Vasquez v Ayala Corporation

FACTS:

            On April 23, 1981, spouses Vasquez entered into a MOA with Ayala Corp. with Ayala buying from
the Vazquez spouses all of the latter's shares of stock in Conduit Development, Inc. The main asset was a
property in Ayala Alabang which was then being developed by Conduit under a development plan where
the land was divided into Villages 1, 2 and 3. The development was then being undertaken by G.P.
Construction and Development Corp. Under the MOA, Ayala was to develop the entire property, less
what was defined as the "Retained Area". This "Retained Area" was to be retained by the Vazquez
spouses. The area to be developed by Ayala was called the "Remaining Area". In this "Remaining Area"
were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the spouses
at the prevailing price at the time of purchase. After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the project. Ayala then received a letter from Lancer General Builder
Corp. in which the latter was claiming a certain amount as subcontractor. G.P. Construction not being
able to reach an amicable settlement with Lancer, Lancer sued G.P. Construction, Conduit and Ayala in
the court. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of
the property. The suit was terminated only on 1987.

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area"
within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of the
approaching so-called deadline. However, no demand after 1984, was ever made by the Vasquez
spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent
categorically stated that they expected development of Phase 1 to be completed 3 years from the
settlement of the legal problems with the previous contractor. By early 1990, Ayala finished the
development of the vicinity. The 4 lots were then offered to be sold to the Vasquez spouses at the
prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices,
thereby leading to the suit below.

ISSUE:

            Whether or not respondent incurred default or delay in the fulfillment of its obligation.

HELD:

            No. In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially. Under
Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes. However, no such day certain was fixed in the MOA.

Petitioners, therefore, cannot demand performance after the 3 year period fixed by the MOA for
the development of the first phase of the property since this is not the same period contemplated for
the development of the subject lots. Since the MOA does not specify a period for the development of
the subject lots, petitioners should have petitioned the court to fix the period in accordance with Article
1197 of the Civil Code. As no such action was filed by petitioners, their complaint for specific
performance was premature, the obligation not being demandable at that point. Accordingly, Ayala
Corp. cannot likewise be said to have delayed performance of the obligation. Even assuming that the
MOA imposes an obligation on Ayala Corp. to develop the subject lots, within 3 years from date thereof,
Ayala Corp. could still not be held to have been in delay since no demand was made by petitioners for
the performance of its obligation. Moreover, the letters were mere reminders and not categorical
demands to perform. These letters were sent before the obligation could become legally demandable.
More importantly, petitioners waived the 3-year period as evidenced by their agent's letter to the effect
that petitioners agreed that the 3 year period should be counted from the termination of the case filed
by Lancer.

The Insular Life Assurance Co. vs Toyota Bel-Air

FACTS:

Toyota Bel-Air and Insular Life entered into a contract of lease over a lot and building owned by
Insular Life in Makati City, the contract is for a 5-yar period from April 16, 1992 to April 15, 1997. The
conflict began upon the expiration of the lease wherein Toyota Bel-Air refused to vacate the property,
this actually forced Insular Life to file a complaint in Metropolitan Trial Court (MeTC) for unlawful
detainer against Toyota Bel-Air where the verdict was in favor of the petitioner Insular Life.

MeTC issued a writ of execution in an action for ejectment against of the respondent Toyota Bel-
Air where the deputy sheriff of MeTC executed the writ by levying on the respondent’s real and
personal properties as well as garnishing its bank accounts. On the hand, because of the issued writ and
the scheduled auction of the levied properties, the respondent Toyota Bel-Air filed a petition before the
Regional Trial Court (RTC) for the injunctive relief which was ultimately decided that the writ of
execution and the levy effected by the deputy sheriff was void.

ISSUE:

Whether or not the petitioner Insular Life has the right to oust Toyota Bel-Air in the building?

SUPREME COURT RULING:

The Supreme Court declared the writ of execution issued by MeTC valid

– The compromise agreement is an agreement subject to a suspensive condition which will only
give rise to the obligation if all the stipulated conditions are followed which clearly in this case the
respondent Toyota Bel-Air was not able to comply with.

Insular Life Assurance Corp. vs. Young, 2002

Facts:

Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents. It
appears that during that time, Evaristo was already suffering from tuberculosis. Such fact appeared
during the medical exam, but the examiner and the company’s agent ignored it. After that, Evaristo was
made to sign an application form and thereafter the blank spaces were filled by the medical examiner
and the agent making it appear that Evaristo was a fit subject of insurance. (Evaristo could not read and
understand English) When Evaristo died, Insular life refused to pay the proceeds because of
concealment.

Issue:

Whether or not Insular Life was bound by their agent’s acts.

Held:

Yes. The insurance business has grown so vast and lucrative within the past century. Nowadays, even
people of modest means enter into insurance contracts. Agents who solicit contracts are paid large
commissions on the policies secured by them. They act as general representatives of insurance
companies.

IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer. The
insurer’s medical examiner approved the application knowing fully well that the applicant was sick. The
situation is one in which of two innocent parties must bear a loss for his reliance upon a third person. In
this case, it is the one who drafted and accepted the policy and consummated the contract. It seems
reasonable that as between the two of them, the one who employed and gave character to the third
person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries.

Rayos v. CA

G.R. No. 135528; 14 July 2004

FACTS:

Spouses Orlando Rayos, a practicing lawyer, and his wife, Mercedes Rayos, secured a short-term loan
from Philippine Savings Bank (PSB) payable within 1 year in quarterly installments of P29,190.28. The
loan was evidenced by a promissory note and to secure its payment, the spouses executed a real estate
mortgage over their property located in Las Piñas, Metro Manila. Petitioners (as vendors) and private
respondents, Spouses Rogelio and Venus Miranda executed a Deed of Sale with Assumption of
Mortgage over the subject property for P214,000.00. A month after, the spouses executed a contract to
sell in favor of Spouses Miranda for P250,000.00 and obliged themselves to execute a deed of absolute
sale upon full payment of the purchase price. Notwithstanding the refusal of PSB to secure the approval
of Rogelio’s assumption of petitioners’ obligation on the loan, Rogelio was able to pay the 3 quarterly
installments. Fearing that respondents would be unable to pay the amount due, Orlando paid
P27,981.41 leaving a balance of P1,048.04 which he eventually paid. Spouses Rayos assert that the CA
erred in not finding that respondents committed a breach of contract to sell and behooved CA to apply
Article 1192 of the Civil Code which states that, “the power to rescind obligation is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him.“

ISSUE:

Did Spouses Rayos unilaterally cancel their contract to sell?

No. Contrary to the ruling of the CA, the petitioners did not unilaterally cancel their contract to sell with
respondents when they paid the total amount of P29,062.80 to the PSB in December 1986. In fact, the
petitioners wrote the respondents on January 3, 5, and 17, 1987 that they were ready to execute the
deed of absolute sale and turn over the owner’s duplicate of TCT upon the respondents’ remittance of
the amount of P29,062.80 plus P160.87. The respondents were obliged under the contract to sell to pay
the said amount to PSB as part of the purchase price of the property. On the other hand, it cannot be
argued by the petitioners that the respondents committed a breach of their obligation when they
refused to refund the said amount.

2.

Heirs of Sandejas vs Alex Lina G.R. No. 141634

Facts:

The facts of the case, as narrated by the Court of Appeals (CA). On February 17, 1981, Eliodoro Sandejas,
Sr. filed a petition, in the lower court praying that letters of administration be issued in his favor for the
settlement of the estate of his wife, Remedios Sandejas, who died on April 17, 1955.

On July 1, 1981, Letters of Administration were issued by the lower court appointing Eliodoro Sandejas,
Sr. as administrator of the estate of the late Remedios Sandejas. Likewise on the same date, Eliodoro
Sandejas, Sr. took his oath as administrator.

On November 19, 1981, the 4th floor of Manila City Hall was burned and among the records burned
were the records of Branch XI of the Court of First Instance of Manila. As a result, he filed a Motion for
Reconstitution of the records of the case on February 9, 1983. On February 16, 1983, the lower court in
its Order granted the said motion.

On April 19, 1983, an Omnibus Pleading for motion to intervene and petition-in-intervention was filed by
Movant Alex A. Lina alleging among others that on June 7, 1982, movant and administrator Eliodoro P.
Sandejas, in his capacity as seller, bound and obligated himself, his heirs, administrators, and assigns, to
sell forever and absolutely and in their entirety the following parcels of land which formed part of the
estate of the late Remedios R. Sandejas.

It showed that there was receipt of money with promise to sell and to buy with the sum of P100,000.00

Issues:
a) Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the property referred to
in the subject document which was found to be in the nature of a contract to sell where court approval
was not complied with?

Held:

Petitioners argue that the CA erred in ordering the conveyance of the disputed 3/5 of the parcels of
land, despite the nonfulfillment of the suspensive condition -- court approval of the sale -- as contained
in the "Receipt of Earnest Money with Promise to Sell and to Buy" (also referred to as the "Receipt").
Instead, they assert that because this condition had not been satisfied, their obligation to deliver the
disputed parcels of land was converted into a money claim.

The agreement between Eliodoro Sr. and respondent is subject to a suspensive condition -- the
procurement of a court approval, not full payment. There was no reservation of ownership in the
agreement. In accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the
disputed lots over to respondent. This they could do upon the court's approval, even before full
payment. Hence, their contract was a conditional sale, rather than a contract to sell as determined by
the CA.

When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and
when the condition happens or is fulfilled. Thus, the intestate court's grant of the Motion for Approval
of the sale filed by respondent resulted in petitioners' obligation to execute the Deed of Sale of the
disputed lots in his favor. The condition having been satisfied, the contract was perfected. Henceforth,
the parties were bound to fulfill what they had expressly agreed upon.

Court approval is required in any disposition of the decedent's estate per Rule 89 of the Rules of Court.
Reference to judicial approval, however, cannot adversely affect the substantive rights of heirs to
dispose of their own pro indiviso shares in the co-heirship or co-ownership. In other words, they can sell
their rights, interests or participation in the property under administration. A stipulation requiring court
approval does not affect the validity and the effectivity of the sale as regards the selling heirs. It merely
implies that the property may be taken out of custodia legis, but only with the court's permission. It
would seem that the suspensive condition in the present conditional sale was imposed only for this
reason.

Buot v. Court of Appeals G.R. No. 119679, 18 May 2001, 357 SCRA 846

FACTS:

Plaintiffs-spouses alleged that defendant Encarnacion Diaz Vda. de Reston, sold to them the eastern
portion of her property as evidenced by a Memorandum of Agreement.

The Memorandum of Agreement stated that the purchase price of P19,042.00 shall be paid as follows:
(a) the amount of one thousand pesos (P1,000.00) in the concept of earnest money, upon the execution
of the said instrument; and (b) the balance thereof, in the amount of eighteen thousand forty-two pesos
(P18,042.00), within six (6) months from the date the vendees are notified by the vendor of the fact that
the Certificate of Title to the eastern portion of the vendor’s lot is ready for transfer in the names of the
vendees. It was also agreed that title to, ownership, possession and enjoyment of the portion sold shall
remain with the vendor until the full consideration of the sale shall have been received by her and
acknowledged in a document duly executed for said purpose.

The Buot spouses paid Encarnacion Diaz Vda. de Reston the earnest money of P1,000.00. Encarnacion
asked Alfredo Buot for additional sums of money totalling P2,774.00, duly receipted as part payment of
the subject lot. As the land was not titled, Alfredo Buot protected his interest by informing the Provincial
Assessor of Cebu in a letter that he had acquired “certain rights” on said parcel of land and requested
that his said rights be annotated on the face of said tax declaration. He also wrote a similar letter to the
Municipal Assessor of Minglanilla, Cebu.

ISSUE:

Whether the Memorandum of Agreement was not an option to purchase but a valid and partially
executed contract of sale

RULING:

An examination of said Memorandum of Agreement shows that it is neither a contract of sale nor an
option to purchase, but it is a contract to sell. An option is a contract granting a privilege to buy or sell at
a determined price within an agreed time, the specific length or duration of which is not present in the
Memorandum of Agreement. In a contract to sell, the title over the subject property is transferred to
the vendee only upon the full payment of the stipulated consideration. Unlike in a contract of sale, the
title in a contract to sell does not pass to the vendee upon the execution of the agreement or the
Delivery of the thing sold.

From the provisions in the Memorandum of Agreement, it appears that the agreement was in the
nature of a contract to sell as the vendor, Encarnacion Diaz Vda. de Reston, clearly reserved to herself
ownership and possession of the property until full payment of the purchase price by the vendees, such
payment being a positive suspensive condition, the failure of which is not considered a breach, casual or
serious, but simply an event which prevented the obligation from acquiring obligatory force.

Republic v. Holy Trinity Realty Development Corporation (HTRDC)GR No. 172410. April 14, 2008Chico-
Nazario, J.

Facts:

On December 29, 2000, Petitioner, represented by Toll Regulatory Board (TRB), filed before the RTC of
Malolos, Bulacan a Consolidated Complaint for Expropriation against landowners whose properties
would be affected by the expansion of the North Luzon Expressway. Respondent HTRDC was one of the
affected landowner. On March 18, 2002, TRB filed a motion for the issuance of a Writ of Possession,
manifesting that it deposited a sufficient amount to cover the payment of 100% of the zonal value of the
affected properties, in the total amount of PhP 28,406,700.00, with Land Bank South Harbor Branch. The
RTC issued, on March 19, 2002, the Writ of Possession. On March 3, 2003, HTRDC filed with the RTC a
Motion to Withdraw Deposit, praying that the respondent be allowed to withdraw the amount of PhP
22,968,000.00, out of the TRB’s advance deposit of PhP 28,406,700.00, including the interest which
accrued thereon.

The RTC issued an Order, on April 21, 2003, directing Land bank South Harbor Branch to release in favor
of HTRDC the amount of PhP22, 968,000.00. However, the issue on the interest earned by the amount
deposited in the bank, if there any, should still be threshed out. On March 11, 2004, the RTC ordered
that the interest earnings from the deposit ofP22,968,000.00 respecting 100% of the zonal value of the
affected properties in this expropriation proceedings under the principle of accession are considered as
fruits and should pertain to HTRDC. TRB filed a Motion for Reconsideration. The RTC granted the motion
and ruled that the issue on the payment of interest should be ventilated before the Board of
Commissioners which will be created later for the determination of just compensation. HTRDC filed a
Motion for Reconsideration. The motion was denied by the RTC. On appeal to the Court of Appeals by
HTRDC, the CA ruled that the interest which accrued onthe amount deposited in the expropriation
accounts belongs the HTRDC by virtue of accession. The Republic filed a Petition for Review on Certiorari
before the SC. They argued the HTRDC is entitled only to an amount equivalent to the zonal value of the
expropriated property, nothing more and nothing less as provided under Sec. 4 of RA 8974. They further
argued that it is only during the determination of just compensation when the court will appoint
commissioners and determine claims for entitlements to interest.

ISSUE:

W/N the interest earned by the deposited amount in the expropriation account would accrue to HRTDC
by virtue of accession?

HEIRS OF RAMON C. GAITE, ET AL vs. THE PLAZA, INC. ET ALG.R. No. 177685 January 26, 2011

FACTS:

The Plaza, Inc. (The Plaza) is a corporation engaged in the restaurant business. The Plaza entered into
contract with Rhogen Builders represented by Ramon C. Gaite, for the construction of a restaurant
building located in Greenbelt, Makati on July 16, 1980. Gaite and FGU Insurance Corporation (FGU)
executed surety bond in the amount of P1,155,000 in favor of The Plaza to secure Rhogen’s compliance
with its obligation under the contract. The Plaza paid the surety bond less withholding taxes as a down
payment to Gaite. The construction of the restaurant building is thereafter commenced by Rhoegen.

Gaite received a letter on September 10, 1980 from the acting building official of Makati ordering the
former to cease and desist from continuing with the construction for violation of the provisions of
National Building Code. The Plaza’s Project Manager, in his Construction memo stated that the actual
jobsite assessment showed that the finished works fall short of Rhogen’s claimed percentage of
accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 as demanded by
Rhogen. Further the said amount payable to Rhogen be withheld due to stoppage of work by the
Municipal Engineer’s Office of Makati among others.

Gaite wrote to The Plaza on October 7, 1980 regarding his actions/observations on the stoppage order
issued. On the same day, Gaite notified The Plaza that he is suspending all construction works until The
Plaza and the Project Manager cooperate to resolve the issue he had raised to address the problem. The
Plaza asserted that the corporation is not the one to initiate a solution to the situation, especially after
The Plaza already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds
the work completed by Rhogen before the municipal authorities stopped the construction for several
violations. The Plaza made it clear that the corporation has no obligation to help Rhogen get out of the
situation arising from non-performance of its own contractual undertakings, and that The Plaza has its
rights and remedies to protect its interest.
Gaite informed The Plaza on January 9, 1981 that he is terminating their contract based on the
Contractor’s Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the
Contract. Gaite accused The Plaza of not cooperating with Rhogen in solving the problem concerning the
revocation of the building permits, which he described as a “minor problem.” Additionally, Gaite
demanded the payment ofP63,058.50 from The Plaza representing the work that has already been
completed by Rhogen.

On January 13, 1981, The Plaza countered that it will hold Gaite and Rhogen fully responsible for failure
to comply with the terms of the contract and to deliver the finished structure on the stipulated date.
The Plaza also argued that the down payment made was more than enough to cover Rhogen’s expenses.
The Plaza filed a complaint for breach of contract, sum of money and damages against Gaite, Rhogen
andFGU and for nullification of the project development contract against Gaite and Rhogen. The trial
court granted the claims of The Plaza on withholding payment on the progress billing submitted by
Rhogen based on the evaluation of Tayzon and the non-lifting of the stoppage order among the other
valid grounds. Instead of readily rectifying the violations, Rhogen continued with the construction works
thereby causing more damage. Having failed to complete the project within the stipulated period and
comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and
is liable for damages under Articles 1170 and1167 of the Civil Code. The CA affirmed the trial court’s
decision

ISSUE:

WoN the contract between Rhogen and The Plaza provides for reciprocal obligation which gives Rhogen
valid legal grounds to terminate the contract pursuant to Art. 1191 of the Civil Code?

HELD:

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor
and accreditor 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. The Plaza predicated its action on Article 1191of the Civil
Code, which provides for the remedy of “rescission” or more properly resolution, a principal action
based on breach of faith by the other party who violates the reciprocity between them. The breach
contemplated in the provision is the obligor’s failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The injured party is the party who has faithfully
fulfilled his obligation or is ready and willing to perform his obligation. The construction contract
between Rhogen and The Plaza provides for reciprocal obligations whereby the latter’s obligation to pay
the contract price or progress billing is conditioned on the former’s performance of its undertaking to
complete the works within the stipulated period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and
paid the agreed down payment. It also exercised the option of furnishing and delivering construction
materials at the jobsite pursuant to Article III of the Construction Contract. However, just
two months after commencement of the project, construction works were ordered stopped by the
local building official and the building permit subsequently revoked on account of several violations of
the National Building Code and other regulations of the municipal authorities. On-observance of laws
and regulations of the local authorities affecting the construction project constitutes a substantial
violation of the Construction Contract which entitles The Plaza to terminate the same, without
obligation to make further payment to Rhogen until the work is finished or subject to refund of payment
exceeding the expenses of completing the works. Upon the facts duly established, the CA therefore did
not err in holding that Rhogen committed a serious breach of its contract with The Plaza, which justified
the latter in terminating the contract. Petitioners are thus liable for damages for having breached their
contract with respondent The Plaza. Article 1170 of the Civil Code provides that 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. Rhogen failed to finish even a substantial portion
of the works due to the stoppage order issued just two months from the start of construction. Despite
the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager, was able
to complete a meager percentage much lower than that claimed by it under the first progress billing
between July and September 1980. Moreover, after it relinquished the project in January 1981, the site
inspection appraisal jointly conducted x x x x Rhogen was found to have executed the works not in
accordance with the approved plans or failed to seek prior approval of the Municipal Engineer. Article
1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the
same shall be executed at his cost. The petition is DENIED. The Decision dated June 27, 2006 and the
Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.

Sandoval Shipyards, Inc., Petitioner, vs.

Philippine Merchant Marine Academy (PMMA), Respondent

Facts:

The PMMA entered into Ship Building Contract with Sandoval Shipyards, Inc. with the latter obliging
itself to construct two units of lifeboats to be used by the students of PMMA for training. The parties
agreed on the specifications of the boats, the date of delivery and the amount of payment as stated in
the contract. However, upon inspection by the PMMA, it found that the construction being done by the
petitioner was not in conformity with the approved plan. Because of this, respondent’s dean submitted
a report and recommendation for ratification of the contract to its President. Sandoval asked for
extension of the time of delivery of the lifeboats which was granted by PMMA. However, Sandoval was
not able to comply with the agreed specifications for the boats and the agreed time of delivery despite
repeated demands from PMMA. As a result, PMMA filed a Complaint for Rescission of Contract with
damages against the petitioners.

The RTC held that although the caption for the complaint filed by PMMA was for Rescission for Contract,
the allegations in the body were for breach of contract. Thus, the respondents were made jointly and
severally liable for actual damages plus attorney’s fees plus cost of suits.

Issue:

Whether or not the case is for rescission and not for damages due to breach of contract.

Ruling:

No, the case is for damages due to breach of contract. It held that the RTC was correct in determining
whether there was a breach of contract and if such breach would warrant rescission and or damages. In
this case, it found that the breach was found to be substantial and sufficient to warrant a rescission of
the contract. However, since rescission entails a mutual restitution of benefits received and the factual
circumstances rendered this mutual restitution impossible, an injured party who has chosen rescission is
also entitled to the payment of damages.

DIGEST: REPUBLIC VS. HOLY TRINITY DEVELOPMENT INC

FACTS:

The Republic of the Philippines, represented by the Toll Regulatory Board (TRB), filed with the RTC a
Consolidated Complaint for Expropriation against landowners whose properties would be affected by
the construction, rehabilitation, and expansion of the North Luzon Expressway.

The Holy Trinity Reality and Development Corporation was one of the affected landowners. TRB filed an
Urgent Ex-Parte Motion for the Issuance of a Writ of Possession, manifesting that it deposited a
sufficient amount to cover the payment of 100% of the zonal value of the affected properties (in the
total amount of 28,406,700 pesos) with the Land Bank of the Philippines, South Harbor Branch (LBP-
South Harbor), an authorized government depository. TRB maintained that since it had already complied
with the provisions of Sec. 4 of RA 8974 in relation to Sec. 2 of Rule 67 of the Rules of Court, the
issuance of the writ of possession becomes ministerial on the part of the RTC. RTC issued an Order for
the Issuance of the Writ of

Possession as well as the Writ of Possession itself. Holy Trinity moved for reconsideration.

The Sheriff filed with the RTC a Report on Writ of

Possession stating that since none of the landowners voluntarily vacated the properties subject of the
expropriation proceedings, the assistance of the PNP would be necessary in implementing the Writ of
Possession. Accordingly, TRB, through OSG, filed with the RTC an Omnibus Motion praying for an Order
directing the PNP to assist the Sheriff in the

Implementation of the Writ of Possession.

The Holy Trinity filed with the RTC a Motion to

Withdraw Deposit, praying that it be allowed to withdraw 22,968,000 out of 28,406,700, including the
interest which accrued thereon. RTC granted the motion (except as to the interest) since Holy Trinity
already proved its absolute ownership over the properties and paid the taxes due to the government.
RTC conducted a hearing on the accrued interest, after which it directed the issuance of an Order of
Expropriation, and granted TRB a period of 30 days to inquire from LBP-South Harbor whether the
deposit made by DPWH with the bank relative to the expropriation proceedings is earning interest or
not. TRB submitted a Manifestation to which was attached the letter by Atty. Osoteo stating that the
DPWH Expropriation Account was an interest bearing current account. RTC resolved the issue by ruling
that the interest earnings from the deposit of 22,968,000 (under the principle of accession) are
considered as fruits and should properly pertain
to the property owner (in this case, Holy Trinity). Upon motion of TRB, it issued an Order of
Expropriation. But later on, it reversed itself stating that the issue as to who is entitled to the

Payment of interest should be ventilated before the Board of Commissioners. The CA reversed.

ISSUE:

Whether or not Holy Trinity is only entitled to the amount equivalent to the zonal value of the
expropriated property and not to the accrued interest?

RULING

RULING: TRB failed to distinguish between the expropriations procedures under RA 8974 and Rule 67.
The former specifically governs expropriation proceedings for national government infrastructure
projects. In the case of Republic vs. Gingoyon, the SC ruled that under RA 8974, the government is
required to make immediate payment to the property owner upon the filing of the complaint to be
entitled to a writ of possession, whereas in Rule 67, the government is authorized only to make an initial
deposit with an authorized government depositary. In the case at bar, the proceedings deal with the
expropriation of properties intended for a national government infrastructure project. Thus, the RTC
was correct in applying the procedure laid out in RA 8974, by requiring the deposit of the amount
equivalent to 100% of the zonal value of the properties sought to be expropriated.

The controversy though arises not from the amount of the deposit but as to the ownership of the
interest that had since accrued on the deposited amount. The SC agrees with the ruling of the CA. The
critical factor in the different modes of effecting delivery which gives legal effect to the act is the actual
intention to deliver on the part of the party making such delivery. The intention of the TRB in depositing
such amount through DPWH was clearly to comply with the requirement of immediate payment in RA
8974, so that it could already secure a writ of possession over the properties subject of the
expropriation and commence implementation of the project. In fact, TRB did not object to Holy Trinity‘s
Motion to Withdraw Deposit with the RTC, for as long as it shows (1) that the property is free from any
lien or encumbrance and (2) that it is the absolute owner thereof. A close scrutiny of TRB's arguments
would further reveal that it does not directly challenge the CA‘s determinative pronouncement that the
interest earned by the amount deposited in the expropriation account accrues to Holy Trinity by virtue
of accession. TRB only asserts that Holy Trinity is entitled only to an amount equivalent to the zonal
value of the expropriated property, nothing more and nothing less. The SC agrees in TRB's statement
since it is exactly how the amount of the immediate payment shall be determined in accordance with
Sec4 of RA 8974, i.e., an amount equivalent to 100% of the zonal value of the expropriated properties.
However, TRB already complied therewith by depositing the required amount in the expropriation
account of DPWH with LBP-South Harbor. By depositing the said amount, TRB is already considered to
have paid the same to Holy Trinity, and Holy Trinity became the owner thereof. The amount earned
interest after the deposit; hence, the interest should pertain to the owner of the principal who is already
determined as the Holy Trinity. The interest is paid by LBPSouth Harbor on the deposit, and TRB cannot
claim that it paid an amount more than what it is required to do so by law. Nonetheless, the SC finds it
necessary to emphasize that Holy Trinity is determined to be the owner of only a part of the amount
deposited in the expropriation account, in the sum of P22,968,000.00. Hence, it is entitled by right of
accession to the interest that had accrued to the said amount only
HEIRS OF GAITE VS THE PLAZA INC.
G.R. No. 177685 January 26, 2011

FACTS: The Plaza, Inc, entered into a contract with Rhogen Builders , represented by Ramon C. Gaite, for
the construction of a restaurant building in Greenbelt, Makati. 2 Months later, Engineer Angelito Z.
Gonzales, the Acting Building Official of the Municipality of Makati, ordered Gaite to cease and desist
from continuing with the construction of the building for violation of The National Building Code.

The Plaza’s Project Manager Architect Roberto evaluated the Progress Billing and Tayzon stated that
actual jobsite assessment showed that the finished works fall short of Rhogen’s claimed percentage of
accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by
Rhogen. On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes
and the Project Manager cooperate to resolve the issue he had raised to address the problem.

Gaite informed The Plaza that he is terminating their contract based on the Contractor’s Right to Stop
Work or Terminate Contracts and demanded the payment of P63,058.50 representing the work that has
already been completed by Rhogen. The Plaza filed a civil case for breach of contract, sum of money and
damages against Gaite and FGU in the Court of First Instance (CFI) of Rizal. The RTC Makati rendered its
decision granting in favor of the Plaza against Gaite. The Court of Appeals affirmed such decision with
modification.

ISSUE: Whether or not the Rhogen had factual or legal basis to terminate the General Construction
Contract.

HELD: The construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latter’s obligation to pay the contract price or progress billing is conditioned on the
former’s specified performance. Pursuant to its contractual obligation, The Plaza furnished materials
and paid the agreed down payment.

Rhogen, having breached the contractual obligation it had expressly assumed specifically to comply with
all laws was already at fault. Respondent The Plaza, on the other hand, was justified in withholding
payment on Rhogen’s first progress billing.

Upon the facts duly established, Rhogen committed a serious breach of its contract with The Plaza, which
justified the latter in terminating the contract.

Article 1170 of the Civil Code provides that 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. Petition DENIED. 
 Teodoro A. Reyes v. Ettore Rossi
G.R. No. 159823. February 18, 2013

Facts:
Teodoro Reyes contracted a deed of conditional sale with Advanced Foundation Construction System
Corporation represented by Ettore Rossi for the purchase of a certain dredging pump. The pump was
sold at P10,000,000 with the scheme of 30% down payment and 70% to be paid with postdated checks.
Following the restructuring of the agreement, Rossi agreed to accept nine (9) postdated checks from
Reyes in compliance with the remaining balance. However, when Rossi deposited 3 of the 9 checks, the
checks were denied ostensibly upon Reyes’ instruction to stop payment and by lack of sufficient funds.
This prompted Rossi to charge Reyes with several counts of estafa and violation of Batas Pambansa Blg.
22.

Reyes, on the other hand, filed a petition in court for the rescission of his contract with Rossi and claim
for damages. Reyes alleged that Advanced Foundation misrepresented the quality of the pump that he
bought. Upon ignoring his complaints, Reyes caused the order to stop payment of the three checks.

Issue:
Whether or not the action for rescission was proper.

Ratio:
Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition in reciprocal obligations.
The condition is imposed by law, and applies even if there is no corresponding agreement thereon
between the parties. The explanation for this is that in reciprocal obligations a party incurs in delay once
the other party has performed his part of the contract; hence, the party who has performed or is ready
and willing to perform may rescind the obligation if the other does not perform, or is not ready and
willing to perform.19

It is true that the rescission of a contract results in the extinguishment of the obligatory relation as if it
was never created, the extinguishment having a retroactive effect. The rescission is equivalent to
invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the
contract.20 However, until the contract is rescinded, the juridical tie and the concomitant obligations
subsist.

The issue in the civil action for rescission is whether or not the breach in the fulfilment of Advanced
Foundation’s obligation warranted the rescission of the conditional sale. If, after trial on the merits in
the civil action, Advanced Foundation would be found to have committed material breach as to warrant
the rescission of the contract, such result would not necessarily mean that Reyes would be absolved of
the criminal responsibility for issuing the dishonored checks because, as the aforementioned elements
show, he already committed the violations upon the dishonor of the checks that he had issued at a time
when the conditional sale was still fully binding upon the parties. His obligation to fund the checks or to
make arrangements for them with the drawee bank should not be tied up to the future event of
extinguishment of the obligation under the contract of sale through rescission.

Mila A. Reyes Vs. Victoria Tuparan

FACTS

Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent, Victoria
Tuparan leased a space on said building for a monthly rental of P4, 000. A close friendship developed
between the two which led the respondent to invest in petitioner's financing business. On June 20,
1988, Petitioner borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged
the building and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to
liquidate her loan and finance her business. Respondent offered to conditionally buy the real properties
for P4.2 Million on installment basis without interest and to assume the bank loan. The conditions are
the following:

1.    Sale will be cancelled if the petitioner can find a buyer of said properties for the amount of P6.5
Million within the next three months. All payments made by the respondent to the petitioner and the
bank will be refunded to Tuparan with an additional 6% monthly interest.
2.    Petitioner Reyes will continue using the space occupied by her drug store without rentals for the
duration of the installment payments.
3.    There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full payment
has been made by the defendant.
4.    The defendant will undertake the renewal and payment of the fire insurance policies of the 2
buildings, following the expiration of the current policies, up to the time the respondent has fully paid
the purchase price.

They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank approved on
the condition that the petitioner would remain as co-maker of the mortgage obligation. FSL Bank and
and the parties executed Deed of Conditional Sale of Real Properties wiyh Assumption of Mortgage.

Petitioner's Contention

Under their Deed of Conditional Sale, the respondent is obliged to pay a lump sum of P1.2 Million in
three fixed installments. Respondent, however defaulted in the payment of the installments. To
compensate for her delayed payments, respondent agreed to pay petitioner monthly interest. But again,
respondent failed to fulfill this obligation. The petitioner further alleged that despite her success in
finding another buyer according to their conditional sale agreement, respondent refused to cancel their
transaction. The respondent also neglected to renew the fire insurance policy of the buildings. So the
petitioner filed a Complaint for Rescission of Contract with damages against Victoria Tuparan.
Respondent's Answer

Respondent alleges that the deed of Conditional Sale of Real Property with Assumption of Mortgage was
actually a pure and absolute contract of sale with a term period. It could not be considered a conditional
sale because the performance of the obligation therein did not depend upon a future and uncertain
event. She also averred that she was able to fully pay the loan and secure the release of the mortgage.
Since she also paid more than the P4.2 Million purchase price, rescission could not be resorted to since
the parties could no longer be restored to their original positions.

ISSUE

Can the Deed of Conditional Sale Be Rescinded?

RULING(S)

RTC

The deed of conditional sale was a contract to sell. It was of the opinion that although the petitioner
was entitled to a rescission of the contract, it could not be permitted because her non-payment in full of
the purchase price “may not be considered as substantial and fundamental breach of the contract as to
defeat the object of the parties in entering into the contract.” The RTC believed that respondent showed
her sincerity and willingness to settle her obligation. Hence, it would be more equitable to give
respondent a chance to pay the balance plus interest within a given period of time. The court ordered
the respondent to pay the petitioner the unpaid balance of the purchase price within 30 days from the
finality, failure to pay said amount will cause automatic rescission.

CA

The CA affirmed but modified RTC’s decision. They ruled that the remedy of rescission could not apply
because the respondent’s failure to pay the petitioner the balance of the purchase price in the total
amount of ₱805,000.00 was not a breach of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent). Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid
balance of the purchase price plus interest. The rulling of the RTC on the automatic rescission of the
Deed Of Conditional Sale is deleted.

SC

The SC agrees that the conditional sale is a contract to sell. The title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the balance of the purchase price
and the assumed mortgage obligation.  Without respondent’s full payment, there can be no breach of
contract to speak of because petitioner has no obligation yet to turn over the title. The court agrees that
a substantial amount of the purchase price has already been paid. It is only right and just to allow
Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be
permitted under Article 1191, the Court still cannot allow it for the reason that, considering the
circumstances, there was only a slight or casual breach in the fulfillment of the obligation. The court
considered fulfillment of 20% of the purchase price is NOT a substantial breach. Unless the parties
stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental
to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by
the attendant circumstance. As for the 6% interest, petitioner failed to substantiate her claim that the
respondent committed to pay it. Petition is denied.

In a contract to sell, title is retained by the vendor until the full payment of the purchase price.  Thus, the
non-payment of the purchase price is an event which terminates the contract to sell.  Since title has not
transferred, there is no need of judicial action to terminate the contract.
In a contract of sale, the seller conveys ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded. If the contract is silent on the manner of rescission, the
seller must file an action for rescission in court.  However, it is permissible to stipulate in the contract of
sale that default by the buyer shall result to automatic rescission without need of judicial action.  Thus, it
is advisable to include an automatic rescission clause in a contract of sale in order to avoid unnecessary
litigation.

De Leon vs Ong

GR No. 170405 February 2, 2010

Facts:

De Leon sold 3 parcels of land to Ong. The properties were mortgaged to Real Savings and Loan
Association. The parties executed a notarized deed of absolute sale with assumption of mortgage. The
deed of Assumption of mortgage shall be executed in favor of Ong after the payment of 415K. Ong
complied with it. De Leon handed the keys of to Ong and informed the loan company that the mortgage
has been assumed by Ong. Ong made some improvements in the property. After sometime, Ong learned
that the properties were sold to Viloria and changed the locks to it. Ong went to the mortgage company
and learned that the mortgage was already paid and the titles were given to Viloria. Ong filed a
complaint for the nullity of second sale and damages. De Leon contended that Ong does not have a
cause of action against him because the sale was subject to a condition which requires the approval of
the loan company and that he and Ong only entered a contract to sell.

Issue:

Whether or not the parties entered into a contract of sale

Ruling:

Yes, the parties entered into a contract of sale. In a contract of sale, the seller conveys ownership of the
property to the buyer upon the perfection of the contract. The non-payment of the price is a negative
resolutory condition. Contract to sell is subject to a positive suspensive condition. The buyer does not
acquire ownership of the property until he fully pays the purchase price. In the present case, the deed
executed by the parties did not show that the owner intends to reserve ownership of the properties.
The terms and conditions affected only the manner of payment and not the immediate transfer of
ownership. It was clear that the owner intended a sale because he unqualifiedly delivered and
transferred ownership of the properties to the respondent

Luzon Development Bank vs. Angeles Catherine Enriquez

Facts:

January 12, 2011Ricardo De Leon and his spouse obtained a loan of 4, 000, 000 from Luzon
Development Bank (LDB)to develop Delta Development and Management Services, Inc. (DELTA) Homes
I. They executed a real-estate mortgage over several of their property, including Lot 4 owned by Ricardo.
Later, the mortgage was amended by increasing the loan to 8, 000, 000. The Real Estate Mortgage and
the amendment were annotated on TCT No. T 637183.

DELTA executed a Contract to Sell with Angeles Catherine Enriquez (Enriquez) over Lot no. 4 for 614,
950. He made a down payment of 114, 590. The Contract to Sell provides that the failure to pay
3successive monthly installments, gives the owner the power to consider the Contract to Sell as void.
Paid installments are forfeited in favor of the owner as liquidated damages and to cover documentation
expenses.

DELTA defaulted on its loan to LDB. DELTA satisfied the loan by dation in payment. It signed a deed of
assignment over several properties, including Lot no. 4. The dation in payment was not annotated on
the TCT of Lot no. 4. Enriquez filed a complaint against DELTA with the Housing and Land Use Regulatory
Board(HLURB) for violating the terms of its License to sell by:1.) selling houses below the price
prescribed by BP 220.2.) failing to get clearance for the mortgage from the HLURB

Enriquez sought a full refund of 301, 063 that she had already paid to DELTA plus damages and
administrative fines against the LDB and DELTA.

Issue:

Whether or not a Contract to Sell conveys ownership over the Lot

Held:

The Supreme Court held that a contract to sell does not transfer ownership. A contract to sell is one
where the prospective seller reserves the transfer of title to the prospective buyer until the happening
of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell
the subject property only when the entire amount of the purchase price has already been delivered to
him. In this case, Enriquez has not fully paid the purchase price of the Lot. She does not own the Lot.
Therefore, DELTA's transfer of ownership over the lot to LDB is valid. However, LDB is bound to respect
the contract to sell with Enriquez. PD 957 provides that a contracts to sell registered by the seller with
the Register of Deeds is binding on third persons. While this particular contract was not registered with
the Register of Deeds by DELTA, this does not prejudice Enriquez or extinguish LDB's obligation to
respect the Contract to Sell. LDB cannot claim to be an
RENATO MA. R. PERALTA
vs. JOSE ROY RAVAL/JOSE
ROY B. RAVAL,vs
RENATO MA. R. PERALTA
March 29, 2017
Facts:
On February 19, 1974, the
Spouses Arzaga, as lessors,
entered into a Contract of Lease
7
with
Peralta, as lessee, over the
subject lots and the
improvements thereon, more
particularly
described in their contract as
follows:
B. x x x the whole of Lot No.
9128-A, with an area of 660
square meters; the northern
portion of
Lot No. 9128-B with an
inclusive approximate area of
317 square meters; the first
floor of the
residential house found thereon
with an approximate area of 160
square meters, consisting of a
porch, a receiving room, three
(3) bedrooms, a toilet and small
room used as a bodega, the land
area occupied by the garage and
the driveway of 157 square
meters, more or less,
specifically
situated at the southern portion
of Lot No. 9128-B, including
the room above the garage; a
kitchen with an area of 18
square meters; and the water
tank built thereon together with
its
accessories.
Spouses Arzaga and Peralta
agreed on a lease term of 40
years, for monthly rentals at
the
following rates: (a) ₱500.00
beginning May 1974; (b)
₱600.00 after the 10th year; (c)
₱700.00
after the 20th year; and (d)
₱800.00 after the 30
th
year and until the termination
of the lease.
Under the lease contract, Peralta
was also to construct on the
leased land a building that
should
become property of the Spouses
Arzaga upon lease termination,
to pay realty taxes for both lots,
and to develop a water system
for the use of both parties to the
lease contract.
Sometime in May 1988,
Flaviano Arzaga, Jr. (Flaviano
Jr.), being an adopted son and
heir of the
Spouses Arzaga, filed with the
RTC of Laoag City a complaint
for am1ulment of lease contract,
docketed as Civil Case No.
9121-16, against Peralta, who
allegedly breached in his
obligations
under the contract of lease. The
complaint was eventually
dismissed by the RTC on
December
to, 1990. The RTC decision was
later affirmed by the CA in CA-
G.R. CV No. 30396, while the
CA ruling was no longer
appealed by Flaviano Jr. to the
Supreme Court.
Raval came into the picture
after Flaviano Jr. assigned to
him viaa Deed of Assignment
dated
July 28, 1995 all his
interests, rights and
participation in the subject
properties for a
consideration of ₱500,000.00.
Peralta refused to recognize the
validity of the assignment to
Raval, prompting him to still
deposit his rental payments for
the account of Flaviano Jr.,
more
specifically to bank accounts
that were opened by Peralta's
wife, Gloria Peralta, under the
name
"Gloria F. Peralta [in-trust-for]
(ITF): Flaviano Arzaga, Jr."
Beginning August 1995, Raval
demanded from Peralta
compliance with the lease
contract's
terms and conditions. On
October 2, 1995, Raval's
father and counsel, Atty.
Castor Raval
(Castor), wrote a letter to
Peralta demanding the removal
of the structures that the latter
built on
a portion of Lot No. 9128-B, as
he claimed that it was not
covered by the lease agreement.
This
demand was reiterated by
Castor in a letter dated
November 4, 1995, by which he
also sought
access to the residential
house's second floor and an
updated accounting of
rentals already
paid. Peralta's refusal to heed to
the demands of Castor
prompted the latter to send
several other
demand letters and, eventually,
to refer the matter to barangay
for conciliation.
When the parties still failed to
settle the issue, Castor sent
another letter to Peralta on June
14,
1996, informing the latter that a
lessee was to occupy the
second storey of the house and
demanding that the area be
cleared for that purpose. On
June 22, 1996, Castor again
pointed out
to Peralta the structures on Lot
No. 9128-B that were allegedly
not part of the lease agreement.
RENATO MA. R. PERALTA
vs. JOSE ROY RAVAL/JOSE
ROY B. RAVAL,vs
RENATO MA. R. PERALTA
March 29, 2017
Facts:
On February 19, 1974, the
Spouses Arzaga, as lessors,
entered into a Contract of Lease
7
with
Peralta, as lessee, over the
subject lots and the
improvements thereon, more
particularly
described in their contract as
follows:
B. x x x the whole of Lot No.
9128-A, with an area of 660
square meters; the northern
portion of
Lot No. 9128-B with an
inclusive approximate area of
317 square meters; the first
floor of the
residential house found thereon
with an approximate area of 160
square meters, consisting of a
porch, a receiving room, three
(3) bedrooms, a toilet and small
room used as a bodega, the land
area occupied by the garage and
the driveway of 157 square
meters, more or less,
specifically
situated at the southern portion
of Lot No. 9128-B, including
the room above the garage; a
kitchen with an area of 18
square meters; and the water
tank built thereon together with
its
accessories.
Spouses Arzaga and Peralta
agreed on a lease term of 40
years, for monthly rentals at
the
following rates: (a) ₱500.00
beginning May 1974; (b)
₱600.00 after the 10th year; (c)
₱700.00
after the 20th year; and (d)
₱800.00 after the 30
th
year and until the termination
of the lease.
Under the lease contract, Peralta
was also to construct on the
leased land a building that
should
become property of the Spouses
Arzaga upon lease termination,
to pay realty taxes for both lots,
and to develop a water system
for the use of both parties to the
lease contract.
Sometime in May 1988,
Flaviano Arzaga, Jr. (Flaviano
Jr.), being an adopted son and
heir of the
Spouses Arzaga, filed with the
RTC of Laoag City a complaint
for am1ulment of lease contract,
docketed as Civil Case No.
9121-16, against Peralta, who
allegedly breached in his
obligations
under the contract of lease. The
complaint was eventually
dismissed by the RTC on
December
to, 1990. The RTC decision was
later affirmed by the CA in CA-
G.R. CV No. 30396, while the
CA ruling was no longer
appealed by Flaviano Jr. to the
Supreme Court.
Raval came into the picture
after Flaviano Jr. assigned to
him viaa Deed of Assignment
dated
July 28, 1995 all his
interests, rights and
participation in the subject
properties for a
consideration of ₱500,000.00.
Peralta refused to recognize the
validity of the assignment to
Raval, prompting him to still
deposit his rental payments for
the account of Flaviano Jr.,
more
specifically to bank accounts
that were opened by Peralta's
wife, Gloria Peralta, under the
name
"Gloria F. Peralta [in-trust-for]
(ITF): Flaviano Arzaga, Jr."
Beginning August 1995, Raval
demanded from Peralta
compliance with the lease
contract's
terms and conditions. On
October 2, 1995, Raval's
father and counsel, Atty.
Castor Raval
(Castor), wrote a letter to
Peralta demanding the removal
of the structures that the latter
built on
a portion of Lot No. 9128-B, as
he claimed that it was not
covered by the lease agreement.
This
demand was reiterated by
Castor in a letter dated
November 4, 1995, by which he
also sought
access to the residential
house's second floor and an
updated accounting of
rentals already
paid. Peralta's refusal to heed to
the demands of Castor
prompted the latter to send
several other
demand letters and, eventually,
to refer the matter to barangay
for conciliation.
When the parties still failed to
settle the issue, Castor sent
another letter to Peralta on June
14,
1996, informing the latter that a
lessee was to occupy the
second storey of the house and
demanding that the area be
cleared for that purpose. On
June 22, 1996, Castor again
pointed out
to Peralta the structures on Lot
No. 9128-B that were allegedly
not part of the lease agreement.
RENATO MA. R. PERALTA
vs. JOSE ROY RAVAL/JOSE
ROY B. RAVAL,vs
RENATO MA. R. PERALTA
RENATO MA. R. PERALTA
vs. JOSE ROY RAVAL/JOSE
ROY B. RAVAL,vs
RENATO MA. R. PERALTA
mply with the terms of the lease
contract and his demands as a
lessor. The RTC of Laoag
City; Branch 14, dismissed
both Raval's complaint and
Peralta's
counterclaim. Raval's appeal
was granted in part.
Although the appellate court
still denied
Raval's plea for rescission, it
granted in his favor an award of
unpaid rental payments.
The CA sustained the validity
of the deed of assignment
between Flaviano
mply with the terms of the lease
contract and his demands as a
lessor. The RTC of Laoag
City; Branch 14, dismissed
both Raval's complaint and
Peralta's
counterclaim. Raval's appeal
was granted in part.
Although the appellate court
still denied
Raval's plea for rescission, it
granted in his favor an award of
unpaid rental payments.
The CA sustained the validity
of the deed of assignment
between Flaviano
PERALTA V. RAVAL
G.R. No. 188467, March 29, 2017

REYES, J.

CASE DOCTRINE: In rescission of lease agreements, Article 1659 of the NCC applies
as a rule. It reads: Article 1659, If the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification for damages, or only the latter, allowing
the contract to remain in force.

FACTS:
The controversy involves a lease agreement for 40 years over two parcels of
land between Spouses Argaza and petitoner Peralta executed on Febuary 19,1974.
under the lease contract, petitioner was to construct on the leased land a building that
should become property of the Spouses Argaza upon lease termination, to pay realty
taxes for both lots, and to develop a water system for the use of the both parties to the
lease contract. On July 28,1995, a Deed of Assignment was executed by Argaza
transferring all his interests, rights and participation in the subject properties for a
consideration to respondent Raval. Petitioner refused to recognized validity of the
assignment, prompting him to still deposit his rental payments in the account of Flaviano
Jr., more specifically to the accounts that were opened by Peralta's wife, Gloria, under
the name “Gloria F. Peralta (in-trust-for): Flaviano Arzaga Jr.” The respondent then
started demanding petitioner's compliance with lease contract's terms and conditions
but the latter fails to do. Consequently, responded filed an action for recission of the
lease agreement based on Article 1191 for failure to comply with his obligations under
the contract. Petitioner then filed a counterclaim assailing the action for recission has
already prescribed based on Article 1389 and that the deed of assignment is null and
void. The RTC dismissed the complaint and denied the recission which was affirmed by
the CA. Hence, this instant petition for review.

ISSUE:
1. Is the Deed of Assignment valid?
2. Was the action for recission of lease agreement filed on time?

RULING:
1. Yes, it is valid. The Court sustains the validity of the deed of assignment
upon which Raval anchored his claims against the subject properties and
contract of lease. By being the assignee under the deed, Raval obtained
the rights, interests and privileges of his predecessors-in-interest over the
property, including the right to seek the rescission of the agreement,
should valid grounds exist to support it. Peralta's defenses against Raval's
claim of rights, in effect, challenge the prior decision of the trial court to
recognize the deed of assignment and more importantly, the ruling that
ordered the issuance of the TCTs under Raval's name. Essentially, it is
also a challenge upon the TCTs that were already issued by the Register
of Deeds. By law and jurisprudence, these TCTs that have been issued by
virtue of the assignment, however, cannot be collaterally attacked by
Peralta in this case.
2. No. There are various provisions under the NCC that apply to rescissions
of contracts. It must be emphasized though that specifically on the matter
of rescission of lease agreements, Article 1659 of the NCC applies as a
rule. It reads: Article 1659. If the lessor or the lessee should not comply
with the obligations set forth in Articles 1654 and 1657, the aggrieved
party may ask for the rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to remain in force. Given
the rules that exclusively apply to leases, the other provisions of the NCC
 that deal with the issue of rescission may not be applicable to contracts of
lease. To illustrate, Peralta's reference to Article 1389, when he argued
that Raval's action had already prescribed for having been filed more than
four years. after the execution of the lease contract in 1974, is misplaced.
For the same reason, Peralta erred in arguing that Raval's action should
only be deemed a subsidiary remedy, such that it could not have been
validly instituted if there were other legal means for reparation. Article
1389 applies to rescissions in Articles 1380 and 1381, which are distinct
from rescissions of lease under Article 1659.

NOLASCO VS. CUERPO (Invalid rescission – No substantial breach)

FACTS: Petitioners and respondents entered into a Contract to Sell over a 165,775-square meter parcel
of land. The Contract provides that “petitioners shall transfer the title over the subject land from a
certain Edilberta N. Santos to petitioners' names, and, should they fail to do so, respondents may
cause the said transfer and charge the costs incurred against the monthly amortizations” as one of the
conditions. However, respondents sent petitioners a letter seeking to rescind the subject contract on the
ground of financial difficulties in complying with the same. They also sought the return of the amount
they had paid to petitioners. As their letter went unheeded, respondents filed the instant complaint for
rescission before the RTC. RTC ruled in favor of the Respondents, rescinding the Contract by arguing that
Petitioners breached it by violating the aforementioned condition. CA affirmed. Hence, the Petition.

ISSUE: WON, the Petitioner substantially breached the Contract warranting its rescission

HELD: No. In reciprocal obligations, either party may rescind the contract upon the other party's
substantial breach of the obligation/s he had assumed thereunder (Art. 1191). A plain reading of
paragraph 7 of the subject contract reveals that RTC and CA erred in concluding that such failure
constituted a substantial breach that would entitle respondents to rescind the subject contract. It
cannot be said that petitioners' failure to undertake their obligation under paragraph 7 defeats the
object of the parties in entering into the subject contract, considering that the same paragraph
provides respondents contractual recourse in the event of petitioners' non-performance of the
aforesaid obligation, that is, to cause such transfer themselves in behalf and at the expense of
petitioners. For a contracting party to be entitled to rescission, the other contracting party must be in
substantial breach of the terms and conditions of their contract. A substantial breach of a contract,
unlike slight and casual breaches thereof, is a fundamental breach that defeats the object of the parties
in entering into an agreement.
 Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas v. Jesus M. Sison G.R. No. 199431
August 31, 2016
Topic: General Provisions on Contracts; Different Kinds of Obligations; Pure and
Conditional Obligations; Rescission
Facts:
Sta. Fe Realty Inc. (SFRI) agreed to sell to Jesus Sison a portion of land. SFRI executed a
Deed of Sale over the subject property to Victoria Fabregas. Fabregas then executed another
deed of sale in favor of Sison for the same amount. Sison caused the segregation of the
corresponding lot from the whole land and this was designated as Lot 1-B-1 in the
subdivision plan. Sison took possession of the subject property and introduced improvements
thereon such as fencing the property, putting a no trespassing sign, barbed wires, and hedges
of big trees. He also constructed a fishpond and a resort on the subject property. Sison
however was not able to register the sale and secure a title in his name because
petitioners herein refused to pay realty taxes and capital gains tax, as well as to turn over the
owner’s copy of transfer certificate of title and the subdivision plan. Sison was constrained
to pay the said taxes to protect his interest. Nevertheless, petitioners herein still refused
to surrender the mother title and all pertinent documents necessary for the transfer of title in
Sison’s name. Meanwhile, SFRI caused the subdivision of the entire property. SFRI sold
Lot 1-B-3-C to Orosa. Orosa was able to transfer the property in his name. Sison claimed
that this Lot 1-B-3-C is practically the same as his Lot 1-B-1 except for the excess of 402
sq. m. Sison tried to settle amicably with the other concerned parties but no agreement
was reached. He then instituted an action for reconveyance of property. Petitioners herein
denied that they agreed to sell the property to Sison. They averred that Sison persuaded
Fabregas to sell to him a portion of Lot 1-B in exchange of P700,000.00 and Sison will
be the one to shoulder the capital gains tax. They contended that they merely accommodated
Sison’s request to sign another set of deeds over the subject property with a reduced price of
P10,918.00 so that the capital gains tax would be reduced. They also asserted that Sison did
not pay the consideration agreed upon thus Fabregas rescinded the sale by sending a notice to
Sison who did not contest the rescission of the sale. Orosa claimed that he is a buyer in good
faith as there was nothing annotated in the title which would warn him of any lien or
encumbrance or adverse claim on the property. The RTC ruled in favor of Sison. On appeal,
the CA affirmed the findings of the RTC but reduced the award of moral damages and attorney’s
fees.
Issue:
Whether the deed of absolute sale by and between SFRI and Fabregas, as well as the deed of
absolute sale between Fabregas and Sison are valid and enforceable, thus entitling
Sison to reconveyance?
Held:
Yes. The deeds are valid and enforceable and Sison is entitled to reconveyance. Sison
anchors his cause of action upon the two deeds of sale and his possession and occupation of
the subject property. Petitioners however counter that (1) the deeds of sale were
simulated; (2) Fabregas had unilaterally rescinded the sale; and (3) the subject property is now
registered in the hands of an innocent purchaser for value.
Petitioners argue that the deeds were simulated because of its alleged failure to reflect
the true purchase price of the sale which is P700,000. They contend that there is an
apparent gross disproportion between the stipulated price and the value of the
subject property which demonstrates that the deeds stated false consideration. The
Court finds that the deeds of sale were executed freely and voluntarily. All the elements
for a contract to be valid are present. A perfected contract of absolute sale exists
between SFRI and Fabregas and then Fabregas and Sison. There was meeting of the
minds between the parties when they agreed on the sale of a determinate subject matter
and the price is certain. Gross inadequacy of price does not affect the validity of a contract of
sale unless it signifies a defect in the consent or that the parties actually intended a donation
or some other contract. Inadequacy of cause will not invalidate a contract unless there
has been fraud, mistake, or undue influence.
Fabregas failed to judicially rescind the contract. The Court had already ruled that in the
absence of a stipulation, a party cannot unilaterally and extrajudicially rescind a contract.
A judicial or notarial act is necessary before a valid rescission can take place. 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. The alleged notice of rescission that Fabregas
sent to Sison declaring her intention to rescind the sale did not operate to validly rescind
the contract because there isabsolutely no stipulation giving Fabregas the right to unilaterally
rescind the contract in case of non-payment.Orosa cannot be considered a buyer in
good faith considering that Sison introduced improvements on the property such as
fencing it, putting ano trespassing sign, barbed wires, and hedges of big trees. He also
constructed a fishpond and a resort on the subject property. Presence of these structures
should have alerted Orosa to the possible flaw in the title of SFRI.

 
Eds Manufacturing v. Healthcheck International, Inc. GR No. 162802

Facts:

Healthcheck and EDS entered into a 1-year contract in which HCI was to provide the employees of EDS
as host of medical services and benefits. 2 months into the program, HCI notified Eds that its
accreditation with DLSUMC was suspended on account of the Asian regional financial crisis and advised
to avail of the services of nearby accredited institutions. For failing to preserve its credit standing, HCI
was suspended from its accreditation for a second time. A third suspension was still to follow and
remained in force until the end of its contract with Eds.

Because of complaints from employees of Eds that their health cards were not being honored, Eds
formally notified HCI that it was rescinding their agreement on account of HCI serious and repeated
breach of undertaking. It thus demanded a return of premium for the unused period (P6 Million). HCI
asked for the surrender of the HMO cards so that it could process pre-termination of the contract and
finalize the reconciliation of accounts. It stated that until they have received the cards, they will consider
the account ongoing and existing thus subject for inclusion to present billing and payment (at this tie,
the employees of Eds failed to surrender their cards and continued to use them beyond the pre-
termination period).

In an attempt to pre-empt Eds’ legal action, HCI instituted a case in the RTC on the ground that there
was unlawful pre-termination of the contract and failure of Eds to submit a joint reconciliation of
accounts and deliver such assets as properly belonged to HCI (the cards). In its answer, Eds alleged that
having rescinded the contract, it was entitled to the unutilized portion of the premium.

After trial, the court ruled in favor of HCI and found that Eds’ rescission of the agreement was not done
through court action or bya notarial act and was based on casual or slight breaches of the contract.
Moreover, its employees continued to use the cards, despite the announced rescission. It further held
Eds liable for the services it provided the employees beyond the period, deducting premiums paid by
Eds. On appeal, this was reversed.

Issue:

Whether or not there was a valid rescission of the Agreement between parties

Ruling:

There was no valid rescission. The power to rescind obligation is implied in reciprocal ones, in case one
of the obligor should not comply with what is incumbent upon him. The injured party may choose
between the fulfilment and rescission of the obligation with payment of damages in either case. He may
also seek rescission, even after he has chosen fulfilment, if the latter should become impossible. The
court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

Rescission will not be allowed for a slight or casual breach but only for substantial and fundamental
violations as would defeat the very object of the parties in making the agreement. Rescission referred to
in Article 1191 is on the breach of faith by one of the parties which is violative of the reciprocity
between them. Here, HCi violated its contract to provide medical services to Eds’ employees in a
substantial way. However, although a ground exists to validly rescind the contract, Eds failed to judicially
rescind the same. The rule is, in the absence of a stipulation, a party cannot unilaterally and
extrajudicially rescind a contract. A judicial or notarial act is necessary before a valid rescission can take
place. Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or
not automatic rescission has been stipulated. It is to be noted that the law uses the phrase
"eventhough" emphasizing that when no stipulation is found on automatic rescission, the judicial or
notarial requirement still applies. Even if Article 1191 is applicable, petitioner would still not be entitled
to automatic rescission. 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 there solution demanded, unless there should be
grounds which justify the allowance of a term for the performance of the obligation. "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.

Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B. Salonga, Jebson Holdings Corporation and
Ferdinand Juat Bañez G.R. No. 216023 October 5, 2016

Topic: Pure and Conditional Obligations; Rescissible Contracts

Facts:

Jebson, an entity engaged in the real estate business, through its EVP Bañez, entered into a JVA with
Spouses Salonga. Under the JVA, the spouses who owned the land would allow Jebson to construct on
the land 10 high-end single detached residential villas. They would subdivide the property into individual
titles and Jebson shall assume the liability to pay their mortgage loan with Metrobank. Jebson would
also be liable to secure the buildings and development permits and the license to sell from the HLURB.

Out of the 10 units, 7 will belong to Jebson with the remaining 3 belonging to the spouses. Jebson was
allowed to sell its allocated units under such terms as it may deem fit, subject to the condition that the
price agreed upon was with the conformity of the spouses.

Eventually Jebson entered into a Contract to Sell with Buenvaje over one unit without the consideration
of the spouses. Out of the purchase price, a part of it was paid through a “swapping arrangement”
whereby Beunviaje conveyed to Jebson a house and lot, clubhouse membership shares and more.

However, despite fill payment, Jebson was unable to complete the construction in violation of the
contractual stipulation to finish the same within 12 months from the issuance of the building permit.
Thus, Buenviaje formally demanded the immediate completion and delivery of his unit. To no avail,
Buenviaje filed before the HLURB a complaint for specific performance. HLURB-RIV rescinded the
respective contracts to sell entered into by Jebson and found the respondents were not legally
authorized to sell the units as they have not secured the necessary Registration Certificate and License
to Sell. Furthermore, Jebson failed to complete the construction of the units as well as to deliver the
units to the Buenviaje entitling him to the refund of their payments. HLURB further found the spouses to
be solidarily liable with Jebson and Bañez as joint venture partners liable to the general buying public.
Upon appeal, HLURB-BOC reversed and set aside the HLURB-RIV’s ruling. HLURB-BOC held that there
was no substantial breach but only a slight or casual one, which did not justify a rescission of the
contracts to sell, especially in view of the fact that the residential units covered by the said contracts
were already at their finishing stages. The proper remedy, therefore, was to fix the period for
completion of the concerned units. Nonetheless, the HLURB-BOC also invalidated the swapping
arrangements and found no basis to hold the spouses solidarily liable with Jebson and Bañez considering
that the JVA does not provide for solidarity for any act or omission of either party and, in fact, expressly
provides that the Spouses shall be free from any liability from any 3rd party. OP and CA affirmed by
finding that the OP correctly sustained the HLURB Decision holding the recission of the contracts to sell
to be impractical.
Issues:

1. Whether or not the grant of the remedy of specific performance in Buenviaje’s favor was proper
under the prevailing circumstances of the case?

2. Whether or not spouses Salonga are not solidarily liable with Jebson and Bañez to Buenviaje for
completion for the completion of the construction and delivery of the unit?

3. Whether or not the “swapping arrangment” was invalid?

Held:

1. YES. The grant of the remedy of specific performance in Buenviaje’s favor was proper. Specific
Performance is defined as the remedy of requiring exact performance of a contract in the specific form
in which it was made, or according to the precise terms agreed upon. It pertains to the actual
accomplishment of a contract by a party bound to fulfill it. On the other hand, resolution is defined as
the “unmaking of a contract for a legally sufficient reason.” Resolution does not merely terminate the
contract and release the parties from further obligations to each other, but abrogates the contract from
its inception and restores the parties to their original positions as if no contract has been made.
Consequently, mutual restitution, which entails the returm of the benefits that each party may have
received as a result of the contract, is thus required. Notably, resolution under Article 1191 of the Civl
Code will not be permitted for a slight or casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in making the agreement. In this case, the
HLURB-BOC, OP, and the CA all pointed out that Buenviaje primarily prayed for the remedy of specific
performance and only prayed for the remedy of rescission as an alternative remedy. Thus, it remains
apparent that as between the two remedies made available to him, Buenviaje, had, in fact, chosen the
remedy of specific performance and therefore, ought to be bound by the choice he had made. To add,
the fundamental rule is that reliefs granted a litigant are limited to those specifically prayed for in the
complaint; other reliefs prayed for may be granted only when related to the specific prayers in the
pleadings and supported by the evidence on record. Hence, based on this postulate, the lower tribunals
could hardly be faulted for granting the proper relief in accordance with what Buenviaje himself had
claimed. Relatedly, it is observed that Buenviaje's alternative prayer for resolution is textually consistent
with that portion of Article 1191 of the Civil Code which states that an injured party "may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible." Nevertheless,
the impossibility of fulfillment was not sufficiently demonstrated in the proceedings conducted in this
case. As the HLURB- BOC pointed out, "[t]here is no finding that specific performance has become
impossible or that there are insuperable legal obstacles to the completion of the constructed units so as
to justify [resolution]."

2. NO. Buenviaje’s claim to be restituted the alleged purchase price of the unit – for which the spouses
were claimed to be solidarily liable – this, holds NO BASIS. 72 Mutual restitution is the proper
consequence of the remedy of resolution. It cannot arise – as it is, in fact, theoratically incompatible –
with the remedy of specific performance, which is the relief prayed for and consequently, granted to the
injured party. In this case, it is undisputed that Spouses Salonga were not parties to the contract.
between Jebson and Buenviaje. Under Article 1311 of the Civil Code, it is a basic principle in civil law on
relativity of contracts, that contracts can only bind the parties who had entered into it and it cannot
favor or prejudice 3 persons. Contracts take effect only between the parties, their successors in interest,
heirs and assigns. Thus, absent and privity of contract as to them, there is no basis to hold Spouses
Salonga liable for any of the obligations stated under the said contract.

3. NO. The court finds no basis to rescind the aforesaid “swapping arrangement.” Creditors are given
remedies whenever their debtors perform acts or omissions or enter into contracts that tend to defraud
the creditor of what is due to them. Such remedy comes in the form of rescission under Articles 1381(3)
in relation to Articles 1383 and 1384 of the Civil Code. Rescission is a remedy granted by law to the
contracting parties and even to 3rd persons, to secure the reparation of damages caused to them by a
contract, even if this should be valid, by restoration of things to their condition at the moment prior to
the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone. In the rescission by reason of lesion or economic prejudice, the cause of
action is subordinated to the existence of that prejudice, because it is the raison d’etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued. The records do not support the HLURB-BOC’s finding that
this separate arrangement was entered into in order to defraud Jebson’s creditors under the JVA. The
act of Jebson in accepting non-cash assets as suitable payments was a business decision made by it.
While such may have been the cause of Jebson's inability to timely complete the project (possibly due to
the lack of immediate access to liquid capital at that time), the soundness or unsoundness of that
business decision is not enough for the Court to conclude that the said swaps were entered into to
defraud Spouses. Salonga, notwithstanding the resulting "economic prejudice" to them. As the records
show, Jebson was, in fact, able to receive both cash and non-cash asset payments made by Buenviaje,
and hence, could have properly managed the same to meet its obligations in light of its financial
position.

Philippine Economic Zone Authority v. Pilhino Sales Corporation G.R. No. 185765 September 28, 2016
Topic: Rescission

Facts:

PEZA published an invitation to bid for its acquisition of 2 brand new fire truck units. Philno secured the
contract, which stipulated that it was to deliver 2 FF3HP brand fire trucks within 45 days of receipt of a
purchase order. A further stipulation stated that "in case of failure to deliver the . . . good on the date
specified . . . , the Supplier agrees to pay penalty at the rate of 1/10 of 1% of the total contract price for
each days commencing on the first day after the date stipulated above." Philno failed to deliver. PEZA
filed a complain for rescission of contract and damages. Philno claimed there was no starting date from
which its obligation to deliver could be reckoned, considering that the complaint supposedly failed to
allege acceptance by Pilhino of the purchase order and that there was not even a meeting of minds. The
RTC and CA held the contract rescinded and awarded liquidated damages in favor of PEZA.

Issue:

Whether or not liquidated damages may be awarded notwithstanding the rescission of the contract
stipulating it?

Held:
A contract of sale entails reciprocal obligations, the seller obligates itself to transfer the ownership of
and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its
equivalent." Rescission on account of breach of reciprocal obligations is provided for in Article 1191 of
the Civil Code. Rescission under Article 1911 results in mutual restitution. Restoration of the contracting
parties to their original state is the very essence of rescission. This is however not a license for the
negation of contractually stipulated liquidated damages.

Article 1191 itself clearly states that the options of rescission and specific performance come with "with
the payment of damages in either case." The very same breach or delay in performance that triggers
rescission is what makes damages due. When the contracting parties, by their own free acts of will,
agreed on what these damages ought to be, they established the law between themselves. Their
contemplation of the consequences proper in the event of a breach has been articulated. When courts
are, thereafter, confronted with the need to award damages in tandem with rescission, courts must not
lose sight of how the parties have explicitly stated, in their own language, these consequences.

While petitioners are indeed obliged to return the said amount to respondent under Article 1385,
assuming said figure is correct, respondent is at the same time liable to petitioners in the same amount
as liquidated damages by virtue of the forfeiture/penalty clause as freely stipulated upon by the parties.

CONTRACT TO SELL, Remedy of Rescission in Case of Breach

The remedy of rescission is available when the buyer transferred the title of the subject land in her
name without the knowledge and consent of the seller.

Spouses Delfin O. Tumibay and Aurora Tumibay v. Spouses Melvin A. Lopez and Rowena T. Visitacion
Lopez. G.R. No. 171692, June 3, 2013 Del Castillo j:

FACTS:

Spouses Tumibay own a parcel of land in the name of petitioner Aurora. Petitioners executed an SPA in
favor of Reynalda, mother of respondent Rowena, allowing her to offer for sale the subject land.
Subsequently, petitioners and respondent Rowena agreed to enter into an oral contract to sell over the
subject land for the price of P800, 000.00 to be paid in 10 years through monthly installments. Rowena
paid the first monthly installment to petitioner, followed by 22 intermittent monthly installments. After
paying a total of $10,000.00, Reynalda then transferred the title to the subject land in Rowena;s name
through a deed of sale without the knowledge and consent of petitioner.

Petitioner assails the transaction between Reynaldo and respondent for the former allegedly violated
the terms of the SPA by selling the subject and without seeking approval of petitioners as to the selling
price. Petitioners also claimed that the monthly payments paid by respondents were mere deposits
pending agreement as to the purchase price.

ISSUES:

1. Was there a contract to sell between petitioner and respondents?

2. If there is a contract to sell, did respondents breach such contract with petitioner?
 3. If there is a breach, the contract between petitioner and respondent is petitioner entitled to rescind
the contract?

HELD:

1. YES, a contract in sell has been defined a collateral contract whereby the prospective seller, while
expressly reserving owner of the property despite delivery to the prospective buyer, binds himself to sell
said property exclusively the prospective buyer upon fulfillment of the condition agreed upon, that is full
payment of the purchase price. In a contract to sell, ownership is retained by the seller and is not to pass
until full payment of the price. While there is no written contract evidencing the contract to sell, it is
sufficiently established by the fact that the subject land was not immediately through any formal deed
of conveyance that petitioner continuously received. Only payments from respondent and that
respondent admitted that she caused the transfer of the title in her name only after sometime when she
believed she had substantially paid the purchase price.

2. YES, there was a breach of the contract to sell because the time of the execution of the deed of sale,
the full price of the subject land has not yet paid.

3. YES, Art. 1191 of the Civil Code provides that Rescission will not be permitted for a slight or casual
breach of the contract, but only for a fundamental breach thereof. The Court finds that respondents act
of transferring the title to the subject in her name without the knowledge and consent of petitioners
and despite non-payment of the full purchase price is a substantial breach, thus recession can be availed
by petitioners.

RS TOMAS VS RIZAL CEMENT

SPOUSES JAIME AND MATILDE POON v. PRIME SAVINGS BANK

G.R. No. 183794; June 13, 2016

Topic: Contracts with a penal clause; Fortuitous Event

FACTS:

The petitioners owned a commercial building and they executed a 10-year contract of lease over
building with respondent Prime Savings Bank for the latter to use it as a branch office. They agreed to a
fixed monthly rental with an advance payment.

Three years later, the BSP placed respondent under receivership of the PDIC and eventually ordered its
litigation. The respondent vacated petitioner’s building and PDIC then demanded return of the advance
rentals. Petitioners refused to return the advanced rentals. Thus respondent commenced this case for
rescission of contract and recovery of sum of money.

The RTC ruled in favor of Petitioners and ordered the partial rescission of the contract insofar as the
advance payment was forfeited. It held that the PDIC’s closure of their business was a fortuitous event.
The CA affirmed but applied Art. 1229 instead.
ISSUE:

3. Whether or not the forfeiture of the advance rentals was a penal clause.

4. Whether or not the penalty may be equitably reduced.

HELD:

3. YES. The forfeiture clause in the contract is penal in nature. A provision is a penal clause if it calls for
the forfeiture of any remaining deposit still in the possession of the lessor without prejudice to any
other obligation still owing, in the event of the termination or cancellation of the agreement by reason
of the lessee’s violation of any of the terms and conditions thereof. This kind of agreement may be
validly entered into the by the parties. In this case, it is evident that the stipulation on the forfeiture of
advance rentals is a penal in the sense that it provides for liquidated damages. The penalty for the
premature termination of the contract works both ways. The penalty was to compel respondent to
complete the 10-year term of the lease. Petitioners, too were similarly obliged to ensure the peaceful
use of the building by respondent for the duration of the lease under paid of losing the remaining
advance rentals paid by the respondent.

4. YES. A reduction of the penalty agreed upon by the parties is warranted under Article 1229 of the
New Civil Code.

The general rule is that courts have no power to ease the burden of obligations voluntarily assumed by
parties, just because things did not turn out as expected at the inception of the contract. It must be
noted that this case was initiated by the PDIC in furtherance of its statutory role as the fiduciary of Prime
Savings Bank. As the state-appointed receiver and liquidator, the PDIC is mandated to recover and
conserve the assets of the foreclosed bank on behalf of the latter's depositors and creditors. In other
words, at stake in this case are not just the rights of petitioners and the correlative liabilities of
respondent lessee. Over and above those rights and liabilities is the interest of innocent debtors and
creditors of a delinquent bank establishment. These overriding considerations justify the 50% reduction
of the penalty agreed upon by petitioners and respondent lessee in keeping with Article 1229 of the Civil
Code, which provides for an equitable reduction of the penalty in some cases.

Under the circumstances, it is neither fair nor reasonable to deprive depositors and creditors of what
could be their last chance to recoup whatever bank assets or receivables the PDIC can still legally
recover. Strict adherence to the doctrine of freedom of contracts, at the expense of the rights of
innocent creditors and investors, will only work injustice rather than promote justice in this case.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Court of Appeals
Decision dated 29 November 2007 and its Resolution dated 10 July 2008 in CA-G.R. CV No. 75349 are
hereby MODIFIED in that legal interest at the rate of 6% per annum is imposed on the monetary award
computed from the finality of this Decision until full payment.
 HEIRS OF MANUEL UY EK LIONG VS. CASTILLO GR 176425, JUNE 5, 2013

FACTS:

Respondents in this case were petitioners in a civil case to annul the title of PMPCI over respondent’s
land. Respondents entered into an AGREEMENT whereby in exchange for the legal services of Atty.
Zepeda and the financial assistance of MANUEL UY EK LIONG, in the event of a favorable decision in the
civil case, Atty Zepeda and Manuel would be entitled to 40% of the realties and/or monetary benefits
which may be adjudicated in favor of the respondents. Respondents, on the same day entered into a
Kasunduan, agreeing to sell the remaining 60% share in the land in favor of Manuel for the sum of 180k.
Manuel would pay a 1K down payment upon execution of the Kasunduan. They agreed that any party
violating the Kasunduan would pay the aggrieved party a penalty fixed in the sum of P50K, together with
the attorneys fees and litigation expenses incurred should a case be subsequently filed in court. The
respondents won in the CIVIL CASE. The land was divided in accordance with the Agreement but the
respondents refused to comply with the KASUNDUAN, despite Manuels offer to pay the remaining 179K
balance, claiming that the same was void ab initio for being violative violative of Art 1491 of the NCC and
the Canons of Professional Responsibility. Article 1491 prohibits lawyers from acquiring by purchase or
assignment the property /rights involved in the litigation in which they intervene by virtue of their
profession. Manuel instituted an action for Specific Performance and Damages against respondents.

ISSUE:

w/n the Kasunduan should be given effect

HELD:

The Kasunduan is valid. The prohibition applies only during the pendency of the suit and generally does
not cover contracts for contingent fees where the transfer takes effect only after the finality of a
favorable judgment. The Agreement and the Kasunduan are not independent contracts, with parties,
objects and causes different from that of the other. Obligations arising from contracts have the force of
law between the contracting parties. When the terms of the contract are clear and leave no doubt as to
the intention of the parties, the literal meaning of its stipulation should govern. The Kasunduan
contained a penal clause which provides that a party who violates any of its provisions shall be liable to
pay the aggrieved party a penalty fixed at P50K, together with the attorneys fees and litigation expenses
incurred by the latter should judicial resolution of the matter becomes necessary. The obligor would
then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the
measure of damages caused by the breach. The penalty clause generally substitutes the indemnity for
damages and the payment of interests in case of noncompliance. The rule is settled that a penal clause is
not limited to actual and compensatory damages.The RTCs award of attorneys fees in the sum of
P50,000.00 is, however, proper. Aside from the fact that the penal clause included a liability for said
award in the event of litigation over a breach of the Kasunduan, petitioners were able to prove that they
incurred said sum in engaging the services of their lawyer to pursue their rights and protect their
interests.
 Lo v CA

G.R. No. 141434. September 23, 2003

Art. 1229 – The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor

Facts:

At the core of the controversy were two parcels of land with an office building constructed thereon,
petitioner acquired the subject parcels of land in an auction sale from the Land Bank of the Philippines.
Private respondent National Onion Growers Cooperative Marketing Association, Inc., was the occupant
of the disputed parcels of land under a subsisting contract of lease with Land Bank. Upon the expiration
of the lease contract, petitioner demanded that private respondent vacate the leased premises and
surrender its possession to him.

Private respondent refused on the ground that it was, at the time, contesting petitioner’s acquisition of
the parcels of land in question in an action for annulment of sale, redemption and damages. Petitioner
filed an action for ejectment asking for the imposition of the contractually stipulated penalty of P5,000
per day of delay in surrendering the possession of the property to him. MTC Malabon decided the case
in favor of petitioner, was affirmed in toto by RTC Malabon and CA with modifications, reducing the
penalty by reason of delay from P 5,000 to P 1000 per day. The petitioner filed the instant petition for
review, raising the sole issue of the alleged lack of authority of the CA to reduce the penalty awarded by
the trial court, the same having been stipulated by the parties in their Contract of Lease.

Issue:

WoN the CA lacks of authority to reduce the penalty awarded by the trial court.

Held:

No, the Court holds that CA may equitably reduce a stipulated penalty in the contract if it is iniquitous or
unconscionable, or if the principal obligation has been partly or irregularly complied with. This power of
the court is explicitly sanctioned by Article 1229 of the Civil Code. In this case, the stipulated penalty
was reduced by the appellate court for being unconscionable and iniquitous. As provided in the Contract
of Lease, private respondent was obligated to pay a monthly rent of P30,000. But the stipulated penalty
was pegged at P5,000 for each day of delay or P150,000 per month, an amount five times the monthly
rent. This penalty was not only exorbitant but also unconscionable, taking into account that private
respondents delay in surrendering the leased premises was because of a well-founded belief that its
right of preemption to purchase the subject premises had been violated.

Considering further that private respondent was an agricultural cooperative, collectively owned by
farmers with limited resources, ordering it to pay a penalty of P150,000 per month on top of the
monthly rent of P30,000 would seriously deplete its income and drive it to bankruptcy.
Accordingly, the Court rules that CA did not commit any reversible error in the exercise of its discretion
when it reduced the award of penalty damages from P5,000 to P1,000 for each day of delay. Thus,
petition is hereby DENIED.

STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS, LOMUYON TIMBER INDUSTRIES,
INC. , AMANDA MALONJAO and RUFINO MALONJAO, respondents.

Facts:

Lomuyon agreed to sell to SIHI its “receivables” at a discount. It was agreed that should a receivable
remain unpaid, SIHI may impose a penalty fee of 3% per month. To secure the payment of the
receivables, the Malonjaos also executed in favor of SIHI a real estate mortgage over their 2 real
properties. Lomuyon sold to SIHI for a total consideration of P2,558,073.75. various receivables
consisting of checks. When SIHI presented the checks for payment to the drawee banks, the same were
dishonored for reason of insufficient funds and defendants failed to pay the value of the checks. Thus,
SIHI decided to undertake foreclosure of the real estate mortgage, wherein SIHI was the highest bidder
at the public auction for. however, SIHI filed another complaint alleging that after deducting the price of
the mortgaged properties from defendants’ outstanding obligation, there remains a deficiency as of
February 14, 1983, which as of May 31, 1983 amounted to P2,876,929.27 inclusive of interest and
charges. The defendants contended that SIHI’s computation of their outstanding obligation is erroneous,
and that the interest and charges made by plaintiff is usurious and unconscionable.

ISSUE:

Whether SIHI may be entitled to recover the deficiency.

HELD:

NO. The principal obligation of the private respondent would not have ballooned to such a horrendous
amount if not for the penalty charge of 3% per month or 36% per annum. SIHI should have stopped
imposing the 3% penalty charges and other burdens when it had consolidated the two titles of the
foreclosed properties. While the Court recognizes the right of the parties to enter into contracts and are
expected to comply with the terms and obligations, this rule is not absolute. The Court allowed to
temper interest rates when necessary. Article 1229 of the New Civil Code clearly provides: The judge
shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. Likewise, Article 2227 provides: Liquidated damages, whether
intended as an indemnity or penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
 DBP v CA

G.R. No. 137557; October 30, 2000

Art. 1229 – The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor

Facts:

Petitioner owns a parcel of land and sold it to respondent spouses De La Peña under a Deed of
Conditional Sale for ₱207,000.00. After the execution of the contract, the spouses De La Peña
constructed a house on the said lot and began living there. The spouses made the total payment of
₱289,600.00, after which they asked DBP for the execution of a Deed of Absolute Sale and for the
issuance of the title to the property. However, DBP informed them that there was still a balance of
₱221,86.85, which demanded from them, otherwise, it would rescind the sale. The spouses filed a
complaint against petitioner for specific performance and damages with a prayer for the issuance of a
temporary restraining order to enjoin the DBP from rescinding the sale and selling the land to interested
buyers. The trial court dismissed the complaint as plaintiffs have still to pay the defendant the sum of
₱54,200.00 as interest to be able to sue for specific performance, but declared the writ of preliminary
injunction permanent, with attorney’s fee and costs of suit against DBP. The CA affirmed the RTC ruling
but deleted attorney’s fee. On petition, DBP cited that the courts erroneously took into account only the
18% annual interest on the remaining balance of ₱165,000.00, resulting in the difference of P54,200.00,
and in disregarding paragraph 8 of the contract on additional interests and penalty charges of 8% per
annum so that the respondent spouses still owed DBP the amount of ₱225,855.86

Issue:

WoN the court can reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor.

Held:

Yes, the Court agrees with the CA that the payment of the penalty charge can be reduced for being
excessive and unwarranted under the circumstances. Article 1229 of the Civil Code states that "Even if
there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable."

In the instant case, private respondents made regular payments to petitioner DBP in compliance with
their principal obligation. They failed only to pay on the dates stipulated in the contract. This indicates
the absence of bad faith on the part of private respondents and their willingness to comply with the
terms of the contract. Moreover, of their principal obligation in the amount of ₱207,000.00, private
respondents have already paid ₱289,600.00 in favor of petitioner.

These circumstances convince the Court of the necessity to equitably reduce the interest due to
petitioner and does so by reducing to 10% the additional interest of 18% per annum computed on total
amortizations past due. The penalty charge of 8% per annum is sufficient to cover whatever else
damages petitioner may have incurred due to respondents’ delay in paying the amortizations, such as
attorney’s fees and litigation expenses.
Thus, the CA decision is affirmed with modification.

Case of DANILO SOLANGON AND URSULA SOLANGON vs JOSE AVELINO SALAZAR

G.R.No. 125994 29June2001

FACTS OF THE CASE:

Solangons’ executed 3 real estate mortgages in which they mortgaged a parcel of land situated in Sta.
Maria, Bulacan, in favor of the Salazar to secure payment of a loan of P60, 000.00 payable within a
period of four (4) months, with interest thereon at the rate of 6% per month, to secure payment of a
loan of P136, 512.00, payable within a period of one (1) year, with interest thereon at the legal rate, and
to secure payment of a loan in the amount of P230, 000.00 payable within a period of four (4) months,
with interest thereon at the legal rate.

This action was initiated by the Solangons to prevent the foreclosure of the mortgaged property. They
alleged that they obtained only one loan form the defendant-appellee, and that was for the amount of
P60, 000.00, the payment of which was secured by the first of the above-mentioned mortgages. The
subsequent mortgages were merely continuations of the first one, which is null and void because it
provided for unconscionable rate of interest. They have already paid the defendant-appellee P78,
000.00 and tendered P47, 000.00 more, but the latter has initiated foreclosure proceedings for their
alleged failure to pay the loan P230, 000.00 plus interest.

ISSUES OF THE CASE:

Is a loan obligation that is secured by a real estate mortgage with an interest of 72% p.a. or 6% a month
unconscionable?

RULING:

Yes, although the C.B. Circular No 905 lifted the ceiling on interest rates there is nothing in the said
circular that grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to hemorrhaging of their assets.

In the case of Medel vs. C.A. the S.C. has held that 5.5% per month was reduced for being iniquitous,
unconscionable and exorbitant hence it is contrary to morals (contra bonos mores)

In this case the Solangons’ are in a worse situation than the Medel case (6% per month interest rate) the
said interest rate should be reduced equitably.

HELD:

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION
that the interest rate of 72% per annum is ordered reduced to 12 % per annum.

Obligations and Contracts Terms:

Legal Interest- the legal rate of interest for the loan or forbearance of any money, goods or credits,
where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate
the title to which is duly registered, in the absence of express contract as to such rate of interest, shall
be 12% per annum, unless it is unconscionable or contrary to laws, morals, public policy.

Case Digest No. II-16 | GR No. 138677 | Ligutan v Court of Appeals | Vitug

FACTS:

Petitioners obtained a loan from Security Bank and Trust Co. and the obligation matured and the bank
granted an extension. Despite several demands from the Bank, petitioners failed to settle the debt
which then amounted to P114,416.10. The Bank then filed a complaint for recovery of the due amount
but petitioners instead of presenting their evidence had the schedule reset for two consecutive
occasions. On the third hearing date, the trial court resolved to consider the case submitted for decision.
Two years later petitioners filed a motion for reconsideration which was denied by the trial court.
Petitioners then interposed an appeal with the Court of Appeals, the appellate court affirmed the
judgement of the trial court except the 2% service charge which was deleted pursuant to Central Bank
Circular No. 763. The two parties filed their motions for reconsiderations and the Court of Appeals
resolved the two motions: that the payment of interest and penalty commence on the date when the
obligation became due and a penalty of 3% per month would suffice. The petitioners filed an omnibus
motion for reconsideration which was then denied by the Court of Appeals.

ISSUE:

Whether or not the 15.189% interest and the penalty of 3% per month (36% per annum) is exorbitant,
iniquitous, and unconscionable.

RULING:

Petition is DENIED. The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution will depend on such factors as, but not confined to, the
type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court.

The Court of Appeals, exercising its good judgement has reduced the penalty interest from 5% a month
to 3% a month. Given the circumstances and the repeated acts of breach by petitioners of their
contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court.

The stipulated interest of 15.189% per annum, does not appear as being excessive. The essence or
rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as
that as a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is
an agreement to that effect, the two being distinct concepts which may separately be demanded. The
interest prescribed in loan financing arrangements is a fundamental part of the banking business and
the core of a banks existence.

G.R. No. 225562 WILLIAM C. LOUH, JR. and IRENE L. LOUH vs BANK OF THE PHILIPPINE ISLANDS
Facts:

The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card in William’s name, with
Irene as the extension card holder. Pursuant to the terms and conditions of the cards’ issuance, 3.5%
finance charge and 6% late payment charge shall be imposed monthly upon unpaid credit availments.

The Spouses Louh made purchases from the use of the credit cards and paid regularly based on the
amounts indicated in the Statement of Accounts. However, they were remiss in their obligations starting
October 14, 2009 prompting BPI to send written demand letters. By September 14, 2010, they owed BPI
the total amount of ₱533,836.27. Despite repeated verbal and written demands, the Spouses Louh
failed to pay BPI. BPI filed before the Regional Trial Court of Makati City a Complaint for Collection of a
Sum of Money.

On July 24, 2012, the RTC issued an Order declaring the Spouses Louh in default and setting BPI’s ex-
parte presentation of evidence on August 7, 2012. The Branch Clerk of Court thereafter submitted a
Commissioner’s Report

On November 29, 2012, the RTC rendered a Decision which ordered the Spouses Louh to solidarily pay
BPI (1) P533,836.27 plus 12% finance and 12% late payment annual charges starting from August 7, 2010
until full payment, and (2) 25% of the amount due as attorney’s fees, plus ₱l,000.00 per court hearing
and ₱8,064.00 as filing or docket fees; and (3) costs of suit.17

The RTC explained that BPI had adduced preponderant evidence proving that the Spouses Louh had in
fact availed of credit accommodations from the use of the cards. However, the RTC found the 3.5%
finance and 6% late payment monthly chargesimposed by BPI as iniquitous and unconscionable. Hence,
both charges were reduced to 1 % monthly. Anent the award of attorney’s fees equivalent to 25% of the
amount due, the RTC found the same to be within the terms of the parties’ agreement.

Aggrieved, the spouses before the Court alleged the computations did not show the specific amounts
pertaining to the principal, interests and penalties. They point out that since their credit limit was only
₱326,000.00, it is evident that the amount of ₱533,836.27 demanded by BPI included unconscionable
charges.

Issue:

Whether or not the interest rate imposed and attorney’s fee awarded are unconscionable and can be
equitable reduced by the Court.

Ruling:

The Supreme Court ruled in the negative. Be that as it may, the Court finds excessive the principal
amount and attorney’s fees awarded by the RTC and CA. A modification of the reckoning date relative to
the computation of the charges is in order too.

In Macalinao, where BPI charged the credit cardholder of 3.25% interest and 6% penalty per month, and
25% of the total amount due as attorney’s fees, the Court unequivocally declared that:

This is not the first time that this Court has considered the interest rate of 36% per annum as excessive
and unconscionable. We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably
reduced to 1% per month or 12% per annum. We need not unsettle· the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous,
unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the
law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling
on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said
circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to
levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. x x x

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the Civil Code
states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable. x x xx

x x x [T]he stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests,
is indeed iniquitous and unconscionable.

Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12% each, and the
attorney’s fees to ₱l0,000.00.

In MCMP Construction Corp. v. Monark Equipment Corp., the creditor cumulatively charged the debtor
60% annually as interest, penalty and collection fees, and 25% of the total amount due as attorney’s
fees. The Court similarly found the rates as exorbitant and unconscionable; hence, directed the
reduction of the annual interest to 12%, penalty and collection charges to 6%, and attorney’s fees to 5%.
The Court explained that attorney’s fees are in the nature of liquidated damages, which under Article
2227 of the New Civil Code, “shall be equitably reduced if they are iniquitos or unconscionable.”

The Court reduces the attorney’s fees to five percent (5%) of the total amount due from the Spouses
Louh pursuant to MCMP43 and Article 2227 of the New Civil Code.

DKC Holdings v. CA G.R. No. 118248. April 5, 2000

FACTS:

On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into a Contract of Lease with
Option to Buy with Encarnacion Bartolome, decedent herein, whereby petitioner was given the option
to lease or lease with purchase the subject land.

Encarnacion died. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome,
being the sole heir of Encarnacion. Victor, however, refused to accept these payments. On March 14,
1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease
the property, tendering the amount of P15,000.00 as rent. Again, Victor refused to accept the tendered
rental fee and to surrender possession of the property to petitioner. On April 23, 1990, petitioner filed a
complaint for specific performance and damages against Victor and the Register of Deeds

Issue:

W/ON the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with
petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her
demise.

Held:

No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject Contract of Lease
with Option to buy executed by his predecessor-in-interest. It is futile for Victor to insist that he is not a
party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an
heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds
to what rights his mother had and what is valid and binding against her is also valid and binding as
against him. The general rule, therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible
by (1) their nature, (2) stipulation or (3) provision of law.