BATCH 2

Fortuitous Events, 1174Maranan vs. Perez, 20 SCRA 412 (1967)

Facts:Rogelio Corachea, on October 18, 1960, was a passenger in a taxicab owned and operated by Pascual Perez when he was stabbed and killed by the driver, Simeon Valenzuela.The driver was found guilty and prosecuted for homicide in the Court of First Instance of Batangas. He was sentenced to suffer imprisonment and to indemnify the heirs of the deceased in the sum of P6,000. The conviction was taken to the Court of Appeals. While appeal was pending, Antonia Maranan, Rogelio's mother, filed an action in the Court of First Instance of Batangas to recover damages from Perez and Valenzuela. Defendants asserted that the deceased was killed in self-defense, since he first assaulted the driver by stabbing him from behind. Defendant Perez further claimed that the death was a caso fortuito for which the carrier was not liable.The court ruled out in favor of the plaintiff and awarded her P3,000 as damages against defendant Perez whereas the claim against defendant Valenzuela was dismissed. From this ruling, both plaintiff and defendant Perez appealed before the Supreme Court, the former asking for more damages and the latter insisting on non-liability. Subsequently, the Court of Appeals affirmed the judgment of conviction earlier mentioned.Defendant-appellant relies solely on the ruling enunciated in Gillaco v. Manila Railroad Co., 97 Phil. 884, that the carrier is under no absolute liability for assaults of its employees upon the passengers.Issue:Was the contention of the defendant-appellant valid?Ruling:No. The attendant facts and controlling law of that case and the one at bar are very different however. In the Gillaco case, the passenger was killed outside the scope and the course of duty of the guilty employee. In other words, the killing of the passenger here took place in the course of duty of the guilty employee and when the employee was acting within the scope of his duties.Moreover, the Gillaco case was decided under the provisions of the Civil Code of 1889 which, unlike the present Civil Code, did not impose upon common carriers absolute liability for the safety of passengers against wilful assaults or negligent acts committed by their employees. The death of the passenger in the Gillaco case was truly a fortuitous event which exempted the carrier from liability. Unlike the old Civil Code, the new Civil Code of the Philippines expressly makes the common carrier liable for intentional assaults committed by its employees upon its passengers, by the wording of Art. 1759.

Lawyers Cooperative vs. Tabora, 13 SCRA 762Facts:1. Tabora bought from plaintiff one complete set of American Jurisprudence (48 volumes) total price of 1,675.50php + cost of freight 6.90php = 1,682.40php2. Partial payment of 300php was given. Books were duly delivered at Tabora's law office3. A sudden fire caught the locality where Tabora's office was and burned the purchased books along with important documents 4. Company, as a token of good will, sent Tabora free of charge volumes 75,76,77,&785. Tabora failed to pay monthly installments (balance was still 1,382.40php). Company demanded payment of installments due. 6. So present action: recovery of the balance of the obligation plus 25% amount due as liquidated damages 7. Tabora's defense: force majeure, so he could not be held responsible for the loss. He opt for the complaint to be dismissed, and he be awarded 15,000php moral damages8. The court after due hearing,ordered the defendant to pay balance plus the 25% amount due as liquidated damages9. Defendant took case to Court of Appeals10. It was provided in the contract: "title to and ownership

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of the books shall remain with the seller until the purchase price have been fully paid. Loss or damage to the books after delivery to the buyer shall be borne by the buyer." 11. The obligation does not refer to a determinate thing, but is monetary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him.Issue: Whether it is justifiable to have the defendant-appellant responsible for the loss occurred through a fortuitous eventRuling: Under Art. 1174, except in cases expressly specified by the law or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable, appellant's defense of force majeure is valid and should not be made to pay any damages also bec his denial to pay the balance of the account is not due to bad faith as it is only a result of misapprehension. Under the law on damages a debtor should not be made to pay liquidated damages in absence of bad faith. Decision of court was modified, eliminating the portion which refers to liquidated damages. The rule exempting obligor from liability when loss is due to a fortuitous event only holds true when the obligation consists in delivery of a determinate thing, not when it is of a pecuniary nature.

Dioquino vs. Laureano, 33 SCRA 65 (1970) FACTS:The case originates from the use by defendant Federico Laureano of the car owned by plaintiff Pedro Dioquino.Dioquino, a practicing lawyer of Masbate, went to the office of the MVO, Masbate, to register his car. He requested Laureano to introduce him to one of the clerks in the MVO Office who could facilitate the registration of his car and the request was graciously attended to. Laureano rode on the car of Atty. Dioquino on his way to the P.C. Barracks at Masbate. While about to reach their destination, the car driven by Dioquino's driver with Laureano as the sole passenger was stoned by some mischievous boys, and its windshield was broken.Laureano refused to file any charges against the boy and his parents because he thought that the stone-throwing was merely accidental and that it was due to force majeure. Dioquino tried to convince Laureano to pay the value of the windshield, and he even asked the wife to convince her husband to settle the matter amicably. But Laureano refused to make any settlement.Included as defendants in the action filed were the wife and father of Laureano.The lower court judged in favor of Dioquino, the judgment however going only against Laureano. His spouse and his father were absolved.

ISSUES:(1) Whether or not there was fortuitous event and Laureano is liable to pay for damages.(2) Whether or not the Dioquino is liable for damages for including Laureano’s wife and father.

RULING:(1) There was fortuitous event and Laureano is not liable to pay damages.The express language of Art. 1174 of the present Civil Code states that "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be, foreseen, or which, though foreseen were inevitable." The throwing of the stone by the child was clearly unforeseen or if foreseen, was inevitable. Hence, the law being what it is, such a belief on the part of defendant Laureano was justified and he shall not be held liable for the damages caused to the car. The decision of the lower court is reversed.

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(2) No moral damages should be awarded to the other defendants. Mistaken as Dioquino apparently was, it cannot be concluded that he was prompted solely by the desire to inflict needless and unjustified vexation on them. Considering the equities of the situation, Dioquino having suffered a pecuniary loss which, while resulting from a fortuitous event, perhaps would not have occurred at all had not Laureano borrowed his car, the Court feels that Dioquino is not to be penalized further by his mistaken view of the law in including them in his complaint.

Austria vs. CA, 39 SCRA 527 FACTS:Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on a commission basis or to be returned on demand. In 1961, while walking home, the purse containing the jewelry and cash was snatched by two men. A complaint of the incident was filed in the Court of First Instance (CFI) against certain persons. Abad failed to return the jewelry or pay for its value despite demands made by Austria. Austria brought an action against the Abad spouses for the recovery of the pendant or of its value and damages. Abad spouses set up the defense that the alleged robbery had extinguished their obligation.The CFI rendered judgment for Austria, ordering the Abad spouses, jointly and severally, to pay to the former the cost of the jewelry with legal interest plus attorney’s fees. It was held that Abad was guilty of negligence, and such did not free her from liability for damages. The defendants went to the Court of Appeals (CA) and there secured a reversal of judgment. The CA declared defendants not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner.Hence, the present petition. Petitioner contend that for robbery to fall under the category of a fortuitous event and relieve the obligor from his obligation under a contract, there ought to be a prior finding on the guilt of the persons responsible therefor.

ISSUES:(1) Should Abad be held liable for the loss of the pendant?(2) In a contract of agency (consignment of goods for sale), is it necessary that there be a prior conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss?

RULING:(1) No. The Court ruled that the exempting provision of Article 1174 of the Civil Code is applicable in the case. It is a recognized jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (a) the event must be independent of the human will or of the obligor’s will; (b) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (c) the obligor must be free of participation in, or aggravation of, the injury to the creditor. To avail of the exemption granted, it is not necessary that the persons responsible for the event should be found or punished. It is sufficient that the unforeseeable event which is the robbery took place without concurrent fault or negligence on the part of the obligor which can be proven by preponderant evidence. It was held that the act of Maria Abad in walking home alone carrying the jewelry was not negligent for at that time the incidence of crimes was not high.

(2) No. The emphasis of the exempting provision of Article 1174 of the Civil Code is on the events, not on the agents or factors responsible for them. Establishing the unforeseeable event, the robbery in this case, can be done by preponderant evidence. To require the prior conviction of the culprits in the criminal case in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

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Austria vs. CA 2FACTS:

            Maria G. Abad received from Guillermo Austria a pendant with diamonds to be sold on a commission basis or to be returned on demand. While walking home, the purse containing the jewelry and cash was snatched by two men. A complaint of the incident was filed in the Court of First Instance against certain persons.

            Abad failed to return the jewelry or pay for its value despite demands made by Austria. Austria brought an action against the Abad spouses for the recovery of the pendant or of its value and damages. Abad spouses set up the defense that the alleged robbery had extinguished their obligation.

ISSUE:            Should the Abad spouse be held liable for the loss of the pendant?

RULING:

            No. The Court ruled that the exempting provision of Article 1174 of the Civil Code is applicable in the case. It is a recognized jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that the event must be independent of the human will or of the obligor’s will; the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that the obligor must be free of participation in, or aggravation of, the injury to the creditor. To avail of the exemption granted, it is not necessary that the persons responsible for the event should be found or punished. It is sufficient that to unforeseeable event which is the robbery took place without concurrent fault or negligence on the part of the obligor which can be proven by preponderant evidence. It was held that the act of Maria Abad in walking home alone carrying the jewelry was not negligent for at that time the incidence of crimes was not high.

Republic vs. Luzon Stevedoring, 21 SCRA 279 (1967) FACTS:In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was being towed down the Pasig River by two tugboats when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the current swift, on account of the heavy downpour in Manila and the surrounding provinces on August 15 and 16, 1960. The Republic of the Philippines sued Luzon Stevedoring for actual and consequential damage caused by its employees, amounting to P200,000. Defendant Corporation disclaimed liability on the grounds that it hadexercised due diligence in the selection and supervision of its employees that the damages to the bridge were caused by force majeure, that plaintiff has no capacity to sue, and that the Nagtahan bailey bridge is an obstruction to navigation.After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage caused by its employees and ordering it to pay plaintiff the actual cost of the repair of the Nagtahan bailey bridgewhich amounted to P192,561.72, with legal interest from the date of the filing of the complaint.ISSUE:Was the collision of appellant's barge with the supports or piers of the Nagtahan bridge caused by fortuitous event or force majeure?RULING:Yes. Considering that the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with adequate openings for the passage of water craft,

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including barges like of appellant's, it was undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing will not happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" ruleThe appellant strongly stressed the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent andexperienced among its patrons, had the towlines, engines and equipment double-checked and inspected' that it instructed its patrons to take extra precautions; and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event.These very precautions, however, completely destroyed the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability) by definition, are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It was, therefore, not enough that the event should not have been foreseen or anticipated, as was commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening was not impossibility to foresee the same. The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not casofortuito.

Lasam vs. Smith, 45 Phil. 657 (1967) Facts: Franklin Smith (defendant) owns a public garage in San Fernando, La Union, and is engaged in the business of carrying passengers for hire from one point to another in the Province of La Union and the surrounding provinces. On February 1918, husband and wife Honorio Lasam (plaintiffs) hired the defendant’s transport services to convey them from San Fernando to Currimao, Ilocos Norte. On leaving San Fernando, the automobile was operated by a licensed chauffeur, but after having reached the town of San Juan, the chauffeur allowed his assistant to drive the car. The assistant held no driver’s license, but had some experience in driving, and with the exception of some slight engine trouble, the car functioned well until after the crossing of the Abra River, when, according to the witnesses for the plaintiffs, defects developed in the steering gear so as to make accurate steering possible, and after zigzagging for a distance the car left the road and went down a steep embankment. The automobile was overturned, Mr. Lasam escaped with a few contusions and a dislocated rib, but his wife, received serious injuries, among which was a compound fracture of one of the bones in her left wrist. She also suffered a nervous breakdown from which she has not fully recovered until at the time of the trial. Plaintiffs filed a complaint about a year and a half thereafter on the grounds of defects in the automobile and of the incompetence and negligence of the chauffeur. The court held that there was a breach of the contract of carriage which was not due to fortuitous events and that, therefore the defendant was liable in damages.Issue:Whether the court was correct in judging that the breach of contract of carriage was not due to any fortuitous event?Ruling:Yes, it was correct that there was a breach of contract of carriage as held by the trial court; when the plaintiffs hired the defendant to convey them from one place to another, the latter is bound to fulfill such contract of carriage and safely and securely bring them to their destination, and that his failure to do so makes him liable for damages except if there are fortuitous events as mentioned in Article 1105 of the Civil Code. However, as far as the facts show, the accident was caused either by defects in the automobile or else through the negligence of the car’s driver. As illustrated, the essential element of extraordinary circumstances independent of the will of the obligor, or of his employees is not present to this case, hence, it shall not be considered fortuitous. It is not

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suggested that the accident in question was due to an act of God or to adverse road conditions which could have been foreseen. Clearly, such cases are not fortuitous in nature, and that the defendant is liable for damages incurred by the plaintiffs.

Lasam vs. Smith 2

Facts: The defendant was the owner of a public garage in the town of San Fernando, La Union, and engaged in the business of carrying passengers for hire from one point to another in the Province of La Union and the surrounding provinces. Defendant undertook to convey the plaintiffs from San Fernando to Currimao, Ilocos Norte, in a Ford automobile. On leaving San Fernando, the automobile was operated by a licensed chauffeur, but after having reached the town of San Juan, the chauffeur allowed his assistant, Bueno, to drive the car. Bueno held no driver’s license, but had some experience in driving. The car functioned well until after the crossing of the Abra River in Tagudin, when, according to the testimony of the witnesses for the plaintiffs, defects developed in the steering gear so as to make accurate steering impossible, and after zigzagging for a distance of about half kilometer, the car left the road and went down a steep embankment. The automobile was overturned and the plaintiffs pinned down under it. Mr. Lasam escaped with a few contusions and a dislocated rib, but his wife, Joaquina, received serious injuries, among which was a compound fracture of one of the bones in her left wrist. She also suffered nervous breakdown from which she has not fully recovered at the time of trial.

The complaint was filed about a year and a half after and alleges that the accident was due to defects in the automobile as well as to the incompetence and negligence of the chauffeur.

The trial court held, however, that the cause of action rests on the defendant’s breach of the contract of carriage and that, consequently, articles 1101-1107 of the Civil Code, and not article 1903, are applicable. The court further found that the breach of contract was not due to fortuitous events and that, therefore the defendant was liable in damages.

Issue: Is the cause of the accident a fortuitous event, thus extinguishing defendant’s liability? Ruling: No. Article 1174 provides “Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.” The following characteristic must be considered: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will. (2) It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid. (3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And (4) the obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the creditor." Some extraordinary circumstances independent of the will of the obligor, or of his employees, is an essential element of a caso fortuito. In the present case, this element is lacking. It is not suggested that the accident in question was due to an act of God or to adverse road conditions which could have been foreseen. As far as the record shows, the accident was caused either by defects in the automobile or else through the negligence of its driver. That is not a caso fortuito.

Victorias Planters Assn. vs. Victorias Milling Co., 97 Phil. 318 (1955)

FACTS: Victoria Planters Association Inc. and North Negros Planters Association, Inc are the

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petitioners of this case, against respondent Victorias Milling Corporation. Both petitioners entered into a contract with Victorias Milling Co., stipulating that sugar cane produced by petitioners would be milled by the respondent in a 30-year period. But due to the Japanese occupation, considering the war that happened, the petitioners was not able to deliver the thing promised (sugar cane) in a contract with the respondents for six years. The failure to do so was because of force majeure. ISSUE: Whether petitioner is obliged to deliver the sugar cane for six more years after the expiration of the 30-year period to make up for their failure to deliver to the respondent?RULING:No. The milling contracts executed between the petitioners and the respondent expired and terminated upon the lapse of the said 30-year period, and that respondent corporation is not entitled to claim any extension of or addition to the said 30 year term or period of said milling contracts by virtue of an equivalent to 6 years of the last war and reconstruction of its central, during which there was no planting and/or milling. The reason the planters failed to deliver the sugar cane was the war or fortuitous event. The appellant ceased to run its mill for the same cause. Fortuitous event relieves the obligor from fulfilling the contractual obligation under Article 1174 of the Civil Code. In order that the respondent central may be entitled to demand from the petitioner the fulfillment of their part in the contracts, the latter must have been able to perform it but failed or refused to do so and not when they were prevented by force majeure such as war. The fulfillment prayed upon by the respondents was impossible of performance. Usurious Transactions, 1175; 1413

Angel Warehousing vs. Chelda, 23 SCRA 19 FACTS:Plaintiff corporation filed suit in the Court of FirstInstance of Manila on May 29, 1964 against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00.Alleging that post dated checks issued by defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram I. Mohinani, hadleft the country, and that defendants have removed or disposed of their property, or are about to do so, with intent to defraud their creditors, preliminary attachmentwas also sought.Answering, defendants averred that they obtained four loans from plaintiff in the total amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action against defendants and should not be permitted to recover under the law. A counterclaim for P2,000.00 attorney's fees was interposed.Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath the allegations of usury.ISSUE: In a loan with usurious interest, may the creditor recover the principal of the loan?RULING:Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:“Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutescriminal offense, both parties being in pari delicto, theyshall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crimeshall be applicable to the things or the price of the contract.”This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise.The Supreme Court do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the

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Usury Law (Act No.2655, as amended), a loan with usurious interest is not totally void only as to the interest.True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds from illegality of the cause or object of said contract.However, appellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but thewaiver of the latter shall leave the former in force."

Briones vs. Camayo, 41 SCRA 404 Facts: Aurelio G. Briones (plaintiff) filed an action against defendants Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severelly, the amount of P1,500.00, plus damages, attorney’s fees and costs of suit. Defendants answered the complaint with specific denials and complaints. Defendants executed the real estate mortgage as security for the loan of P1,200.00 given to Primitivo Cammayo upon the usurious agreement that defendant pays to the plaintiff, out of the alleged loan of P1,500.00 (interest of P300.00) for one year. Although the mortgage contract was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year. With said loan of P1,200.00, defendant paid to the plaintiff during the period of October 1955 to July 1956 the sum of P330.00 which plaintiff, illegally and unlawfully refused to acknowledge as partial payment of the account but as an interest of said loan for an extension of another term of one year.

Issue:Will the plaintiff have the right to recover from the defendant the total amount of P1,500.00?Ruling:No. The loan is valid but usurious interest is void. Plaintiff has the right to recover his capital by judicial action. To discourage stipulations on usurious interest, said stipulations are treated as void, so that the loan becomes one without stipulation as to payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal amount, for this would unjustly enrich the defendant at the expense of the plaintiff. Moreover, penal sanctions are available against a usurious lender, as a further deterrence to usury. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract, is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.

Briones vs. Cammayo 2G.R. No. L-23559 October 4, 1971

Facts:

On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against the Cammayos’, to recover from them, jointly and severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit.

Defendants executed the real estate mortgage, as security for the loan of P1,200.00 upon a usurious agreement, that the plaintiff reserve and secure, out of the alleged loan of P1,500.00 as interest the sum of P300.00 for one year. That although the mortgage contract was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant

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Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year.

That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension of another term of one year.

Issue: Is the creditor entitled to collect from the debtor the amount representing the principal obligation of the loan?

Whether or not he is entitled to collect usurious interests.

Ruling:Yes. In a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."Article1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force."

No. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.Castro, Fernando, and Conception, JJ., dissenting –

In a contract which is tainted with usury, that is, with a stipulation (whether written or unwritten) to pay usurious interest, the prestation to pay such interest is an integral part of the cause of the contract. 1 It is also the controlling cause, for a usurer lends his money not just to have it returned but indeed, to acquire in coordinate gain. Article l957, which is a new provision in the Civil Code, provides as follows: "Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury." This article which declares the contract itself — next merely the stipulation interest — void, necessarily regards the prestation to pay usurious interest as an integral part of the cause, making it illegal.

Barredo, J., concurring:

Article 1957 of the Civil Code declares that all usurious contracts and stipulations are void, this is nothing new, for such has been the law even under the Usury Law before the Civil Code went into effect, and, moreover, it is evident that the Civil Code itself yields to the Usury Law when it comes to the question of how much of the loan and interests paid by the borrower may be recovered by him, and the Usury Law is clear that he may recover only all the interests, including, of course, the legal part thereof, with legal interest from the date of judicial demand, without maintaining that he can also recover the principal he has already paid to the lender.

Presumptions, 1176Manila Trading Supply Co. vs. Medina, 2 SCRA 549 (1961) –

Facts:

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Prior to May 7, 1956, the defendant-appellant Mariano Medina had certain accounts with appellee, Manila Trading & Supply CO. These accounts were on said date consolidated into a total balance due of P60,000.00, for which Medina executed a promissory note for Sixty Thousand Pesos (P60,000.00), with interest at 12% per annum, payable in monthly installments of P4,000.00 plus interest. The note provided that upon failure to pay any of the installments "the whole sum remaining then unpaid will immediately become due and payable, at the option of the holder of this note", together with 33-1/3% of the amount due for attorney's fees and expenses of collection, in addition to the costs of the suit.

On January 8, 1957, the payee Manila Trading & Supply Co. filed a complaint against appellant Medina in the Court of First Instance of Manila, claiming that the said debtor had failed to meet the installments due on the note for the months of September, 1956 up to and including January 7, 1957. Medina further pleaded, by way of defense, that he was induced to pay P4,000.00 additional on January 24, 1957 upon promise that he would not be sued, and that he would be allowed to pay the balance. By way of counterclaim, Medina asked for damages due to lost earnings of the trucks attached, at the rate of P900.00 per day.

Plaintiff provided evidence, which showed that from June 6, 1956 to January 21, 1957, defendants had made twenty-one payments totalling P24,311.34 of which P4,413.76 corresponded to interest and the balance (P19,982.15) to the principal. The defendant testified that he has 10 other payments with receipts but the dates and serial numbers are unclear for it was eaten by ‘anay’. Defendant claims that his payment on Jan. 1957 give rise to the presumption that prior installments have been paid.

Issue: Whether the presented receipts are genuine to raise the presumption that prior installments were paid.

Ruling: No. Appellant avers that the genuine receipts dated January, 1957 raise the presumption that prior installments were paid. This might be true if such receipts recited that they were issued for the installments corresponding to the month of January, 1957; but nowhere does that fact appear. And even if such recital had been made, the resulting presumption would only be prima facie, and the evidence before us is clear that the payments made do not correspond to the installments falling due on the dates of the genuine receipts.

Manila Trading v. Medina 2Facts:Defendant-appellant Mariano Medina had certain accounts payable with appellee Manila Trading & Supply Co. After said accounts were consolidated, he had a total balance outstanding of P60, 000.00 of which he executed a promissory note stipulating an interest of 12% per annum, payable in monthly installments of P4, 000.00 plus interest. Further, it was stipulated that his failure to comply with the terms makes his account due and demandable with attorney’s fees, collection expenses and the cost of the suit.Appellee filed a complaint against appellant for failing to comply with his promissory note and a writ of attachment was issued and levied upon his eleven buses. Appellant pleaded, partly admitting his lapse but counterclaimed for damages for the loss of income when his buses were attached. He showed receipts of payment however the appellee found it hard to consolidate the mutilated receipts with their records.

Issue:Does the presentation of receipt of a subsequent payment presume the payment of prior installments?

Ruling:Receipts of payment should recite that they are issued for the installments corresponding to the month in question. But even if such recital had been made, the resulting presumption would only be prima facie.

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Different Kinds of Obligations Pure and Conditional Obligations, 1179

Pure obligationGalar vs. Isasi, 47 O.G.6241

FACTS:

            Luis Galar borrowed Php 15,000 from Juan Isasi for which the former drew two promissory notes. As a payment, Galar paid to PNB on behalf of Aberri Inc., which was controlled by Isasi and his wife, the outstanding balance of Php 15,848.90. In turn, PNB cancelled the indebtedness of Aberri Inc., released the mortgage that had been constituted, and delivered the title to Galar. Upon notifying Isasi of the payment made, Isasi refused to recognize the payment of Galar to PNB. Hence the attorney of Galar advised Isasi that they would consign in the court the sum of Php 20,000, representing the face value of the promissory notes. They then filed a case in the court to declare the promissory notes paid and discharged.

            Isasi, on the other hand, tendered the sum of Php 15,848.90 paid by Galar to the PNB for the account and in the name of Aberri Inc. Upon refusal by Galar, Isasi, on behalf of the company, consigned the amount in the CFI of Manila and filed a complaint, praying that Galar be ordered to restore to Aberri Inc. all documents relative to the obligation formerly due to the PNB and to reimburse the amount paid by Galar to the bank be considered cancelled in view of the consignation.

 

ISSUE:

1.    Can Luis Galar legally pay the debt without awaiting the demand on the part of Isasi?

2.    Should Galar’s payment of the debt of Aberri Inc. to the bank be set off against the notes?

 

RULING:

1. Yes. A demand note was subject neither to suspensive condition nor a suspensive period. The demand was not a condition precedent since the effectivity and binding effect of the note does not depend upon the making of the demand. The note was binding even before the demand is made. Neither did the note constitute an implied suspensive period since there was nothing to prevent the creditor for making demand at any time. It follows, therefore, that the demand note was strictly a pure obligation as defined in Article 1179. The periods of 15 and 30 days after demand stipulated in the promissory notes could have no other purpose but to protect the debtor by giving him sufficient time to raise money to meet the demand. The period being solely for the debtor’s protection and benefit, the debtor could renounce it validly at any time. Galar was lawfully entitled to make payment even if no demand had yet been made by Isasi.

2. Yes. The payment of Galar of the indebtedness of Aberri Inc to the PNB redounded to the benefit of Isasi who had absolute control of said corporation. Thus, said payment was valid and discharged the obligation, even if such payment was not authorized by Isasi or Aberri Inc., for which Galar had the right to demand reimbursement for the amount paid. However, such reimbursement was unnecessary. Such reimbursement was extinguished by its total absorption in the larger amount due from Galar to Isasi. The consignation, therefore, of Isasi was invalid since it no longer had any obligation

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towards Galar.  On the other hand, the balance of Php 4,151.10 due and owing from Galar to Isasi was extinguished upon the consignation of Galar in the court the sum of Php 20,000.

Conditional obligations

Classification of conditionsGaite vs. Fonacer, 2 SCRA 381

FACTS:Fonacier was a holder of mineral claims. Gaite was appointed by Fonacier as attorney-in-fact to contract any party for the exploration and development of mining claims. Gaite executed a deed of assignment in favor of Larap Iron Mines, a single proprietorship owned by him. For some reasons, Fonacier revoked the agency, which was acceded to by Gaite, subject to certain conditions. Gaite transferred to Fonacier all his rights and interests on all the roads, improvements and facilities in the said claims, the right to use the business name Larap Iron Mines, and all the records relative to the mines. Gaite also transferred to Fonacier all his rights and interests over the 24,000 tons of iron ores, more or less, extracted from the mineral claims for P75,000, of which P10,000 has already been paid upon signing of the agreement and the balance of P65,000 to be paid from the first letter of credit for the first local sale of the iron ores. To secure payment, Fonacier delivered a surety agreement with Larap Mines and some of its stockholders, and another one with Far Eastern Insurance. When the second surety agreement expired with no sale being made on the ores, Gaite demanded the P65,000 balance. Defendants contended that the payment was subject to the condition that the ores will be sold.

ISSUES:(1) Whether the sale is conditional or one with a period(2) Whether there were insufficient tons of ores

RULING:(1) The sale is one with a period or term. The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. In the case, there is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred.

A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives, it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000, and not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.

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The appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000, because of their failure to renew the bond of the Far Eastern Insurance or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The obligation became due and demandable under Article 1198 of the New Civil Code.

(2) The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement. The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them.

FACTS: • Fonacier - Owner and/or holder (defendant), either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group. Foncier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question. He promised to execute a surety in favor of Gaite dated Dec. 8, 1954. But Fonacier and his sureties failed to pay as demanded by Gaite. • Gaite- True and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims. Gaite assented thereto, subject to certain conditions, the decision that Fonacier decided upon the revoking of the authority granted to him by Gaite.o Conditions: He is to transfer to Fonacier all his right and interests over the “24,00 tons of iron ore, more or less” that he had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000 of which is paid upon the signing of the agreement, and the balance of P65,000 will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests. Another is a bond underwritten by a bonding company together with the “”Revocation of Power of Attorney,” this being put up by defendants to secure the payment of P65,000.00, and the liability of said surety company will expire on Dec. 8,1955When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65, 000.00 balance of the price of the ore, consequential damages, and attorney's fees.ISSUE:Is Fonacier and his sureties obliged to pay P65, 000.00 to plaintiff when in fact they failed to renew the surety bond which expired on Dec. 8, 1955?HELD: Yes. The obligation of defendants to pay plaintiff, as promised, was not complied.Hence it became due and demandable under Article 1198 of the New Civil Code. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:"ART. 1198. The debtor shall lose every right to make use of the period:(1) . . .(2) When he does not furnish to the creditor the guaranties or securities which he has promised.(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.

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Pay vs. vda de Palanca, 57 SCRA 618 (1974) FACTS:

The late Justo Palanca and Rosa Gonzales Vda. De Carlos Palanca entered into a promise to pay with George Pay on January 30, 1952 which promissory note states ‘For value received from time to time since 1947, we jointly and severally promise to pay to Mr. George Pay at his office at the China Banking Corporation the sum of twenty six thousand nine hundred pesos with interest of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of Don Carlos Palanca or upon demand.”

The petition was filed on August 26, 1967 asking the surviving spouse of Justo Palanca to interpose as administratix.  As there was refusal on the part of Segundina de Palanca to act as adminitratix; they claim that the property no longer belonged to the debtor and that Mr. Pay’s action has already prescribed, hence, this appeal.

ISSUE: Had George Pay’s action really prescribed?

RULING:Yes.  Under Art 1179 of the Civil Code “every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties is demandable at once.  Furthermore, under the discussion by Tolentino, the above promissory note falls under pure obligation because for a contract to fall under conditional obligation, the condition must be future and uncertain.  The debtors being the heirs of Don Carlos Palanca, the receiving of the mentioned “condition” was not uncertain. The obligation being pure obligation was demandable at once.  

Being demandable at once, the actionable period of George Pay started to commence the very moment the contract was executed.  Hence, Art 1144 of the Civil Code which states that one has to bring his action upon a written contract from the right to do so accrues within ten years applies.  Fifteen years was then much too late.

Parks vs. Province of Tarlac, 49 Phil 142 (1976) –Cariaso, Lagura

Songcuan vs. IAC, (191 SCRA28) FACTS:

Victoriano Alviar was the owner of two parcels of land located at San Fernando, La Union. On the land stands a building owned bu his son, Mariano, and his wife, Belen. On September 29, 1966, the Alviars sold these relaties to Saturnino Songcuan for P 34,026.09.

They further agreed that the Alviars will have the right of redemption within 10 years from the date of signing og the instrument, and further stipulated in P.S. that in the event of repurchase by the Alviars, Songcuan shall have the right of lease for a period of 25 years for the premises actually occupied by Songcuan.

Sometime in March, 1969 the mentioned building was razed by fire and Songcuan erected another at his own expense. When the Alviars wanted to repurchase, Songcuan refused to sell back to the Alviars the properties becaus the latter was tendering only the price of P34,026.00 whereas Songcuan wanted reimbursement for the cost of the building he erected and also for the cost of the registration of the realties.

On July 29,1977, the then Court of First Instance of La Union rendered its decision

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decreeing that the Alviars had the right to repurchase, giving then one (1) year, 10 months and 18 days from the finality of this decision (Ong Chua v. CARR, 53 Phil. 975) or within the period of 30 days from the finality of this decision as provided for under Art. 1606 of the New Civil Code; the Alviars pay Songcuan the cost of improvements in putting up the building.

Songcuan advanced the grounds that the Alviars had forfeited their right to repurchase the subject premises for having failed to exercise it within thirty days from the finality of the decision citing the third paragraph of Article 1606 of the Civil Code, and that the right of the Alviars to repurchase may be rescinded under Article 1191 of the Civil Code.

ISSUES:

1. Whether of not the Alviars had forfeited their right to repurchase, or whether the right may be rescinded under the grounds advanced by Songcuan.2. How much area is Songcuan entitled to lease? The trial court, awarded Songcuan the whole premises, based on the "P.S. (Additional Condition)" which speaks of "the premises actually occupies by Songcuan."

RULING:

1. The Court found merit in Songcuan's argument that the Alviars had forfeited their right to repurchase the subject premises for having failed to exercise it within thirty days from the finality of the decision citing the third paragraph of Article 1606 of the Civil Code. It is noted that the final decision, which became final on March 9, 1981, gave the Alviars two alternative periods within which to exercise the right to repurchase either within 30 days as prescribed in Article 1606, or within 1 year, 10 months and 18 days from March 9, 1981,...Accordingly, whichever of the alternative periods the Alviars may avail of, would still constitute a valid exercise of their right.

The Court did not agree that the right of the Alviars to repurchase may be rescinded under Article 1191 of the Civil Code. Songcuan asserts that the October 10, 1966 contract he entered into with the Alviars created a reciprocal obligation between them for him to reconvey the subject premises and for the Alviars to lease the realties to him and the refusal of the latter to fulfill their obligation giving him the right, under Article 1191, to rescind "the right of the Alviars to repurchase" the realties.

Although the parties are each obligor and obligee of the other, their corresponding obligation can hardly be called reciprocal. In reciprocal obligations the obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other party to rescind the contract. In the case at bar, there are two separate and distinct obligations, each independent of the other.The obligation of Songcuan to reconvey the property is not dependent on the obligation of the Alviars to lease the premises to the former. In other words, the obligation of the Alviars to lease to Songcuan the subject premises arises only after the latter had reconveyed the realties to them.

2. The P.S. clause refers to the area Songcuan was actually occupying and not to what he constructively may possess as the owner of the premises at the time of the execution of the October 10, 1966 contract. Further, as pointed out by private respondents, there was no need to present any evidence as to the area Songcuan was actually occupying since at the pre-trial conference in the trial court, Songcuan had admitted that he was occupying only one-third of the single story Alviar building.

Coronel vs. CA, GR No. 103577, October 7, 1996Facts:On January 19, 1985, defendants-appellants Romulo Coronel, et. al. executed a

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document entitled “Receipt of Down Payment” in favor of plaintiff Ramona Patricia Alcaraz.Clearly, the conditions appurtenant to the sale are the following:Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of the document aforestated;The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz, mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos. Thereafter, on February 6, 1985, the property originally registered in the name of the Coronel’s father was transferred in their names under TCT No. 327043.On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos.For this reason, Coronels canceled and rescinded the contract with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz. However, on February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403.On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City. Subsequently, on April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina. Thus, on June 5, 1985, a new title over the subject property was issued in the name of the latter under TCT No. 351582.Issue:Was the agreement between Ramona and the Coronels a contract to sell or a conditional contract of sale?Ruling:A contract to sell may be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.As evidenced by the document denominated as “Receipt of Down Payment” the parties entered into a contract of sale subject to the suspensive condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioner’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

Coronel vs. CA 2Facts: In 1985, Coronel executed a document entitled "Receipt of Down Payment" in favor of Alcaraz for P50,000 down payment of P1.24M as purchase price for an inherited house and lot promising to execute a deed of absolute sale as soon as it has been transferred in their name. The balance of P1.19M is due upon the execution of the deed. When title to the property was finally transferred to their names, the Coronels sold the property to Mabanag for P1.58M after she paid P300K down payment. Because of this, they cancelled and rescinded the contract with Alcaraz by returning the P50,00 down payment. Alcaraz filed a complaint for specific performance against the Coronels and

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cause the annotation of a notice of lis pendens on the TCT. Mabanag, on the other hand, caused the annotation of a notice of adverse claim with the Register of Deeds. However, the Coronels executed a Deed of Absolute Sale in favor Mabanag. RTC ruled in favor of Alcaraz. CA affirmed.

Issue: Whether the “receipt of down payment” serves a contract to sell or a conditional contract of sale

Ruling: No. The agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance, which prevented the parties from entering into an absolute contract of sale, pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the success full transfer of the certificate of title from the name of petitioners’ father to their names. The suspensive condition was fulfilled on 6 February 1985 and thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of Down Payment.”

Javier vs. CA, 183 SCRA 171 (1990) Facts:On February 15, 1966 private respondent Leonardo Tiro executed a "Deed of Assignment" in favor of petitioners Jose M. Javier and Estrella F. Javier. To assign, transfer and convey his shares of stocks in Timber wealth Corporation in consideration of the sum of Php120,000.00 in which the Php20,000.00 shall be paid upon signing of the said contract and the balance of Php100,000.00 shall be paid in Php10,000.00 for every shipment of export log actually produced from the forest concession. At that time the said deed of assignment was executed, Trio had a pending application of an additional forest concession. Upon agreement, dated Feb. 28, 1966, he then transferred his rights to the defendants of the additional forest concession shall be transferred to petitioners in consideration of the sum of Php30, 000.00. However, on November 18, 1966, private respondent was informed that his forest concession was renewed but since the area is only 2,535 hectares, he was ordered to form an organization with adjoining licensees so as to have a total holding area of 20,000 hectares, otherwise, his license will not be renewed. Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment executed by private respondent in their favor, entered into a Forest Consolidation Agreement. On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of assignment, private respondent filed an action against petitioners based on the contracts. In petitioners’ answer, they contend that private respondent failed his contractual obligations and the conditions for the enforceability of the obligations did not materialize. Private respondent, then, replied that the deed of assignment did not only transfer his shares of stocks but his rights and interest in the logging concession. Thereafter, the trial court rendered judgment for the petitioners; however, on appeal to the Court of Appeals, the

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trial court’s decision was reversed. Hence, this petition.ISSUE: 1. Was the deed of assignment dated February 15, 1966 null and void?2. Was the agreement of February 28, 1966 null and void?HELD: 1. Yes. Since plaintiff-appelant’s forest concessions were consolidated or merged with those of the other timber license holders by appelle’s voluntary act under the Forest Consolidation Agreement approved by the Bureau of Forestry, then the unpaid balance became due and demandable. Under Art. 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order, or public policy binds the parties to their real agreement.2. No. the Court of appeals agreed with petitioners that they cannot be held liable thereon. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect. The failure of Leonardo Tiro to comply with his obligation negates his right to demand performance from petitioners. Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case private respondent never acquired any right over the additional area for failure to secure the approval of Bureau of Forestry, the agreement executed therefore, which had for its object the transfer of said right to petitioners, never became effective or enforceable.

Javier vs. CA 2Facts:Private respondent, Leonardo Tiro, is a holder of an ordinary timber license issued by the Bureau of Forestry covering 2, 535 hectares in the town of Medina, Misamis Oriental. On October 15, 1966, private respondent executed a "Deed of Assignment" in favor of herein petitioner, Jose Javier.At the time of the said deed of assignment was executed, private respondent had a pending application, dated October 21, 1965. On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest concession was renewed up to May 12, 1967 and must form an organization such as partnership so as to hold an area of not less than 20,000 hectares of contiguous and compact territory and an aggragate allowable annual cut of not less than 25,000 cubic meter, otherwise, his license will not be further renewed.Consequently, petitioner Javier entered into a Forest Consolidation Agreement with other ordinary timber license holders of Misamis Oriental, and was approved by the Director of Forestry.On July 16, 1968, private respondent filed an action against petitioner for failure of paying him the balance under the two deeds of assignment. Petitioner filed their answer admitting the due execution of contracts but interposing the special defense of nullity of the agreement since private respondent failed to comply with his contractual obligations and that the conditions for the enforceability of the obligations of the parties failed to materialize. Private respondent replied refuting the defense of nullity of the contracts and said that what were actually transferred and assigned to the petitioner were their rights and interest in a logging concession.After due trial, the lower court rendered judgment in favor of the petitioner. Respondent Court of Appeals then reversed the decision, hence this petition.Issue:Is the petitioner liable for the payment of the balance due under the two deeds of assignment?Held:No. When a contract is subject to a Suspensive Condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. As to the alleged nillity of the agreement, the court agreed that petitioners cannot be

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held liable for the failure to pay the balance. The efficacy of the said deed of assignments is subject to the condition that the application of private respondent for an additonal area for forest concession be approved by the Bureau of Forestry. Since privatre respondent did not obtain that approval, said deed produces no effect. The parties stand as if the condition obligation had never existed.

Tayag vs. CA, 219 SCRA 480 (1993) Facts:

The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following terms:

1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have been paid upon the execution of this agreement;

2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from and after the execution of this agreement;

3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and

4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one (1) year from and after the execution of this instrument.

Leyva filed a suit for specific performance account of the herein petitioners' reluctance to abide by the covenant. Petitioners allege that Leyva failed to pay his dues and therefore they are rescinding the deed of conveyance. There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning Leyva's assumption of the vendors' obligation to the Philippine Veterans Bank, he paid only the sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin. Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining balance was paid to them.

Issue:

Whether the CA is correct in applying Art 1186.

Ruling:

Yes. Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are the obligees while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, both parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as

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determined hereafter.

Issue:

Whether the contract can be rescinded on the ground that the full consideration of the agreement to sell was not paid by Leyva.

Ruling:

No. The Court held that Both the trial and appellate courts were correct in sustaining the claim of private respondent anchored on estoppel or waiver by acceptance of delayed payments under Article 1235 of the Civil Code in that:

When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance. Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. By and large, petitioners' actuation is susceptible of but one construction — that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent.

Kinds of Conditional obligations; suspensive & resolutory, 1181Jacinto vs. Kaparaz, 209 SCRA 246 (1992)

Facts: On March 11, 1966, petitioners and respondents entered into an agreement under which the private respondents agreed to sell and convey to petitioners a portion consisting of six hundred sq. meters of land located in Matiao, Mati, Davao Oriental for a total consideration of P1,800.00. A downpayment of P800.00 was paid by the petitioners upon execution of the Agreement. The balance of P1,000.00 was to be paid on installment at the rate of P100.00 a month to the DBP, to be applied to private respondent's loan accounts.Petitioners filed against the respondents a complaint for specific performance for refusal to execute the deed of sale. Respondents filed their answer alleging that the sale did not materialize because of the failure of the petitioners to fulfill their promise to make timely payments on the stipulated price to the DBP; that as a result of failure, private respondents failed to secure the release of the mortgage on the property. They prayed for the dismissal of the case and a declaration that the agreement is null and void.After due trial, the trial court rendered a decision in favor of the petitioners. The Court of Appeals reversed the decision of the trial court, hence this petition.Issue: What is the natue of their agreement? Can the private respondent rescind the agreement?Held: Vital to the resolution of the controversy is the determination of the true nature of the agreement, that is, whether it was a contract of sale (resolutory) or a contract to sell (suspensive). In the latter case, ownership is retained by the seller and is not passed until full payment of the price. Such payment is a positive suspensive conditon, the failure of which is not a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. On the other hand, in a contract of sale, the non-payment of the price is a resolutory condition, the remedy of the seller is to exact fulfillment or to rescind the contract.According to the court, this case has all the earmarks of a contract of sale, therefore, is in the nature of resolutory condition. It was found out that the possesion of the portion sold was immediately delivered to the petitioners, hence, the petitioners were granted the right to enjoy all the improvements therein effective from the date of the execution of the agreement. The respondent unqualifiedly bound themselves to execute the final

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deed of sale "as soon as the settlement or the partition of the estate of the deceased Narcisa R. Kaparaz shall have been consummated and effected, but not later than March 31, 1967" and only after full payment of the unpaid portion of the purchase price. In which case, the respondent may either demand specific performance from petitioner, or rescind the contract.However, considering that the portion of land is an immovable property, it is worthy to note that, likewise, the contract is governed by Article 1592 of the Civil Code, that is, "...even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicial or by a notarial act..." In this case, there was non-compliance with the requirements prescribed in the said provision. It was not controverted that private respondents had neither filed an action for specific performance nor demanded the rescission of the agreement either judicially or by a notarial act before the filing of the complaint. Hence, the mere casual breach does not justify the rescission of the agreement. The court ruled that rescission of the agreement was not available to the private respondent.

Lichauco vs. Figueras Hermanos, 7 Phil. 339 –Cariaso, RoaDucusin vs. CA, 122 SCRA 280 (1983)

Facts: Petitioner Agapito Ducusin leased to respondent Virgilio Baliola and his wife a one-door apartment unit. The lease contract stipulates the term which shall be in a month to month basis commencing on February 1975 until terminated by the lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for in accordance with law. Baliola spouses occupied the apartment for almost 2 years, paying rentals promptly. Then on January 1977, petitioner sent a “Notice to Terminate Lease Contract” to Baliolas terminating the lease and giving them until March 1977 within which to vacate the premises for the reason that his two children were getting married and will need the apartment for their own residence. A second letter was thereafter sent by the petitioner to respondents making an inquiry on any action the latter had taken on the notice previously sent which respondents gave no reply. Petitioner then filed an action for ejectment against the Baliola spouses and the lower court decided in favor of Ducusin on the ground that the Baliola’s contract with the Ducusin has already terminated with the notice of termination sent by the latter on the reason that he needs the premises for his own children. The lessees went to the Court of Appeals on a petition for review among others “that the respondent CFI of Manila erred in finding that the need of the premises a quo by the private respondents has been sufficiently proven by them and legally entitle them to judicially eject the petitioners from the premises; the CA upheld the lower court decision but as to the issue: “whether the need of the immediate members of the family of the lessor of the leased premises has been established by a preponderance of evidence,” the respondent court ruled against the lessor Ducusin; hence, this appeal to the Supreme Court.

Issue:Is the termination of the lease contract of the Baliola spouses valid?Ruling:Yes. The condition in the contract of lease which states, “the need of the lessor’s children of the leased premises”, is not a condition the happening of which is solely dependent upon the will of the lessor. The happening of the condition depends upon the will of a third person, the lessor’s children. Whenever the latter require the use of the leased premises for their own needs, then the contract of lease shall be deemed terminated. The validity of the said condition as agreed upon by the parties stands in force. In conclusion, the intention to use the leased premises as the residence of Ducusin children has been satisfactorily and sufficiently proved by clear, strong, and substantial evidence found in the records of the case.

Ducusin vs. Court of Appeals 2

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Facts: On February 20, 1975, petitioner Agapito Ducusin leased to private respondent, Virgilio Baliola, a one-door apartment unit, with the condition that "The term of this contract shall be in a month to month basis commencing on February 19, 1975 until terminated by the lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for in accordance with law." On January 18, 1977, petitioner sent a "Notice to Terminate Lease Contract" to respondents, terminating the lease and giving them until March 15, 1977, within which to vacate the premises for the reason that that petitioner's children were getting married and will need the apartment for their own use and residence. A second letter was sent inquiring on any action made by respondent regarding the termination of the lease of contract, but respondent did not reply to the notice, and instead, wrote a letter to the Secretary of National Defense reporting that petitioner was with intent on evicting them from the leased premises. So petitioner filed an action alleging that the apartment complex was constructed for the use and residence of his children, if and when they decide to marry and live independently. The respondent, on the other hand, claimed that the ejectment suit "is a well-planned scheme to rid the defendants and family out of their apartment, and circumvent the law prohibiting raising the rental of apartments and houses." The trial court rendered a decision in favor of petitioner Ducusin on the ground that the contract has already terminated with the notice of termination. Respondent appealed to the Court of first instance, but the same was affirmed. Respondent appealed again with the Court of Appeals, this time, the decision was reversed, hence this petition.

Issue: Is the condition stipulated in the contract of lease valid as to terminate the same?

Held: Yes, the court ruled: where a lease contract expressly stipulates that the lessor may terminate the lease when his children shall need the same, such a condition is valid, as happaning of the condition depends not on the lessor but on a third party. The resolutory condition in the contract of lease regarding the need of the lessor's children of the leased premises is not a condition the happening of which is dependent solely upon the will of the lessor. The condition is dependent upon the will of a third person, the lessor's children. Whenever the latter require the use of the leased premises for their own needs, then the contract of lease shall be deemed terminated. The validity of the said condition as agreed upon by the parties stands.

Parks vs. Province of Tarlac, supra

Protestative, Casual and Mixed Conditions, 1182Rustan Pulp vs. IAC, 214 SCRA 662 (1992)

FACTS:

            Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lanao del Norte. On March 20, 1967, respondent Romeo Lluch, who is a holder of a forest products license and Iligan Diversified Projects, Inc. transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response, petitioner Rustan proposed in the letter reply that the contract to supply is not exclusive because Rustan shall have the option to buy from other qualified suppliers. 

            The prefatory business proposals culminated in the execution, during the month of April 1968, of a contract of sale whereby Romeo Lluch agreed to sell and Rustan Pulp undertook to pay the price of P30.00 per cubic meter of pulp wood materials to be delivered at the buyer’s plant in Baloi, Lanao del Norte.

            But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up. The suppliers were then informed

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to stop deliveries and the letter of similar advice was sent by petitioner to private respondent. Private respondent then clarified whether the stoppage of delivery or termination of contract was intended, but the query was not answered by petitioner. Despite to that, Lluch and other suppliers resumed deliveries which were still accepted by petitioner. On January 23, 1969, the complaint for contractual breach was filed by private respondent but was dismissed. Petitioner relied on Article 1267 of the Civil Code to defend their position. However, on appeal to the then IAC, the judgment was rendered directing petitioners to pay private respondents, jointly and severally, hence, this appeal for review of the decision of the then IAC.

ISSUE:            

Was the right of stoppage exercised by Rustan pulp indicative of a breach of contract?

RULING: 

Yes. It was indeed inconsistent for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own advice by accepting the deliveries from the suppliers, and so they cannot rely on Article 1267 of the Civil Code. There is no doubt that the contract speaks loudly about petitioner Rustan Pulp’s prerogative but what diminishes the legal efficacy of such right is the condition attached to it which is independent exclusively on their will. Paragraph 7 of the contract is purely potestative imposition and must be obliterated from the face of the contract without affecting the rest of stipulations. It would also be unjust for the court a quo to rule that the contract of sale be temporarily suspended until Rustan are ready to accept deliveries from the appellants. This would make the resumption of the contract purely dependent on the will of one of the party-the appellees, and they could always claim, as they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they have been accepting the same from other sources. Article 1182 of the Civil Code states that, “When the fulfillment of the condition depends upon the solve will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon will of a third person, the obligation shall take effect in conformity with the provisions of this Code.” 

Furthermore, in line with petitioner’s contention, being the President and Manager of the Corporation, they cannot be made liable to pay damages because they merely represent the interest of Rustan Pulp. This is contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. Only petitioner Rustan Pulp and Paper Mills should pay moral damages and attorney’s fees.

Hermosa vs. Logara 49 OG 4287 SUMMARY:A debtor promised to pay a loan on condition "as soon as he receive funds derived from the sale of his property in Spain." The debtor died and the estate sold the said property and receive the funds from the sale. The creditor is demanding payment from the estate.

FACTS:Epifanio Longara filed a claim against the estate of Fernando Hermosa, Sr. for money owed to him by the deceased. He alleged that the advances were made "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain." Upon Hermosa's death, the property was sold and the money was sent to the estate in the Philippines.

Hermosa (wife/administratrix) contended on appeal that the obligation contracted by the intestate was subject to a condition exclusively dependent upon the will of the debtor (a

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condicion potestativa) and therefore null and void, in accordance with Article 1115 of the old Civil Code. The Court of Appeals held that the condition was not entirely potestative. It further ruled that the payment of the advances did not become due until the administratrix received the money from the buyer of the property.

ISSUE:Is the condition "as soon as he receives funds from the sale of his property in Spain" valid?

RULING:Yes. The condition upon which the payment of the debt depended on, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," is a condition that does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control.

The condition implies that the intestate had already decided to sell his house, or at least that he had made his creditors believe that he had done so, and that all that we needed to make his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price thereof remitted to the islands. It is evident, therefore, that the condition of the obligation was not purely protestative—i.e., depending exclusively upon the will of the intestate—but a mixed one, depending partly upon the will of intestate and partly upon chance. The obligation is clearly governed by the second sentence of Article 1115 of the old Civil Code.

The condition is, besides, a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable.

Hermosa v. Logara 2.Facts: Court of Appeals, fourth division, approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain." Claimant had testified without opposition that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The Court of Appeals held that payment of the advances did not become due until the administratrix received the sum of P20,000 from the buyer of the property.

Issue: Whether the obligation contracted by the intestate was subject to a condition exclusively dependent upon the will of the debtor and therefore null and void.

Ruling: No. The obligation contracted is a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable.

Osmena vs. Rama, 14 Phil. 99 (1909) FACTS: On the 15th of November 1890, Cenona Rama exeecuted a contract to Victoriano Osmena, which states that she owes Osmena the sum of 200 pesos, which she will pay in sugar plus interest. As a guarantee, Rama pledged as a security all her

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present and future property and as a special security her house in which she lives.

On the 27th of October 1891, another contract was executed, for further loan amounting to 70 pesos, wherein she loaned 50 pesos to Penares, leaving her only 20 pesos.

Osmena died sometime after the execution and delivery of the said contract. After the settlement and division of his estate, the said contract became the property of Agustina Rafols, his heir. On the 15th of March 1902, the plaintiff presented the contracts to defendant for payment and she acknowledged her responsibility, thus, executing another contract promising the plaintiff to pay, if her house is sold.

On the 26th of June, 1906, the defendant failed to pay her obligations, the plaintiff filed a complaint in court. The defendant answered by filing a general denial and setting up a special defense of prescription. After the hearing of evidence, the court rendered its judgment in favor of the plaintiff. Ordering the defendant to pay 200 pesos plus interests and 20 pesos plus interests on both at the rate of 18 3/4 per annum.

The defendant appealed.

ISSUE: Whether or not the lower court erred in its judgment, as the appellant alleges, there's insufficiency of evidences to support its findings.

RULING: No. The acknowledgment of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her home. If the statement found in the acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will and is therefore void. The acknowledgment therefore was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract.

Trillana vs. Quezon Colleges, 93 Phil. 383 (1953) Facts: Damasa Crisostomo wrote a letter to the Quezon College, Inc. for the subscription of shares of stock of the said college wherein payment was to be made through money she would generate from fishing. However, she died and as no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance in her testate proceeding, for the collection of the said sum of money. However, this claim was opposed by the administrator of the estate (herein petitioner). The claim was dismissed by the trial court on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. appealed.

Issue: Was there any valid contract between Damasa Crisostomo and Quezon College?

Ruling: No. First there was absence of acceptance on the part of Quezon College. It is essential because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after generating money from fishing. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the Q. College offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation in the absence, as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Secondly, granting that the college had accepted the condition, the obligation would still be void in accordance with Art. 1182 of the Code, since the fulfillment of the condition depends exclusively upon the will of the obligor. ________________

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Art. 1182 When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

Romero vs. CA, supraNaga Telephone vs. CA, 230 SCRA 351 (1994)

FACTS:Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II). NATELCO entered into a contract with CASURECO II. In said contract the parties agreed for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefore, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court of Naga City against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners. As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay private respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filing of its complaint; and that petitioners had refused to pay private respondent said amount despite demands. And as third cause of action, private respondent complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not less than P100,000.00.In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it does not sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription, the same having been filed more than ten (10) years after the execution of the contract; and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same action. Regarding the second cause of action, petitioners claimed that private respondent had asked for telephone lines in areas outside Naga City for which its posts were used by them. And with respect to the third cause of action, petitioners claimed, that their telephone service had been categorized by the National Telecommunication Corporation as "very high" and of "superior quality." During the trial, the court found, as regards private respondent's first cause of action, that while the contract appeared to be fair to both parties when it was entered into by them during the first year of private respondent's operation and when its Board of Directors did not yet have any experience in that business, it had become disadvantageous and unfair to private respondent because of subsequent events and conditions, particularly the increase in the volume of the subscribers of petitioners for more than ten (10) years without the corresponding increase in the number of telephone connections to private respondent free of charge. The trial court concluded that while in an action for reformation of contract, it cannot make another contract for the parties, it can, however, for \reasons of justice and equity, order that the contract be reformed to abolish the inequities therein. As regards the second cause of action, the trial court held that for reason of equity, the contract should be reformed by including therein the provision that for the use of private respondent's posts outside Naga City, petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its telephone connections located outside Naga City beginning January, 1989. And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently proved. Petitioners appealed to respondent Court of Appeals. In the decision dated May 28, 1992, respondent court affirmed the decision of the trial court, but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative

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condition which rendered said condition void.ISSUE:Whether the said contract is in a potestative condition that would make it null or void?HELD:Yes. The Court of Appeals denied the petition. They stated that a potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void. Based on this definition, respondent court's finding that the provision in the contract, is a potestative condition, to wit:(a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts of the party of the second part (private respondent) . . ..is correct. However, it must have overlooked the other conditions in the same provision, to wit:. . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private respondent) is forced to stop, abandoned its operation as a public service and it becomes necessary to remove the electric light post; which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision.

Smith Bell and Co vs. Sotelo Matti, 44 Phil. 847 Facts:

One August 1918, Smithbell and Co. and Mr. Vicente Sotelo entered into contracts where Smithbell obligated to sell, and Mr. Sotelo to purchase the following:1. Two steel tanks, for Php21,000 to be shipped from NY to Manila “within 3 or 4 months”2. Two expellers for Php25,000 each to be shipped from San Francisco in September 1918, or as soon as possible3. Two electric motors at Php2,000 each, the delivery of which states: “Approximate delivery within 90 days. – This is not guaranteed.”

Date of arrival of the orders:1. Tanks – April 27, 19192. Expellers – October 26, 19183. Motors- February 27, 1919

Smithbell and Co. notified Mr. Sotelo of the arrival of these goods, but he refused to receive them and pay the prices stipulated.

Smithbell and Co. brought an action against Mr. Sotelo. Mr. Sotelo, and the intervenor, Manila Oil Refining and By-Products Co., denied

Smithbell’s allegations as to the shipment of the goods and their arrival at Manila, the notification to Mr. Sotelo, and his refusal to receive them and pay their price. Mr. Sotelo made the contracts as a manager of Manila Oil Refining and By Products Co. Inc., which Smithbell knew, and that “it was only in May 1919 that Smithbell notified Manila Oil that the tanks had arrived, and that the motors and expellers arrived incomplete and past the due date.” As a consequence of the delay, they suffered damages, as it was supposed to be used to manufacture coconut oil.

The court below absolved Mr. Sotelo from the complaint insofar as the tanks and electric motors were concerned, but ordered them to “receive the expellers and pay Smithbell the sum of Php50,000, the price of the goods plus legal interest from July 26, 1919 and costs.”

Both parties appeal from this judgment.

Issue: What period was fixed for the delivery of the goods? Did the plaintiff incur delay in the delivery of goods?

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Ruling:In all these contracts, there is a final clause as follows:

“The sellers are not responsible for delays caused by fires, riots on land or the sea, strikes or other causes known as ‘force majeure’ entirely beyond the control of the sellers or their representatives.”

Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. From the record, it appears that the contracts were executed at the time of the world war when there existed rigid restrictions on the export from the US; hence, clauses were inserted in the contracts, regarding “Government regulations, railroading embargoes, lack of vessel space, the exigencies of the requirements of the US Govt”. At the time of the execution of the contracts, the parties were not unmindful of the contingency of the US Govt not allowing the export of the goods.

We cannot conclude that the term which parties attempted to fix is so uncertain that one cannot just tell WON those items could be brought to Manila. The obligation must be regarded as conditional. The delivery was subject to a condition that the fulfillment of which depended not only upon the effort of the plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition.

It is sufficiently proven in the record that the plaintiff has made all the efforts it could possibly be expected to make under the circumstances, to bring the goods in question to Manila, as soon as possible. It is obvious that Smithbell has complied with its obligation.

When the time of delivery is not fixed in the contract, time is regarded as unessential. In such cases, the delivery must be made within a reasonable time. Reasonable time for the delivery of the goods by the seller is to be determined by circumstances attending the particular transactions. WON the delivery of the machinery in question was offered to the defendant within a reasonable time, is a question to be determined by the court. Smithbell has not been guilty of any delay in the fulfillment of its obligation.

Rescission in Reciprocal Obligations, 1191-1192

Unilateral vs. Bilateral Obligations

Concept and Definition of Reciprocal Obligation Borromeo vs. Franco, 5 Phil. 49

Facts:On April 29, 1902, Jose Franco et al agreed to sell their properties to petitioner Julian Borromeo. They executed a contract, of which stipulations were, among others, 1. That petitioner was given six months to arrange and complete the documents and papers relating to the said property; and 2. That the sellers did not guarantee the title or the promise to sell.The petitioner failed to comply the conditions set in their contract and the defendants decided not to sell the property to him anymore. The petitioner filed a complaint to compel the defendants to do otherwise.Issue:Does failure to comply with any stipulations or clauses provided for in the contract immediately cancel the obligation of the seller and buyer to perfect their agreement?Ruling:No. The agreement on the part of the purchaser to complete the title papers to the said property within the six months allowed him for this purpose in clause C of the agreement is not a condition subsequent of the obligation to sell, but a mere incidental stipulation which the parties saw fit to include in the agreement. By virtue of the

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provisions of Article 1255 of the Civil Code which gives to every person the right to freely contract, the parties to the aforesaid agreement could have stipulated, among other things, what they actually stipulated in clause C. That stipulation is not contrary to law, public morals or public policy. But a failure to comply with such a stipulation and the fact that the purchaser was unable to complete his title papers to the property in question do not preclude the performance of the sale which the purchaser now demands.

Borromeo vs. Franco 2Facts:The Francos have agreed to sell their property of two frame houses, with nipa roofs built upon lots to the Borromeo with a condition that the latter is hereby given six months from the date of the execution of the instrument to arrange and complete the documents and papers relating to the said property.On the 7th day of January, the plaintiff filed a complaint in the Court of First Instance compelling the defendant to sell to him the property in question under the terms of the agreement. Moreover, the plaintiff had already taken some judicial and extra-judicial steps and defrayed the necessary expenses for the completion of the papers and other documents relating to the property though he had been unable to complete them. Thus, the defendant refused to sell the property to him alleging that he had not completed the documents in question.Issue: Whether the plaintiff can demand the fulfillment of the obligation from the defendant?Ruling:Yes. Article 1451 of the Civil Code provides as follows: A promise to sell or buy, there being an agreement as to the thing and price, gives a right to the contracting parties to mutually demand the fulfillment of the contract.Whenever the promise to purchase and sell can not be fulfilled, the provisions relating to obligations and contracts of this book shall be observed by the vendor and by the vendee, as the case may be.An agreement on the part of the purchaser to perfect the title papers to a certain property within a certain time is not a condition subsequent or essential of the obligation to sell but an incidental undertaking not contrary to law or public policy, and his failure to comply therewith is not a bar to the sale agreed upon, the performance of which the purchaser insists upon.

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