GR No.

L-35615, Feb 17, 1977

FRANCISCA GATCHALIAN v. JESUS P. ARLEGUI

FACTS:

Before the war Francisca Gatchalian and Paz Tanwangco were good friends who lived together in the same
house located at Solano, Nueva Vizcaya. Whether they were partners and acquired properties with
common funds is a matter of controversy. They were separated because of the war. Paz Tanwangco
evacuated to Pangasinan. Francisca Gatchalian presumably remained at Solano.

Paz Tanwangco sued Francisca Gatchalian in the Court of First Instance of Nueva Vizcaya for the recovery
of her alleged share in Lots 25 and 28 which were registered in Francisca’s name.

Judge Jose D. Parayno in a decision dated August 30, 1969 ordered Francisca Gatchalian (1) to reconvey
and deliver the possession to Paz Tanwangco of “one-half undivided portion of Lots 25 and 28 of the
Solano cadastre” and the improvements thereon and (2) to pay her the sum of P18,895 as one-half of the
accrued rentals up to July, 1967 and P145 monthly until the possession is delivered to Paz, with legal rate
of interest from the date of the finality of the judgment, plus P2,000 as attorney’s fees.

Francisca Gatchalian appealed to the Court of Appeals. Her appeal was dismissed.

She filed in this Court a petition for certiorari to annul those resolutions. Her petition was dismissed for
lack of merit

The deed of reconveyance in favor of Paz Tanwangco was executed by the clerk of court on February 8,
1972. On that same day it was registered. A title was issued to Paz Tanwangco for Lot 28-A, with an area
of 1,925 square meters, as her one-half share.

Meanwhile, on March 7, 1972 Francisca Gatchalian sued Judge Parayno, Paz Tanwangco and the provincial
sheriff also in the Court of First Instance of Nueva Vizcaya in order to annul the 1969 judgment in Civil
Case No. 1454 and the execution and levy on onehalf of Lot No. 28. The second case was docketed as
Civil Case No. 1944. It was predicated on the theory that Paz Tanwangco’s action in Civil Case No. 1454
had already prescribed under the Code of Civil Procedure, the provisions of which were allegedly not
applied by the trial court. Paz Tanwangco filed a motion to dismiss the complaint on the ground of res
judicata. Judge Gabriel Dunuan in his order of March 27, 1972 dismissed it.

Francisca Gatchalian then filed in Civil Case No. 1454 a motion dated April 18, 1972 for stay of execution.
She asked the court to “take cognizance” of the parties’ compromise agreement and to terminate the two
cases.

In that motion Francisca Gatchalian quoted and annexed Paz Tanwangco's letter of March 20, 1972 to her
counsel, Dominador S. La Madrid, wherein Paz offered to compromise the judgment in Civil Case No. 1454
by waiving her claim to the rentals and cancelling the auction sale if Francisca would withdraw her
complaint in Civil Case No. 1944, cancel her notice of lis pendens on the title of Lot 28-A and agree that
they would simply divide that lot equally as adjudged in Civil Case No. 1454.

ISSUE:

Whether or not the judgment in Civil Case No. 1454 was novated and superseded by the alleged
compromise.

RULING:

YES. After a scrupulous and painstaking study of the facts and equities of the case, we have reached the
conclusion that the compromise already mentioned should be enforced but subject to the condition that
Francisca Gatchalian should pay attorney's fees of P2,000 adjudged in Judge Parayno's decision.
The lower court refused to enforce the compromise because in its opinion the judgment had already been
executed and could no longer be novated by the parties. That stand is not well-taken. The undeniable
fact is that the judgment has not yet been fully satisfied because the monetary liability of Francisca
Gatchalian, under the lower court's judgment, in the sum of P35,853.60, has not yet been paid. (See sec.
47, Rule 39, Rules of Court as to the entry of satisfaction of judgment).

On the other hand, the lower court did not find that the offer of compromise made by Paz Tanwangco was
vitiated by duress or undue influence.

Hence, the lower court's orders, which authorize the auction sale, should be set aside. It is to the interest
of the two octogenarians (now nearing ninety years) that this long-drawn out litigation be terminated as
soon as possible. We believe that the ruling already announced is a judicious and equitable solution of the
case.

G.R. No. 174269 May 8, 2009

POLO S. PANTALEON, Petitioner,vs.AMERICAN EXPRESS INTERNATIONAL, INC

FACTS:

After the Amsterdam incident that happened involving the delay of American Express Card to approvehis
credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint
formoral and exemplary damages before the RTC against American Express. He said that he and his
familyexperienced inconvenience and humiliation due to the delays in credit authorization. RTC rendered
adecision in favor of Pantaleon. CA reversed the award of damages in favor of Pantaleon, holding
thatAmEx had not breached its obligations to Pantaleon, as the purchase at Coster deviated from
Pantaleon'sestablished charge purchase pattern.

ISSUES:

1.Whether or not AmEx had committed a breach of its obligations to Pantaleon.

2. Whether or not AmEx is liable for damages

RULING:

1. Yes. The popular notion that credit card purchases are approved “within seconds,” there really isno
strict, legally determinative point of demarcation on how long must it take for a credit cardcompany to
approve or disapprove a customer’s purchase, much less one specifically contractedupon by the parties.
One hour appears to be patently unreasonable length of time to approve ordisapprove a credit card
purchase.The culpable failure of AmEx herein is not the failure to timely approve petitioner’s purchase,but
the more elemental failure to timely act on the same, whether favorably or unfavorably.Even assuming
that AmEx’s credit authorizers did not have sufficient basis on hand to make ajudgment, we see no reason
why it could not have promptly informed Pantaleon the reason forthe delay, and duly advised him that
resolving the same could take some time.

2.Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay,but
because the delay, for which culpability lies under Article 1170, led to the particular injuriesunder Article
2217 of the Civil Code for which moral damages are remunerative. The somewhatunusual attending
circumstances to the purchase at Coster – that there was a deadline for thecompletion of that purchase by
petitioner before any delay would redound to the injury of hisseveral traveling companions – gave rise to
the moral shock, mental anguish, serious anxiety,wounded feelings and social humiliation sustained by
Pantaleon, as concluded by the RTC.
Gacal vs. Philippine Airlines 
(183 SCRA 189, G.R. No. 55300 March 16, 1990) 

Facts: Plaintiffs Franklin Gacal, his wife and three others were passengers of PAL plane at Davao Airport
for a flight to Manila, not knowing that the flight, were Commander Zapata with other members of Moro
National Liberation Front. They were armed with grenades and pistols. After take off, the members of
MNLF announced a hijacking and directed the pilot to fly directly to Libya, later to Sabah. They were,
however, forced to land in Zamboanga airport for refueling, because the plane did not have enough fuel to
make direct flight to Sabah. When the plane began to taxi at the runaway of Zamboanga airport, it was
met by two armored cars of the military. 

An armored car subsequently bumped the stairs leading inside the plane. That commenced the battle
between the military and the hijackers, which led ultimately to the liberation of the plane’s surviving crew
and passengers with the final score of ten passengers and three hijackers dead. 

Issue: Whether or not hijacking is a case fortuito or force majeure, which would exempt an aircraft from
liability for, damages to its passengers and personal belongings that were lost during the incident? 

Ruling: In order to constitute a caso fortuito that would exempt from liability under Art 1174 of the civil
code, it is necessary that the following elements must occur: (a) the cause of the breach of obligation
must be independent of human will; (b) the event must be unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; (d) the
debtor must be free from any participation in or aggravation of the injury to the creditor. 

Applying the above guidelines, the failure to transport the petitioners safely from Davao to Manila was due
to the skyjacking incident staged buy the MNLF without connection to the private respondent, hence,
independent of will of PAL or its passengers. 

The events rendered it impossible for PAL to perform its obligation in a normal manner and it cannot be
faulted for negligence on the duty performed by the military. The existence of force majeure has been
established thus exempting PAL from payment of damages.

G.R. No. L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,vs.THE COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION,
respondents

Facts:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation
Law, decided to construct an office building on its 840 square meters lot located at the corner of Aduana
and Arzobispo Streets, Intramuros, Manila.
The... construction was undertaken by the United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager of said corporation.
The proposal was approved by plaintiff's board of directors and signed by its president
Roman Ozaeta, a third-party defendant in this case.
The plans and specifications for the building were prepared by the other third-party defendants Juan F.
Nakpil & Sons.  The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the
building in question sustained major damage.  The front columns of the building buckled, causing the
building to tilt forward dangerously.
The tenants vacated the... building in view of its precarious condition.  As a temporary remedial measure,
the building was shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the
partial collapse of the building against United Construction, Inc. and its President and General Manager
Juan J. Carlos as defendants.
Defendants in turn filed a third-party complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the building was due to the defects in the said plans
and specifications.
Issues:
The pivotal issue in this case is whether or not an act of God, - an unusually strong earthquake - which
caused the failure of the building, exempts from liability, parties who are otherwise liable because of their
negligence.
Ruling:
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil
Code, which provides:
"Art. 1723.  The engineer or architect who drew up the plans and specifications for a building is liable for
damages if within fifteen years from the completion of the structure the same should collapse by reason of
a defect in those plans and specifications, or... due to the defects in the ground.  The contractor is likewise
responsible for the damage if the edifice falls within the same period on account of defects in the
construction or the use of materials of inferior quality furnished by him, or due to any violation of the
terms... of the contract.  If the engineer or architect supervises the construction, he shall be solidarily
liable with the contractor.
On the other hand, the general rule is that no person shall be responsible for events which could not be
foreseen or which, though foreseen, were inevitable
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.
The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human agencies are to be excluded from creating or entering
into the cause of the mischief.
The negligence of the defendant and the third-party defendants petitioners was established beyond
dispute both in the lower court and in the Intermediate Appellate Court.  Defendant United Construction
Co., Inc. was found to have made substantial deviations from the plans... and specifications, and to have
failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree
of supervision; while the third-party defendants were found to have inadequacies or defects in the plans
and specifications prepared by... them.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals
that "while it is not possible to state with certainty that the building would not have collapsed were those
defects not present, the fact remains that several buildings in... the same area withstood the earthquake
to which the building of the plaintiff was similarly subjected", cannot be ignored.
There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the
partial and eventual collapse of the PBA building as a result of the earthquakes.
Principles:
Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that the immediate cause of the damage was the act
of God.  To be exempt from liability for loss because of an act... of God, he must be free from any
previous negligence or misconduct by which that loss or damage may have been occasioned.

Philippine National Bank VS ENCINA

GR 174055. February 12, 2008

The Philippine National Bank (PNB) assails the Decision of the Court of Appeals dated 15 May 2005,
rendered in CA-G.R. CV No. 79094 which, among others, declared null and void the interest rate imposed
by PNB on the loan obtained from it by respondents and the consequent extrajudicial foreclosure of the
properties offered as security for the loan.

Respondents Encina spouses acquired several loans from PNB from which it failed to pay within due
time. Encina avers that there ought to be longer gestation periods on its part being engaged in a business
of agricultural character.

ISSUE:

Was there a violation of the Usury Law?

RULING:

As borne by the records, the Encina spouses never challenged the validity of their loan and the
accessory contracts with PNB on the ground that they violated the principle of mutuality of contracts in
view of the provision therein that the interest rate shall be set by management. Their only contention
concerning the interest rate was that the charges imposed by the bank violated the Usury Law. This was
the essence of the second cause of action alleged in the complaint.

It should be definitively ruled in this regard that the Usury Law had been rendered legally
ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and
later by Central Bank Circular No. 905 which took effect on 1 January 1983 and removed the ceiling on
interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to
allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury
Law is within the range of judicial notice which courts are bound to take into account. After all, the
fundamental tenet is that the law is deemed part of the contract. Thus, the trial court was correct in ruling
that the second cause of action was without basis.

G.R. No. 207133, March 09, 2015

Facts:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell
covering one residential condominium unit with an area of 137.30 square meters for the total contract
price of P7,519,371.80, payable in equal monthly installments. Respondent likewise purchased a parking
slot in the same condominium building for P600,000.00.

On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit while
making a down payment of P20,000.00 for the parking lot. However, notwithstanding full payment of the
contract price, petitioner failed to complete and deliver the subject unit on time.  This prompted
respondent to file a Complaint for Rescission of Contract with Damages before the Housing and Land Use
Regulatory Board (HLURB).

The HLURB dismissed the respondent’s complaint, ruling that rescission is not permitted for slight or
casual breach of the contract but only for such breaches as are substantial and fundamental as to defeat
the object of the parties in making the agreement.
Respondent then elevated the matter to the HLURB Board of Commissioners, who then reversed the
earlier ruling, and ordered the rescission of the Contract to Sell, ratiocinating: The report on the ocular
inspection conducted on the subject condominium project and subject unit shows that the amenities under
the approved plan have not yet been provided as of May 3, 2002, and that the subject unit has not been
delivered to respondent as of August 28, 2002, which is beyond the period of development of December
1999 under the license to sell. The delay in the completion of the project as well as of the delay in the
delivery of the unit are breaches of statutory and contractual obligations which entitles respondent to
rescind the contract, demand a refund and payment of damages. The delay in the completion of the
project in accordance with the license to sell also renders petitioner liable for the payment of
administrative fine.
When the case reached the CA, the CA affirmed the decision of the HLURB Commissioners.

Hence, the appeal to SC.

Issues:
1. Discuss the SC’s ruling on the applicability of the rules to administrative agencies.

2. Whether or not the rescission of Contract to Sell was proper.

Ruling:
1. The period to appeal decisions of the HLURB Board of Commissioners is fifteen (15) days from receipt
thereof pursuant to Section 15 of PD No. 957 and Section 2 of PD No. 1344, which are special laws that
provide an exception to Section 1 of Administrative Order No. 18.

Thus, in the SGMC Realty Corporation v. Office of the President case, the xxx administrative order allows
aggrieved party to file its appeal with the Office of the President within thirty (30) days from receipt of the
decision complained of. Nonetheless, such thirty-day period is subject to the qualification that
there are no other statutory periods of appeal applicable. If there are special laws governing
particular cases which provide for a shorter or longer reglementary period, the same shall
prevail over the thirty-day period provided for in the administrative order. This is in line with
the rule in statutory construction that an administrative rule or regulation, in order to be valid,
must not contradict but conform to the provisions of the enabling law.
Indeed, there are special laws that mandate a shorter period of fifteen (15) days within which to appeal a
case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the decisions of
the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen (15) days
from the date of receipt of the decision. Second, Section 2 of Presidential Decree No. 1344 states that
decisions of the National Housing Authority shall become final and executory after the lapse of fifteen (15)
days from the date of its receipt. The latter decree provides that the decisions of the NHA is appealable
only to the Office of the President. Further, the regulatory functions of NHA relating to housing and land
development has been transferred to Human Settlements Regulatory Commission, now known as HLURB.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon, it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial
technicalities that litigants can just discard and disregard at will. Neither being a natural right nor a part of
due process, the rule is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law.

Time and again, rules of procedure exist for a noble purpose, and to disregard such rules, in the guise of
liberal construction, would be to defeat such purpose. Procedural rules are not to be disdained as mere
technicalities. They may not be ignored to suit the convenience of a party. The reason for the liberal
application of the rules before quasi-judicial agencies cannot be used to perpetuate injustice and hamper
the just resolution of the case. Neither is the rule on liberal construction a license to disregard the rules of
procedure.

Thus, while there may be exceptions for the relaxation of technical rules principally geared to attain the
ends of justice, petitioner’s fatuous belief that it had a fresh 15-day period to elevate an appeal with the
OP is not the kind of exceptional circumstance that merits relaxation.
2. YES. Rescission is proper.
Second, Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that
specific performance becomes impossible, to wit:

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 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.
Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code
is predicated on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation.
When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of compliance, the court shall decree
the rescission.

In the instant case, the CA aptly found that the completion date of the condominium unit was November
1998 but was extended to December 1999. However, at the time of the ocular inspection conducted by
the HLURB, the unit was not yet completely finished as the kitchen cabinets and fixtures were not yet
installed and the agreed amenities were not yet available.

From the foregoing, it is evident that the ocular inspection conducted on the subject
condominium project and subject unit shows that the amenities under the approved plan have
not yet been provided as of May 3, 2002, and that the subject unit has not been delivered to
respondent as of August 28, 2002, which is beyond the period of development of December
1999 under the license to sell. Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of contract as it failed to finish and deliver
the unit to respondent within the stipulated period. The delay in the completion of the project
as well as of the delay in the delivery of the unit are breaches of statutory and contractual
obligations which entitle respondent to rescind the contract, demand a refund and payment of
damages.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision dated January 24, 2013
and Resolution dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No. 121175 are hereby
AFFIRMED, with MODIFICATION that moral damages be awarded in the amount of P20,000.00

George C. Fong, Petitioner, vs. Jose V. Duenas, Respondent. (Gr. No. 185592, June 15, 2015)

BRION, J.:

Facts:

Sometime in November 1996, petitioner and respondent entered into a verbal joint venture
agreement where they agreed to engage in food business and to incorporate a holding company under the
name Alliance Holding, Inc. Its capitalization would be P65 Million to which they would contribute in equal
parts. The parties agreed that Fong would contribute P32.5 Million in cash while Duenas would contribute
all his share in Danton and Bakcom (his food manufacturing and retailing company) which he valued at
P32.5 Million. Fong required Duenas to submit the financial documents supporting the valuation of these
shares. In 1997, Fong sent Duenas a letter informing him that he is limiting his total contribution to P5
Million because of certain personal factors. After sometime, Duenas still failed to show the financial
documents on the valuation of Danton and Bakcom. He also failed to incorporate and register Alliance with
the SEC thus prompting Fong to cancel the joint venture and to request for the refund of the P5 Million.
Demands to have the P5 Million refunded proved futile which led to the institution of complaint for
collection of sum of money by Fong. The RTC decided in favour of Fong which was reversed on appeal by
the CA because according to the latter, the 1997 letter of Fong evidenced his intention to convert his cash
contributions from advances to mere investments. It is therefore, according to the CA, right for Duenas to
apply the P5 Million on Bakcom and Danton which would eventually form part of the Alliance.

Issue:

1. Whether the case is an action for rescission or a collection for sum of money.
2. Whether rescission under Article 1191 is applicable in the present case.

Ruling:

1. The case is an action for rescission.

An examination of Fong’s complaint shows that although it was labeled as an action for a sum of money
and damages, it was actually a complaint for rescission. The following allegations in the complaint support
this finding:

9. Notwithstanding the aforesaid remittances, defendant failed for an unreasonable length of time to
submit a valuation of the equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed to accomplish the organization and
incorporation of the proposed holding company, contrary to his representation to promptly do so.
x xxx
17. Considering that the incorporation of the proposed holding company failed to materialize, despite the
lapse of one year and four months from the time of subscription, plaintiff has the right to revoke his pre-
incorporation subscription. Such revocation entitles plaintiff to a refund of the amount of P5,000,000.00
he remitted to defendant, representing advances made in favor of defendant to be considered as payment
on plaintiff’s subscription to the proposed holding company upon its incorporation, plus interest from
receipt by defendant of said amount until fully paid. [Emphasis supplied.]

Fong’s allegations primarily pertained to his cancellation of their verbal agreement because Dueñas
failed to perform his obligations to provide verifiable documents on the valuation of the Danton’s and
Bakcom’s shares, and to incorporate the proposed corporation. These allegations clearly show that what
Fong sought was the joint venture agreement’s rescission.

As a contractual remedy, rescission is available when one of the parties substantially fails to do
what he has obligated himself to perform. It aims to address the breach of faith and the violation of
reciprocity between two parties in a contract. Under Article 1191 of the Civil Code, the right of rescission is
inherent in reciprocal obligations, viz:

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. [Emphasis supplied.]

xxxDueñas failed to appreciate that the ultimate effect of rescission is to restore the parties to their
original status before they entered in a contract. As the Court ruled in Unlad Resources v. Dragon:

Rescission has the effect of “unmaking a contract, or its undoing from the beginning, and not merely its
termination.” Hence, rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to each other, but to abrogate it
from the beginning and restore the parties to their relative positions as if no contract has been made.

1. Rescission under Article 1191 is applicable in the present case.

Reciprocal obligations are those which arise from the same cause, in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent on the obligation of the other.
Fong and Dueñas’ execution of a joint venture agreement created between them reciprocal obligations
that must be performed in order to fully consummate the contract and achieve the purpose for which it
was entered into.

xxx Aside from unilaterally applying Fong’s contributions to his two companies, Dueñas also failed to
deliver the valuation documents of the Danton and Bakcom shares to prove that the combined values of
their capital contributions actually amounted to P32.5 Million.

xxx

However, the Court notes that Fong also breached his obligation in the joint venture agreement.

Fong’s diminution of his capital share to P5 Million also amounted to a substantial breach of the joint
venture agreement, which breach occurred before Fong decided to rescind his agreement with
Dueñas. Thus, Fong also contributed to the non-incorporation of Alliance that needed P65 Million as capital
to operate.

Fong cannot entirely blame Dueñas since the substantial reduction of his capital contribution also greatly
impeded the implementation of their agreement to engage in the food business and to incorporate a
holding company for it.

As both parties failed to comply with their respective reciprocal obligations, we apply Article 1192 of the
Civil Code, which provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own damages. [Emphasis
supplied.]

xxx

As the Court cannot precisely determine who between the parties first violated the agreement, we apply
the second part of Article 1192 which states: “if it cannot be determined which of the parties first violated
the contract, the same shall be deemed extinguished, and each shall bear his own damages.”

In these lights, the Court holds that the joint venture agreement between Fong and Dueñas is  deemed
extinguished through rescission under Article 1192 in relation with Article 1191 of the Civil Code. Dueñas
must therefore return the P5 Million that Fong initially contributed since rescission requires mutual
restitution.After rescission, the parties must go back to their original status before they entered into the
agreement. Dueñas cannot keep Fong’s contribution as this would constitute unjust enrichment.

Spouse Velarde, vs. Court of Appeals [G.R. No. 108346, July 11, 2001]

FACTS:

David Raymund executed a Deed of Sale with Assumption of Mortgage in favor if Avelina Velarde for a
parcel of land under TCT 142177. The land together with the house and improvements thereon were
mortgaged by David Raymundo to BPI to secure a loan of 1.8M.  As part of the consideration of the sale,
the Avelina Velarde assumes to pay the mortgage obligations on the property.  The Application for
Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to make any further
payment.

David and George Raymundo, thru counsel, wrote Sps. Velarde informing the latter that their non-
payment to the mortgage bank constitute[d] non-performance of their obligation

Sps. Velarde, thru counsel, responded, as follows:

(a) you deliver actual possession of the property to her not later than January 15, 1987 for her immediate
occupancy;

(b) you cause the re- lease of title and mortgage from the Bank of P.I. and make the title available and
free from any liens and encumbrances; and

(c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than
January”

David and George Raymundo sent Sps. Velarde a notarial notice of cancellation/rescission of the intended
sale of the subject property allegedly due to the latter’s failure to comply with the terms and conditions of
the Deed of Sale with Assumption of Mortgage and the Undertaking.

Issues:

1. Whether there was a breach of contract.

Ruling:

First Issue:

Yes. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in money or its equivalent.

Private respondents had already performed their obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the property to petitioner through constructive delivery. Prior
physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed
equivalent to delivery.

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in
the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those
stipulated in the contract before fulfilling their own obligation to pay the full purchase price.

Second Issue:

Yes. Private respondents validly exercised their right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to
private respondent’s right to rescind the same in accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one month after it
became due; however, this was not equivalent to actual payment as would constitute a faithful compliance
of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private
respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot
be said that the breach committed by petitioners was merely slight or casual as would preclude the
exercise of the right to rescind.