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Obligations With A Period Case 1: Gaite v. Fonacier: Will Be Paid Out of The First Letter of Credit
Obligations With A Period Case 1: Gaite v. Fonacier: Will Be Paid Out of The First Letter of Credit
Obligations With A Period Case 1: Gaite v. Fonacier: Will Be Paid Out of The First Letter of Credit
Case 1: Gaite v. Fonacier This is supported by the following instances:
Facts: a. Words of the contract: "The balance of P65,000
1. Gaite was appointed by Fonacier as attorney-in-fact to will be paid out of the first letter of credit
contract any party for the exploration and development covering the first shipment of iron ore..." - no
of mining claims. uncertainty that the payment will have to be
2. Gaite executed a deed of assignment in favor of Larap made, only the exact date of payment is
Iron Mines, a single proprietorship owned by him. uncertain
3. Later on, Fonacier revoked the agency. Gaite agreed. b. A contract of sale is normally commutative and
subject to certain conditions. One of the conditions was onerous. Thus, parties not only assume a
to transfer iron ores extracted from the mineral claims correlative obligation to each other, but each
for P75,000. party anticipates performance by the other.
4. P10,000 of the above amount has already been paid by Parties are aware that performance of the other
Fonacier upon signing of the agreement can be subject to an uncertain event putting him
5. The balance “will be paid from and out of the first letter at risk of receiving nothing for what he gives.
of credit covering the first shipment of iron ores and/or c. There is no showing that Gaite assumed to run
the first amount derived from the local sale of iron ore the risk of losing payment, or that Fonacier
made by the Larap Mines” (exact words from the understood that Gaite assumed any such risk. In
contract) fact Gaite insisted on a bond to guarantee
6. To secure payment, Fonacier delivered a surety payment.
agreement with Larap Mines and some of its d. To subject payment to the sale of the ore as a
stockholders, and another one with Far Eastern condition precedent, would be to leave the
Insurance. payment at the debtor’s discretion
7. When the second surety agreement expired, still no sale 2. Yes, they have forfeited the right to compel Gaite to wait
of iron ores was made. So Gaite demanded the P65,000 for the sale of the ore before receiving payment due to
balance. their failure to renew the bond of the Far Eastern Surety
8. Defendants contended that the payment was subject to Company or else replace it with an equivalent
the condition that the iron ores will be sold. guarantee.
Issues: Art. 1198, par 2-3
1. W/N the sale is one with a condition or a period Debtor loses the right to make use of the period when:
2. W/N debtors lost their right to use the period
2) When he does not furnish to the creditor the
Ruling: guaranties or securities which he has promised.
1. The sale of the iron ores is not a condition precedent (or 3) When by his own acts he has impaired said
suspensive) to the payment of the balance of guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless Tanjangco argues that the contract is clearly worded
he immediately gives new ones equally satisfactory." and needs no interpretation.
7. RTC ruled in favor of Fernandez, CA reversed and ruled
NOTE: What characterizes a conditional obligation is the fact in favor of Tanjangco
that its efficacy or obligatory force (as distinguished from its Issue: W/N the “at the option of both parties” clause be
demandability) is subordinated to the happening of a future liberally construed to give Fernandez the power to unilaterally
and uncertain event; so that if the suspensive condition does renew the contract
not take place, the parties would stand as if the conditional
obligation had never existed. Ruling: No. In affirming the decision of the Court of Appeals,
the SC quoted their ratio in this wise:
Case 2: Fernandez v. CA 1. “That the parties should mutually agree on a new
Facts: The controversy here revolves around the appropriate contract which may not be the same as the original,
interpretation of the word “renewable” in a 10-year lease under such terms, conditions and rental reasonable
contract that expired. at that time. It follows therefore that the plaintiff
1. On 31 July 1973, Respondent Miguel Tanjangco as [petitioner] cannot renew the lease by his unilateral
lessor, and petitioner Celso Fernandez as lessee act of exercising his option. Simply stated, the option
entered into a 10-year lease contract over a piece of must be mutually and consensually exercised, and
land along Pandacan, Manila not unilaterally as was erroneously done by the
2. It was agreed that petitioner Fernandez (lessee) would plaintiff.
up the New Zamora Market 2. Applied to the lease contract under consideration, it
3. The contract had a stipulation that said it would be appears that the lease has expressed in clear,
“renewable for another 10 years at the option of both unmistakable and unambiguous terms the intention
parties under such terms, conditions and rental of the parties that if the lease contract was to be
reasonable at that time,” and that upon the expiration renewed, the option to renew should be made by
(1 July 1983) of the lease any improvements would be both parties."
transferred to the ownership of respondent lessor 3. Koh and Cruz Doctrines, overruled. Petitioner in
without any payment arguing for his case cited two SC cases: Koh v
4. Months before the expiration, Tanjangco wrote to Ongsiaco and Cruz v Alberto. Both in Koh and Cruz,
Fernandez that he did not wish to renew the contract. the Supreme Court interpreted the word ‘extendible’
Fernandez requested for renewal in order for him to in their respective controversial lease contracts to
recover the expenses incurred in the construction give to each party the unilateral power to ‘extend’
5. Tanjangco’s counsel informed Fernandez that they the contract. The Supreme Court, in this case, said
could not accept the unilateral decision to renew the rulings in those cases should be done away with
because of the “at the option of both parties” clause because of…
6. Fernandez brought the case to the RTC, saying that the 4. Rules in contract interpretation. The SC in revisiting
clause should be interpreted liberally and with justice. the Koh and Cruz doctrines explain that the word
‘extendible’ was read too much into. SC says that the
definition and implication of a single word should to load the logs upon the arrival of the vessels to be
‘not be given sacramental significance.’ The sent by Woodcraft.
important task in contract interpretation, SC says, is 6. However, on several occasions, the vessels did not
always the ascertaining of the intention of the come.
contracting parties. This is done by looking at the 7. Abesamis thus seeks for rescission of the contract and
whole of the contract and not just at a single word. indemnification for damages.
5. The nature of lease contracts. SC explains that in a 8. Woodcraft was advised of the quantity of logs ready for
reciprocal contract like a lease, the period of the shipment and was urged to send a vessel to take
lease is presumed to be to be for the benefit of both
delivery.
parties, absent language that indicates the period is
9. Woodcraft thereupon gave assurance that a vessel, the
for the benefit of the lessee or lessor alone.
"SS ALBAY," will come on June 25, 1951 to pick up the
Doctrine: (1) Rules in contract interpretation; (2) The nature of logs.
lease contracts; (3) Presumption of mutual benefit in lease 10. Abesamis readied the necessary quantity of logs but
contracts the vessel did not arrive.
11. As a result, 60,000 board feet of logs which had been
Case 3: Abesamis v. Woodcraft Works, Inc.
crafted broke loose and were lost.
Facts: A case about a person who did not pick up logs then logs
Issues:
got destroyed.
1. Who bears the loss in the first agreement? Abesamis
1. East Samar Lumber Mills (owned by Jose Abesamis) and
2. Who bears the loss in the Second agreement?
“Woodcraft Works, Ltd.” contracted two agreements
Woodcraft
wherein Woodcraft is to purchase logs from East Samar
Lumber.
Ruling:
2. In the first agreement, Jose Abesamis maintains that
1. Abesamis will bare the loss in the first one because the
due to the failure of Woodcraft to send a vessel to
obligation between the parties was a reciprocal one
Dolores, Samar, the storm on May 5, 1951 swept away
with a term and where the obligation is reciprocal and
almost all the logs that were awaiting shipment,
with a term, neither party could demand performance
amounting to 410,000 board feet.
nor incur in delay before the expiration of the term.
3. The deal stated that the shipment was supposed to be
2. AND, In case of fortuitous event before the expiration of
made before July 1951, but only after the month of April
the term, each party in such reciprocal obligation bears
of the same year. So it should have been delivered in
his own loss.
May or in June of the same year. So the obligation can
3. Also it was an obligation with a term, which obviously
only be demanded it when July 1951 arrives.
was intended for the benefit of both parties, the period
4. A typhoon struck on May 5, 1951, and there was yet no
having been agreed upon in order to avoid the stormy
delay on the part of WOODCRAFT to pick it up.
weather in Dolores, Samar, during the months of
5. In the second purchase agreement entered into by the
January to March.
parties, East Samar Lumber Mills (plaintiff-Abesamis ) is
4. Although the obligation would not become due until July 6. Both RTC and CA ruled in favor of Phil Sugar and fixed a
31, 1951 Woodcraft waived the benefit of the period by period for Araneta’s compliance: 2 years from finality of
the assurance that it gave, that it would arrive on a decision
certain date. Woodcraft failed on his commitment
without any satisfactory explanation for such failure. Issues:
Therefore, Woodcraft should bear the corresponding 1. W/N there was a period set in the agreement
loss. 2. If there is none, can the courts set a period for
5. On that date appellee was ready to comply, but compliance in behalf of the parties?
appellant failed on his commitment, without any
satisfactory explanation for such failure. Therefore, Ruling:
appellant should bear the corresponding loss 1. Yes, there was a period. Contract states Araneta will be
given “reasonable time” to comply with its obligation. All
DOCTRINE: Effect of delivery before the arrival of the period, that the court should have done was to determine if
Waiver of the initial period set. that reasonable time had already elapsed.
2. If it had passed, then the court should declare that
Case 4: Gregorio Araneta v. Phil. Sugar Estates Dev. Co. petitioner had breached the contract and fix the
Facts: resulting damages. But, if the reasonable time had not
1. JM Tuason & Co., Inc. owns a parcel of land now known yet elapsed, the court is bound to dismiss the action for
as Sta. Mesa Heights Subdivision in Quezon City being premature.
2. JM Tuason through Gregorio Araneta, Inc., sold a 3. In no case can the court fix the period since Art. 1197 is
portion said land with an area of 43,034.4 sqm, more or precisely predicated on the absence of any period fixed
less, for P430,514.00 to Philippine Sugar Estates by the parties.
Development Co., Ltd. 4. SC further explained that Art 1197 of the Civil Code
3. Agreement was subject to following conditions: involves a two-step process.
a. Buyer (Phil Sugar) will build on said land the Sto. a. First, Court must determine that “the obligation
Domingo Church and Convent does not fix a period but from the nature and
b. Seller (Araneta) will construct streets the circumstances it can be inferred that a
surrounding the land which shall be named “Sto. period was intended”.
Domingo Avenue” b. Next, the Court must then decide what period
4. Phil Sugar finished the construction of the church but was “probably contemplated by the parties”
Araneta was unable to finish the construction of the 5. So the Court cannot fix a period merely because in its
streets because Manuel Abundo, a third party who was opinion it is reasonable, but must set the time that the
occupying the middle par, refused to vacate the area parties are shown to have intended
5. Phil Sugar filed a complaint seeking P to comply with
the obligation and/or pay damages in case of failure Case 5: Radiowealth Finance Company v. Del Rosario
Facts:
1. Respondent-spouses Del Rosario executed jointly and trial court agrees with them, but on appeal the
severally in favor of Radiowealth Finance Company a appellate court disagrees to the demurrer and reverses
promissory note for P138,948. The note contained no the demurrer, the defendants lose the right to present
date specified, in this wise: the evidence. The appellate court then has the duty to
2. P11,579.00 payable for 12 consecutive months starting decide on the case with the evidence provided.
on ___________19__ until the amount of P11,579.00 is 2. Due and demandable. Respondent spouses claim that
fully paid. Each installment shall be due every ____ day because of the blanks left on the promissory note,
of each month. A late payment penalty charge of two needed judicial determination as to the period of
and a half (2.5%) percent per month shall be added to payment. Consequently, they argue that the complaint
each unpaid installment from due date thereof until filed by Petitioner Company is premature because the
fully paid. period is based on the sole will of the debtor, applying
3. The spouses were unable to pay, were in default, and 1180 and 1197 of the Civil Code.
despite repeated demands by petitioner company, 3. The SC said: The act of leaving blank the due date of the
failed to fulfil their obligation first installment did not necessarily mean that the
4. Petitioner Company filed a case in court for collection of debtors were allowed to pay as and when they could. If
sum of money. Respondent filed a demurrer for this was the intention of the parties, they should have
evidence for lack of cause of action so indicated in the Promissory Note. However, it did not
5. Note: respondent spouses admit to the genuineness of reflect any such intention.
the promissory note. Their only defense is that there 4. Clearly enough, SC says, the note stated specifically
was an absence of an agreement on when the when payments were to be made (every month, for 12
installment payments were to begin. consecutive months.) Furthermore, the
6. RTC granted the demurrer. CA reversed and remanded contemporaneous and subsequent acts of the parties
the proceedings to the RTC. manifest their intention and knowledge that the
7. Radiowealth questions the remand, brings case to SC monthly installments would be due and demandable
Issue: each month. The presence of (1) respondents starting to
1. Did the CA err in remanding the case to the RTC? pay their installments despite the checks being
2. When did the obligation become due and demandable? dishonored by the bank; (2) an acceleration clause and a
late payment penalty.
Ruling: Petition granted—remand is set aside. Respondents are 5. It was decided that since the respondent spouses’ check
ordered to pay P138,948 with interest. for the first month of installment bounced, they
defaulted and thus petitioner gained cause of action.
Ratio:
1. About demurrer to evidence (not so important). The Case 6: Allen v. Province of Albay
rule is that defendants who present a demurrer to Facts: A case about a contractor who was supposed build a
plaintiff’s evidence retain the right to present their own bridge but because of delays caused by deliver and the
evidence if the trial court disagrees with them. But if the provinces
1. The Director of Public Works, acting for the Provinces of etc) to pass a certain area. All of these actions by the
Albay and Ambos Camarines wanted to build a bridge. government lead to a substantial delay, so this lead the
2. Allen won the bidding to construct the bridge and court to conclude that the provinces waived the
signed the contract on July 1913. contract time because they were at fault, and now the
3. In his proposals to construct the bridge, it stated: "All contractor only has to finish it within a reasonable time.
work contemplated by this contract is to be completed 2. It is consistent with the practice that the debtor should
on or before four months after contractor furnishes be given a reasonable amount
sand and gravel.”
4. But, it was stated in the contract that it should have Alternative & Facultative Obligations
been finished by November 1, 1913. Case 1: Ong Guan Can v. Century Insurance Company
5. ALLEN asked for an extension of time because there Facts:
was a delay in the arrival of the cement from Manila, 1. Plaintiff owned a house that was insured by the the
and when it arrived the rain blocked a road that made it defendant.
impossible for the truck full of cement to be brought to 2. When the house was burnt, CFI of Iloilo rendered a
the bridge site. judgment in favor of the plaintiff and ordered the
6. ALLEN wanted it to be extended to February 15, 1914, defendant to pay him P45,000 plus interest
he asked for the extension in December. 3. Defendant appealed and claimed that their contract
7. They could not agree on extension because allen did gave them the “option to replace the damaged property
not agree to the conditions that would allow the instead of paying the amount of the loss.”
extension, such as the various payment he would have 4. They also claim that they are not be bound to reinstate
to make. the house exactly as it was, but only as circumstances
8. The contract time would have to be disregarded permit and in reasonable sufficient manner.
because the provinces failed to deliver the steel on 5. Simply put, the house they rebuild may be smaller, yet it
time. would be already be sufficient indemnity
9. This was brought to court to determine when allen
should have completed the bridge. Issue: W/N the defendant’s selection (to rebuild the house,
though smaller than the original and of cheaper materials) is
Issue: valid
1. When should allen complete the bridge? Upon a
reasonable time. Ruling:
Ruling: 1. SC: If this clause is valid, it would make obligation of the
1. This is due to the fact that provinces by making insurance company an alternative one, since they will
changes to plan to construct the bridge, by delaying in have to option to either pay the insured value of house,
the delivery of the steel required for the constructor to or rebuild it.
start the construction and the government issuing a 2. In alternative obligations, the debtor must notify the
quarantine not allowing draft animals (horses, carabao, creditor of his selection in accordance with Art. 1133
(now Art. 1200) of the Civil Code. This is to give creditor
opportunity to consent to, or to impugn the selection
made by the debtor. Only after said notice shall the
selection take legal effect when consented or impugned
by the creditor.
3. However, such selection by debtor is unjust if creditor
will not be given additional indemnity. Guan Can did not
agree to the proposition since the new house would be
smaller and of substandard than those used in the
original construction of the house before it was burnt