Monday, May 24, 2010

oblicon digests

MAGDALENA ESTATE VS. MYRICK
71 PHIL. 346

FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots
No. 28 and 29 of Block 1, Parcel 9 of the San Juan
Subdivision, San Juan, Rizal. Their contract of sale
provides that the Price of P7,953 shall be payable in 120
equal monthly installments of P96.39 each on the second
day of every month beginning the date of execution of the
agreement.

In pursuance of said agreement, the vendee made
several payments amounting to P2,596.08, the last being
due and unpaid was that of May 2, 1930. By reason of this,
the vendor, through its president, notified the vendee that,
in view of his inability to comply with the terms of their
contract, said agreement had been cancelled, relieving him
of any further obligation thereunder, and that all amounts
paid by him had been forfeited in favor of the vendor. To
this communication, the vendee did not reply, and it
appears likewise that the vendor thereafter did not require
him to make any further disbursements on account of the
purchase price.

ISSUE:
Was the petitioner authorized to forfeit the
purchase price paid?

RULING:
No. The contract of sale contains no provision
authorizing the vendor, in the event of failure of the vendee
to continue in the payment of the stipulated monthly
installments, to retain the amounts paid to him on account
of the purchase price. The claim therefore, of the petitioner
that it has the right to forfeit said sums in its favor is
untenable. Under Article 1124 of the Civil Code, however,
he may choose between demanding the fulfillment of the
contract or its resolution. These remedies are alternative
and not cumulative, and the petitioner in this case, having
elected to cancel the contract cannot avail himself of the
other remedy of exacting performance. As a consequence
of the resolution, the parties should be restored, as far as
practicable, to their original situation which can be
approximated only be ordering the return of the things
which were the object of the contract, with their fruits and
of the price, with its interest, computed from the date of
institution of the action.

UNIVERSAL FOOD CORPORATION VS. CA
33 SCRA 1

FACTS:
This is a petition for certiorari by the UFC against
the CA decision of February 13, 1968 declaring the BILL
OF ASSIGNMENT rescinded, ordering UFC to return to
Magdalo Francisco his Mafran sauce trademark and to pay
his monthly salary of P300.00 from Dec. 1, 1960 until the
return to him of said trademark and formula.

In 1938, plaintiff Magdalo V. Francisco, Sr.
discovered a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly
known as MAFRAN sauce. It was used commercially since
1942, and in the same year plaintiff registered his
trademark in his name as owner and inventor with the
Bureau of Patents. However, due to lack of sufficient
capital to finance the expansion of the business, in 1960,
said plaintiff secured the financial assistance of Tirso T.
Reyes who, after a series of negotiations, formed with
others defendant Universal Food Corporation eventually
leading to the execution on May 11, 1960 of the
aforequoted "Bill of Assignment" (Exhibit A or 1).

On May 31, 1960, Magdalo Francisco entered into
contract with UFC stipulating among other things that he
be the Chief Chemist and Second Vice-President of UFC
and shall have absolute control and supervision over the
laboratory assistants and personnel and in the purchase
and safekeeping of the chemicals used in the preparation
of said Mafran sauce and that said positions are permanent
in nature.

In line with the terms and conditions of the Bill of
Assignment, Magdalo Francisco was appointed Chief
Chemist with a salary of P300.00 a month. Magdalo
Francisco kept the formula of the Mafran sauce secret to
himself. Thereafter, however, due to the alleged scarcity
and high prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a
Memorandum duly approved by the President and General
Manager Tirso T. Reyes that only Supervisor Ricardo
Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should
resume its operation. On December 3, 1960, President and
General Manager Tirso T. Reyes, issued a memorandum to
Victoriano Francisco ordering him to report to the factory
and produce "Mafran Sauce" at the rate of not less than
100 cases a day so as to cope with the orders of the
corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees
without employing permanent employees. Again, on
December 6, 1961, another memorandum was issued by
the same President and General Manager instructing the
Assistant Chief Chemist Ricardo Francisco, to recall all
daily employees who are connected in the production of
Mafran Sauce and also some additional daily employees
for the production of Porky Pops. On December 29, 1960,
another memorandum was issued by the President and
General Manager instructing Ricardo Francisco, as Chief
Chemist, and Porfirio Zarraga, as Acting Superintendent,
to produce Mafran Sauce and Porky Pops in full swing
starting January 2, 1961 with further instructions to hire
daily laborers in order to cope with the full blast operation.
Magdalo V. Francisco, Sr. received his salary as Chief
Chemist in the amount of P300.00 a month only until his
services were terminated on November 30, 1960. On
January 9 and 16, 1961, UFC, acting thru its President and
General Manager, authorized Porfirio Zarraga and Paula
de Bacula to look for a buyer of the corporation including
its trademarks, formula and assets at a price of not less
than P300,000.00. Due to these successive memoranda,
without plaintiff Magdalo V. Francisco, Sr. being recalled
back to work, he filed the present action on February 14,
1961. Then in a letter dated March 20, 1961, UFC requested
said plaintiff to report for duty, but the latter declined the
request because the present action was already filed in
court.

ISSUES:
1. Was the Bill of Assignment really one that
involves transfer of the formula for Mafran sauce itself?
2. Was petitioner’s contention that Magdalo
Francisco is not entitled to rescission valid?

RULING:

1. No. Certain provisions of the bill would lead
one to believe that the formula itself was transferred. To
quote, “the respondent patentee "assign, transfer and
convey all its property rights and interest over said
Mafran trademark and formula for MAFRAN SAUCE
unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and
conveyance is absolute and irrevocable (and) in no case
shall the PARTY OF THE First Part ask, demand or sue
for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula."

“However, a perceptive analysis of the entire
instrument and the language employed therein would lead
one to the conclusion that what was actually ceded and
transferred was only the use of the Mafran sauce formula.
This was the precise intention of the parties.”

The SC had the following reasons to back up the
above conclusion. First, royalty was paid by UFC to
Magdalo Francisco. Second, the formula of said Mafran
sauce was never disclosed to anybody else. Third, the Bill
acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of said
trademark shall automatically revert back to Magdalo
Francisco. Fourth, paragraph 3 of the Bill declared only
the transfer of the use of the Mafran sauce and not the
formula itself which was admitted by UFC in its answer.
Fifth, the facts of the case undeniably show that what was
transferred was only the use. Finally, our Civil Code allows
only “the least transmission of right, hence, what better
way is there to show the least transmission of right of the
transfer of the use of the transfer of the formula itself.”

2. No. Petitioner’s contention that Magdalo
Francisco’s petition for rescission should be denied
because under Article 1383 of the Civil Code of the
Philippines rescission can not be demanded except when
the party suffering damage has no other legal means to
obtain reparation, was of no merit because “it is predicated
on a failure to distinguish between a rescission for breach
of contract under Article 1191 of the Civil Code and a
rescission by reason of lesion or economic prejudice, under
Article 1381, et seq.” This was a case of reciprocal
obligation. Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder was
subordinated to anything other than the culpable breach of
his obligations by the defendant. Hence, the reparation of
damages for the breach was purely secondary. Simply put,
unlike Art. 1383, Art. 1191 allows both the rescission and
the payment for damages. Rescission is not given to the
party as a last resort, hence, it is not subsidiary in nature.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS
ANGELES
35 SCRA 102

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 plaintiffsappellees
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.

Sagrada Orden vs. Nacoco 91 Phil. 503 (1952)
Nature: appeal from judgment of CFI of Manila

Facts and Background of the Case
- On Jan 4, 1942, during the Japanese occupation, Taiwan Tekkosho (Japanese corporation) acquired the plaintiff’s property (land with warehouse in Pandacan, Manila) for Php140K
- On April 4, 1946, after the liberation, the US took control and custody of the aforementioned enemy’s land under Sect 12 of the Trading with the Enemy Act
- In the same year, the Copra Export Management Company occupied the property under custodianship agreement with the United States Alien Property Custodian
- In August 1946, when the Copra Export Management Co. vacated the property, the National Coconut Corporation (NACOCO), the defendant, occupied it next
- Sagrada Orden (plaintiff) files claims on the property with the Court of First Instance of Manila and against the Philippine Alien Property Administrator
- Plaintiff petitions that the sale of the property to Taiwan Tekkosho should be declared null and void as it was executed under duress, that the interest of the Alien Property Custodian be cancelled, and that NACOCO be given until February 28, 1949 to recover its equipment form the property and vacate the premise
- The Republic of the Philippines is allowed to intervene
- CFI: the defendant (Philippine Alien Property Administrator) and the intervenor (RP) are released from any liability but the plaintiff may reserve the right to recover from NACOCO reasonable rentals for the use and occupation of the premises
- The sale of the property to the Taiwan Takkesho was declared void and the plaintiff was given the right to recover Php3,000/month as reasonable rental from August 1946 (date when NACOCO occupied property) to the date NACOCO vacates the premises
- the judgment is appealed to the SC

Legal Issues
1. WON the defendant is liable to pay rent for occupying the property in question

Judgment
1. The CFI’s decision that the defendant should pay rent from August 1946 to February 28, 1949 was reversed, costs against the plaintiff

Ratio
Obligations can only arise from four sources: law, contracts or quasi-contracts, crime, or negligence (Art 1089, Spanish Civil Code).

There were no laws or an express agreement between the defendant or the Alien Property Custodian with the plaintiff regarding payment of rent. The property was acquired by the Alien Property Administrator through law (Trading with the Enemy Act) on the seizure of alien property and not as a successor to the interests of the latter. There was no contract of rental b/w them and Taiwan Takkesho. NACOCO entered possession of the property from the Alien Property Custodian without any expectation of liability for its use. NACOCO did not commit any negligence or offense, and there was no contract, implied or otherwise, entered into, that can be used as basis for claiming rent on the property before the plaintiff obtained the judgment annulling the sale to Taiwan Takkesho. The plaintiff has no right to claim rent from NACOCO.

Important Notes
Article 1157 of the New Civil Code states that there are 5 sources of obligations: laws, contracts, quasi-contracts, felonies (acts or omissions punished by law), and quasi-delicts.


Sagrada Orden Vs Nacoco –Kinuha ng Hapon
ang lupa.
Action to recover parcel of land owned by P, and
then because of Japanese war was acquired by
other parties, then possessed by the US govt thru
its custodian then possessed by the defendant
without agreement with the US or with the
plaintiff, and def then leased a part of the land.

Issue: WON defendant is liable to Sagrada and
must pay the rentals.

Held: No. If liable at all must arise from any of
the four sources of obligations. APA was a trustee
of the US and if def liable, not to plaintiff but to
US govt. But defendant not liable for rentals bec
no express agreement bet the APA and Nacoco.
Existence of implied agreement is contrary to
the circumstances.
Source: Contract. But there was none.


Pelayo vs. Lauron –husband vs. in-laws
1906-Pelayo complained against Lauron and
Abella. Pelayo a doctor, rendered service to
daughter-in-law then demanded P500 from def.

Issue: WON Lauron is liable.

Held: No. Husband liable. Art. 142 and 143 or
Family Code. Rendering medical assistance,
mutual oblig. Oblig not presumed. Those
expressly determined in the Code or in special
laws are the only demandable ones.
Source: Laws. Family Code.


Leung Ben vs. O’Brien - Gambling
O’ Brien filed an action in the court of CFGI of
Manila to recover from Leung Ben the sum of
P15,000 alleged to have been lost by O’Brien to
Leung Ben in a series of gambling, banking and
percentage games:

Issue: WON O’Brien can recover the money from

Leung Ben.
Held: Yes. Upon general principles, recognized
both in the civil and common law, money lost in
gambling and voluntary paid by the loser to the
winner cannot, in the absence of statute, be
recovered in a civil action. But Act. No. 1757 of
the Phil. Comm, which defines and penalized
different forms of gambling contains numerous
provisions recognizing the right to recover money
lost in gambling. It must therefore be assumed
that the action of plaintiff was based upon the
right to recovery given by section 7 of said Act,
which declares that an action may be brought
against the banker by any person losing money at
a banking or percentage game.
Source: Law. Phil Comm and Civil Code.




G.R. No. L-4920 June 29, 1953
FRANCISCO DIANA and SOLEDAD DIANA, plaintiffs-appellants,
vs.
BATANGAS TRANSPORTATION CO., defendant-appellee.
Zosimo D. Tanalega for appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
BAUTISTA ANGELO, J.:
The present appeal stems from a case originally instituted in the Court of First Instance of Laguna wherein plaintiffs seek to recover from defendant as a party subsidiarily liable for the crime committed by an employee in the discharge of his duty the sum of P2,500 as damages, plus legal interest, and the costs of action.
The appeal was originally taken to the Court of Appeals but the case was certified to this court on the ground that it poses merely a question of law.
Plaintiffs are the heirs of one Florenio Diana, a former employee of the defendant. On June 21, 1945, while Florenio Diana was riding in Truck No. 14, belonging to the defendant, driven by Vivencio Bristol, the truck ran into a ditch at Bay, Laguna, resulting in the death of Florenio Diana and other passengers. Subsequently, Vivencio Bristol was charged and convicted of multiple homicide through reckless imprudence wherein, among other things, he was ordered to indemnify the heirs of the deceased in the amount of P2,000. When the decision became final, a writ of execution was issued in order that the indemnity may be satisfied but the sheriff filed a return stating that the accused had no visible leviable property. The present case was started when defendant failed to pay the indemnity under its subsidiary liability under article 103 of the Revised Penal Code. The complaint was filed on October 19, 1948 (civil case No. 9221).
On December 13, 1948, defendant filed a motion to dis- miss on the ground that there was another action pending between the same parties for the same cause (civil case No. 8023 of the Court of First Instance of Laguna) in which the same plaintiffs herein sought to recover from the same defendant the amount of P4,500 as damages resulting from the death of Florenio Diana who died while on board a truck of defendant due to the negligent act of the driver Vivencio Bristol. This first action was predicated on culpa aquiliana.
On December 16, 1948, plaintiffs filed a written opposition to the motion to dismiss. On February 3, 1949, the lower court, having found the motion well founded, dismissed the complaint, without special pronouncement as to costs; and their motion for reconsideration having been denied, plaintiffs took the present appeal.
The only question to be determined is whether the lower court correctly dismissed the complaint on the sole ground that there was another action pending between the same parties for the same cause under Rule 8, section 1(d) of the Rules of Court.
The determination of this issue hinges on the proper interpretation of Rule 8, section 1 (d) which allows the dismissal of a case on the ground that "there is another action pending between the same parties for the same cause." Former Justice Moran, commenting on this ground, says: "In order that this ground may be invoked, there must be between the action under consideration and the other action, (1) identity of parties, or at least such as representing the same interest in both actions; (2) identity of rights asserted and relief prayed for, the relief being found on the same facts; and (3) the identity on the two preceding particulars should be such that any judgment which may be rendered on the other action will, regardless of which party is successful, amount to res adjudicata in the action under consideration." [I Moran, Comments on the Rules of Court, (1952), p. 168.].
There is no doubt with regard to the identity of parties. In both cases, the plaintiffs and the defendant are the same. With regard to the identity of reliefs prayed for, a different consideration should be made. It should be noted that the present case (civil case No. 9221) stems from a criminal case in which the driver of the defendant was found guilty of multiple homicide through reckless imprudence and was ordered to pay an indemnity of P2,000 for which the defendant is made subsidiarily liable under article 103 of the Revised Penal Code, while the other case (civil case No. 8023) is an action for damages based on culpa aquiliana which underlies the civil liability predicated on articles 1902 to 1910 of the old Civil Code. These two cases involve two different remedies. As this court aptly said: "A quasi-delict or culpa aquiliana is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. * * *. A distinction exists between the civil liability arising from a crime and the responsibility for cuasi-delictos or culpa extra-contractual. The same negligent act causing dam- ages may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-contractual under articles 1902-1910 of the Civil Code (Barredo vs. Garcia and Al- mario, 73 Phil., 607). The other differences pointed out between crimes and culpa aquiliana are:.
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law clearly covering them, while the latter, cuasi-delitos, include all acts in which 'any kind of fault or negligence intervenes. (P. 611, supra.).
Considering the distinguishing characteristics of the two cases, which involve two different remedies, it can hardly be said that there is identity of reliefs in both actions as to make the present case fall under the operation of Rule 8, section 1(d) of the Rules of Court. In other words, it is a mistake to say that the present action should be dismissed because of the pendency of another action between the same parties involving the same cause. Evidently, both cases involve different causes of action. In fact, when the Court of Appeals dismissed the action based on culpa aquiliana (civil case No. 8023), this distinction was stressed. It was there said that the negligent act committed by defendant's employee is not a quasi crime, for such negligence is punishable by law. What plaintiffs should have done was to institute an action under article 103 of the Revised Penal Code (CA-G.R. No. 3632-R). And this is what plaintiffs have done. To deprive them now of this remedy, after the conviction of defendant's employee, would be to deprive them altogether of the indemnity to which they are entitled by law and by a court decision, which injustice it is our duty to prevent.
Wherefore, the order appealed from is reversed and the case is hereby remanded to the lower court for further proceedings. No pronouncement as to costs.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Jugo, and Labrador, JJ., concur.













G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory.
It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of ParaƱaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.


AYSON-SIMON VS. ADAMOS AND FERIA
G.R. NO. L-39378 AUGUST 28, 1984

FACTS:
Defendants, Nicolas Adamos and Vicente Feria,
purchased two lots forming part of the Piedad Estate in
Quezon City, from Juan Porciuncula. Thereafter, the
successors-in-interest of the latter filed Civil Case No. 174
for annulment of the sale and the cancellation of TCT No.
69475, which had been issued to defendants-appellants by
virtue of the disputed sale. The Court rendered a Decision
annulling the saleThe said judgment was affirmed by the
Appellate Court and had attained finality.

Meanwhile, during the pendency of the case above,
defendants sold the said two lots to Petitioner Generosa
Ayson-Simon for Php3,800.00 plus Php800.00 for
facilitating the issuance of the new titles in favor of
petitioner. Due to the failure of the defendants to deliver
the said lots, petitioner filed a civil case for specific
performance. The trial court rendered judgment to
petitioner’s favor. However, defendants could not deliver
the said lots because the CA had already annulled the sale
of the two lots in Civil Case No. 174. Thus, petitioner filed
another civil case for the rescission of the contract.

Defendants were contending that petitioner cannot choose
to rescind the contract since petitioner chose for specific
performance of the obligation. Also, even though
petitioner can choose to rescind the contract, it would not
be possible, because it has already prescribed.

ISSUES:
1. Can petitioner choose to rescind the contract even after choosing for the specific performance of the obligation?
2. Had the option to rescind the contract prescribed?

RULING:
1. Yes. The rule that the injured party can
only choose between fulfillment and rescission of the
obligation, and cannot have both, applies when the
obligation is possible of fulfillment. If, as in this case, the
fulfillment has become impossible, Article 1191 allows the injured party to seek rescission even after he has chosen
fulfillment.

2. No. Article 1191 of the Civil Code provides
that the injured party may also seek rescission, if the
fulfillment should become impossible. The cause of action
to claim rescission arises when the fulfillment of the
obligation became impossible when the Court of First
Instance of Quezon City in Civil Case No. 174 declared the
sale of the land to defendants by Juan Porciuncula a
complete nullity and ordered the cancellation of Transfer
Certificate of Title No. 69475 issued to them. Since the two
lots sold to plaintiff by defendants form part of the land
involved in Civil Case No. 174, it became impossible for
defendants to secure and deliver the titles to and the
possession of the lots to plaintiff. But plaintiff had to wait
for the finality of the decision in Civil Case No. 174,
According to the certification of the clerk of the Court of
First Instance of Quezon City (Exhibit "E-2"), the decision
in Civil Case No. 174 became final and executory "as per
entry of Judgment dated May 3, 1967 of the Court of
Appeals." The action for rescission must be commenced
within four years from that date, May 3, 1967. Since the
complaint for rescission was filed on August 16, 1968, the
four year period within which the action must be
commenced had not expired.

ARANETA VS PHIL. SUGAR ESTATES
DEVELOPMENT CO.
20 SCRA 330

FACTS:
J. M. Tuason & Co., Inc. is the owner of a big tract
land situated in Quezon City, and on July 28, 1950,
[through Gregorio Araneta, Inc.] sold a portion thereof to
Philippine Sugar Estates Development Co., Ltd.
The parties stipulated, among in the contract of
purchase and sale with mortgage, that the buyer will build
on the said parcel land the Sto. Domingo Church and
Convent while the seller for its part will construct streets.

But the seller, Gregorio Araneta, Inc., which began
constructing the streets, is unable to finish the
construction of the street in the Northeast side because a
certain third-party, by the name of Manuel Abundo, who
has been physically occupying a middle part thereof,
refused to vacate the same;
Both buyer and seller know of the presence of
squatters that may hamper the construction of the streets
by the seller. On May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M.
Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the
above-mentioned deed of sale, and/or to pay damages in
the event they failed or refused to perform said obligation.

The lower court and the appellate court ruled in
favor of Phil. Sugar estates, and gave defendant Gregorio
Araneta, Inc., a period of two (2) years from notice hereof,
within which to comply with its obligation under the
contract, Annex "A".

Gregorio Araneta, Inc. resorted to a petition for
review by certiorari to this Court.

ISSUES:
Was there a period fixed?

RULING:
Yes. The fixing of a period by the courts under
Article 1197 of the Civil Code of the Philippines is sought to
be justified on the basis that petitioner (defendant below)
placed the absence of a period in issue by pleading in its
answer that the contract with respondent Philippine Sugar
Estates Development Co., Ltd. gave petitioner Gregorio
Araneta, Inc. "reasonable time within which to comply
with its obligation to construct and complete the streets."
If the contract so provided, then there was a period fixed, a
"reasonable time;" and all that the court should have done
was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court
should declare that petitioner had breached the contract,
Was it within the powers of the lower court to set the
performance of the obligation in two years time?

NO. Even on the assumption that the court should have
found that no reasonable time or no period at all had been
fixed (and the trial court's amended decision nowhere
declared any such fact) still, the complaint not having
sought that the Court should set a period, the court could
not proceed to do so unless the complaint included it as
first amended;
Granting, however, that it lay within the Court's power to
fix the period of performance, still the amended decision is
defective in that no basis is stated to support the conclusion that the period should be set at two years after
finality of the judgment. The list paragraph of Article 1197
is clear that the period can not be set arbitrarily. The law
expressly prescribes that “the Court shall determine such
period as may under the circumstances been probably
contemplated by the parties.”

It must be recalled that Article 1197 of the Civil Code
involves a two-step process. The Court must first
determine that "the obligation does not fix a period" (or
that the period is made to depend upon the will of the
debtor)," but from the nature and the circumstances it can
be inferred that a period was intended" (Art. 1197, pars. 1
and 2). This preliminary point settled, the Court must then
proceed to the second step, and decide what period was
"probably contemplated by the parties" (Do., par. 3). So
that, ultimately, the Court can not fix a period merely
because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to
have pulled the two-year period set in its decision out of
thin air, since no circumstances are mentioned to support
it. Plainly, this is not warranted by the Civil Code.
Does “reasonable time” mean that the date of performance
would be indefinite?

The Court of Appeals objected to this conclusion that it
would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this
very indefiniteness is what explains why the agreement did
not specify any exact periods or dates of performance.

SINGSON ENCARNACION VS. BALDOMAR
77 PHIL 470

FACTS:
Vicente Singson Encarnacion leased his house to
Jacinta Baldomar and her son, Lefrando Fernando upon a
month-to-month basis. After Manila was liberated in the
last war, Singson Encarnacio notified Baldomar and her
son Fernando to vacate the house because he needed it for
his office as a result of the destruction of the building
where he had his office before. Despite the demand, the
Baldomar and Fernando continued their occupancy.

The defense of Baldomar and Fernando was that the
contract with Singson Encarnacion authorized them to
continue occupancy indefinitely while they should
faithfully fulfill their obligation with respect to payment of
rentals. Singson Encarnacion contended that the lease had
always and since the beginning been upon a month-tomonth
basis.

ISSUE:
Was it tenable for Singson Encarnacion to discontinue
the lease of Baldomar and her son?

RULING:
The continuance and fulfillment of the contract of lease
cannot be made to depend solely and exclusively upon the
free and uncontrolled choice of the lessees between
continuing paying the rentals or not, completely depriving
the owner of all say in the matter. The defense of Baldomar
and Fernando would leave to the sole and exclusive will of
one of the contracting parties the validity and fulfillment of
the contract of lease, within the meaning of Article 1256 of
the Civil Code. For if this were allowed, so long as the
lessee elected to continue the lease by continuing the
payment of the rentals the owner would never be able to
discontinue the lease; conversely, although the owner
should desire the lease to continue, the lessee could
effectively thwart his purpose if he should prefer to
terminate the contract by the simple expedient of stopping
payment of the rentals.

Ong vs. Century (kf)
The Court of First Instance of Iloilo rendered a judgment in favor of the plaintiff, sentencing the defendant company to pay him the sum of P45,000, the value of certain policies of fire insurance, with legal interest thereon from February 28, 1923, until payment, with the costs. The defendant company appealed from this judgment, and now insists that the same must be modified and that it must be permitted to rebuild the house burnt, subject to the alignment of the street where the building was erected, and that the appellant be relieved from the payment of the sum in which said building was insured.
The appellant contends that under clause 14 of the conditions of the policies, it may rebuild the house burnt, and although the house may be smaller, yet it would be sufficient indemnity to the insured for the actual loss suffered by him.
If this clause of the policies is valid, its effect is to make the obligation of the insurance company an alternative one, that is to say, that it may either pay the insured value of house, or rebuild it. It must be noted that in alternative obligations, the debtor, the insurance company in this case, must notify the creditor of his election, stating which of the two prestations he is disposed to fulfill, in accordance with article 1133 of the Civil Code. The object of this notice is to give the creditor, that is, the plaintiff in the instant case, opportunity to express his consent, or to impugn the election made by the debtor, and only after said notice shall the election take legal effect when consented by the creditor, or if impugned by the latter, when declared proper by a competent court. In the instance case, the record shows that the appellant company did not give a formal notice of its election to rebuild, and while the witnesses, Cedrun and Cacho, speak of the proposed reconstruction of the house destroyed, yet the plaintiff did not give his assent to the proposition, for the reason that the new house would be smaller and of materials of lower kind than those employed in the construction of the house destroyed. Upon this point the trial judge very aptly says in his decision: "It would be an imposition unequitable, as well as unjust, to compel the plaintiff to accept the rebuilding of a smaller house than the one burnt, with a lower kind of materials than those of said house, without offering him an additional indemnity for the difference in size between the two house, which circumstances were taken into account when the insurance applied for by the plaintiff was accepted by the defendant."
Election alleged by the appellant to rebuild the house burnt instead of paying the value of the insurance is improper.

RONQUILLO VS. COURT OF APPEALS
G.R. No. L-55138

FACTS:
Petitioner Ernesto V. Ronquillo was one of four (4)
defendants for the collection of the sum of P117,498.98
plus attorney's fees and costs. The other defendants were
Offshore Catertrade, Inc., Johnny Tan and Pilar Tan.
On December 13, 1979, the lower court rendered
its Decision based on the compromise agreement, which
stipulates, among others, that the Plaintiff agrees to reduce
its total claim of P117,498.95 to only P110,000.00 and
defendants agree to acknowledge the validity of such claim
and further bind themselves to initially pay out of the total
indebtedness of P110,000.00 the amount of P55,000.00
on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to
pay within a period of six months from January 1980, or
before June 30, 1980.

Upon the defendant’s default, herein private
respondent (then plaintiff) filed a Motion for Execution.
Ronquillo and another defendant Pilar Tan offered to pay
their shares of the 55,000 already due.

But on January 22, 1980, private respondent
Antonio So moved for the reconsideration and/or
modification of the aforesaid Order of execution and
prayed instead for the "execution of the decision in its
entirety against all defendants, jointly and severally.

Petitioner opposed the said motion arguing that
under the decision of the lower court being executed which
has already become final, the liability of the four (4)
defendants was not expressly declared to be solidary,
consequently each defendant is obliged to pay only his own
pro-rata or 1/4 of the amount due and payable.

ISSUE:
What is the nature of the liability of the defendants
(including petitioner), was it merely joint, or was it several
or solidary?

RULING:

SOLIDARY.

In this regard, Article 1207 and 1208 of the Civil
Code provides -
"Art. 1207. The concurrence of two or more
debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with
the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the
wording of the obligation to which the preceding article
refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many equal shares as
there are creditors and debtors, the credits or debts being
considered distinct from one another, subject to the Rules
of Court governing the multiplicity of suits."

Clearly then, by the express term of the
compromise agreement, the defendants obligated
themselves to pay their obligation "individually and
jointly."

The term "individually" has the same meaning as
"collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several
obligation" is one by which one individual binds himself to
perform the whole obligation.

The obligation in the case at bar being described as
"individually and jointly", the same is therefore enforceable against one of the numerous obligors.

PNB vs. Independent Planters Association (kf)
Appeal by PNB from the Order of the defunct Court of First Instance of Manila dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on the ground that one of the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had presented its evidence) and therefore the complaint, being a money claim based on contract, should be prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads: SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary with another debtor, the claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution from the other debtor. In a joint obligation of the decedent, the claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against one, some or all of its solidary debtors under Article 1216 of the Civil Code — ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.
ISSUE: whether in an action for collection of a sum of money based on contract against all the solidary debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants.
HELD: It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient for the protection of his interests; and if, after instituting a collection suit based on contract against some or all of them and, during its pendency, one of the defendants dies, the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants.
Similarly, in PNB vs. Asuncion, A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor from proceeding against the surviving solidary debtors. Said provision merely sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of them simultaneously.' The choice is undoubtedly left to the solidary, creditor to determine against whom he will enforce collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor . . .
Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of the New Civil Code, the former being merely procedural, while the latter, substantive.

IMPERIAL INSURANCE INC. VS. DAVID
133 SCRA 317, November 21, 1984

FACTS:
Felicisimo V. Reyers and his wife Emilia T. David,
herein defendant-appellant, executed 2 indemnity
agreements in favor of appellee The Imperial Insurance
Inc, jointly and severally to assure indemnification of the
latter of whatever liability it may incur in connection with
its posting the security bonds to lift the attachments in 2
civil cases instituted for the amount of P60, 000 and
P40,000, for the benefit of Felicisimo V. Reyes.

The spouses jointly and severally, executed
another indemnity agreement in favor of appellee to assure
indemnification of the latter under a homestead bond for
the sum of P7, 500.00 it had executed jointly and severally
with them in favor of the Development Bank of the
Philippines.
Felicisimo later died and Special Proceedings
entitled “In the Matter of the Intestate Estate of Felicisimo
V. Reyes,” commenced. His wife qualified and took her
oath of office as the administratix of the said intestate
estate.

Meanwhile, judgment was rendered in the two
Civil Cases against the spouses. Appellee made demands
on Emilia David to pay the amounts of P60,000 and P40,
000 under the surety bonds and arrears in premiums
thereon. A motion to dismiss was filed by the appellant on
the ground the plaintiff’s cause of action, if there be any,
have been barred for its failure to file its claims against the
estate of the deceased Felicisimo V. Reyes in due time. She
contends that appellee’s claim should have been presented
according to Rule 86 of the Revised Rules of Court and its
failure to do so operates to bar its claim forever.
After trial, the court rendered judgment against
the herein appellant Emilia T. David.

ISSUE:
Can the creditor choose to proceed against the
surviving solidary debtor instead of bringing an action in
accordance with Rule 86 (sec. 5) of the Revised Rules of
Court?

RULING:
Yes. Under the law and well-settled jurisprudence,
when the obligation is a solidary one, the creditor may
bring his action in toto against any of the debtors obligated
in solidum. In the case at bar, appellant signed a joint and
several obligation with her husband in favor of herein
appellee; as a consequence, the latter may demand from
either of them the whole obligation. As distinguished from
a joint obligation where each of the debtor is entitled only
for a proportionate part of the debt and the creditor is
entitled only to a proportionate part of the credit, in a
solidary obligation the creditor may enforce the entire
obligation against one of the debtors. Moreover, in the case
of Philippine International Surety vs. Gonzales, “Where the
obligation assumed by several persons is joint and several,
each of the debtors is answerable for the whole obligation
with the right to seek contribution from his co-debtors.”
Article 1216 of the Civil Code also states that, “The creditor
may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so
long as the debt has not been fully collected.” There is
nothing improper, as held in Manila Surety & Fidelity Co.
vs. Villarama, in the creditor’s filing of an action against
the surviving solidary debtor alone, instead of instituting a
proceeding for the settlement of the deceased debtor
wherein his claim would be filed.

Lambert vs. Fox 26 phil 588 (kf)
This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in such condition financially that its creditors, including the plaintiff and the defendant, together with many others, agreed to take over the business, incorporate it and accept stock therein in payment of their respective credits. A few days after the incorporation was completed plaintiff and defendant entered into the following agreement: xxx the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof. Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated damages, unless previous consent in writing to such sale, transfer, or other disposition be obtained.
Notwithstanding this contract the defendant Fox sold his stock in the said corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc.
The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it appeared from the contract in question was to the effect that the agreement should be good and continue only until the corporation reached a sound financial basis, and that that event having occurred some time before the expiration of the year mentioned in the contract, the purpose for which the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation thereunder. The complaint was dismissed upon the merits.
ISSUE: Did the court erred in the construction of the contract?
HELD: "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them. They are the very last functions which a court should exercise. The majority of the law need no interpretation or construction. They require only application, and if there were more application and less construction, there would be more stability in the law, and more people would know what the law is."
In the case at bar the parties expressly stipulated that the contract should last one year. No reason is shown for saying that it shall last only nine months. Whatever the object was in specifying the year, it was their agreement that the contract should last a year and it was their judgment and conviction that their purposes would not be subversed in any less time. What reason can give for refusing to follow the plain words of the men who made the contract? We see none.
In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and the court can see that the person demanding the penalty has received the benefit of such or irregular performance. In such case the court is authorized to reduce the penalty to the extent of the benefits received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are concerned. In either case the party to whom payment is to be made is entitled to recover the sum stipulated without the necessity of proving damages. Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid such necessity.
The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension. We do not here undertake to discuss the limitations to the power to suspend the right of alienation of stock, limiting ourselves to the statement that the suspension in this particular case is legal and valid.
The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.

ELEIZEGUI VS MANILA LAWN TENNIS CLUB
G.R. 967
FACTS:

This suit concerns the lease of a piece of land for a
fixed consideration and to endure at the will of the lessee.
By the contract of lease the lessee is expressly authorized
to make improvements upon the land, by erecting
buildings of both permanent and temporary character, by
making fills, laying pipes, and making such other
improvements as might be considered desirable for the
comfort and amusement of the members.

With respect to the term of the lease the present
question has arisen. In its decision three theories have been presented: One which makes the duration depend upon the will of the lessor, who, upon one month's notice
given to the lessee, may terminate the lease so stipulated;
another which, on the contrary, makes it dependent upon
the will of the lessee, as stipulated; and the third, in
accordance with which the right is reversed to the courts to
fix the duration of the term.

The first theory is that which has prevailed in the
judgment below, as appears from the language in which
the basis of the decision is expressed: "The court is of the
opinion that the contract of lease was terminated by the
notice given by the plaintiff on August 28 of last year . . . ."
And such is the theory maintained by the plaintiffs, which
expressly rests upon article 1581 of the Civil Code, the law
which was in force at the time the contract was entered
into (January 25, 1890). The judge, in giving to this notice
the effect of terminating the lease, undoubtedly considers
that it is governed by the article relied upon by the
plaintiffs, which is of the following tenor: "When the term
has not been fixed for the lease, it is understood to be for
years when an annual rental has been fixed, for months
when the rent is monthly. . . ." The second clause of the
contract provides as follows: "The rent of the said land is
fixed at 25 pesos per month."

ISSUE:
Was there a conventional term, a duration, agreed
upon in the contract in question?

RULING:
Yes. The obligations which, with the force of law,
the lessors assumed by the contract entered into, so far as
pertaining to the issues, are the following: "First. . . . They
lease the above-described land to Mr. Williamson, who
takes it on lease . . . for all the time the members of the
said club may desire to use it . . . Third. . . . the owners of
the land undertake to maintain the club as tenant as long
as the latter shall see fit, without altering in the slightest
degree the conditions of this contract, even though the
estate be sold."
In view of these clauses, it can not be said that
there is no stipulation with respect to the duration of the
lease, or that, notwithstanding these clauses, article 1581,
in connection with article 1569, can be applied. If this were
so, it would be necessary to hold that the lessors spoke in
vain that their words are to be disregarded a claim which
can not be advanced by the plaintiffs nor upheld by any
court without citing the law which detracts all legal force
from such words or despoils them of their literal sense.

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