EDS MANUFACTURING INC v HEALTHCHECK INT’L INC FACTS:

• Healthcheck Inc. a 1-lcalth Maintenance Organization HMO) entered into a one-year contract with DLSUMC in which HCI was
to provide the employees of EMI and their dependents as host of medical services and benefits

• Only two months into the program, problems began. HCI notified EMI that its accreditation with DLSUMC was suspended and
advised it to avail of the services of nearby accredited institutions.

• Although HCI had yet to settle its accounts with it, DLSUMC resumed services. Despite this commitment, HCI failed to preserve
its credit standing

with DLSUMC prompting the latter to suspend its accreditation for a second time. A third suspension was still to follow on and
remained in force until the end of the contract period.

• Complaints from EMI employees and workers were pouring in that their HMO cards were not being honored by the DLSUMC
and other hospitals and physicians. EMI formally notified HCI that it was rescinding their April 1998 Agreement on account of
HCI’s serious and repeated breach of its undertaking including but not limited to the unjustified non-availability of services. It
demanded a return of premium for the unused period in the cost of P6 million.

• What went in the way of the rescission of the contract, was the failure of EMI to collect all the HMO cards of the employees and
surrender them to HCI as stipulated in the Agreement. HCI had to tell EMI on that its employees were still utilizing the cards even
beyond the pretermination date set by EMI. It asked for the surrender of the cards so that it could process the pretermination of
the contract and finalize the reconciliation of accounts.

• Without responding to this reminder, EMI sent HCI two letters demanding for the payment ofP5,884,205 as the 2/3 portion of
the premium that remained unutilized after the Agreement was rescinded in the previous September.

• HCI pre-empted EMI’s threat of legal action by instituting the present case before the Regional Trial Court of Pasig. The cause
of action it presented was the unlawful pretermination of the contract and failure of EMI to submit to a joint reconciliation of
accounts and deliver such assets as properly belonged to HCI.

• EMI responded with an answer alleging that HCI reneged on its duty to provide adequate medical coverage after EMI paid the
premium in full. Having rescinded the contract, it claimed that it was entitled to the unutilized portion of the premium, and that the
accounting required by HCI could not be undertaken until it submitted the monthly utilization reports mentioned in the Agreement.

• RTC: The court ruled in favor of HCI. It found that EMI’s rescission of the Agreement was not done through court action or by a
notarial act and was based on casual or slight breaches of the contract. Moreover, despite the announced rescission, the
employees of EMI continued to avail of HCI’s services.
• CA: Reversed the decision of the RTC and ruled that although Healthcheck International, (HCI) substantially breached their
agreement, it also appears that Eds Manufacturing, Inc. (EMI) did not validly rescind the contract between them. Thus, the CA
dismissed the complaint filed by HCI, while at the same time dismissing the counterclaim filed by EMI.

• EMI filed a Motion for Partial Reconsideration against said decision. However, the same was denied in a Resolution dated
March 16, 2004.
ISSUE: W/O/N There was a valid rescission of the agreement of the parties
RULING:

We rule in the negative.

First, Article 1191 of the Civil Code states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
The general rule is that rescission (more appropriately, resolution ) of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.
Thus, the rescission referred to in Article 1191, more appropriately referred to as resolution, is on the breach of faith by one of the
parties which is violative of the reciprocity between them.
In the present case, it is apparent that HCI violated its contract with EMI to provide medical service to its employees in a
substantial way. As aptly found by the CA, the various reports made by the EMI employees from July to August 1998 are living
testaments to the gross denial of services to them at a time when the delivery was crucial to their health and lives.

However, although a ground exists to validly rescind the contract between the parties, it appears that EMI failed to judicially
rescind the same. In Iringan v. Court of Appeals, this Court reiterated the rule that in the absence of a stipulation, a party cannot
unilaterally and extrajudicially rescind a contract. A judicial or notarial act is necessary before a valid rescission (or resolution)
can take place. Thus –

Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has
been stipulated. It is to be noted that the law uses the phrase "even though" emphasizing that when no stipulation is found on
automatic rescission, the judicial or notarial requirement still applies.
xxxx

But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v.
Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is deemed
implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially.
The same article also provides: "The Court shall decree the resolution demanded, unless there should be grounds which justify
the allowance of a term for the performance of the obligation."

This requirement has been retained in the third paragraph of Article 1191, which states that "the court shall decree the rescission
claimed, unless there be just cause authorizing the fixing of a period."

Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the
failure of the other party to comply with what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised solely on a party’s
own judgment that the other committed a breach of the obligation. The operative act which produces the resolution of the
contract is the decree of the court and not the mere act of the vendor. Since a judicial or notarial act is required by law for a valid
rescission to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the
contract.

What is more, it is evident that EMI had not rescinded the contract at all. As observed by the CA, despite EMI s pronouncement, it
failed to surrender the HMO cards of its employees although this was required by the Agreement, and allowed them to continue
using them beyond the date of the rescission. The in-patient and the out-patient utilization reports submitted by 1 ICI shows
entries as late as March 1999, signifying that EMI employees 1 were availing of the services until the contract period were almost
over. The continued use by them of their privileges under the contract, with the apparent consent of EMI, belies any intention to
cancel or rescind it, even as they felt that they ought to have received more than what they got.

HEIRS OF SOFIA QUIRONG, Represented by ROMEO P.QUIRONG,

Petitioners, Present:Carpio, J.,Chairperson,-versus- Leonardo-De Castro,Brion,Peralta,* and Abad, JJ. DEVELOPMENT
BANK OF THE PHILIPPINES, Promulgated: Respondent.
G.R. No. 173441 December 3, 2009
A. FACTS
When the late Emilio Dalope died, he left a 589-square meter untitled lot in Sta. Barbara, Pangasinan, to his wife, Felisa
Dalope (Felisa) and their nine children, one of whom was Rosa Dalope-Funcion. To enable Rosa and her husband Antonio
Funcion (the Funcions) get a loan from respondent Development Bank of the Philippines (DBP), Felisa sold the whole lot to the
Funcions. With the deed of sale in their favor and the tax declaration transferred in their names, the Funcions mortgaged the lot
with the DBP. On February 12, 1979, after the Funcions failed to pay their loan, the DBP foreclosed the mortgage on the lot and
consolidated ownership in its name on June 17, 1981.But, because the heirs failed to file a formal offer of evidence, the trial court
did not rule on the merits of their claim to the lot and, alternatively, to relief from the DBP. On December 16, 1992 the RTC
rendered a decision, declaring the DBPs sale to Sofia Quirong valid only with respect to the shares of Felisa and Rosa Funcion in
the property. It declared Felisas sale to the Funcions, the latters mortgage to the DBP, and the latters sale to Sofia Quirong void
insofar as they prejudiced the shares of the eight other children of Emilio and Felisa who were each entitled to a tenth share in the
subject lot. But the DBP failed to appeal supposedly because of excusable negligence and the withdrawal of its previous counsel
of record. On June 14, 2004, after hearing the case, the RTC rendered a decision rescinding the sale between Sofia Quirong and
the DBP and ordering the latter to return to the Quirong heirs the P78,000.00 Sofia Quirong paid the bank. On appeal by the DBP,
the Court of Appeals (CA) reversed the RTC decision and dismissed the heirs action on the ground of prescription. The CA
concluded that, reckoned from the finality of the December 16, 1992 decision in Civil Case D-7159, the complaint filed on June 10,
1998 was already barred by the four-year prescriptive period under Article 1389 of the Civil Code. The Quirong heirs filed a motion
for reconsideration of the decision but the appellate court denied it, thus, this petition.
B. ISSUES
In the negative, whether or not the heirs of Quirong were entitled to the rescission of the DBPs sale of the subject lot to the
late Sofia Quirong as a consequence of her heirs having been evicted from it.
C. RULING OF THE COURT
 With the conclusion that the Court has reached respecting the first issue presented in this case, it would serve no useful
purpose for it to further consider the issue of whether or not the heirs of Quirong would have been entitled to the rescission of the
DBPs sale of the subject lot to Sofia Quirong as a consequence of her heirs having been evicted from it. As the Court has ruled
above, their action was barred by prescription. The CA acted correctly in reversing the RTC decision and dismissing their action.
Parenthetically, the Quirong heirs were allowed by the RTC to intervene in the original action for annulment of sale in Civil Case
D-7159 that the Dalopes filed against the DBP and the Funcions. Not only did the heirs intervene in defense of the sale, they
likewise filed a cross claim against the DBP. And they were apparently heard on their defense and cross claim but the RTC did not
adjudicate their claim for the reason that they failed to make a formal offer of their documentary exhibits. Yet, they did not appeal
from this omission or from the judgment of the RTC, annulling the DBPs sale of the subject lot to Sofia Quirong. This point is of
course entirely academic but it shows that the Quirong heirs have themselves to blame for the loss of whatever right they may
have in the case.

WHEREFORE, the Court DENIES the petition and AFFIRMS the November 30, 2005 decision of the Court of Appeals in
CA-G.R. CV 83897.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES

FACTS:

On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted exclusive authority to
cut, collect and remove timber from the Land Grant for a period starting from the date of agreement to December 31, 1965,
extendible for a period of 5 years by mutual agreement.

On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands, ALUMCO still failed to
pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an instrument entitled
“Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president of UP, which stipulated the
following:

3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance outstanding
after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965.

5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that Creditor shall
have the right to consider the Logging Agreement rescinded, without the necessity of any judicial suit…

ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP informed ALUMCO that it
had, as of that date, considered rescinded and of no further legal effect the logging agreement, and that UP had already taken
steps to have another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin UP from conducting the
bidding. The lower court ruled in favor of ALUMCO, hence, this appeal.

ISSUE:

Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to
that effect?

RULING:

Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right and the power
to consider the Logging Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs. Pan Oriental
Shipping Co:

“There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.”

ANGELES VS. CALASANZ

135 SCRA 323

FACTS:
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest
per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay
the balance in monthly installments of P41.20 until fully paid, the installment being due and payable on the 19th day of each
month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to
P4,533.38.

On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the remittance of past due
accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs failed to meet
subsequent payments. The plaintiffs’ letter with their plea for reconsideration of the said cancellation was denied by the
defendants.

The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in their favor the final
deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they
have already paid the total amount including interests, realty taxes and incidental expenses. The defendants alleged in their
answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay monthly
installments corresponding to the month of August, 1966 for more than 5 months, thereby constraining the defendants to cancel
the said contract.

The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal.

ISSUE:

Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants?

RULING:

No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum of P3,920 plus 7%
interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to the buyer upon payment of the
said price.

The contract to sell, being a contract of adhesion, must be construed against the party causing it. The Supreme Court agree with
the observation of the plaintiffs-appellees to the effect that the terms of a contract must be interpreted against the party who
drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which, in essence, and its entirety is most unfair to the buyers.

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an
aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the
cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendant must
immediately execute the final deed of sale in favor of the plaintiffs and execute the necessary transfer of documents, as provided
in par.12 of the contract.

Iringan v. Court of Appeals

G.R. No. 129107, September 26, 2001, 366 SCRA 41

FACTS:

Private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of the Tuguegarao
Cadastre, located at the Poblacion of Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed
a Deed of Sale] on the same date with the purchase price of P295,000.00,payable as follows:(a) P10,000.00 upon the execution
of this instrument ;(b) P140,000.00 on or before April 30, 1985;(c) P145,000.00 on or before December 31, 1985.

When the second payment was due, Iringan paid only P40,000. Thus, Palao sent a letter to Iringan stating that he considered the
contract as rescinded and that he would not accept any further payment considering that Iringan failed to comply with his
obligation to pay the full amount of the second installment. Iringan through his counsel Atty. Hilarion L. Aquino, replied that they
were not opposing the revocation of the Deed of Sale but asked for the reimbursement of the following amounts:(a) P50,000.00
cash received;(b) P3,200.00 geodetic engineers fee;(c) P500.00 attorneys fee;(d) the current interest on P53,700.00. In
response, Palao sent a letter dated January 10, 1986 to Atty. Aquino, stating that he was not amenable to the reimbursements
claimed by Iringan.

On February 21, 1989, Iringan, now represented by a new counsel Atty. Carmelo Z. Lasam, proposed that the P50,000 which he
had already paid Palao be reimbursed or Palao could sell to Iringan, an equivalent portion of the land. Palao instead wrote
Iringan that the latters standing obligation had reached P61,600, representing payment of arrears for rentals from October 1985
up to March 1989.[9] The parties failed to arrive at an agreement. On July 1, 1991, Palao filed a Complaint[10] for Judicial
Confirmation of Rescission of Contract and Damages against Iringan and his wife.

ISSUE:

Whether or not the contract of sale was validly rescinded.

RULING:

Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable property. Article 1592. In the sale of
immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial act.After the demand, the court
may not grant him a new term. Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve
the contract.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.

But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v.
Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is
deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked
judicially. The same article also provides: The Court shall decree the resolution demanded, unless there should be grounds,
which justify the allowance of a term for the performance of the obligation. This requirement has been retained in the third
paragraph of Article 1191, which states that the court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the
failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a
decree of rescission.The right cannot be exercised solely on a party’s own judgment that the other committed a breach of the
obligation.The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the
vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent
declaring his intention to rescind did not operate to validly rescind the contract.

Velarde vs. Court of Appeals (361 SCRA 57)

14JAN

FACTS:
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.

ISSUE:
Whether or not there is a substantial breach of contract that would entitle its rescission.

RULING:
YES. 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.

Velarde vs. Court of Appeals

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). A Deed 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 Philippine Islands. 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: Whether the rescission of contract made by the private respondent is valid.

Held: There is a breach of contract because the petitioners did not merely stopped paying the mortgage obligations but they also
failed to pay the balance purchase price. Their conditional offer to Mr. Raymundo cannot take the place of actual payment as
would discharge the obligation of the buyer under contract of sale.

Mr. Raymundo’s source of right to rescind the contract is Art. 1191 of the Civil Code predicated on a breach of faith by the other
party who violates the reciprocity between them. Moreover, the new obligations as preconditions to the performance of the
petitioners’ own obligation were repudiation of an existing obligation, which was legally due and demandable under the contract
of sale.

The breach committed by the petitioners was the non-performance of a reciprocal obligation. The mutual restitution is required to
bring back the parties to their original situation prior to the inception of the contract. The initial payment and the mortgage
payments advanced by petitioners should be returned by private respondents, lest the latter unjustly enriched at the expense of
the other. Rescission creates the obligation to return the obligation of contract. To rescind, is to declare a contract void at its
inception and to put an end to it as though it never was.

The decision of the CA is affirmed with modification that private respondents are ordered to return to petitioners, the amount they
have received in advanced payment

Maglasang v. Northwestern University

In compliance with the CHED’s requirement before a school could offer maritime transportation programs, on June 10, 2004,
Northwestern University (Northwestern), respondent, engaged the services of GL enterprises, petitioner, to install a new
Integrated Bridge System or IBS. The parties executed two contracts. Two months after the execution of the contracts, GL
Enterprises started delivering materials. However, when they were installing the components, Northwestern halted the
operations. GL enterprises requested for an explanation. Northwestern explained that the stoppage was because the materials
and equipment were substandard. It explained that the components (1)were old; (2) did not have manual and warranty
certificates; (3) contained indications of being reconditioned machines; (4) did not meet with CHED and IMO standards. GL
enterprises file a complaint for breach of contract. The RTC rendered a decision that both parties are at fault. However, the CA,
found that GL enterprises was the only at fault, for delivering defective equipment that materially and substantially breached the
contracts. Applying Article 1191 of the Civil Code, the CA declared the rescission of the contracts.

Issue: Whether the CA gravely erred in (1) finding substantial breach on the part of GL enterprises.

Held: The Supreme Court said that, the CA correctly applied Article 1191, which provides thus: The power to rescind obligations
is implied in reciprocal ones, in case 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 rescission becomes impossible. The court shall decree the rescission,
unless there be just cause authorizing the fixing of a period. The Supreme Court said that the two contracts require substantial
breach. Then, it went also to cite the definition, in the case of Cannu v. Galang, that substantial breach are fundamental breaches
that defeat the object of the parties entering into an agreement, since the law is not concerned with trifles. In the case at hand, it
was incumbent upon GL enterprises to supply components that would create an IBS that would effectively facilitate the learning
of the students. However, it miserably failed it meetings its responsibility. It supplied substandard equipment when it delivered
components (1) were old; (2) did not have manual and warranty certificates; (3) contained indications of being reconditioned
machines; (4) did not meet with CHED and IMO standards. Also, GL enterprises did not also refute that it delivered defective
equipment. Evidently, the materials were not likely to pass the CHED and IMO standards.

The Supreme affirmed in toto the decision of the Court of Appeals

Ponce De Leon vs. Syjuco G.R. L-3316

Facts: The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31, 1944, another loan of
P16,000, payable within one year from May 5, 1948." On November 15, 1944, the plaintiff offered to pay the entire indebtedness
plus all the interest up to the date of maturity. Upon Syjuco's refusal to accept the tendered payment, the plaintiff deposited the
amount with the clerk of the Court of First Instance of Manila and instituted the present action to compel Syjuco to accept
payment. The records of the case were destroyed during the war, but they were duly reconstituted after the liberation.

The trial court sentenced the plaintiff to pay Syjuco the defendant the sum of P18,000 as principal and the further sum of P5,130
as interest thereon from August 6, 1944, to May 5, 1949, or total sum of P23,130, representing the whole indebtedness plus all
the interest from August 6, 1944, to May 5, 1949, computed according to the Ballantyne scale of values, with interest thereon at
the rate of 6% per annum from May 6, 1949, until said amount is paid in full, with costs against the plaintiff. From this judgment
Syjuco has appealed, claiming his right to be paid the sum of P216,000, actual Philippine currency, plus P200,000, as penalty
agreed upon in the contract.

Issue: Whether or not the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon in the
two promissory notes signed by the plaintiff?
Held: The Supreme Court held in the negative. In order that consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the
obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was
absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3)
that previous notice of the consignation have been given to the person interested in the performance of the obligation (Art. 1177,
Civil Code); (4)that the amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the
consignation had been made the person interested was notified thereof (Art. 1178,Civil Code).

While it is admitted a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the
filing of the complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation
to the creditor, nevertheless, it appears that at least two of the above requirements have not been complied with. Thus, it appears
that plaintiff, before making the consignation with the clerk of the court, failed to give previous notice thereof to the person
interested in the performance of the obligation. It also appears that the obligation was not yet due and demandable when the
money was consigned, because, as already stated, by the very express provisions of the document evidencing the same, the
obligation was to be paid within one year after May 5,1948, and the consignation was made before this period matured. The
failure of these two requirements is enough ground to render the consignation ineffective. And it cannot be contended that
plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of
its maturity, because, under the law, in a monetary obligation contracted with a period, the presumption is that the same is
deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other circumstances it appears that
the period has been established for the benefit of either one of them

Buce vs. CA/Tiongco GR

MARIA LACHICA VS. GREGORIO ARANETA

47 OG 5699 August 19, 1949

FACTS:

Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land with the improvements thereon. This
property was bought by Investment Corporation through Maria Lachica, the wife of the Esteban Sadang who was sales agent of
defendant corporation.

The terms of the contract stated that the price was P20,000, of which P8,000 was to be paid in cash and the balance of P12,000
in installments of –

P 1,000 on or before December 31, 1943

P 1,000 on or before December 31, 1944

P 10,000 on or before December 31, 1945.

What the parties signed was a contract of exact content as stated, which however omitted the words “or before.” Thus, it would
appear that the payment of the installments would be “on” and not “on or before” the dates as specified.

The contract further added that “this same property will be mortgaged to us to guarantee the unpaid balance, and the same will
bear an interest of 8 percent per annum; said interest to be paid monthly in advance.”

The terms were complied with, together with some resolved differences, until on Sept. 5, 1944, plaintiff Sadang went to see
Araneta to pay the entire balance, including the interest thereon and ask for the cancellation of the mortgage, but Araneta
refused to accept the tender of payment. Araneta gave as his reason for his non-acceptance that such payment was not in
accordance with the terms of the deed of sale with mortgage.

Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta with the CFI of Manila by way of
consignation, and at the same time presented the complaint.

The defendant alleges that payment should be on the date specified, not before; the plaintiffs claim that such payment may be
made on or before the date specified.

ISSUE:

Should Araneta be compelled to accept the payment?

RULING:
Yes. The contract does not prohibit if it is done before (p.5706, no. 2). A term is fixed and “it is presumed to have been
established for the benefit of the creditor as sell as that of the debtor, unless from its tenor or from other circumstances it should
appear that the terms as established for the benefit of one or the other.” (Art. 1127, now 1196 Civil Code). And the contract
specifically provides that “these periods of payment have been agreed for the benefit of the vendor and the vendee.” Such
mutual benefit has been interpreted to consist of the time granted a debtor to find means to comply with his obligation, and the
fruits, such as interest, accruing to the creditor.

From the SC decision in Villaseñor vs. Javellana, the only impediment to a debtor making payment before the term fixed, is the
denial to the creditor of the benefits, such as interests, accruing to the later by reason of the fixed term. This, coupled with the
fact that the contract did not prohibit payment before the fixed date, justifies the conclusion that under the terms signed, plaintiffs
could do so. To hold otherwise, would be virtually compelling an obligor to assume an obligation later when he offers to, and
could very well, discharge it earlier. The law should not be interpreted as to compel a debtor to remain so, when he is in a
position to release himself.

Further, the acceleration clause in the contract signed by the parties state that “in the event of defaults in payment of any amount
due, either for capital or interest, the whole balance shall automatically become due and payable, and the vendor shall have the
right to foreclose the mortgage in its entirety.” While the clause is standard one contained in most mortgage deeds where the
mortgage loan is payable in several installments, still we cannot escape the conclusion, derived from the clause itself, that
payments may be made by the vendee before the dates stated in the contract .

PONCE DE LEON VS SYJUCO

FACTS :

The appellee, Philippine National Bank, was the owner of two parcels of land in Negros Occidental. On March 9, 1936 the
Bank executed a contract to sell the said properties to Jose Ponce de Leon for the total price of P26,300.

Subsequently, Ponce de Leon obtained a loan from Santiago Syjuco, Inc in the amount of P200,000 in Japanese Military
Notes, payable within one (1) year from May 5, 1948. It was also provided that the Ponce de Leon could not pay, and Syjuco
could not demand, the payment of said note except within the aforementioned period. To secure the payment of said obligation,
Ponce de Leon mortgaged the parcels of land which he agreed to purchase from the Bank. Using the loan, Ponce de Leon was
able to pay the Bank and a deed of absolute sale was executed in his name.

Ponce de Leon further obtained an additional loan from Syjuco. On several occasions in October, 1944, Ponce de Leon
tendered to Syjuco the amount of P254,880 in Japanese military notes in full payment of his indebtedness which was refused by
Syjuco which Ponce de Leon deposited with the Clerk of Court of the CFI. He then filed a petition with the CFI for the
reconstitution of transfer of the certificates of the lot in the name of the Bank which was granted by the court. Syjuco filed a
second amended answer to Ponce de Leon's complaint claiming that Ponce de Leon, by reconstituting the titles in the name of
the Bank, by causing the Register of Deeds to have the said titles transferred in his name, and by subsequently mortgaging the
said properties to the Bank as a guaranty for his overdraft account, had violated the conditions of the morgage which Ponce de
Leon has executed in its favor during the Japanese occupation. Syjuco prayed that the mortgage executed by Ponce de Leon in
favor of the Bank be declared null and void.

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint and
condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate from May 6, 1949, until fully
paid

ISSUE :

Is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon in the two promissory
notes signed by the plaintiff?

RULING :

No. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law.
The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the
creditor to whom tender of payment was made refused to accept it, or because he was absent for incapacitated, or because
several persons claimed to be entitled to receive the amount due (Art. 1176); (3) that previous notice of the consignation have
been given to the person interested in the performance of the obligation (Art. 1177); (4) that the amount due was placed at the
disposal of the court (Art 1178); and (5) that after the consignation had been made the person interested was notified thereof (Art.
1178). In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal of the
creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be considered
sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the above requirements have not
been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the court, failed to give
previous notice thereof to the person interested in the performance of the obligation. It also appears that the obligation was not
yet due and demandable when the money was consigned, because, as already stated, by the very express provisions of the
document evidencing the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was made
before this period matured. The failure of these two requirements is enough ground to render the consignation ineffective. And it
cannot be contended that plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the
interests due up to the date of its maturity, because, under the law, in a monetary obligation contracted with a period, the
presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other
circumstances it appears that the period has been established for the benefit of either one of them (Art. 1127). Here no such
exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation
because the debtor has offered to pay all the interests up to the date it would become due, but this argument loses force if we
consider that the payment of interests is not the only reason why a creditor cannot be forced to accept payment contrary to the
stipulation. There are other reasons why this cannot be done. One of them is that the creditor may want to keep his money
invested safely instead of having it in his hands. Another reason is that the creditor by fixing a period protects himself against
sudden decline in the purchasing power of the currency loaned specially at a time when there are many factors that influence the
fluctuation of the currency. And all available authorities on the matter are agreed that, unless the creditor consents, the debtor
has no right to accelerate the time of payment even if the premature tender "included an offer to pay principal and interest in full."