#1 PAY vs.
PAY vs. VDA DE PALANCA  Since the nature of the obligation is due and demandable, filing 15 years after was much too
GR # L-29900
DATE: JUNE 28, 1974
By: Julpha Policina
Topic: Alternative Obligation
Petitioners: George Pay (in the matter of the inestate estate of Justo Palanca)
Respondents: Segundina Chua Vda. De Palanca
Ponente: Fernando, J.
SUMMARY: On a PN dated Jan. 30, 1952, Justo Palanca and Rosa De Carlos Palanca promised to
pay George Pay P26,900 with interest of 12% per annum on the alternative conditions that etiher of
them would receive payment from the estate of late Don Carlos Palance or upon demand. It is not
clear whether or not either of the two received payment from the said estate but another alternative
may be considered which is upon demand. George Pay raised his claim against the wife of Justo,
Segundina, 15 years after said PN date which already defeated the 10-year prescriptive period for
written contracts in which the court ruled his claim was filed way too much late.
DOCTRINE: Having an alternative obligation, once one of the alternative cannot concur, other
alternative should be given or done.
10-year period of limitation of actions apply on written contracts which are due
and demandable and actions beyond 10 years are considered without merit
FACTS:
 Based on a promissory note (dated Jan. 30, 1952), late Justo Palanca (+) and Rosa
Gonzales Vda. De Carlos Palanca promised to pay George Pay P26,900 with interest of
12% per annum.
 George came to the court asking the surviving spouse (Segundina) as administratrix of an
assigned a property (residential dwelling in Taft Ave.) in the name of Justo with assessed
value of P41,800 that once brought by the administration, George can file claim against
adminstratrix (Segundina).
 Segundina’s answer:
o refused to be appointed as administratrix
o the property sought to be administered no longer belonged to the late Justo
o rights of petitioner-creditor already prescribed
 PROMISSORY NOTE:
o “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 (P26,900.00), with interest thereon at the rate of 12% per
annum upon receipt by either of the undersigned of cash payment from the
Estate of the late Don Carlos Palanca or upon demand”
o signed by Justo and Rosa
 Court asked whether either the Justo or Rosa received payment from the estate of late Don
Carlos but George insisted that he is only claiming on his right under said PN
 Lower court ruled: action of the creditor has definitely prescribed since more than 10 years
has already transpired from the time of PN until to date and the PN is noted being “upon
demand”.
 Petitioner: assailed the correctness of the ruling of the lower court
ISSUE: Whether or not George still has the right to collect on what is stipulated in the PN
given the circumstances
HELD/RATIO: NO
 There were 2 alternative conditions in said PN, upon receiving cash payment from estate of
late Don Carlos or upon demand
 There is no evidence that would indicate whether the first alternative was fulfilled
 What is clear is that George Pay raised his petition only on August 26, 1967 (which is more
than 15 years after said PN)
 Art. 1179 CC: “Every obligation whose performance does not depend upon a future or
certain event, or upon a past event known to the parties, is demandable at once.”
late.
 Act. No. 190 Sec. 43: prescriptive period for a written contract is that of 10 years
 Lower court’s decision affirmed, costs against George.
Note:
 Justo Palanca died July 3, 1963
2 (CENTRAL PHILIPPINE UNIVERSITY) CPU vs CA and REMDIOS FRANCO et al
G.R. No. 112127
July 17, 1995
By: Lorenzo Tanada
Topic: Resolutory Condition or Condition Subsequent
Petitioners: CENTRAL PHILIPPINE UNIVERSITY
Respondents: COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P.
VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ
Ponente: BELLOSILLO, J
RECIT-READY/SUMMARY: Don Ramon Lopez executed a deed of donation of a parcel of land in
favor of CPU, on the condition that the land shall be utilized by the CPU for the establishment and
use of a medical college. Fifty years have passed and the condition still has not been complied
with. Because of this, the heirs of Don Ramon want the donation annulled and the land reconveyed
to them for non-compliance with the condition. The Court held that more than a reasonable period
of 50 years has already been allowed CPU to avail of the opportunity to comply with the condition to
make the donation in its favor forever valid but it still failed to do so. CPU is ordered to reconvey the
land to the heirs of Lopez.
DOCTRINES:
(1) An onerous donation is one executed for a valuable consideration which is considered the
equivalent of the donation itself.
(2) When in an obligation with a resolutory condition, more than a reasonable period has been
allowed to comply with the condition and the donee still failed to do so, there is no more need to fix
the duration of the term.
FACTS
 In 1939, Don Ramon Lopez, Sr. who was then a member of the Board of Trustees of the Central
Philippine College, executed a deed of donation in favor of the latter of a parcel of land.
o Conditions:
1. The land shall be utilized by the CPU for the establishment and use of a medical
college
2. The college shall not sell, transfer or convey to any third party nor in any way
encumber said land
3. The land shall be called Ramon Lopez Campus.
 In 1989, the heirs of Don Ramon Lopez filed an action for annulment of donation and
reconveyance against CPU, alleging that since 1939 up to the time the action was filed, CPU
had not complied with the conditions of the donation. CPU had even negotiated with NHA to
exchange the donated property with another land owned by Lopez.
 The Trial Court ruled in favor of the private respondents
o CPU failed to comply with the conditions of the donation, therefore it is null and void.
 The CA reversed the RTC
o The annotations at the back of the CPU’s certificate of title were resolutory conditions
breach of which should terminate the rights of the donee this making the donation
revocable.
o The donor did not fix a period within which the condition must be fulfilled. The case should
be remanded to court of origin for the determination of period
ISSUES
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 (1) Whether there is a resolutory condition
(2) WON the court may determine a period within which the petitioner would establish a
medical college
HELD/RATIO
1. YES, donation was a resolutory condition. Donating land to another on the condition that the
latter would build upon the land a school is RESOLUTORY IN CONDITION.
RESOLUTORY CONDITION is when upon fulfillment of the condition, terminates an enforceable
obligation.
a. Rights are lost once the condition is fulfilled.
b. Entitles parties to resort back to original positions.
c. Takes effect if either parties do not comply with his/her engagements (in which
complaining party may sue for dissolution of contract with damages)
The donation had to be valid before the fulfillment of the condition. If there was no fulfillment with
the condition such as what obtains in the instant case, the donation may be revoked and all
rights the donee may have acquired shall be lost and extinguished.
Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked
so that petitioner as donee should now return the donated property to the heirs of the donor,
private respondents herein, by means of reconveyance.
- Property held by a trustee/mortgage is returned to its owner on his request.
2. NO, the courts don’t have to fix the duration of a term.
ARTICLE 1197: OBLIGATIONS WITH NO FIXED PERIOD
GENERAL RULE: Period can be inferred from its nature or circumstances.
Court can fix the duration because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period for
compliance.
In the CASE AT HAND, the general rule cannot be applied in this case considering the different
set of circumstances existing more than a reasonable period of 50 years has already been
allowed to petitioner to avail of the opportunity to comply but unfortunately, it failed to do so.
- Hence, SC held that there is no need to fix a period when such procedure would
be a mere technicality & formality & would serve no purpose than to delay or load
to unnecessary and expensive multiplication of suits.
3. DISSENTING OPINION OF J. DAVIDE.
The “conditions” in this case do not refer to uncertain events on which the birth or
extinguishment of a juridical relation depends, but to obligations and charges imposed by the
donor on the donee. It is a modal donation. The establishment of the medical college as the
condition of the donation is one such prestation.
J. Davide considered the donation as "modal" where the obligations are unconditional, and the
fulfillment, performance, existence or extinguishment is not dependent on any future and
uncertain event. It is more accurate to say that the condition stated is not a resolutory condition,
rather a obligation itself, being an onerous donation. Since this is an onerous donation, it has to
comply with the rules on Oblicon, and therefore the courts should have fixed a period.
3. LAO LIM v. COURT OF APPEALS
GR NO. 87047
October 31, 1990
By: Emmanuel Yrreverre
Topic: OBLIGATIONS – POTESTATIVE CONDITIONS
Petitioners: FRANCISCO LAO LIM
Respondents: COURT OF APPEALS AND BENITO VILLAVICENCIO DY
Ponente: REGALADO, J.
RECIT-READY: Private respondent entered into a contract of lease with petitioner for a period of
three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private respondent
refused to vacate the premises, hence, petitioner filed an ejectment suit against the Lao Lim. The
case was terminated by a judicially approved compromise agreement of the parties providing in
part: “That the term of the lease shall be renewed every three years retroacting from October
1979 to October 1982; after which the above-named rental shall be raised automatically by
20% every three years for as long as defendant needed the premises and can meet and pay
the said increases, the defendant to give notice of his intent to renew sixty (60) days before
the expiration of the term;”By reason of said compromise agreement the lease continued from
1979 to 1982, then from 1982 to 1985. Dy advised Lao Lim that he would no longer renew the
contract effective October, 1985. Because of private Lao Lim’s refusal to vacate the premises, Dy
filed another ejectment suit. In its decision of said court dismissed the complaint on the grounds
that (1) the lease contract has not expired, being a continuous one the period whereof depended
upon the lessee's need for the premises and his ability to pay the rents; Dy appealed to the
Regional Trial Court of Manila which, affirmed the decision of the lower court. Now he appealed to
the SC.
The SC Held that the stipulation is void. Since the stipulation “for as long as the defendant needed
the premises and can meet and pay said increases” is a purely potestative condition because it
leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the
lessee.
DOCTRINE: Art. 1182 (Main provision)
When the fulfilment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. An agreement cannot be made to depend exclusively upon the will of one of the parties,
depriving the other party of any say in the matter, it will lead to inequality and is deemed to be illusory.
It is void.
FACTS
The records show that Villavicencio entered into a contract of lease with petitioner for a period of three
(3) years, that is, from 1976 to 1979. After the stipulated term expired, Villavicencio refused to vacate
the premises, hence, petitioner filed an ejectment suit against the former in the City Court of Manila,
docketed therein as Civil Case No. 051063-CV.
The case was terminated by a judicially approved compromise agreement of the parties providing in
part:
“3. That the term of the lease shall be renewed every 3years retroacting from October 1979 to October
1982; after which the abovenamed rental shall be raised automatically by 20% every three years for as
long as defendant needed the premises and can meet and pay the said increases, the defendant to
give notice of his intent to renew sixty (60) days before the expiration of the term; ”
By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to
1985. On April 17, 1985, petitioner advised Villavicencio that he would no longer renew the contract
effective October, 1985. 
However, on August 5, 1985, Villavicencio informed petitioner in writing of his intention to renew the
contract of lease for another term, commencing November, 1985 to October, 1988.   In reply to said
letter, petitioner advised Villavicencio that he did not agree to a renewal of the lease contract upon its
expiration in October, 1985.
On January 15, 1986, because of Villavicencio's refusal to vacate the premises, petitioner filed another
ejectment suit, this time with the Metropolitan Trial Court of Manila. In its decision of September 24,
1987, said court dismissed the complaint on the grounds that:
(1) the lease contract has not expired, being a continuous one the period whereof depended upon
the lessee's need for the premises and his ability to pay the rents; and
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(2) the compromise agreement entered into in the aforesaid Civil Case No. 051063-CV
constitutes res judicata to the case before it.
Petitioner appealed to the RTC of Manila which, in its decision of January 28, 1988, affirmed the
decision of the lower court.  sugar which will be delivered to Osmeña’s warehouse
CA affirmed RTC and held that:
(1) the stipulation in the compromise agreement which, in its formulation, allows the lessee
to stay on the premises as long as he needs it and can pay rents is valid, being a
resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code;
and
(2) that a compromise has the effect of res judicata.  which the P50 will be loaned to a certain Don Peñares and it will also be paid in sugar
ISSUE
(1) WON the stipulation in the compromise agreement which states that "for as long as the
defendant needed the premises and can meet and pay said increases" is valid? - No
HELD/RATIO
(1) NO.
o The disputed stipulation "for as long as the defendant needed the premises and
can meet and pay said increases" is a purely potestative condition because it leaves the
effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is
likewise a suspensive condition because the renewal of the lease, which gives rise to a new
lease, depends upon said condition.
o Allowing the said stipulation would leave to the lessees the sole power to
determine whether the lease should continue or not.
o The continuance, effectivity and fulfillment of a contract of lease cannot be made
to depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract is dictated solely by the
lessee.
o Potestative Condition- This can be found in Art 1182 of the NCC. A potestative
condition speaks of fulfillment of an obligation rests solely upon the will of the debtor. An
obligation which is subject to a suspensive potestative condition is non-
demandable, hence it is void. If it is the debtor himself who determines the fulfillment of
the condition, such an agreement produces no juridical effect that can be enforced, and thus
null
WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private
respondent is hereby ordered to immediately vacate and return the possession of the leased premises
subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance
with the compromise agreement until he shall have actually vacated the same. This judgment is
immediately executory.
 #4 Osmeña V Rama
GR NO.
(DATE)
By: Clyne
Topic:
Petitioners:
Respondents:
Ponente:
RECIT-READY/SUMMARY:
DOCTRINE: A condition that is dependent upon the will of the debtor is considered void
FACTS
- Doña Rama asked for a loan of P200 from Victioriano Osmeña
- Such contract stipulated that Rama will be paying it in on January or February next year with
- An interest rate of half acuartillo per month on each peso will be imposed from November 15
to the day of the settlement if Rama wouldn’t be able to pay
- A balance shall also be provided including the interest and will be considered as a capital
- Furthermore, such contract stipulated that Rama will sell all her sugar that she will harvest
as a security and that she will attach all her present and future property as a security
- A special security was also imposed in the contract wherein Rama also attached her house
in Pagina
- On October 27,1891, Rama asked for another loan from Osmeña in the amount of P70 in
- Osmeña later on died which transferred the rights of the contract to one of his heir, Agustina
- Agustina later on ceded to the petitioner her rights and interests in such contracts
- Herein petitioner demanded Rama to pay her obligation but Rama produced a contract
instead that is vested upon the condition that when her house in Pagina will be sold, she will
use such funds to pay for the debts
- Rama didn’t pay her debt which prompted the petitioner to file for an action in CFI Cebu
- CFI decided that Rama should pay the petitioner an amount of P200 with an interest rate of
18.75% per annum for the 1st contract.
- CFI also decided that Rama should pay an amount of P20 with an interest rate of 20% per
annum, the P50 in the 2nd contract is not liable upon Rama since it is dependent upon
Peñares to do so
- Rama wasn’t satisfied with the CFI’s decision hence this motion of appeal to the Supreme
Court
ISSUE
Whether the condition established by Rama is valid
HELD
No, judgment of the CFI is hereby affirmed thereby ordering the defendant to pay the loans
RATIO
Since it was already established in the lower court that Rama imposed the condition of
paying her debt if she will sell her house, such condition is considered void under Art.1115 of the Civil
Code since it will put the creditor in a precarious situation. Furthermore, Roma already acknowledged
the indebtedness she had made which prompted the Supreme Court to make her pay her debts.
5. Parks v Province of Tarlac
GR NO: 24190
FEBRUARY 12, 1997
By: MIKHEL BELTRAN
Topic: IMMOVABLE PROPERTY; CONDITIONAL DONATIONS
Plaintiff-Appellant: George Parks
Defendant-Appellees: Tarlac, Municipality , Concepcion Cicer and James Hill
Ponente: AVANCEÑA, C.J
RECIT-READY: Cirer and Hill donated parcels of land to the Municipality of Tarlac on the condition
that they build on the landa public school and a park. The condition has not been complied
with. Years after, Cirer and Hill sold the same parcels of landto George Parks. He prayed that the
donation of the lands to Tarlac be annulled because of its non-compliance with thecondition. The
Court ruled that the donations were effective and even if they would want to revoke the donation
because oftheir non-compliance with the condition, their right to bring an action for revocation had
already prescribed
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DOCTRINE: The characteristic of condition precedent, is that the acquisition of the right is not effected
while said condition is not complied with or is not deemed complied with. Meanwhile nothing is
acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the
compliance of which cannot be effected except when the right is deemed acquired, such condition
cannot be a condition precedent.
 When a condition is imposed and the compliance of which cannot be effected except when
the right is acquired, such condition is a condition subsequent.
FACTS:
 Oct 18, 1910 - Concepcion Cirer and James Hill, owners of the parcels of land, donated them
perpetually to the Municipality of Tarlac under certain conditions;
o One of the parcels of land donated was to be used for the erection of a central school,
o the other for a public park
o the work to commence within 6 months from the date of the ratification by the parties
of the document
 NOTE: These conditions have not been complied with
 This donation was accepted and registered in the name of Municipality of Tarlac
 Jan 15, 1921 - Cirer and Hill sold this parcel to George Parks
 Aug 24, 1923 -  the Municipality of Tarlac transferred the parcel to the Province of Tarlac and had
it registered
 Parks: Brought this action against Tarlac, alleging that the conditions of the donation had not
been complied with, therefore the transfer of the land to Tarlac should be annulled
 Lower Court: dismissed the complaint
ISSUE:
 WON the conditions are conditions precedent (Suspensive) - NO, they are conditions
subsequent.
 WON the donation became effective - YES, the donation became effective and has not been
revoked.
HELD/RATIO: If ever lang naman I-ask ito: The condition is Resolutory
 It is true that the conditions have not been complied with, but these conditions are
not conditions precedent.
 The characteristic of a condition precedent is that the acquisition of a right is
not effected while said condition is not complied with. Nothing is acquired, there is
only an expectancy of a right
 Consequently, when a condition is imposed and the compliance of which cannot
be effected except when the right is deemed acquired, such condition cannot be
condition precedent. Therefore, a condition subsequent.
 In this case, the conditions that a public school and a park be made of the donated land
could not be complied with except after giving effect to the donation. The donee could not
do any work on the donated land if the donation had not really been effected,
because it would be an invasion of another’s title.  These conditions are conditions
subsequent
 Even in a condition subsequent, non-compliance with the condition is sufficient cause for the
revocation of the donation. However, the period for bringing an action for the
revocation has prescribed
 The period of prescription of this class of action is 10 years. The action for revocation of the
donation a rose on April 19, 1911, 6 months after the ratification of the instrument
of donation. The complaint in this action was presented July 5, 1924, more than 10
years after this cause accrued.
 Judgement on the lower court affirmed.
6. Philippine Amusement Enterprises Inc. v Soledad Natividad
G.R. No. L-21876
September 29, 1967
By: Danielle Casipit
_____________________________________________________________________
Topic: Different Kinds of Obligations; Pure and Conditional Obligations; Obligations with a period;
alternative obligations
Petitioner: Philippine Amusement Enterprises Inc.
Respondent: Soledad Natividad
_____________________________________________________________________
RECIT-READY: Philippine Amusement Enterprises Inc. entered into a contract with
Soledad Natividad where they leased a phonograph or more known as a jukebox, to
Soledad Natividad. Later on, Natividad wrote a letter to return the jukebox to the company
due to a defective jukebox. They claimed that eventually the coins inside commonly get
stocked up. Phil Amusement however in their reply contended that the stocking up of
coins is a normal thing in any jukebox. They then replaced the jukebox with a new one
which they ordered from the United States. On August 4 and October 16, 1961, Phil
Amusement through counsel demanded the defendant spouses compliance to anew the
lease contract. Defendants refused and ordered for the rescission of the contract in their
favor for Phil Amusement’s failure to uphold its end of the contract. SC Held that
rescission will only be ordered when there is a substantial breach and not slight or casual.
There is nothing in the evidence that shows the frequency of the jukebox not functioning
properly. Contract of lease between the two parties is rescinded in favor of Phil
Amusement.
Doctrine: Rescission will be ordered only where the breach complained of is substantial as to defeat
the object of the parties in entering into the agreement. It will not be granted where the breach is slight
or casual.
Facts
 On January 6, 1961, Philippine Amusement Enterprises Inc leased to Soledad Natividad a
phonograph or “jukebox”
 On July 17, 1961, Mariano, husband of Soledad, wrote a letter to Phil Amusement that they
wrote 2 weeks prior to get the juke box back but no one has responded and upon receipt of
the letter they are advised to once again get the jukebox back
 On July 27, 1961, Mariano wrote another letter giving the following reasons why he wrote
the first letter
o First, coins would stock up and would not select the correct song
o About a year ago they asked if they could buy the jukebox but no one responded
until May so they decided to order from the United States
o Beginning July 24th until the time they get their juke box, they will be collecting a
monthly rental of P50.00 for the space occupying the Juke Box
 On August 4, 1961, Phil Amusement replied denying the defendants’ desire to buy the
jukebox
 Calling attention of Par 9 of the lease contract which states “The PROPRIETOR agrees that
during the term of this agreement, the OPERATOR shall have the exclusive right to maintain
an automatic phonograph in the premises, and the PROPRIETOR shall not permit anyone
to install or maintain any phonograph or any other devices for the reproduction or the
transmission of music in any part of the premises”, petitioners asked the respondents to re-
install its jukebox and remove the other one they had installed
 On August 4 and October 16, 1961, petitioner through counsel wrote to respondent spouses
demanding anew compliance with the lease contract and payment of damages
 Lower Court rendered the decision hereinbefore adverted to
 SC ruled decision of lower court should be reversed on 3 grounds
o First, power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him. In the absence of a
stipulation to the contrary, this power must be invoked judicially. There is nothing
in the contract of lease empowering the defendants to rescind without resort to
the courts. Art. 1191 applies
o Second, rescission will be ordered only where the breach complained of is
substantial. It will not be granted where the breach is slight or casual. Defendants
asked plaintiff to remove the phonograph claiming coins would get stuck and
songs would not play. Nothing in the evidence shows the frequency of
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 malfunction. There is even no claim that as a result of unsatisfactory
performance, the income therefrom would not guarantee the P50 a week.
Evidence shows operation was quite profitable
o Third, the court believes they only bought the new jukebox from the US in 1961
after they had signed the lease. It is now shown when the rented jukebox showed
problems. Presumably it was early in July 1961 since the defendants’ first letter
was July 17, 1961. But since they began operating their own Jukebox in July
1961, then the defendants’ pretense that they decided to buy their own jukebox
after the rented one failed to function properly becomes highly improbable. The
jukebox they ordered could not have arrived so soon to allow them to operate on
July 24. The court is inclined to believe that the decision to buy a jukebox
was made because the defendants found it more profitable to operate one
themselves.
 Their letter of July 17, 1961, with the warning that they would not be “responsible anymore”
for it, and their other letter of July 27 of like tenor, betray the haste with which they wanted
to get out of their contractual obligations to the plaintiff. They did not even ask for the
service of the jukebox. Their conduct fully justifies the award of liquidated damages to the
plaintiff
ACCORDINGLY, the judgment a quo is reversed, and the contract of lease between the plaintiff and
the defendant Soledad Natividad is hereby rescinded in favor of the plaintiff. The defendants are
ordered to return to the plaintiff the automatic phonograph subject of the contract, and to pay the
plaintiff liquidated damages in the total amount of P5,850, plus 6 per cent interest from the date of the
filing of the complaint until the amount shall have been fully paid, and attorney's fees in the amount of
P200. Costs against the defendants.
7. U.P. v. DE LOS ANGELES
GR NO. L-28602
SEPTEMBER 29, 1970
By: CHESKA DOMINGUEZ
Topic: DIFFERENT KINDS OF OBLIGATION; PURE AND CONDITIONAL OBLIGATIONS;
OBLIGATIONS WITH A PERIOD; ALTERNATIVE OBLIGATION
Petitioners: UNIVERSITY OF THE PHILIPPINES
Respondents: WALFRIDO DE LOS ANGELES (CFI QC JUDGE) ET AL.
Ponente: REYES, J.B.K., J.
RECIT-READY/SUMMARY: UP and ALUMCO entered into a logging agreement. A stipulation was
made which provides that if the debtor fails to comply with its promises, the creditor may rescind the
contract even without judicial intervention. After ALUMCO incurred more debt, UP informed the
company that the logging agreement is considered rescinded. UP then filed a complaint against
ALUMCO to recover unpaid amount and to restrain ALUMCO from continuing its logging
operations. ALUMCO now argues that the contract cannot be considered rescinded without judicial
order. The SC ruled otherwise.
DOCTRINE: Court action is not necessary to declare the contract rescinded where there is agreement
to such effect in case of violation of the terms thereof.
FACTS
 A land was segregated from public domain and was given to UP to raise its income in
compliance with Act 3608.
 Petitioner UP and Respondent ALUMCO (Associated Lumber Manufacturing Company,
Inc.) entered into a logging agreement under which the latter was granted exclusive
authority, for a period starting from the date of the agreement on Nov. 2, 1960 to Dec. 31,
1965, extendible for a further period of five years by mutual agreement, to cut, collect and
remove timber from the Land Grant.
 ALUMCO failed to pay UP despite repeated demands. (219,362.94php)
 UP sent a notice that it would rescind the logging agreement to which ALUMCO responded
with an "Acknowledgment of Debt and Proposed Manner of Payments." The
acknowledgment stipulated the following:
o When the payments are not sufficient to liquidate indebtedness of the debtor, the
outstanding balance shall be paid by the debtor in full no later than June 30,
1965.
o When the debtor fails to comply with any of its promises or undertakings, the
debtor agrees without reservation that the creditor shall have the right to rescind
the logging agreement without necessity of any judicial suit, and the creditor
shall be entitled to P50,000 for damages.
 ALUMCO continued its logging operations but again incurred an unpaid amount. UP then
informed ALUMCO that the logging agreement is considered rescinded.
 UP filed a complaint against ALUMCO with CFI for the collection of payment and prayed for
preliminary attachment and preliminary injunction restraining ALUMCO from continuing its
logging operations.
 ALUMCO filed several motions to discharge the writ of attachment and preliminary
injunction alleging that UP's unilateral rescission was invalid without prior court order.
Said motions were granted by the court.
o ALUMCO also blamed its former general manager for not turning over its
management, and further stated that the logs that it had cut turned out to be
rotten and could not be sold to Sta. Clara Lumber Company.
 UP received the order after it had already concluded its contract with a new company (Sta.
Clara Lumber Company, Inc.) and the latter already started its logging operations.
 The court declared UP in contempt of court and directed Sta. Clara Lumber Company to
refrain from exercising logging rights or conducting its operations. UP filed a MR but was
denied.
ISSUE
(1) WON UP can treat its contract with ALUMCO rescinded without any judicial order
HELD/RATIO
(1) YES. The two parties had expressly stipulated in the 'Acknowledgment of Debt and Proposed
Manner of Payments' that UP has the right and power to rescind contract without necessity of any
judicial suit.
 There is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of contract would cause cancellation thereof, even without court
intervention.
 Rescission must be made known to both parties. In this case, ALUMCO was informed.
 Nonetheless, if one party denies justification of the rescission, it may resort to judicial action
at its own risk.
o May resort to court in case of abuse or error by the rescinder
o "At its own risk" - If the court decides that resolution of the contract was not
warranted, the responsible party will be sentenced to damages.
 ALUMCO's petition for injunction is set aside. UP wins the case.
8 ANGELES v CALASANZ
GR NO. L-42283
March 18, 1985
By: Gayares
Topic: Different kinds of obligations; pure and conditional obligations; obligations with a period;
alternative obligations.
Petitioners: Buenaventura Angeles et. al.
Respondents: Ursula Calasanz et. al.
Ponente: Gutierrez, Jr., J.
RECIT-READY/SUMMARY: Calasanz sold a piece of land to Angeles. Angeles religiously paid
Calasanz for the monthly dues until July 1966. At this point in time, Angeles already paid a total of
P4,433.38, which is already more than the price of the lot (P3,920 plus 7% interest per year).
Calasanz repeatedly demanded for payment but Angeles never complied, thus, prompting the
5
 former to rescind due to a provision in their contract that gives the seller the right of rescission if the
buyer does not comply with the payment of dues. Hence, the case. Court ruled that slight or casual
breach of stipulations does not give rise to the right of rescission. Hence, Calasanz should execute
the final deed of sale to Angeles; and Angeles must pay Calasanz for the remaining amount.
DOCTRINE:
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for substantial and fundamental breach as they would defeat the very object of the parties in
making the agreement.
FACTS:
 This case is an appeal from the CFI decision, which declared the contract to sell as not
having been validly cancelled and ordering Ursula to execute a final deed of sale in favor of
Angeles and to pay P500 and costs.
 December 19, 1957: Defendants, Ursula and Tomas Calasanz, and petitioners,
Buenaventura Angeles and Teofila Juani, entered into a contract to sell a piece of land
located in Cainta, Rizal for the amount of P3,920 plus 7% interest per annum.
 Angeles made a downpayment of P392 upon the execution of the contract. They promised
to pay the balance in monthly installments of P41.20 until fully paid with the amount due and
payable on the 19th day of each month. Angeles paid the monthly installments until July
1966 when their aggregate payment amounted to P4,433.38.
 On numerous occasions, Calasanz accepted and received delayed installment payments
from Angeles.
 December 7, 1966: Calasanz wrote Angeles a letter requesting the remittance of past due
accounts.
 January 28, 1967: Calasanz cancelled the contract because Angeles failed to meet
subsequent payments. Calasanz also denied the letter Angeles sent for a plea of
reconsideration.
 Angeles filed the civil case with the CFI to compel Calasanz to execute in their favor the
final deed of sale alleging that after computing all subsequent payments for the land, they
found out that they have already paid the total amount of P4,533.38 including interests,
realty taxes, and incidental expenses for the registration and transfer of land.
 Calasanz, in their answer, states that there is no cause of action and that Angeles violated
par. 6 of their contract when they failed and refused to pay and/or offer to pay the monthly
installments corresponding to the month of August 1996 for more than 5 months, thereby
forcing the cancellation of the contract.
 CFI: Judgment in favor of Angeles. Calasanz must execute a final deed of sale and pay the
sum of P500 attorney’s fees.
 CA: Certified the case considering that the appeal involves pure question of law.
ISSUE:
W/N the contract to sell the lot has been automatically and validly cancelled due to the violation
committed by Angeles?
HELD/RATIO:
Calasanz presented the contract and the assailed violation of par. 6, which states that “…the party of
second part has not paid all the amounts he should have paid with the corresponding interest up to that
date, the party of the first part has the right to declare this contract cancelled and of no effect, and as
consequence, the party of the first part may dispose the parcel of land covered by this contract in favor
of other persons…”
Calasanz argues that Angeles failed to pay the due on August 1966 despite demands for more than 4
months. They also argue that even in the absence of the above provision, they had the right to cancel
the contract to sell under Art. 1191, which provides on the rescission of reciprocal obligations.
Angeles, however, argues that par. 6 is contrary to law insofar as it provides since it granted the sellers
an absolute and automatic right of rescission.
Court rules that Art. 1191 is explicit. In reciprocal obligations, either party has the right to rescind the
contract upon the failure of the other to perform the obligation. Nothing in the law prohibits the parties
from entering into an agreement that violation of the terms of the contract would cause its cancellation
even without court intervention. However, the right to rescind the contract for non-performance of a
stipulation is not absolute.
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for substantial and fundamental breach as they would defeat the very object of the parties in
making the agreement.
Calasanz state that Angeles also violated sec. 2 of the contract because they failed to pay the August
installment despite repeated demands. The Court, however, ruled that the breach is so slight and
casual since apart from the initial downpayment of P392, Angeles had already paid the monthly
installments for a period of almost 9 years. In only a short time, the entire obligation would have been
paid. Furthermore, Angeles already paid the aggregate amount of P4,533.38. To approve of the
rescission will work injustice to Angeles and unjustly enrich Calasanz. The Court also rule that the
other arguments posed by Calasanz are without merit since par. 9 of their contract states that waiver of
par. 6 may be done for as many times as he wishes, thus, they are now estopped from exercising their
right of rescission.
WHEREFORE, instant petition is denied for lack of merit. Decision appealed from is affirmed. Angeles
should pay the balance of P671.67 to Calasanz without any interests. Costs against Calasanz.
9 JISON v COURT OF APPEALS
GR NO. L-45349
AUGUST 15, 1988
By: JULIUS GUZMAN
Topic: DIFFERENT KINDS OF OBLIGATIONS; PURE AND CONDITIONAL OBLIGATIONS;
RESCISSION OF CONTRACT TO SELL
Petitioners: NEWTON JISON AND SALVACION I. JISON
Respondents: COURT OF APPEALS, AND ROBERT O. PHILLIPS & SONS
Ponente: CORTES, J.
RECIT-READY/SUMMARY: The case is a review of the decision of CA on the validity of the
rescission of a contract to sell a subdivision lot due to the failure of payment of monthly installment
of the buyer. The case started when the petitioners entered into a contract to sell of a lot in Antipolo
with Robert Phillips. Petitioners made a down-payment and monthly instalments from Oct 1961 to
May 1965. However, the petitioners failed to pay Jan-March 1966, Oct. 1966 to Jan. 1967 and Feb-
April 1967, despite the demands. The private respondent then, sent a letter to remind the
petitioners about the rescission clause stipulated in the contract. Because of the non-payment, the
contract was cancelled. Which the petitioner brought the case to the trial court and Court of
appeals. Unfortunately, the case was dismissed. The issue is WON the rescission of the contract is
valid. The SC held that the rescission of the contract is valid. The Court, reiterated the case of
Palay Inc. v. CA, wherein the Court ruled that the judicial action for the rescission of a contract is
not necessary where the contract stipulates that it may be cancelled for violation of any of its term
and conditions. In the case at hand, the petitioner and respondent entered into a contract to sell,
hence, the petitioner is well aware of the RESCISSION CLAUSE stipulated in the contract. The
priv. respondent, even sent a letter and reminded them about the RESCISSION CLAUSE, prior to
the cancellation of the contract. Therefore, it is sufficient enough to claim that the rescission is valid.
However, the forfeiture price reduced by 50% because the court finds it unjust.
DOCTRINE: Judicial action for the rescission of a contract is not necessary where the contract
stipulates that it may be cancelled for violation of any of its term and conditions.
FACTS
 The case is a petition of review of the decision of the CA, contending the validity of the
rescission of a contract to sell a subdivision lot due to the failure of the lot buyer to pay
monthly installments on their due dates and the forfeiture of the amounts already paid.
6
  The case started when the spouses Jison, entered into a Contract to Sell with Robert O.
Phillips & Sons, Inc., where they agreed to sell to the former a lot in a subdivision at
Antipolo.
o The agreed price is P55k, w interest at 8% per annum, payable on an installment
basis.
o Pursuant to the contract, petitioners paid private respondents a down payment of
P11k on Oct. 20, 1961 and from Oct. 27 1961 to May 8, 1965 a monthly
installment of P533.85.
o Due to the failure of petitioners to build a house as provided in the contract, the
stipulated penalty of P5, per sqm was imposed to the effect that the monthly
amortization was increased to P707.24.
o On Jan-March 1966, petitioners failed to pay the monthly installments due
although they subsequently paid and these were accepted by private respondent.
o Again, the petitioners failed to pay for 4 months (Oct. 1, 1966 to Jan. 1, 1967).
The private respondent sent a letter, calling their attention, that their account was
4 months overdue.
o Respondent also reminded the petitioner regarding the automatic rescission
clause of the contract. Petitioners, eventually paid on March 1, 1967.
o However, on the months of Feb, March, April of 1967, he failed again to pay the
monthly installment.
o The private respondent, therefore, cancelled their contract due to the petitioner’s
failure to pay the monthly installments.
o Petitioners, then tendered payment for all the installments already due but it was
refused.
 CFI & CA Decision: The petitioners filed a complaint with the CFI and consigning the
monthly installments due with the court. However, TC dismissed the complaint. On the other
hand, CA affirmed the decision of the CFI.
ISSUE
(1) WON the resolution or rescission of the Contract to Sell is valid.
HELD/RATIO
(1) YES. The resolution or rescission of the Contract to Sell is valid.
 The SC said that taking into consideration that the contract was executed and
cancelled prior to the effectivity of RA 6552 (Realty installment buyer’s protection act)
and PD 957 (Subdivision and condominium buyer’s protective decree). It is necessary
to resort to jurisprudence and the general provisions to resolve such.
 In this regard, the SC cited Palay, Inc. v Clave, that the judicial action for the rescission
of a contract is not necessary where the contract stipulates that it may be cancelled for
violation of any of its term and conditions.
 Since that the contract was executed and cancelled before RA 6552 was not yet
effective, the notice of cancellation need not be by notarial act, hence, respondent’s
letter being sufficient compliance with legal requirement.
 In the case at hand, it is evidently that the private respondent given prior notice and
reminded the petitioner about the rescission stipulated in the contract before the
former cancelled the Contract to Sell.
 Therefore, the rescission is valid. However, the forfeiture price is reduced by 50% as
the court finds it unfair and ordered the respondent to return the excess to the
petitioner.
Notes:
 Forfeiture amount is P47,312.64, the Court reduced it to P23,656.32.
Tan v. CA
GR 80479 July 28, 1989
Topic: Rescission of Contract
By: Madrid
Petitioner: Agustina Tan
Respondent: CA and Sps. Mariano Singson and Visitacion Singson
Doctrine:
It is a settled principle of law that rescission will not be permitted for a slight or casual
breach of the contract but only for such breaches as are so substantial and fundamental
as to defeat the object of the parties in making the agreement.
Summary:
So yung respondent spouses may bahay. Si petitioner interested bilhin. Ngayon nag karoon
sila ng contract which states na si petitioner bibilhin nya yung bahay and bibigyan nya sila respondent
spouses ng 200k in advance para ma settle yung mortgage nila respondent sa DBP. Ngayon medyo
maarte si petitioner, na late lang naman ng mahigit 2 weeks yung cancellation of the mortgage, gusto
niya na agad mag rescind. Ngayon, sabi ng SC, although may right siya mag rescind, di siya ipepermit
ng SC mag rescind kasi ang babaw ng rason niya. A mere delay is not a justifiable reason to rescind.
Dapat daw yung breach of contract must be substantial and fundamental as to defeat the object of the
parties in making the agreement.
Facts:
-Spouses Singson are the owners of a house located in Baguio City which was
for sale.
-June 14, petitioner, together with her agent, talked to the spouses regarding the property.
-They agree on the price of 1.8 million with petitioner to advance 200k to enable the spouses
to secure the cancellation of the mortgage.
-On June 25, Petitioner along with her daughter Corazon and lawyer Atty. Quitariano, went
to Baguio City to inquire about the status of the property, respondents say that DBP was
taking some time processing their payments.
-They then agreed an extension of 2 weeks for the execution of the deed of sale.
-On July 9, DBP cancelled the mortgage. Appellants tried to contact petitioner that same day to come
to Baguio and execute a deed of sale, but to no avail.
-They just received a telegram from Atty. Quitariano cancelling the sale and demanding the
return of the 200k. which they countered through Atty Rodes, calling the petitioner to
perform her part of the contract because the mortgage has been paid and its levy been
lifted.
-In short, the title can now be transferred in your name upon execution of sale, your refusal
will compel us to sue for specific performance.
-Petitioner sued them alleging that she gave spouses 200k upon their assurances they could transfer
the house from them free from liens and encumbrances. But after June 25 passed nothing happened.
-RTC: in favor of Tan. CA: reversed
Issue:
WON private respondents committed a substantial breach of their obligation so as to warrant
petitioner’s exercise of her right to rescind.
Held:
No.
Ratio:
-The power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him is clear from a reading of
the Civil Code provisions.
-However, it is equally settled that, in the absence of a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a party's own judgment that the other has committed
a breach of the obligation.
-The alleged breach of the obligation by the private respondents, which consists in a mere delay for a
few days in clearing the title to the property, cannot be considered substantial enough to warrant
rescission of the contract.
-It is a settled principle of law that rescission will not be permitted for a slight or casual
breach of the contract but only for such breaches as are so substantial and fundamental
as to defeat the object of the parties in making the agreement.
-A court, in determining whether rescission is warranted, must exercise its discretion
7
judiciously considering that the question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
#11 VERMEN REALTY DEVELOPMENT VS. CA
GR # 101762
DATE: JULY 6, 1993
By: Julpha Policina
Topic: Reciprocal Obligation
Petitioners: Vermen Realty Development Corporation
Respondents: Court of Appeals and Seneca Hardware Co., Inc.
Ponente: Bidin, J.
SUMMARY: Vermen Realty (construction company) and Seneca Hardware entered into Offsetting
Agreement where Vermen would purchase construction materials to Seneca and Seneca would have
possession of 2 units from the condominium being constructed, where they had payment settlement
stipulated in the agreement. Vermen became insolvent and cannot continue with the construction in
which Seneca filed for the rescission of their agreement. Vermen’s contention was that Seneca
stopped delivering materials implying that Seneca was the first one to stop complying with the
obligation. But through evidence, Vermen did not actually had purchase orders, so no delivery is to be
made. And it is now considered that Vermen could not deliver the obligation since construction
stopped. Therefore it was Vermen who caused the breach of the agreement, granting the rescission.
DOCTRINE: In reciprocal obligations, performance of one is conditioned on the simultaneous
fulfillment of the other obligation and when one couldn’t comply with the obligation, the other has the
power to rescind.
FACTS:
 March 2, 1981: Vermen Realty and Seneca Hardware entered in a contract “Offsetting
Agreement”:
o Seneca desires to buy 2 residential condo units, studio type, total of 76.22 sqm,
more or less worth P276k – in Baguio
o Vermen desires to buy from Seneca construction materials (steel, electrical
materials and others) worth P552k
o That Vermen shall pay Seneca P276k upon delivery of materials and other
P276k be paid in the form of 2 condo units stated above
o For every staggered delivery of construction material, Vermen shall pay 50% and
50% to be credited to said condo units for Seneca
o That Seneca is obliged to deliver all items 7 days from receipt of said purchase
until whole amount is settled
o That freight cost be divided equally of both parties
o That Vermen while pending completion of Vermen Pines Condominium Phase II
shall deliver the possession of 2 condo units in Phase I of Vermen Pines
o That on time of completion of Phase II, Seneca be given the first option to
transfer from Phase I to II under same price, terms and conditions
 Seneca paid Vermen P110,151.75 and delivered construction materials worh P219,727.
 Vermen delivered 2 condo units of Phase I to Seneca (Unit 601 and 602)
 1982: Vermen repossessed unit 602. As consequence, when Senece went to Baguio, they
rented another place to rent and seek for clarification from Vermen why they were prevent
from occupying their unit 602.
 May 24, 1982: Vermen answered that it was leased to another tenant since Seneca did not
pay anything for the purchase of the said unit then demanded payment of P27k for the
balance of purchase price of Unit 601.
 1983: construction stopped since Vermen’s loan was denied
 June 21, 1985: Seneca filed with RTC QC for rescission of Offsetting Agreement with
damages with the Vermen.
o That Vermen stopped issuing purchase orders of construction after April 1982
without valid reason which results their stoppage of deliveries
 August 15, 1985: Vermen’s answer:
o They issued purchase orders but Seneca could not deliver since they were out
stock (but on a hearing on Jan. 28, 1987: when asked where the purchase orders
were, they alleged they were going to produce the same in court, but did not)
o That Seneca quoted higher prices for available materials
o That they resorted to other suppliers
 RTC decision: dismissed the complaint of Seneca ordering them to pay Vermen for the
balance due for unit 601
 On appeal, CA reversed.
ISSUE: Whether or not the rescission of the Offsetting Agreement be approved
HELD/RATIO: YES
 Nature of the agreement is reciprocal. The performance of one is conditioned on the
simultaneous fulfillment of the other obligation.
 Article 1191 provides remedy of rescission in case of reciprocal obligations where one of the
obligors fails to comply with what is due to him
 There was no evidence that Vermen did actually sent purchase orders to Seneca, for that,
there would be no delivery to be made and means that Seneca did not fail to fulfill its
obligation.
 On the other hand, since Vermen’s construction stopped, the fulfillment of the obligation to
deliver the units would be impossible which constitutes substantial breach of the Offsetting
Agreements.
12 ALFONSO IRINGAN vs CA
G.R. No. 129107
September 26, 2001
By: Lorenzo Tanada
Topic: Rescission of Obligation
Petitioners: Alfonso Iringan
Respondents: Hon. Court of Appeals & Antonio Palao
Ponente: QUISUMBING, J
RECIT-READY/SUMMARY: A lot was sold by the Private Respondent to the Petitioner, covered by
a contract. Upon second payment. The Private Respondent Palao considered the contract to have
been rescinded since Petitioner Iringan did not comply with the obligation to pay the amount
stipulated in the contract. The Court ruled that the contract has to be judicially rescinded and cannot
merely be rescinded through a letter. The SC said that such application for judicial rescission was
met by the private respondent when he filed for Judicial Confirmation of Rescission before the RTC.
Hence, the contract of sale was validly rescinded
DOCTRINE: The right to resolve reciprocal obligations, is deemed implied in case one of the obligors
shall fail to comply with what is incumbent upon him. But that right must be invoked judicially. The party
entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised
solely on a party’s own judgment that the other committed a breach of the obligation. The operative act
which produces the resolution of the contract is the decree of the court and not the mere act of the
vendor.
FACTS
• Private Respondent Antonio Palao sold to Petitioner Alfonso Iringan an undivided portion of a lot
in Tuguegarao, with a purchase price of P295, 000
• The same is payable as follows:
o P10,000.00—upon the execution of this instrument, and for this purpose, the vendor
acknowledges having received the said amount from the vendee as of this date;
o P140,000.00—on or before April 30, 1985
o P145,000.00—on or before December 31, 1985
 Upon the second payment, Iringan paid only P40, 000
 Palao then sent a letter that he considered the contract rescinded for Iringan’s failure to comply
with the obligation to pay the full amount of the second installment
 Iringan did not contest the rescission, but instead asked for reimbursement for the following
amounts:
o (a) P50,000.00—cash received by you;
o (b) P3,200.00—geodetic engineer’s fee;
8
 o (c) P500.00—attorney’s fee
o (d) the current interest on P53,700.00.6
 Palao did not agree to the said reimbursement, which led to Iringan proposing that an equivalent
portion of the land be sold to him for the initial P50, 000 that Palao received.
 The parties failed to arrive at an agreement since Palao responded to the proposal with a letter
stating that his Iringan’s obligations had amounted to P61, 600
 THE RTC of Cagayan ruled in favor of Palao, upholding the rescission of the contract. The CA
upheld this decision.
ISSUES:
(1) WON Palao alone can extrajucially rescind the contract of sale?
(2) WON the contract of sale was validly rescinded
HELD/RATIO
4. NO, the contract of sale cannot be automatically rescinded by Palao (private
respondent). Even if Article 1191 were applicable, petitioner would still not be entitled to
automatic rescission. The right to resolve reciprocal obligations, is deemed implied in case
one of the obligors shall fail to comply with what is incumbent upon him. But that right must
be invoked judicially.
The same article also provides: The Court shall decree the resolution demanded, unless
there should be grounds which justify the allowance of a term for the performance of the
obligation.
This requirement has been retained in the third paragraph of Article 1191, which states that
the court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
Consequently, even if the right to rescind is made available to the injured party, the
obligation is not ipso facto erased by the failure of the other party to comply with what is
incumbent upon him. The party entitled to rescind should apply to the court for a decree of
rescission. The right cannot be exercised solely on a party’s own judgment that the other
committed a breach of the obligation.The operative act which produces the resolution of the
contract is the decree of the court and not the mere act of the vendor.
- Since a judicial or notarial act is required by law for a valid rescission to take
place, the letter written by respondent declaring his intention to rescind did not
operate to validly rescind the contract.
5. YES, the contract of sale was validly rescinded. Notwithstanding the above, however, in
our view when private respondent filed an action for Judicial Confirmation of Rescission and
Damages before the RTC, he complied with the requirement of the law for judicial decree of
rescission.
- Hence, the SC DENIED the petition and affirmed the lower courts
13. Sps. MARIANO VELARDE v. COURT OF APPEALS
GR NO. 108346
JULY 11, 2001
By: Emmanuel Yrreverre
Topic: OBLIGATIONS – BREACH OF CONTRACT AND POWER TO RESCIND RECIPROCAL
OBLIGATIONS
Petitioners: Spouses MARIANO VELARDE AND AVELINA VELARDE
Respondents: COURT OF APPEALS, DAVID RAYMUNDO AND GEORGE RAYMUNDO
Ponente: PANGANIBAN, J.
RECIT-READY: The private respondent executed a Deed of Sale with Assumption of Mortgage,
with a balance of P1.8 million, in favor of the petitioners. Pursuant to said agreements, plaintiffs
paid the bank (BPI) for three (3) months until they were advised that the Application for Assumption
of Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private
respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru
counsel responded that they are willing to pay in cash the balance subject to several conditions.
Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale. Petitioners
filed a complaint which was consequently dismissed by an outgoing judge but was reversed by the
assuming judge in their Motion for Reconsideration. The Court of Appeals reinstated the decision to
dismiss. Hence, this petition. The SC held that Article 1191 of the New Civil Code applies. The
breach committed did not merely consist of a slight delay in payment or an irregularity; such breach
would not normally defeat the intention of the parties to the contract. Here, petitioners not only
failed to pay the P1.8 million balance, but they also imposed upon private respondents new
obligations as preconditions to the performance of their own obligation. In effect, the qualified offer
to pay was a repudiation of an existing obligation, which was legally due and demandable under the
contract of sale. Hence, private respondents were left with the legal option of seeking
rescission to protect their own interest.
DOCTRINE: Art. 1191(Main provision)
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
FACTS
 David Raymundo (private respondent) is the absolute and registered owner of a parcel of
land, located at 1918 Kamias St., Dasmariñas Village Makati, together with the house and
other improvements, which was under lease. It was negotiated by David’s father with
plaintiffs Avelina and Mariano Velarde (petitioners). ADeed of Sale with Assumption of
Mortgage was executed in favor of the plaintiffs. Part of the consideration of the sale was
the vendee’s assumption to pay the mortgage obligations of the property sold in the amount
of P 1,800,000.00 in favor of the Bank of the PhilippineIslands. And while
their application for the assumption of the mortgage obligations is not yet approved by the
mortgagee bank, they have agreed to pay the mortgage obligations on the property with
the bank in the name of Mr. David Raymundo. It was further stated that “in the event
Velardes violate any of the terms and conditions of the said Deed of Real Estate Mortgage,
they agree that the downpayment P800,000.00, plus all the payments made with the BPI on
the mortgage loan, shall be forfeited in Favor of Mr. Raymundo, as and by way of liquidated
damages, w/out necessity of notice or any judicial declaration to that effect, and Mr.
Raymundo shall resume total and complete ownership and possession of the property, and
the same shall be deemed automatically cancelled”, signed by the Velardes. 
 Pursuant to said agreements, plaintiffs paid BPI the monthly interest loan for three months
but stopped in paying the mortgage when informed that their application for the assumption
of mortgage was not approved. The defendants through a counsel, wrote plaintiffs informing
the latter that their non-payment to the mortgagee bank constituted non-performance of their
obligation and the cancellation and rescission of the intended sale. And after two days, the
plaintiffs responded and advised the vendor that he is willing to pay provided that Mr.
Raymundo: (1) delivers actual possession of the property to them not later than January 15,
1987 for their occupancy (2) causes the release of title and mortgage from the BPI and
make the title available and free from any liens and encumbrances (3) executes an
absolute deed of sale in their favor free from any liens and encumbrances not later than
Jan. 21, 1987. 
 The RTC of Makati dismissed the complaint of the petitioners against Mr. Raymundo for
specific performance, nullity of cancellation, writ of possession and damages. However,
their Motion for Reconsideration was granted and the Court instructed petitioners to pay the
balance of P 1.8 million to private respondent who, in turn were ordered to execute a deed
of absolute sale and to surrender possession of the disputed property to petitioners. 
 Upon the appeal of the private respondent to the CA, the court upheld the earlier decision of
the RTC regarding the validity of the rescission made by private respondents. 
ISSUE
(2) WON There is a breach of Contract – Yes
(3) WON The rescission of the respondents are valid - Yes
9

HELD/RATIO
(2) YES
o Petitioners aver that their nonpayment of private respondents mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had
been disapproved by the mortgagee bank. Accordingly, payment of the monthly
amortizations ceased to be their obligation and, instead, it devolved upon private
respondents again.
o However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement
mandated that petitioners should pay the purchase price balance of P1.8 million to private
respondents in case the request to assume the mortgage would be disapproved. Thus, on
December 15, 1986, when petitioners received notice of the banks disapproval of their
application to assume respondents mortgage, they should have paid the balance of the P1.8
million loan.
o Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.
o In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its
equivalent.Private respondents had already performed their obligation through the execution
of the Deed of Sale, which effectively transferred ownership of the property to petitioner
through constructive delivery. Prior physical delivery or possession is not legally required,
and the execution of the Deed of Sale is deemed equivalent to delivery.
o Petitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to
perform obligations beyond those stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
(3) YES
o As pointed out earlier, the breach committed by petitioners was not so much their
nonpayment of the mortgage obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract of sale. Private respondents right to
rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as
follows:
o Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
o The injured party may choose between fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become impossible.
o The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them.
The breach contemplated in the said provision is the obligors failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.
o In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract
of sale, a violation that consequently gave rise to private respondents right to rescind the
same in accordance with law.
o The breach committed did not merely consist of a slight delay in payment or an irregularity;
such breach would not normally defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance, but they also imposed upon
private respondents new obligations as preconditions to the performance of their own
obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own
interest.
14 PALAY, INC. v CLAVE
GR NO. L-56076
SEPT. 21, 1983
By: JULIUS GUZMAN
Topic: DIFFERENT KINDS OF OBLIGATIONS; PURE AND CONDITIONAL OBLIGATIONS;
RESCISSION OF CONTRACT TO SELL
Petitioners: PALAY, INC. AND ALBERT ONSTOTT
Respondents: JACOBO C. CLAVE, EA, NHA AND NAZARIO DUMPIT
Ponente: MELENCIO-HERRERA, J.
RECIT-READY/SUMMARY: A resolution was issued to the petitioner ordering them to
refund the private respondent. The case started when the petitioner executed in favor of
the priv. respondent, a contract to sell a parcel of land of a subdivision in Antipolo. In the
contract, there was a rescission clause. At first, the priv. respondent paid the down-
payment and several installments. However, the last payment was made on Dec. 5,
1967. Almost 6 yrs, the priv. respondent wrote to the petitioner, offering to update all his
overdue accounts and seeking its written consent to the assignment of his rights.
However, the petitioner informed that the contract had long been rescinded. So the
issue is WON demand or written notice is necessary to rescind a contract. The SC held
that a judicial action for the rescission of a contract is not necessary where the contract
provides that it may be revoked and canceled for violation of any of its t&c. Furthermore,
a written notice must be sent to the contracting party when there is a rescission of
contract even if expressly provided in the agreement. Therefore, the SC ruled in favor of
the respondents and ordered the petitioners to refund the installments paid with legal
interest.
DOCTRINE:
(1) Judicial action for the rescission of a contract is not necessary where the contract provides
that it may be revoked and canceled for violation of any of its terms and conditions.
(2) A written notice must be sent to the contracting party when there is a rescission of contract
even if expressly provided in the agreement.
FACTS
 The respondent’s directing the petitioners to refund priv. respondent.
o Amount of P13,722.5 with 12%interest per annum.
o Denied petitioner’s motion for reconsideration.
 On March 28, 1965, the petitioner, executed in favor of priv. respondent, a contract to sell a
parcel of land of a subdivision in Antipolo.
o Sale price was P23,300.00 w 9% interest per annum.
o Par. 6 of the contract, provided for automatic extrajudicial rescission upon the
default in payment of any monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid.
 Priv. respondent paid the down-payment and several installments. However, the last
payment was made on Dec. 5, 1967 for installments up to Sept. 1967.
 On May 10, 1973, or almost 6 yrs, the priv. respondent wrote petitioner offering to update all
his overdue accounts w/ interest and seeking its written consent to the assignment of his
rights.
o The petitioners, however, informed the respondent that the Contract to Sell had
long been rescinded, pursuant to par. 6 of the contract.
 NHA RULING: Priv. respondent went to the National Housing Authority for reconveyance
with an alternative prayer for refund.
o The NHA, finds the rescission void in the absence of either judicial or notarial
demand.
o NHA ordered the petitioner to refund immediately the amount of P13,722.5 w
12% interest from the filing of the complaint on Nov. 8, 1974.
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 o Petitioners’ filed motion for reconsideration but was denied.
ISSUE
(1) WON demand or written notice is necessary to rescind a contract
HELD/RATIO
(1) YES. A written notice is mandatory to rescind a contract.
 As held in previous jurisprudence, the judicial action for the rescission of a contract is
not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions.
o However, even in the cited cases, there was at least a written notice sent to
the defaulter informing him of the rescission. A written notice is
indispensable to inform the defaulter of the rescission.
o Hence, the resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution (as
held in the U.P. vs. Angeles case).
 RA 6551 also provides and emphasizes the indispensability of notice of cancellation to
the buyer.
 In the case at hand, there was no waiver on the part of the private respondent of his
right to be notified under paragraph 6 of the contract since it was a contract of
adhesion, a standard form of petitioner corporation, and private respondent had no
freedom to stipulate. Finally, it is a matter of public policy to protect buyers of real
estate on instalment payments against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to buyers of real estate on
instalment payments
 As a consequence of the resolution by petitioners, rights to the lot should be restored
to private respondent or the same should be replaced by another acceptable lot but
since the property had already been sold to a third person and there is no evidence on
record that other lots are still available, private respondent is entitled to the refund of
instalments paid plus interest at the legal rate of 12% computed from the date of the
institution of the action. It would be most inequitable if petitioners were to be allowed to
retain private respondent's payments and at the same time appropriate the proceeds
of the second sale to another.
15 ROMAN v CA
GR NO. L-37976
July 16, 1985
By: Gayares
Topic: Different kinds of obligations; pure and conditional obligations; obligations with a period;
alternative obligations.
Petitioners: Pablo Roman
Respondents: Court of Appeals and Pablo Sarangaya
Ponente: Melencio-Herrera, J.
RECIT-READY/SUMMARY: Sarangaya sold land to Roman, Belgica, and Yangco under the
following conditions: (1) Sarangaya must secure the land titles within one year; (2) Within 60 days
from the issuance of the titles, buyers must pay the price of P116,243.00 to Sarangaya; and (3) if
the buyers cannot comply, the buyers would be jointly liable for liquidated damages of P50k or
P16,666.00 each. Sarangaya got the titles within a year and the buyers failed to pay him. Roman
proposed a compromise agreement but upon proposal of Sarangaya, the former denied the latter.
RTC ruled that Roman must pay Sarangaya for the forced sale of the land, which is pretty much the
same compromise agreement they proposed to each other and rejected. Hence, the trial court
erred.
DOCTRINE:
Adjudication of a controversy is not proper where both parties have not accepted the stipulations in a
compromise agreement as a final settlement.
FACTS:
 A contract to sell and to buy was established, covering five (5) parcels of land situated in
Barrio Dolores, Taytay, Rizal. It was executed between Pablo Sarangaya, as the seller, and
Pablo Roman, Porfirio Belgica and Emilio Yangco, as the buyers.
 The contract provided the following stipulations:
1. That Sarangaya must, within one year from the date thereof, be able to secure
the titles to the lands in his name, otherwise, the buyers would be relieved from
buying the same;
2. That within 60 days from the issuance of the titles, the buyers would pay
Sarangaya the total purchase price of P116,243.00;
3. In the event of failure to comply with this condition, the buyers would be jointly
liable to Sarangaya for liquidated damages in the sum of P50k (or P16,666.00 for
each).
 Sarangaya obtained titles to the land in his name within the one-year period and buyer
Belgica received the notice a week later.
 As the contract between the parties stipulated that notice served on any of the three sellers
shall be notice to all of them, the sellers became obligated to pay the agreed purchase price
of P116,243.00 or the liquidated damages of P50k .
 Sarangaya filed a suit against them for the recovery of the liquidated damages, costs of suit,
and P5k as attorney's fees since they have defaulted in their payments. Sarangaya's
complaint was predicated on the implicit or tacit rescission of the reciprocal obligations to
sell and to buy.
 RTC: Belgica and Yangco are declared to be in default. Roman is also in default after failing
to appear at the trial. The vendees must pay the plaintiff P50k as liquidated damages and
P1k as attorney’s fees.
 Roman filed a MR, praying that he be granted more time to make payments. Sarangaya and
Roman then made a compromise agreement as the latter proposed to purchase the entire
property in cash in the original price of P1 per square meter, which would amount to
P116,243.00.
 Sarangaya accepted the offer provided that Roman pay legal costs and attorney’s fees;
interest at the legal rate starting October 12, 1968, which is the last day to set purchase and
pay the property in question; and documentarily stamps plus registration fees of the deed of
sale.
 The counter proposal was denied by Roman and was no longer agreeable to settle the
matter.
 RTC: MR granted; Roman is ordered to pay Sarangaya upon execution and registration of
the deed of absolute sale over the lands at the original price together with the legal cost and
attorney’s fees, as well as the legal interest rate from October 12, 1958, and the
documentary stamps and registration fees of the deed of sale.
 CA: Reversed the decision and ordered Roman to pay Sarangaya P16,666 with interest at
the legal rate from the filing of the complaint until fully paid.
ISSUE:
W/N the trial court erred in a decision whereby such order was an approval of a compromise
agreement, which was never accepted by both parties?
HELD/RATIO:
YES – The decision of the lower court was erroneous due to the following reasons:
1. Considering that they subsequently abandoned the settlement offer and counter-offer of the
parties, the adjudication of the controversy between Sarangaya and Roman on the basis of
those offer and counter-offer was improper. Hence, the judgment was not a resolution of the
issues.
2. Even if the complaint was for rescission and damages under Art. 1191, the trial court did not
fix a period and have no just cause of a requirement in the law for fixing a period because
what Roman should have done was to pay Sarangaya within 60 days after service of
summons to comply with his 60 day obligation to pay.
Adjudication of a controversy is not proper where both parties have not accepted the stipulations in a
compromise agreement as a final settlement. Therefore, with the decision of the lower court erroneous,
there is no valid reason to set aside the judgment of the CA.
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Wherefore, the petition for review on certiorari filed is hereby denied with costs against the petitioner.
16. GREGORIO ARANETA, INC. v. PHIL. SUGAR ESTATES DEVELOPMENT CO.
GR NO. L-22558
MAY 31, 1967
By: CHESKA DOMINGUEZ
Topic: DIFFERENT KINDS OF OBLIGATION; PURE AND CONDITIONAL OBLIGATIONS;
OBLIGATIONS WITH A PERIOD; ALTERNATIVE OBLIGATION
Petitioners: GREGORIO ARANETA, INC
Respondents: THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
Ponente: REYES, J.B.L., J
RECIT-READY/SUMMARY: Under the contract, petitioner herein has to construct a street but it
failed to do so because of the squatters. And so, respondent herein, after complying with its
obligation to construct a church, filed a complaint for non-performance against the petitioner.
Petitioner argued that there was no period specified in the contract. The CFI and CA set the period
to two years. Petitioner appealed to the SC. It ruled that the period must be in accordance with what
was probably contemplated by the parties. In this case, the parties must have intended to defer the
performance of the obligation until the squatters were duly evicted.
DOCTRINE: The period designated by the court must be in accordance with what was probably
contemplated by the parties in the contract.
FACTS
 J.M. Tuason & Co., Inc. is the owner of Sta. Mesa Heights Subdivision covered by a Torrens
title. Through the petitioner, it sold a portion of its land to the respondent.
o 43,034.4 square meters for P430,514
 In the Contract of Purchase and Sale with Mortgage, it provided that the buyer will build Sto.
Domingo church and convent while the seller will construct streets around it. The street on
the NE side shall be named Sto. Domingo Avenue.
 The respondent as the buyer finished the construction of the church and convent, but the
seller was unable to finish the construction of Sto. Domingo Ave. since a certain Manuel
Abundo, who has been occupying the middle of the NE side, refused to vacate.
 And so, respondent filed a complaint against J.M. Tuason & Co., Inc. and Gregorio Araneta
Inc. with CFI seeking to compel the latter to comply with their obligation, and/or pay
damages in the event they failed or refused to perform obligation.
 Defendants therein argued that the action was premature since its obligation to construct
the streets was without a definite period which needs to be fixed first by the court in a
different and proper suit.
 The trial court dismissed the complaint and favored the defendants.
 The complainant therein filed a MR praying that the court fix a period within which the
defendants will comply with their obligation.
 Defendant Gregorio Araneta Inc. opposed said motion since the complaint was not
regarding the fixing of the period and that the evidence presented during trial was
insufficient to warrant the fixing of period.
 The trial court granted the MR of the complainant ruling that the proven facts precisely
warrant the fixing of such a period, and set the period to two years.
 Defendant Gregorio Araneta Inc. filed a MR but was denied. It appealed to the CA which
sustained the decision of the trial court. Hence, this petition.
ISSUE
(1) WON the fixing of period by the lower courts is valid
HELD/RATIO
(1) NO. The SC reversed the decision of the lower courts.
 Under NCC 1197, if the contract does not provide for a specific period, the court must
determine whether or not the obligation requires a period. When the facts and
circumstances provide that it so requires, then the court can fix a period which must be in
accordance with what was probably contemplated by the parties.
 In this case, there was no circumstances mentioned to support the two-year period set by
the lower courts.
 The parties were aware that the property was occupied by squatters. They must have
known that they have to resort to legal processes in evicting the squatters. Thus, according
to the SC, the parties must have intended to defer the performance of the obligations under
the contract until the squatters were duly evicted. Petitioner herein wins the case.
Ace-Agro Dev’t Corp. v. CA
GR 119729 Jan. 21, 1997
Topic: Suspension of contract during force majeure
By: Madrid
Petitioner: Ace-Agro Development Corp.
Respondent: CA and Cosmos Bottling Corp.
Doctrine:
In the event of force majeure, the contract shall be deemed suspended during the said
period. However, no party shall be compelled to perform his obligation after the expiration of his
contract in order to compensate for the period of suspension of work during the happening of the
fortuitous event.
Summary:
So ang nangyare dito is si Ace-Agro and si Cosmos nag karoon ng contract. Cosmos will
hire Ace-Agro for cleaning services of soft drink bottles and wooden shells. It should be noted here na
ang place of work ni Ace-Agro ay sa loob ng factory ni Cosmos. Ngayon, nag karoon ng sunog sa
factory and sa sobrang swerte ni Ace-Agro, nadamay yung area of work niya so nasunog yung mga
soft drink bottles and wooden shells. Ngayon si Cosmos, since nasunog rin lang naman yung mga
dapat itrabaho ni Ace-Agro, ang ginawa ni Cosmos tinermenate niya yung contract because of force
majeure. However, dahil sa kakulitan ni Ace-Agro, si Cosmos pumayag siyang balikin si Ace-Agro pero
ang condition is sa labas na siya ng factory tatrabaho. Eh ngayon, ayaw ni Ace-Agro kasi dadagdag pa
raw gasto nila sa transpo. Ngayon pinabigyan naman ni Cosmos, dun nalang raw ulit si Ace-Agro mag
trabaho sa loob ng factory. Eh medyo matampuhin si Ace-Agro, kaya ayaw niya pa rin pero ang reason
niya is may pending case raw kasi yung mga empleyado niya sakanya and kay Cosmos. Ngayon si
Ace-Agro nag file na rin ng case. Sinasabi niya na nagkaroon raw ng breach of contract si Cosmos.
Sabi ng SC hindi naman daw. In fact, nag magandang loob pa nga si Cosmos na balikin si Ace-Agro
eh. Dito rin nalaman ng SC na ang real reason kung bakit ni reject ni Ace-Agro yung 2nd offer ni
Cosmos is kasi gusto nila ma extend yung contract nila kasi diba nawalan sila ng trabaho for ilang
months because of the fire, gusto nila icompensate yun by extending the contract kasi nung dapat mag
reresume na sana sila ng trabaho, 2 months nalang yung contract. Eh sabi ng SC bawal raw yun (refer
nalang kayo sa doctrine for the reason kung bakit haha).
Facts:
-Ace-Agro and Cosmos are corporations.
-Cosmos is engaged in manufacture of soft drinks and Ace-Agro is engaged in cleaning soft drink
bottles and repairing wooden shells for Cosmos (since 1979) in San Fernando, Pampanga. The
service contract is renewed every year. On Jan. 18, 1990, they signed a contract covering from Jan. 1,
1990 to Dec. 31, 1990.
-April 1990: fire broke out in respondent’s plant destroying the area of the petitioner did
its work and as a result, petitioner’s work stopped.
-Petitioner asked the latter to resume its service, but during the fire, old bottles and
wooden shells was destroyed by the fire. Thus terminating their contract and in effect,
unemployment rate of their corp went up.
-Petitioner sent a memorandum to all workers/union members terminating their employment.
-The employees then filed a case for illegal dismissal against petitioner and respondent at the Labor
Arbiter.
-Respondent decided to resume the contract with the condition that it should be done
outside of the premises, but was declined by the petitioner as it will cost
additional costs like transportation.
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-Another letter was then made by private respondent to petitioner stating that they can work
inside the premises again in accordance with the original contract.
-Petitioner still refused saying that it cannot resume work since there was a pending case against them
in the NLRC.
-Petitioner then filed a case for breach of contract and damages against Cosmos at the RTC.
-Labor Case: petitioner liable for the claims of its employee (reinstate and backwages)
-RTC: Respondent is guilty of breach of contract and pay petitioner (back wages, damages)
-CA: Dismissed the petitioner’s complaint since it was petitioner who refused to work after failing to
secure an extension of the contract.

Issue:
WON private respondent is guilty of breach of contract.

Held:
No. There was no breach of contract committed by private respondent.

Ratio:
-No breach of contract committed.
-Nonetheless, private respondent even reconsidered its decision to terminate the contract and tried to
accommodate the request of the petitioner when it sent them a letter that they can resume work inside
the premises
-However, petitioner unjustifiably refused the offer because it wanted an extension of the contract
to make up for the period of inactivity.
-The Court of Appeals was right that petitioner had no basis for refusing private respondents offer
unless petitioner was allowed to carry out its work in the company premises.
-Although it cited the pending labor case as reason for turning down private respondents offer, it would
appear that the real reason for petitioners refusal was the fact that the term of the contract was
expiring in two months and its request for an extension was not granted. But, as the appellate
court correctly ruled, the suspension of work under the contract was brought about by force majeure.
Therefore, the period during which work was suspended did not justify an extension of the term of the
contract.
-As already stated, because the suspension of work was due to force majeure, there was no
justification for petitioners demand for an extension of the terms of the contract. Private respondent
was justified in insisting that after the expiration of the contract, the parties must negotiate a new one
as they had done every year since the start of their business relations in 1979.

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