FOR JULY 16, 2008:

F. REMEDIES FOR BREACH OF OBLIGATIONS:

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170 (damages), may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery.

Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense.

Article 1170. Those who in the performance of their OBLIGATIONS are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. parang cession Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.

(except when the law provide, stipulation)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.

Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the court. 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.

Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his OBLIGATIONS, subject to the exemptions provided by law. (Concurrence and Preference of Credits)

Article 302. Neither the right to receive legal support nor any money or property obtained as such support or any pension or gratuity from the government is subject to attachment or execution. (Support) Article 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and medical attendance. (Contract Labor)FAMILY CODE:Article 153. The family home is deemed constituted on a house and lot from the time it is occupied as a family residence. From the time of its constitution and so long as any of its beneficiaries actually resides therein, the family home continues to be such and is exempt from execution, forced sale or attachment except as hereinafter provided and to the extent of the value allowed by law.

Article 155. The family home shall be exempt from execution, forced sale or attachment except:

(1) For nonpayment of taxes;

(2) For debts incurred prior to the constitution of the family home;

(3) For debts secured by mortgages on the premises before or after such constitution; and

(4) For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. Rules of Court- RULE 39, SEC. 13:Section 13. Property exempt from execution.

Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution: FOCAUPLBELASE

The judgment obligor's Family home as provided by law, or the homestead in which he resides, and land necessarily used in connection therewith; Ordinary tools and implements personally used by him in his trade, employment, or livelihood;

Three horses, or three cows, or three Carabaos, or other beasts of burden, such as the judgment obligor may select necessarily used by him in his ordinary occupation;

His necessary clothing and Articles for ordinary personal use, excluding jewelry;

Household furniture and Utensils necessary for housekeeping, and used for that purpose by the judgment obligor and his family, such as the judgment obligor may select, of a value not exceeding one hundred thousand pesos; Provisions for individual or family use sufficient for four months;

The professional Libraries and equipment of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen, teachers, and other professionals, not exceeding three hundred thousand pesos in value;

One fishing Boat and accessories not exceeding the total value of one hundred thousand pesos owned by a fisherman and by the lawful use of which he earns his livelihood;

So much of the salaries, wages, or Earnings of the judgment obligor for his personal services within the four months preceding the levy as are necessary for the support of his family; Lettered gravestones;

Monies, benefits, privileges, or Annuities accruing or in any manner growing out of any life insurance;

The right to receive legal Support, or money or property obtained as such support, or any pension or gratuity from the Government;

Properties specially Exempted by law.

But no article or species of property mentioned in this section shall be exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.

Tolentino:

Remedy under Article 1165 REMEDIES OF CREDITOR: For failure of debtor to comply,1. SPECIFIC PERFORMANCE, to obtain compliance of the prestations, whether determinate or generic; this action implies a contractual relation;2. TO RESCIND OR RESOLVE THE OBLIGATION

3. AN ACTION FOR DAMAGES exclusively or in addition to 1 and 2.

Constitutional prohibition vs. imprisonment for debt applies, except in subsidiary imprisonment when civil liability arising from crime is not paid; or in contempt;

Exception to exception on the General rule under Fortuitous Event: Debtor in default may still prove that he is not liable for fortuitous event because even if he had not performed, the loss would still have occurred in the same manner.

Remedy under Article 1167 Performance of OBLIGATION by another at creditors choice and at debtors cost court may not by discretion merely award damages to creditor when the OBLIGATION may be done in spite of debtors refusal to do so;

But, law may not compel or force debtor to comply with OBLIGATION, if to do so, would amount to involuntary servitude, and since worthy is the rule that if there is debt, then there is no imprisonment. If OBLIGATION can only be done by debtor (personal), then the only remedy is to ask for damages.

Remedy under Article 1168 OBLIGATION NOT TO DO was done may compel debtor to UNDO what he has done;-( or it shall be undone at his expense)---- but if impossible to undo so, the remedy is to ask for damages.

Remedy under Article 1170 (FNDC) RECOVERABLE DAMAGES = when the OBLIGATION is to do something other than the payment of money;

If OBLIGATION is payment of money, Article 2209 is the rule in relation to damages when debtors incurs in delay, there is payment of interest if without stipulation to the contrary, as agreed upon, or if no agreement, the legal interest will do.

Article 2209. If the obligation consists in the payment of sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulations to the contrary, shall be the payment of the interest agreed upon, and the absence of stipulation, the legal interest (12%). Remedy under Article 1177 RIGHTS OF CREDITORS:

1. To levy by attachment and execution upon all the property of debtor except if exempt by law;

2. To exercise all the rights and actions of the debtor, except those inherently personal to him; accion subrogatoria; prior court approval is not required.

This should concur with the following: requisites:

a. Creditor has interest in the right or action not only because of his credit but that of the insolvency of debtor;

b. Malicious or negligent inaction of debtor at level which endanger the claim of Creditor;

c. Debtors right against 3rd person must be patrimonial, or susceptible of being transformed to patrimonial value.

3. Ask for rescission of contracts made by debtor in fraud of Creditors rights.

Balane:

Q: Against what can the obligee demand performance?A: Against non-exempt properties of the debtor. -- The debtor is liable with all his property, present and future, for the fulfillment of his OBLIGATIONS, subject to the exemptions provided by law. (Article 2236)

If number one is not enough, the creditor goes to any claims which the debtor may have against third persons. This is called accion subrogatoria, wherein the creditor is subrogated in the rights of the debtor.Personal rights of the debtor:1. Right to subsistence, support he receives are exempt

2. Public rights;

3. Rights pertaining to honor

4. Right to use remaining powers available to him, e.g. SPA of agency or deposit; administrator; to accept a contract

5. Non-patrimonial rights establish status, legitimate or illegitimate child; annulment of marriage, legal separation, those arising from Persons and Family Relations;

6. Personal rights arising from patrimonial source, e.g. to revoke a donation due to ingratitude, to demand exclusion of an unworthy heir;

Accion pauliana (Articles 1380-89) -- This is the right of creditors to set aside fraudulent transfers which the debtor made so much of it as is necessary to pay the debts.

pertains to acts which debtor may have done in fraud of creditor E.g. alienation of property, renunciation of inheritance or right of usufruct, assignment of credit, remission of debts.(1) EXTRAJUDICIAL REMEDIES:(a) EXPRESSLY GRANTED BY LAW

(b) STIPULATED BY THE PARTIES(a) EXPRESSLY GRANTED BY LAW, extrajudicial remedies(In OBLIGATIONS of the Partners)Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand.

Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (In Delivery of the Thing Sold)Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has:

(1) A lien on the goods or right to retain them for the price while he is in possession of them;

(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;

(3) A right of resale as limited by this Title;

(4) A right to rescind the sale as likewise limited by this Title.

Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer.

(2) JUDICIAL REMEDIES:(a) PRINCIPAL REMEDY Article 1191 or Article 1170

(b) SUBSIDIARY REM Articles 1380 /1177

(c) ANCILLARY REM Rules of Court

(a) PRINCIPAL REMEDY 1191 / 1170Article 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.

Notes:

Two remedies are alternative and not cumulative, subject to the exception in par. 2 where he may also seek rescission even after he has chosen fulfillment if the latter should become impossible

Article 1170. Those who in the performance of their obligation are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages.(b) SUBSIDIARY REM Articles 1380 /1177Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (Rescissible Contracts)Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them.Note:Rescission in reciprocal OBLIGATION in Article 1191 is not identical to Rescission of contracts in Article 1380 and the succeeding provisions thereto.

Requisites of Rescission of a contract under Article 1380:A rescissible contract provided for under Article 1381 and 1382;

No other legal means to obtain reparation for damages (Article 1383);

The person demanding rescission must be able to return whatever he may be obliged to restore if rescission be granted (Article 1385);

The objects of contract must not have passed legally to the possession of a of 3rd person in good faith (Article 1385);

Actions for rescission must be brought within 4 years (Article 1389).

Rescindable contracts are valid until voided and cant be attacked collaterally as in a land registration proceeding. Direct proceeding is therefore necessary.

Rescission only for legal cause, as those in Article 1381 and 1382.

Lesion under Article 1381 par. 1 and 2, for those to give rise to rescission, must be known or could have been known at the time of making the contract, and not due to circumstances subsequent thereto or unknown to the parties.

Accion Pauliana: Actions to set aside contracts in fraud of Creditors (Article 1381 par. 3)

Requisites for Accion Pauliana:1. Plaintiff: Asking for rescission has a credit prior to alienation, though demandable later;

2. Debtor has made a subsequent contract conveying a patrimonial benefit to 3rd person;

3. Creditor-Plaintiff has no other legal remedy to satisfy his claim;

4. Act being impugned is fraudulent;

5. The 3rd person who received property, if by onerous title, is accomplice in the fraud.

Rescission is a subsidiary action, which presupposes that the Creditor has exhausted the properties of the debtor. And that fraudulent conveyance must be shown.

Test: WON conveyance by debtor a bona fide transmission.Badges/ Signs of Fraud:1. consideration of conveyance is inadequate

2. transfer made by Debtor after suit has begun and while pending action against him

3. a sale upon credit by insolvent Debtor

4. evidence of large indebtedness or complete insolvency

5. transfer of all or nearly all of property of Debtor who is insolvent or greatly embarrassed financially

6. transfer is made between father and son

7. failure of vendee to take exclusive possession of property

8. If alienation is gratuitous, good faith of transferee does NOT protect him over the owner; otherwise that amounts to Unjust enrichment

9. If alienation is by onerous title, transferee must be a party to the fraud, to have rescission

As a rule, Rescission benefits only Creditor who obtained Rescission. And the extent of revocation is only to the amount of prejudice suffered by Creditor. As to the excess, the alienation is maintained.

Actions for Rescission may be brought by: (1) the person injured by the rescission of the contract;

(2) heirs of this person, and

(3) their Creditors by virtue of right granted under Article 1177.

Notes:

Right of transferee to retain property depends upon the nature of the transfer and upon the complicity of the former in the fraud.

When contract cant be rescinded because 3rd person who is in good faith, the party who caused the loss is liable for the damages.

Badges of fraud, and Article 1387: Presumptions. May be rebutted by satisfactory and convincing evidence.

Article 1388: Creditor with action only against subsequent transferees only when an action lies against the 1st transferee. If 1st Transferee is in Good Faith, there is no liability. But if the 1st Transferee is in Bad Faith, the rescissible character of 2nd alienation depends upon how 2nd Transferee acquired the thing.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 creditor 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.

Article 1192. In case both parties have committed a breach of the obligation, the liability of the 1st infractor shall be equally tempered bye the creditors. If it cannot be determined which of the parties 1st violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.According to Tolentino:

Similarities between Rescission under Article 1191 and Article 1380 include the following:

(1) both presuppose contracts validly entered into and existing, and

(2) both require mutual restitution when declared proper.

Differences:

(1) Rescission under Article 1191 may be demanded only by party to the contract, while under Article 1380 by 3rd person prejudiced by the contract;

(2) Rescission under Article 1191 may be denied when there is sufficient reason to justify extension of time to perform, while under Article 1380 such reason does NOT affect right to ask for rescission;

(3) Non-performance is the only ground for rescission under Article 1191 while there are various reasons of equity as grounds under Article 1191 applies only to reciprocal obligations where one party has not performed, while under Article 1380, OBLIGATION may be unilateral or reciprocal and even when contract has been fulfilled.

Case: UNLAD Resources Dev. Co., UNLAD Rural Bank of Noveleta, Inc., UNLAD Commodities, Inc., Helena Benitez and Conrado Benitez II vs. Renato Dragon, et al., July 28, 2008, J. Nachura.Facts: Herein respondents and petitioner entered into a Memorandum of Agreement wherein it is provided that respondents, as controlling stockholders of Rural Bank shall allow Unlad Resources to invest P4.8 Million in the Rural Bank in a form of additional equity. Likewise, Unlad Resources, upon signing, it was agreed that the former shall subscribe to a minimum of 480,000 common or preferred non-voting share of stock and pay immediately 1,200,000 for said subscription, and that upon signing, said agreement shall transfer control and management over Rural Bank to Unlad. According to respondents, immediately after signing, they complied with their obligation and transferred control of Rural Bank to Unlad, thereby renaming the Bank into Unlad Rural Bank of Noveleta. However, despite repeated demands, Unlad has failed and refused to comply with their obligations as agreed upon. On August 10, 1984, the Board of Directors of [petitioner] Unlad Resources passed Resolution No. 84-041 authorizing the President and the General Manager to lease a mango plantation situated in Naic, Cavite. Pursuant to this Resolution, the Bank as [lessee] entered into a Contract of Lease with the [petitioner] Helena Z. Benitez as [lessor]. The management of the mango plantation was undertaken by Unlad Commodities, Inc., a subsidiary of Unlad Resources[,] under a Management Contract Agreement. The Management Contract provides that Unlad Commodities, Inc. would receive eighty percent (80%) of the net profits generated by the operation of the mango plantation while the Banks share is twenty percent (20%). It was further agreed that at the end of the lease period, the Rural Bank shall turn over to the lessor all permanent improvements introduced by it on the plantation.

On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the] Central Banks approval to retire its [Development Bank of the Philippines] preferred shares in the amount ofP219,000.00 and giving notice for subscription to proportionate shares. The [respondents] objected on the grounds that there is already a sinking fund for the retirement of the said DEBTORP-held preferred shares provided for annually and that it could deprive the Rural Bank of a cheap source of fund. (sic)

[Respondents] alleged compliance with all of their obligations under the Memorandum of Agreement in that they have transferred control and management over the Rural bank to the [petitioners] and are ready, willing and able to allow [petitioners] to subscribe to a minimum of four hundred eighty thousand (P480,000.00) (sic) common or preferred non-voting shares of stocks with a total par value of four million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank. However, [petitioners] have failed and refused to subscribe to the said shares of stock and to pay the initial amount of one million two hundred thousand pesos (P1,200,000.00) for said subscription.

On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of Makati City, Branch 61 a Complaint4for rescission of the agreement and the return of control and management of the Rural Bank from petitioners to respondents, plus damages. RTC ruled in favor of the respondents. Hence, petitioners appeal. But CA affirmed the RTC decision. Issues: (1) Whether or not the action for rescission had already prescribed.

(2) Whether or not the action for rescission is proper.Held:

(1) NO. Article 1389. The action to claim rescission must be commenced within four years x x x.

This is an erroneous proposition. Article 1389 specifically refers to rescissible contracts as, clearly, this provision is under the chapter entitled "Rescissible Contracts."

In a previous case, this Court has held that Article 1389: applies to rescissible contracts, as enumerated and defined in Articles 1380 and 1381. We must stress however, that the "rescission" in Article 1381 is not akin to the term "rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article.

The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144, which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues.

Article 1381 sets out what are rescissible contracts, to wit:

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.The Memorandum of Agreement subject of this controversy does not fall under the above enumeration. Accordingly, the prescriptive period that should apply to this case is that provided for in Article 1144, to wit:

Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

x x x xBased on the records of this case, the action was commenced on July 3, 1987, while the Memorandum of Agreement was entered into on December 29, 1981. Article 1144 specifically provides that the 10-year period is counted from "the time the right of action accrues." The right of action accrues from the moment the breach of right or duty occurs.13Thus, the original Complaint was filed well within the prescriptive period.

(2) YES. There is no question that petitioners herein failed to fulfill their obligation under the Memorandum of Agreement. Even they admit the same, albeit laying the blame on respondents.

It is true that respondents increased the Rural Banks authorized capital stock to onlyP5 million, which was not enough to accommodate theP4.8 million worth of stocks that petitioners were to subscribe to and pay for. However, respondents failure to fulfill their undertaking in the agreement would have given rise to the scenario contemplated by Article 1191 of the Civil Code, which reads:Article 1191. The power to rescind reciprocal 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.Thus, petitioners should have exacted fulfillment from the respondents or asked for the rescission of the contract instead of simply not performing their part of the Agreement. But in the course of things, it was the respondents who availed of the remedy under Article 1191, opting for the rescission of the Agreement in order to regain control of the Rural Bank.

Having determined that the rescission of the subject Memorandum of Agreement was in order, the trial court ordered petitioner Unlad Resources to return to respondents the management and control of the Rural Bank and for the latter to return the sum ofP1,003,070.00 to petitioners.Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.In this case, indemnity for damages may be demanded from the person causing the loss.This Court has consistently ruled that this provision applies to rescission under Article 1191:

Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest," the Court finds no justification to sustain petitioners position that said Article 1385 does not apply to rescission under Article 1191. Rescission has the effect of "unmaking a contract, or itsundoing from the beginning, and not merely its termination."16Hence, 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.

Accordingly, when a decree for rescission is handed down, it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation. The rescission has the effect of abrogating the contract in all parts. Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause for rescission. With the contract thus rescinded, the parties must be restored to the status quo ante, that is, before they entered into the Memorandum of Agreement.Case: Central Bank of the Philippines and Acting Director Antonio Castro, Jr. of the Department of Commercial and Savings Bank (In his capacity as statutory receiver of Island Savings Bank) vs. CA and Sulpicio Tolentino, October 3, 1985, C.J. Makasiar.Facts: Islands Savings Bank approved the loan application of Tolentino for P80,000. To secure the loan, Tolentino executed a real estate mortgage on his 100-hectare land. Only P17,000 was released by the Bank, for which Tolentino executed a promissory note payable within 3 years. The balance was not released. In 1965, the Monetary Board of the Central Bank issued Resolution No. 1049 prohibiting the Bank from doing business in the Philippines. The Bank filed an application for extrajudicial foreclosure of the real estate mortgage of Tolentino for non-payment of the promissory note for P17,000. In turn, Tolentino filed an action for injunction, specific performance or rescission, alleging that the Bank failed to fulfill its obligation to lend the balance of P63,000.Issues:Whether or not Tolentino can compel specific performance.Held: NO. When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. We rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.We hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt.Case: Universal Food Corporation vs. CA and Magdalo Francisco Sr. and Victoriano Francisco, (1970), J. Castro.FACTS: Magdalo V. Francisco, Sr. PATENTEE or owner and author of the formula for MAFRAN SAUCE, manufactured and distributed by UFC, filed with the CFI-Manila, an action for rescission of a contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any right to the use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to order UFC to pay Magdalo his unpaid salary from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit.

Petitioner UFC contends that the CA erred in granting above prayers of plaintiff, holding that right to specific performance is not conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent patentee ceded and transferred to the petitioner the formula for Mafran sauce.

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: (1) 2% ROYALTY; provisions to preserve utmost secrecy and monopoly of the formula by the patentee; etc.ISSUE: WON the rescission of the Bill of Assignment by the CA is proper.

In this connection, we quote for ready reference the following articles of the new Civil Code governing rescission of contracts: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 of the Mortgage Law.ARTICLE 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.ARTICLE 1384. Rescission shall be only to the extent necessary to cover the damages caused.HELD: YES. 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 fulfillment and rescission of the obligation, with payment of damages in either case.In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances. The petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.

However, in this case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or negligence on his pArticle Thus, apart from the legal principle that the option to demand performance or ask for rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest. In the Separate Opinion: REYES, J.B.L., J., concurring:

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco, should be denied because under Article 1383, NCC rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, 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. (Rescission for breach of contract under Article 1191) The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his OBLIGATIONS by the defendant. This rescission is in principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary.(Rescission by reason of lesion or economic prejudice, under Article 1381, et seq.) On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not, apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action.Case: Magdalena Estate, Inc. Vs. Louis Myrick, March 14, 1941, J. Laurel.FACTS: Magdalena Estate, Inc. sold to Louis J. Myrick parcel of lots in San Juan Subdivision, San Juan Rizal, with contract of sale providing for the price which shall be payable in 120 equal monthly installments of each on the 2nd day of each month from the date of execution of the agreement. Simultaneously, the vendee executed and delivered to the vendor a Promissory Note for the whole purchase price. Myrick made several installment payments the last being Oct. 1930, but was in default as to May payment.

Thus, vendor notified the vendee that, in view of his inability to comply with the terms of their contract, said agreement had been cancelled as of that date, thereby relieving him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor of the vendor, who assumes the absolute right over the lots in question. 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.

Myrick, respondent herein, commenced the present action in CFI-Albay, against MEI for the sum of P2,596.08 with legal interest thereon from the filing of the complaint until its payment, and for costs of the suit. Lower court granted, CA affirmed with modification that legal interest should be computed from the date of the cancellation of the contract. Thus this petition.ISSUE: WON petitioners contention is correct, that a bilateral contract may be resolved or cancelled only by the prior mutual agreement of the parties, which is approved by the judgment of the proper court; and that the letter of MEI was not assented to by the respondent, and therefore, cannot be deemed to have produced a cancellation, even if it ever was intended.HELD: Where the terms of writing are clear, positive and unambiguous, the intention of the parties should be gleaned from the language therein employed, which is conclusive in the absence of mistake. The letter said cancelled and it was unequivocal.

The fact that the contracting parties herein did not provide for resolution is now of no moment, for the reason that the OBLIGATIONS arising from the contract of sale being reciprocal, such OBLIGATIONS are governed by article 1124 of the Civil Code which declares that the power to resolve, in the event that one of the obligors should not perform his part, is implied.Upon the other hand, where, as in this case, the petitioner cancelled the contract, advised the respondent that he has been relieved of his OBLIGATIONS thereunder, and lead said respondent to believe it so and act upon such belief, the petitioner may not be allowed, in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), in any litigation the course of litigation or in dealings in nais, be permitted to repudiate his representations, or occupy inconsistent positions, or, in the letter of the Scotch law, to "approbate and reprobate."The contract of sale, contract SJ-639, 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 to cancel the contract, cannot avail himself of the other remedy of exacting performance. (Osorio & Tironavs. Bennet & Provincial Board of Cavite, 41 Phil., 301; Yap Unkivs. Chua Jamco, 14 Phil., 602.) As a consequence of the resolution, the parties should be restored, as far as practicable, to their original situation (Po Paucovs. Siguenza,supra) which can be approximated only by ordering, as we do now, the return of the things which were the object of the contract, with their fruits and of the price, with its interest (article 1295, Civil Code), computed from the date of the institution of the action. (Verceluzvs. Edao, 46 Phil. 801.)

Case: University of the Philippines vs. Walfrido Delos Angeles (Judge of CFI in Quezon City), September 29, 1970, JBL Reyes.Facts: In the provinces of Laguna and Quezon, Land Grants were segregated from the public domain and given as an endowment to UP, to be operated and developed for the purpose of raising additional income for its support, pursuant to Act 3608.

In 1960, UP and ALUMCO (Associated Lumber Manufacturing Co.) entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay. After it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the President of UP, and which stipulated the following:

3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, 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 or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged.

Thus, UP informed ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960; and UP filed a complaint against ALUMCO at CFI-Rizal, for the collection or payment of sums of money with prayer for injunction. But before preliminary injunction may be issued, UP had taken steps to have another concessionaire to take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966. ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court. Thus, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding and for preliminary injunction. Respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.UP received the TRO after it had concluded its contract with Sta. Clara, and said company had started logging operations. On motion, ALUMCO and one Jose Rico, the court, declared petitioner UP in contempt of court and Sta. Clara Lumber to refrain from exercising logging rights or conducting logging operations in the concession.

UPs MR was denied. ISSUE: Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. HELD: YES. In the first place, UP and ALUMCO had expressly stipulated that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement as rescinded without the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276: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.Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.Case: Jose Zulueta vs. Hon. Mariano and Lamberto Avellana, January 30, 1982, J. Melencio-Herrera.FACTS: Petitioner Jose C. Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision, Pasig, Rizal. On November 6, 1964, petitioner Zulueta and private respondent Lamberto Avellana, a movie director, entered into a "Contract to Sell" the aforementioned property for P75,000.00 payable in twenty years with respondent buyer assuming to pay a down payment of P5,000.00 and a monthly installment of P630.00 payable in advance before the 5th day of the corresponding month, starting with December, 1964 WITH FURTHER SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH contract.Avellana occupied the property but title remained with petitioner Zulueta. Upon the allegation that respondent had failed to comply with the monthly amortizations stipulated in the contract, despite demands to pay and to vacate the premises, and that thereby the contract was converted into one of lease, petitioner, commenced an ejectment suit against respondent before the MTC-Pasig. Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract; and made some affirmative defenses and counterclaim. Lower court found in favor of plaintiff, and asked defendant to vacate and pay back rentals, etc. CA reversed and ruled against the Justice of the Municipal Court finding the case as one of interpretation and rescission of contract because the contract to sell was converted to contract of lease. MR denied.ISSUE: WON the original contract to sell was rescinded due to the automatic rescission clause in the contract, thus the case was unlawful detainer cognizable by the MTC or one of judicial rescission of contract cognizable by then CFI.HELD: Thus, the basic issue is not possession but one of rescission or annulment of a contract, which is beyond the jurisdiction of the Municipal Court to hear and determine. A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or rescind it. An allegation of such violation in a detainer suit may be proved by competent evidence. And if proved a justice of the peace court might make a finding to that effect, but it certainly cannot declare and hold that the contract is resolved or rescinded. It is beyond its power so to do. And as the illegality of the possession of realty by a party to a contract to sell is premised upon the resolution of the contract, it follows that an allegation and proof of such violation, a condition precedent to such resolution or rescission, to render unlawful the possession of the land or building erected thereon by the party who has violated the contract, cannot be taken cognizance of by a justice of the peace court xxxTrue, the contract between the parties provided for extrajudicial rescission. This has legal effect, however, where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary.

A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and' determination. But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal, he erred in assuming original jurisdiction, in the face of the objection interposed by petitioner. Section 11, Rule 40, leaves no room for doubt on this point:

Section 11. Lack of jurisdiction. A case tried by an inferior court without jurisdiction over the subject matter shall be dismiss on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance may try the case on the merits, if the parties therein file their pleadings and go to trial without any objection to such jurisdiction.

There was no other recourse left for respondent Judge, therefore, except to dismiss the appeal.

If an inferior court tries a case without jurisdiction over the subject-matter on appeal, the only authority of the CFI is to declare the inferior court to have acted without jurisdiction and dismiss the case, unless the parties agree to the exercise by the CFI of its original jurisdiction to try the case on the merits.

The foregoing premises considered, petitioner's prayer for a Writ of Execution of the judgment of the Municipal Court of Pasig must perforce to be denied. Case: Palay, Inc. and Albert Onstott vs, Jacobo Clave (Presidential Executive Assistant National Housing Authority) and Nazario Dumpit, Sept. 21, 1983, J. Melencio-Herrera.FACTS: Petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subd. in Antipolo, Rizal, owned by said corporation. The sale price was P23,300.00 with 9% interest p.a., payable with a down-payment of P4,660.00 and monthly installments of P246.42 until fully paid. Contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying petitioners informed respondent that his Contract to Sell had long been rescinded and the lot had already been resold.Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund. NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott, jointly and severally, to refund immediately to Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint. Petitioners' MR was denied. Appeal to the OP was also denied.ISSUE: Whether the rescission of the contract is proper.HELD: NO. Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions.

However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los Angeles the act of a party in treating a contract as cancelled should be made known to the other. In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for the Court to determine whether resolution of the contract by petitioners was warranted.

We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution, as held in theU.P. vs. Angeles case, supraPetitioner relies onTorralba vs. De los Angeles8where it was held that "there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments, the contract between the parties was deemedipso factorescinded." However, it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract although the contract entitled the seller to immediate repossessing of the land upon default by the buyer.The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on September 14, 1972, when it specifically provided:Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of thenotice of cancellationor the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. (Emphasis supplied).

The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully accorded.9Moreover, it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments.Case: Buenaventura Angeles, et al. Vs. Ursula Torres Calasanz, et al., March 18, 1985, J. Gutierrez, Jr.FACTS: Ursula Torres Calasanz and Tomas 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 P 41.20 until fully paid, the installments 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 numerous occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees. On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants. The plaintiffs-appellees filed with CFI-Rizal to compel the defendants-appellants 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 of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land. The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the said contract. The lower court rendered judgment in favor of the plaintiffs-appellees. MR denied.ISSUE: WON the contract to sell has been automatically and validly cancelled by the defendants-appellants.HELD: NO. The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that; The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo and Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances.The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Article 1234 If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

We agree with the observation of the lower court to the effect that:

Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis.

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

Case: Solomon Boysaw and Alfredo Yulo, Jr. vs. Interphil Promotions, Inc., Lope Sarreal and Manuel Nieto, March 20, 1987, J. Fernan.FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage with Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions, Inc.

Ketchum on his own behalf assigned to J. Amado Araneta the managerial rights over Solomon Boysaw, presumably in preparation for his engagement with Elorde. Then, Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over Boysaw. The next day, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the Philippines.Yulo, Jr. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of May 1, 1961. On the same date, on behalf of Interphil, Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw, of which he had not been formally notified, and requesting that Boysaw be called to an inquiry to clarify the situation.

The GAB called a series of conferences and changed the schedule the Elorde-Boysaw fight. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB. Yulo, Jr. refused to accept the change in the fight date.The fight never materialized. Thus, Boysaw and Yulo, Jr. sued Interphil, Sarreal, and Nieto in CFI-Rizal for damages.ISSUE: Whether or not Boysaw can compel the fulfillment of the contract.HELD: NO. 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. [Part 1, Article 1191, Civil Code].

There is no doubt that the contract in question gave rise to reciprocal OBLIGATIONS. "Reciprocal OBLIGATIONS are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino]

The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform for he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach [Seva vs. Alfredo Berwin 48 Phil. 581].

Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the original contract which, to be valid, should have been consented to by Interphil.Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. [Article 1293]Creditor not bound to deal with unilaterally substituted debtor - Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.

The consent of the creditor to the change of debtors, whether in expromision or delegacion is an, indispensable requirement . . . Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the creditor should agree to accept the substitution in order that it may be binding on him.

Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under which he transfers to z all his rights under the first contract, together with the OBLIGATIONS thereunder, but such transfer is not consented to or approved by x, there is no novation. X can still bring his action against y for performance of their contract or damages in case of breach. [Tolentino]

From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable.

We uphold the appellees' contention that since all the rights on the matter rested with the appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had earlier agreed to abide by the GAB ruling.Case: Pilipinas Bank vs. IAC and Jose Diokno and Carmen Diokno, June 30, 1987, J. Paras.FACTS: Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and private respondents, Jose W. Diokno and Carmen I. Diokno, as vendees executed a Contract to Sell over a parcel of land in Victoria Valley Subdivision in Antipolo, Rizal, subject to terms and conditions as stipulated. At vendees failure to pay, vendor sent several demands for the former to settle arrearages, requests for extensions were give, further demand was again given several times, until a Notice of rescission was given to Carmen Diokno after she informed the Corp. that she wanted an audience with the Pres. because she had a prospective buyer of the property.Thus, private respondents filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in their favor, and to deliver to them the title of the lot in question. Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees, claiming that Contract to Sell has been automatically rescinded or cancelled by virtue of private respondents' failure to pay the installments due in the contract under the automatic rescission clause. After trial, the lower court rendered a decision in private respondents' favor, holding that petitioner could not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967, and by sending letters advising private respondents of the balances due, thus, looking forward to receiving payments thereon; (b) in any event, until May 18, 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire area contracted for, so, neither could private respondents be liable in default, citing Article 1189, NCC. CA affirmed.ISSUE: WON the Contract to Sell was rescinded or cancelled, under the automatic rescission clause contained therein.HELD: NO. We find the petition meritless. While it is true that a contractual provision allowing "automatic rescission" (without prior need of judicial rescission, resolution or cancellation) is VALID, the remedy of one who feels aggrieved being to go to Court for the cancellation of the rescission itself, in case the rescission is found unjustified under the circumstances, still in the instant case there is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private respondents by the petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic rescission."

Illustrations:1. In a problem which involves remedies, the question in that problem would be what? The Premise of a case has already been filed and a remedy has already been prayed for. The GENERAL QUESTION would be: WILL THE ACTION PROSPER? If that is the question, what do you CONSIDER FIRST? In remedies what is the steps for the action to prosper: a. Whether or not the plaintiff is the aggrieved party? The remedies are only provided to the injured property. When someone files a case, it doesnt mean that he is the aggrieved party, its just that he was the one who filed the case to make it appear that he is the injured party.

b. To know the nature of the obligation.

i. intention of the parties

ii. to know the manner of the breach in relation to the prayer

Ex. Specific performance will not be proper in what obligation? In obligations to do it will not be a proper remedy.c. Whether or not the remedy applied for is the appropriate remedy2. Can you give me an example of a remedy which is a principal remedy and that can also be extra-judicially demanded and also is expressly demanded by law? Warranty against eviction in Sales. Rescissible contracts may also involve reciprocal obligations. E.g. SALE may it not involve reciprocal obligations? Yes, but a sale may also be rescissible as a contract.3. Kinds of rescission:

a. Article 1380 RESCISSION of Contracts SUBSIDIARY REMEDY = can only be invoked if that is the ONLY remedy. There should first be exhaustion other remedies to be able to invoke Rescission.

b. Article 1191 (Rescission) RESOLUTION of Obligations PRINCIPAL REMEDY = can be invoked anytime even when other remedies are available.4. Can 2 Principal Remedies be sought for at the same time? YES. Give me an example where an injured party can invoke 2 principal remedies at the same time. Example: When you filed a suit, civil action and another suit for damages.

5. The remedy under 1191, is it extrajudicial remedy? YES. Basis: UP vs. DE LOS ANGELES CASE. QUESTION: In an extrajudicial rescission, when would the rescissory act take effect? From the time when the party claims rescission as remedy? Agree? NO! It is at the time the other party was given NOTICE or NOTICE WAS ISSUED to the other party. Why would it be from the time? It is the time the other party was informed. BASIS: Due Process. So that he can also take appropriate action. If he thinks the rescissory act is wrong, he can go to court to question such act.(Palay v. Jacobo case)6. X filed an action for rescission against Y. Y filed a motion to dismiss on the ground that the action has already prescribed because the action was filed 4 years after the date of the contract of the parties. Rule on the case. Answer: It will depend on the nature of the action. There are 2 kinds of rescission, so you should first determine the cause of action if it is under 1191 or 1381.7. CASE: UFC CASE what was the nature of the action? Action for rescission. Why would the plaintiff Magdalo file an action if he can just extra-judicially rescind? Why not just like what UP did, just gave a notice to the other party? Because he wanted to claim the unpaid wages, the unpaid salary. What if he did not want to recover that? In other words, in general, why would an action for rescission be necessary? Because as stated in the case, even if the rescission is not ordered to the court, theres blade hanging in the neck of the person. IN OTHER WORDS, it is not necessary but it may be advisable because at any time the other party may file an action to question the validity of the rescissory act. This is so because if the rescissory act is a valid act then it should still be sustained by the court. When would it be necessary? Are there good reasons why someone would file a case? Because a party cannot be left to take matters into their own hands OR because he wants to recover something form the other party and cannot compel the other party. UFC CASE AGAIN: This is also an action for rescission. What were the defences raised by the UFC?a. Plaintiff did not exhaust the remedies

SC: This defense is the result of the confusion as to the two kinds of rescission between 1191 and 1381. This defense is of the premise that the contract entered into is a rescissible contract. And in that kind of contract the remedy of rescission is a subsidiary remedy and therefore the other party must exhaust all other legal remedies before he can invoke rescission as a remedy. But in this case, clearly it was not filed under Article 1383, the cause of action here is because there was a breach.

A and B entered into a sale of molasses, the parties stipulated to the date of payment. Buyer failed to pay on the due date and asked that hell be given an extension of 20 days and that hell pay on the 20th day but 20 days after the due date A, creditor said that he already rescinded the contract. Was the rescission valid? Was the rescission proper? In other words, one of the requirements for rescission to be proper under 1191 is? NO, it was not proper because breach must be substantial or fundamental. If it is just a casual or slight breach, the other party has the remedy of Payment for Damages. Always remember that NOT every breach gives the injured party a reason to rescind. b. Breach is not SUBSTANTIAL or FUNDAMENTALc. More fundamental issue: Whether or not under the Bill of Assignment, Plaintiff Magdalo has the obligation to transfer ownership.

d. Main issue in this case: W/N rescission was proper?

The defense of UFC that Plaintiff Magdalo did not comply with his obligation to transfer ownership over the formula of the sauce to UFC got to do with the issue as to w/n the rescission was proper? It has something to do with the breach.

Rescission cannot be a remedy if the plaintiff had not complied with his obligation or at least not in the position to comply with the obligation, the premise behind this is that he is not the injured party. He who is not the injured party, then there is no remedy under the law.8. Remember that the EFFECT OF RESCISSION: MUTUAL RESCISSION.9. UP CASE: How come or why was the extra-judicial rescission was sufficient? Because UP doesnt want to recover anything from the concessioner at that point and also to be free from the agreement with the concessioner. To be able to award to the other party. Rescind first to be free from any other acts to be sought for.

10. Both parties are in delay. What is the effect? In contemplation of the law, it is as if there is NO DELAY. Therefore there is no cause of action against the other party.

11. In Article 1191, how many remedies are mentioned in that article? Only two:

a. Fulfilment of obligation w/damages

b. Rescission of obligation w/ damages

If one of the parties in Reciprocal Obligation had already invoked the fulfilment as the remedy, may he thereafter invoke the remedy of rescission? Yes, if the obligation became impossible rescission could be a remedy.What must have been the reason that the obligation has become impossible? Does it mean that every time fulfilment is impossible, and then rescission would be a remedy? A and B, A already invoked fulfilment, but every time this remedy of fulfilment becomes impossible then this remedy of rescission can be resorted to? Is it Yes? No. Despite the wording of the law, there is a premise.What must be the cause? Why the performance becomes impossible? It must be on the cause not imputable to A. This is only half accurate. If it is not imputable to A then what if it was due to a fortuitous event? The answer must be: Rather due to the fault of B. Whether it is FE or fault of A do you think he would have the remedy of rescission? No. because he could not claim that he is the injured party at least in a fortuitous event as a rule. Thats why the premise of the law to the injured, the impossibility must be due to the fault of the other party. A injured party, invoked rescission, it was a valid rescission, and under the law the premise is that this is a valid rescission, thereafter may he be allowed to invoke fulfilment as a remedy? NO. Why not?

He can no longer demand for fulfilment because with rescission, obligation has already been extinguished as rescission is a mode of extinguishment, since the obligation has already been extinguished therefore no more obligation to be fulfilled.

12. This was discuss in the MAGDALENA ESTATE CASE: Magdalena rescinded. Despite the fact that Magdalena rescinded, she still wanted or she still asked for the payment. When Myrick was only asking for was to get back what he paid for. Was Magdalena correct in forfeiting the accounts paid? NO, because there was no forfeiture clause in the contract. Had there been a forfeiture clause, which would have been a valid forfeiture. Again the effect of rescission is Mutual Restitution. Thats why Magdalena should return the money. She was ordered to return the money.

13. A obliged himself to give to B a refrigerator with motor #12345 which was in his sala, he also obliged himself to give to B a 49 Sony Bravia, but he also obliged himself to repair the Mercedes Benz of B. He did not do any of this. Can the court compel A to perform his obligations? If not, what is the remedy available to B, if any?a. Refrigerator Specific performance

b. TV substitute performance somebody else would perform at the expense of the debtor

c. Obligation to give a Generic Thing Debtor may be asked to comply with the obligation at the expense of the debtor or to have the thing delivered to him at the expense of the debtor.

d. Car also substitute performance; other person would fulfil the obligation

14. Do you agree that in all performance to do, substitute performance is the remedy if the debtor refuses to perform the obligation? No, if the performance is purely or strictly personal in nature. Only the debtor can perform such obligation because in the constitution of the obligation the skills of the debtor are considered. He alone can perform.15. I forgot to mention: Even if A is the aggrieved party, and an action was filed against B, the case may not prosper because it may not be the proper remedy, but any other reason why this case may not prosper aside from prescription, any other? Even if the remedy invoked is the proper remedy. Why? Neither, because he is not the injured party nor because the remedy invoked was wrong but? Because B is not the one who cause the damage to A.

16. If A the debtor, can B validly cause the levy of all the properties of A? Not all. Because there are properties that are exempted. Under the FC, Art 155, the Family Home is exempted from levy. So it is correct to say that family home may not be levied upon? No, there are exceptions that family home are exempt from levy and execution. If the debtor has 3 carabaos, and these carabaos would be exempt from execution, correct? No because it was not stated that the debtor is not a farmer or is essential to his occupation.

17. Future properties of the debtor may be levied upon by his creditors? YES. FUTURE PROPERTY properties he may acquire after the execution sale or levy subject to the exceptions mentioned. However, if the debtors properties were not sufficient to cover the debts of 10M, which were worth only of 3M, there is a deficiency of