to sell
ineffective and without force and
effect.
As to the issue on novation, 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. 25 The
aforesaid requisites are not found in
the case at bench.
Iringan v. Court of Appeals
G.R. No. 129107, September 26,
2001, 366 SCRA 41
FACTS
Private respondent Antonio Palao sold
to petitioner Alfonso Iringan, an
undivided portion of Lot No. 992 of the
Tuguegarao Cadastre, located at the
Poblacion of Tuguegarao and covered
by Transfer Certificate of Title No. T-
5790. The parties executed a Deed of
Sale] on the same date with the
purchase price of
P295,000.00,payable as follows:(a)
P10,000.00 upon the execution of this
instrument ;(b) P140,000.00 on or
before April 30, 1985;(c) P145,000.00
on or before December 31, 1985.
When the second payment was due,
Iringan paid only P40,000. Thus, Palao
sent a letter to Iringan stating that he
considered the contract as rescinded
and that he would not accept any
further payment considering that
Iringan failed to comply with his
obligation to pay the full amount of the
second installment. Iringan through his
counsel Atty. Hilarion L. Aquino,
replied that they were not opposing the
revocation of the Deed of Sale but
asked for the reimbursement of the
following amounts:(a) P50,000.00 cash
received;(b) P3,200.00 geodetic
engineers fee;(c) P500.00 attorneys
fee;(d) the current interest on
P53,700.00. In response, Palao sent a
letter dated January 10, 1986 to Atty.
Aquino, stating that he was not
amenable to the reimbursements
claimed by Iringan.
On February 21, 1989, Iringan, now
represented by a new counsel Atty.
Carmelo Z. Lasam, proposed that the
P50,000 which he had already paid
Palao be reimbursed or Palao could
sell to Iringan, an equivalent portion of
the land. Palao instead wrote Iringan
that the latters standing obligation had
reached P61,600, representing
payment of arrears for rentals from
October 1985 up to March 1989.[9]
The parties failed to arrive at an
agreement. On July 1, 1991, Palao
filed a Complaint[10] for Judicial
Confirmation of Rescission of Contract
and Damages against Iringan and his
wife.
ISSUE:
Whether or not the contract of sale
was validly rescinded.
RULING:
Article 1592 of the Civil Code is the
applicable provision regarding the sale
of an immovable property. Article
1592. In the sale of immovable
property, even though it may have
been stipulated that upon failure to pay
the price at the time agreed upon the
rescission of the contract shall of right
take place, the vendee may pay, even
after the expiration of the period, as
long as no demand for rescission of
the contract has been made upon him
either judicially or by a notarial act.
After the demand, the court may not
grant him a new term. Article 1592
requires the rescinding party to serve
judicial or notarial notice of his intent to
resolve the contract.
Article 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him. The injured party
may choose between the fulfillment
and the rescission of the obligation,
with payment of damages in either
case. He may also seek rescission,
even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with articles 1385 and
1388 and the Mortgage Law.
But in our view, even if Article 1191
were applicable, petitioner would still
not be entitled to automatic rescission.
In Escueta v. Pando, we ruled that
under Article 1124 (now Article 1191)
of the Civil Code, the right to resolve
reciprocal obligations, is deemed
implied in case one of the obligors
shall fail to comply with what is
incumbent upon him. But that right
must be invoked judicially. The same
article also provides: The Court shall
decree the resolution demanded,
unless there should be grounds, which
justify the allowance of a term for the
performance of the obligation. This
requirement has been retained in the
third paragraph of Article 1191, which
states that the court shall decree the
rescission claimed, unless there be
just cause authorizing the fixing of a
period.
Consequently, even if the right to
rescind is made available to the injured
party, the obligation is not ipso facto
erased by the failure of the other party
to comply with what is incumbent upon
him. The party entitled to rescind
should apply to the court for a decree
of rescission.The right cannot be
exercised solely on a party’s own
judgment that the other committed a
breach of the obligation.The operative
act which produces the resolution of
the contract is the decree of the court
and not the mere act of the vendor.
Since a judicial or notarial act is
required by law for a valid rescission to
take place, the letter written by
respondent declaring his intention to
rescind did not operate to validly
rescind the contract.
Deiparine vs. CA and Trinidad
GR. No. 96643, April 23, 1993
FACtS:
Spouses Carungay entered into a
contract with Deiparine for the
construction of a 3-story dormitory in
Cebu. Carungay agreed to pay
Php970,000 inclusive of contractor’s
fee, and Deiparine bound himself to
erect the building “in strict accordance
to plans and specifications.” Trinidad,
a civil engineer, was designated as
Carungays’ representative, with
powers of inspection and coordination
with the contractor.
Trinidad reported to Carungay that
Deiparine had been deviating from the
plans and specifications, thus
impairing the strength and safety of the
building. Carungay ordered Deiparine
to first secure approval from him
before pouring cement. This order was
not heeded, prompting Carungay to
send Deiparine another memorandum
complaining that the construction
works are faulty and done haphazardly
mainky due to lax supervision coupled
with inexperienced and unqualified
staff.
Carungay then filed a complaint for the
rescission of the construction contract
for damages.
ISSUE:
Whether or not the rescission of
contract is valid due to breach.
RULING:
Yes. Article 1385 states that rescission
creates the obligation to return the
things which were the object of the
contract, together with the 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.
The construction contract falls
squarely under 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 is not predicated on economic
prejudice to one of the parties but on
breach of faith by one of them that
violated the reciprocity between them.
The violation of reciprocity between
Deiparine and 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.
KOREA TECHNOLOGIES CO. LTD
VS LERMA (GR NO. 143581
JANUARY 7, 2008)
Korea Technologies Co. Ltd vs Lerma
GR No. 143581 January 7, 2008
Facts: Petitioner Korea Technologies
Co., Ltd. (KOGIES) is a Korean
corporation which is engaged in the
supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder
manufacturing plants, while private
respondent Pacific General Steel
Manufacturing Corp. (PGSMC) is a
domestic corporation. On March 5,
1997, PGSMC and KOGIES executed
a Contract whereby KOGIES would set
up an LPG Cylinder Manufacturing
Plant in Carmona, Cavite. The contract
was executed in the Philippines. On
April 7, 1997, the parties executed, in
Korea, an Amendment for Contract
No. KLP-970301 dated March 5, 1997
amending the terms of payment. The
contract and its amendment stipulated
that KOGIES will ship the machinery
and facilities necessary for
manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000.
KOGIES would install and initiate the
operation of the plant for which
PGSMC bound itself to pay USD
306,000 upon the plants production of
the 11-kg. LPG cylinder samples.
Thus, the total contract price
amounted to USD 1,530,000. On
October 14, 1997, PGSMC entered
into a Contract of Lease with Worth
Properties, Inc. (Worth) for use of
Worths 5,079-square meter property
with a 4,032-square meter warehouse
building to house the LPG
manufacturing plant. The monthly
rental was PhP 322,560 commencing
on January 1, 1998 with a 10% annual
increment clause. Subsequently, the
machineries, equipment, and facilities
for the manufacture of LPG cylinders
were shipped, delivered, and installed
in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000. However,
gleaned from the Certificate executed
by the parties on January 22, 1998,
after the installation of the plant, the
initial operation could not be
conducted as PGSMC encountered
financial difficulties affecting the supply
of materials, thus forcing the parties to
agree that KOGIES would be deemed
to have completely complied with the
terms and conditions of the March 5,
1997 contract. For the remaining
balance of USD306,000 for the
installation and initial operation of the
plant, PGSMC issued two postdated
checks: (1) BPI Check No. 0316412
dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No.
0316413 dated March 30, 1998 for
PhP 4,500,000. When KOGIES
deposited the checks, these were
dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998,
KOGIES sent a demand letter to
PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in
case of nonpayment. On the same
date, the wife of PGSMCs President
faxed a letter dated May 7, 1998 to
KOGIES President who was then
staying at a Makati City hotel. She
complained that not only did KOGIES
deliver a different brand of hydraulic
press from that agreed upon but it had
not delivered several equipment parts
already paid for.
Issue: Whether or not the arbitration
clause in the contract of the parties
should govern.
Held: Yes. Established in this
jurisdiction is the rule that the law of
the place where the contract is made
governs. Lex loci contractus. The
contract in this case was perfected
here in the Philippines. Therefore, our
laws ought to govern. Nonetheless,
Art. 2044 of the Civil Code sanctions
the validity of mutually agreed arbitral
clause or the finality and binding effect
of an arbitral award. Art. 2044
provides, Any stipulation that the
arbitrators award or decision shall be
final, is valid, without prejudice to
Articles 2038, 2039 and 2040.

The arbitration clause was mutually

and voluntarily agreed upon by the
parties. It has not been shown to be
contrary to any law, or against morals,
good customs, public order, or public
policy. There has been no showing
that the parties have not dealt with
each other on equal footing. We find
no reason why the arbitration clause
should not be respected and complied
with by both parties. In Gonzales v.
Climax Mining Ltd., we held that
submission to arbitration is a contract
and that a clause in a contract
providing that all matters in dispute
between the parties shall be referred
to arbitration is a contract. Again in Del
Monte Corporation-USA v. Court of
Appeals, we likewise ruled that [t]he
provision to submit to arbitration any
dispute arising therefrom and the
relationship of the parties is part of that
contract and is itself a contract.

Having said that the instant arbitration

clause is not against public policy, we
come to the question on what governs
an arbitration clause specifying that in
case of any dispute arising from the
contract, an arbitral panel will be
constituted in a foreign country and the
arbitration rules of the foreign country
would govern and its award shall be
final and binding.

Thus, it can be gleaned that the

concept of a final and binding arbitral
award is similar to judgments or
awards given by some of our quasi-
judicial bodies, like the National Labor
Relations Commission and Mines
Adjudication Board, whose final
judgments are stipulated to be final
and binding, but not immediately
executory in the sense that they may
still be judicially reviewed, upon the
instance of any party. Therefore, the
final foreign arbitral awards are
similarly situated in that they need first
to be confirmed by the RTC.