J.

Dumaual 2020-2021

BREACH OF OBLIGATIONS Article 1172 – Responsibility arising from negligence

in the performance of every kind of obligation is also
Article 1170 – Those who in the performance of their
demandable, but such liability may be
obligations are guilty of fraud, negligence, or delay,
regulated by the courts, according to the
and those who in any manner contravene the tenor
circumstances.
thereof, are liable for damages.
Article 1173 – The fault or negligence of the obligor
Manner of Breach
consists in the omission of that diligence which
Fraud is required by the nature of the obligation and
corresponds with the circumstance of the persons, of
Article 1171 – Responsibility arising from fraud is the time and of the place. When negligence shows
demandable in all obligations. Any waiver of an bad faith, the provisions of Article 1171 and 2201
action for future fraud is void. (2)1 shall apply.
Article 1338 – There is fraud when, through Delay
insidious words or machinations of one of the
contracting parties, the other is induced to enter into Article 1169 – Those obliged to deliver or to do
a contract which, without the fraud, the party would something incur in delay from the time the obligee
not have entered into. judicially OR extrajudicially demands from them the
fulfillment of their obligation. However, the demand
Article 1344 – In order that fraud may make a by the creditor shall not be necessary in order
contract voidable, it should be serious and should that delay may exist under the following
have been employed by both contracting circumstances: (1) When the obligation or the LAW
parties. expressly declares (2) When from the nature and
the circumstances of the obligation, it appears
Negligence
that the DESIGNATION OF TIME when the thing is to
Article 1171 – Responsibility arising from fraud is
demandable in all obligations. Any waiver of an 1
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
action for future fraud is void. responsible for all damages which may be reasonably attributed to the
non-performance of the obligation.

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be delivered or the service is to be rendered was a and determinate things which he may have
controlling motive for the establishment of the contributed to the partnership, in the same cases,
contract; or (3) when DEMAND would be useless, and in the same manner as the vendor (seller) is
as when the obligor has rendered it beyond his bound with respect to the vendee (buyer). He shall
power to perform. In reciprocal obligations, also be liable for the fruits thereof from the time they
neither party incurs in delay if the other does not should have been delivered, without the need of any
comply or is not ready to comply in a proper manner demand.
with what is incumbent upon him. From the moment
Article 1788 – A partner who has undertaken to
one of the parties fulfills his/her obligation, delay by
contribute a sum of money and fails to do so
the other begins.
becomes a debtor for the interest and damages from
Article 1165 – When what is to be delivered is a the time he should have complied with his obligation.
determinate thing, the creditor, in addition to the The same rule applies to any amount he may have
right granted him by Article 11702, may compel the taken from the partnership coffers, and his liability
debtor to make the delivery. If the thing is shall begin from the time he converted the amount to
indeterminate or generic, he may ask the his own use.
obligation be complied with at the expense of
Article 1896 – The agent owes interest on the sums
the debtor. If the obligor delays or has promised to
he has applied to his own use from the day on which
deliver the same thing to two or more persons who
he did so, and on those which he still owes after the
do not have the same interest, he/she shall be
extinguishment of the agency.
responsible for any fortuitous event until he/she has
effected the delivery. Article 1942 – The bailee is liable for the loss of the
thing, even if it should be through a fortuitous event
Article 1786 – Every partner is a debtor of the
if: (1) he/she devotes the thing to any purpose
partnership for whatever he may have promised to
different from that which it has been loaned; (2)
contribute thereto. He shall also be bound for
he/she keeps it longer than the period stipulated, or
warranty in case of eviction with regard to specific
after the accomplishment of the use for which the
2
Can hold obligors, who are guilty of fraud, negligence, or delay in the
commodatum has been constituted; (3) the thing
performance of their obligations, for damages loaned has been delivered with appraisal of its

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 J. Dumaual 2020-2021

value, unless there is a stipulation exempting the right granted him by Article 11703, may compel the
bailee from responsibility in case of a fortuitous debtor to make the delivery. If the thing is
event; (4) he/she lends or leases the thing to a third indeterminate or generic, he may ask the obligation
person who is not a member of his/her household; be complied with at the expense of the debtor. If the
(5) he/she does not choose to save the thing obligor delays or has promised to deliver the
borrowed over his/her own thing even if he/she can same thing to two or more persons who do not
save both have the same interest, he/she shall be
responsible for any fortuitous event until
Excuses for Non-Performance
he/she has effected the delivery.
Fortuitous Event
Article 2147 - The officious manager shall be liable
Article 1174 – No person shall be responsible for despite a fortuitous event under the following
those events which could not be foreseen, or which, circumstances: (1) he undertakes risky operations
though forseen, were inevitable, EXCEPT in cases which the owner was not accustomed, (2) if the
expressly specified by the law, or it was otherwise officious manager preferred his own interests over
declared by stipulation, or when the nature of the that of the owner, (3) if the officious manager fails
obligation requires the assumption of risk. to return the property or business after the
owner’s demand, and (4) if he assumes such
Article 552 – A possessor in good faith shall not be management in bad faith
liable for the deterioration or loss of the thing
possessed EXCEPT when it is proved that the Article 2159 – Whoever in bad faith accepts an
possessor has acted with fraudulent intent or undue payment, shall pay legal interest if a sum of
negligence AFTER judicial summons. A money is involved, or shall be liable for the fruits
possessor in bad faith shall be liable for the received or which should have been received if the
deterioration or loss in EVERY CASE, even if it thing produces fruits. He/She shall furthermore be
is caused by a fortuitous event. answerable for any loss or impairment of the thing

Article 1165 – When what is to be delivered is a

determinate thing, the creditor, in addition to the 3
Can hold obligors, who are guilty of fraud, negligence, or delay in the
performance of their obligations, for damages

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from any cause for damages to the person who What is the difference between 1170 and 13380?
delivered the thing until it is recovered.
- Fraud under 1338 is more properly called
Breach of Obligations as DECEIT. Fraud preexists the obligation,
thus the obligation is voidable. Deceit
MANNER OF BREACH
vitiates the consent in contracts. Deceit is
1. Fraud antecedent fraud. Without deceit, the other
party would have entered into the contract.
Atty. Balane Commentary - In 1170 and 1171 (malice), there was
already an obligation before the fraud
What are the two classes of Irregularity of
existed. Malice is subsequent fraud.
Performance?
EXAMPLE:
- Attributable to the debtor
o Fraud FRAUD UNDER 1338
o Negligence
o Delay - Vixen and Karlyn entered into a contract of
- Not attributable to the debtor sale of a diamond necklace; however, the
o Fortuitous Event necklace was really made of glass. Fraud in
the scenario is deceit. There was vitiation of
What is Fraud? consent, hence the contract is VOIDABLE.
- Fraud is the deliberate and intentional FRAUD UNDER 1171
evasion of the normal fulfillment of the
obligation. It is distinguished from - Ellis and Karl entered into a contract. Karl
negligence by the presence of DELIBERATE will deliver furniture made of narra but Karl
INTENT. There is no deliberate intent in deliberately delivered one made of plywood.
negligence. Fraud here is MALICE. It will not affect the
- Fraud under 1170 is more properly called as validity of the contract.
MALICE.
What are the effects of fraud?

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- The creditor may insist on PROPER 3. Delay

SUBSTITUTE or SPECIFIC PERFORMANCE
Atty. Balane Commentary
- Rescission/Resolution
- Damages in EITHER CASE - Delay has nothing to do with quality but only
with PUNCTUALITY.

What is delay?
2. Negligence
- Delay is the non-fulfillment of the
Atty. Balane Commentary:
obligation with respect to TIME. In fraud
What is Negligence? and negligence, the question is the quality
even if the obligation is performed on time. In
- Negligence, under 1173, is the absence of
delay, even if the quality is excellent, but
due diligence.
the performance is not in due time, the
- Like fraud, negligence results in IMPROPER
debtor is liable.
PERFORMANCE, but it is characterized by
- In reciprocal obligations, which require
lack of care unlike in fraud which is
simultaneous performance, demand is still
characterized by malice.
needed.
What is the MEASURE OF DUE DILIGENCE? o Demand can be made through any
form of communication of a party
- Diligence demanded by the circumstances that he/she is ready and willing to
person, place, and time. comply with his/her obligation. If the
- Care required of a good father of a family. other party does not comply after
receipt of the demand, the party is in
What are the effects of Negligence?
delay.
- The creditor may insist on proper
What are the requisites of delay?
SUBSTITUTE or SPECIFIC PERFORMANCE
- Rescission/Resolution - Obligation is DEMANDABLE AND
- Damages in either case LIQUIDATED.

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- Delay is through FAULT OR NEGLIGENCE. delay without need of

- Creditor requires performance either demand”.
judicially or extrajudicially.  When it appears from the
NATURE and CIRCUMSTANCES
What are the three (3) kinds of delay?
of the obligation that time was a
Mora Solvendi - Delay in the performance incurred controlling motive for the
by the DEBTOR establishment of the contract.
 When demand would be
Requisites: USELESS when obligor has
rendered it beyond his/her power
- Obligation is demandable and liquidated
to perform.
- Debtor delays in performance either because
of dolor or culpa Effects of Mora Solvendi
- The creditor demands the performance either
judicially or extrajudicially - When the obligation is to deliver a
DETERMINATE THING the risk is placed
o REMEMBER: Demand is NECESSARY. on the part of the debtor
If there is no demand, there is no delay. - Damages
(Mora solvendi ex persona) - Rescission/Resolution
o XPNS (Mora solvendi ex re)
Mora Accipiendi – The creditor incurs delay when
 When the obligation or the law
the debtor tenders payment or performance, but
EXPRESSLY SO DECLARES
the CREDITOR REFUSES TO ACCEPT it without
 Mere setting of due date is just cause.
not enough. This does not
constitute automatic delay. - Is related to payment (consignation)
 There must be an express
Requisites:
stipulation: “non-
performance on that day is - An OFFER OF PERFORMANCE BY THE
DEBTOR who has the required capacity

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- The offer must be to COMPLY WITH THE - Also governed by Article 1221 but is called
PRESTATION as it should be performed “loss”
- The creditor REFUSES THE PERFORMANCE - Also called caso fortuito, force majure, act
without just cause. of God
- GENERALLY, when a debtor is unable to
Effects of Mora Accipiendi:
fulfill his/her obligation because of a
- Responsibility of debtor for the thing is fortuitous event, he/she cannot be held
limited to fraud and gross negligence liable for damages or non-performance,
- Debtor is exempted from risk of loss of EXCEPT:
thing which shall automatically pass to the o When the law so provides
creditor o When there is express stipulation
- Expenses incurred by the debtor for  Fortuitous event yields to
preservation of the thing after the delay shall contrary stipulation
be chargeable to the creditor. o When the nature of the obligation
- If the obligation has interest, the debtor requires the assumption of risk
shall not have an obligation to pay the
What are the requisites of a Fortuitous Event?
same from the time of the delay.
- The creditor becomes liable for damages. - The cause of the unforeseen and unexpected
- The debtor may relieve himself by occurrence or the failure to comply with
consignation of the thing. his/her obligations must be INDEPENDENT
OF THE HUMAN WILL.
Compensatio Morae – Delay on both sides in - It must be IMPOSSIBLE TO FORSEE or,
reciprocal obligations, cancel out each other. even if it can be foreseen, it must be
EXCUSES FOR NON-PERFORMANCE impossible to avoid.
- The occurrence must be such as to render it
1. Fortuitous Event impossible for the debtor to fulfill his/her
obligation in a normal MANNER.
Atty. Balane Commentary

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- The obligor must be free from any Payee in Solutio Indebiti – 2159
PARTICIPATION in the aggravation of the
Lessee – 1648, 1671, 552
injury resulting to the creditor.
Independent Contractor – 1727, 1728
EXCEPTION FROM BEING EXCUSED BECAUSE
OF A FORTUITOUS EVENT Common Carrier – 1763
EXAMPLES UNDER THE LAW WHEN IT IS OTHER WISE DECLARED BY
STIPULATION (1174)
Depositary – 1979
- Express Agreement
What if a depositor was in the premises of the bank
o 1306
and was robbed of his/her money which he/she is
about to deposit? WHEN THE NATURE OF THE OBLIGATION
REQUIRESS THE ASSUMPTION OF RISK
- The bank cannot be held liable for a
fortuitous event. - Aleatory Contract
o 2010
What is the kind of diligence required of a
o Usury – 1175
depositary?
 Usury is the contract for or
- Ordinary Diligence receiving something in excess of
o In cases where a SAFETY DEPOSIT the amount allowed by law for
BOX is involved, if the jewelry inside the loan or forbearance or
the box was stolen, the rules on deposit money, goods, or chattels
will not apply because the contract
Case Doctrines:
governing this transaction is the
LEASE of a safety deposit box. Cangco v. MRR
Bailee in Commodatum – 1942 - In the case of Cangco v. MRR, where Cangco
alighted a still moving train and stepped on
Negotiorum Gestio – 2147, 2148

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watermelons in the platform and was injured, 2. Extraordinary: utmost diligence. E.g.,
sued MRR for damages. MRR countered that common carriers, banks, public utility
the act of Cangco was the cause of his injury companies (Meralco vs. Ramoy) and realty
and thus, it should not be held liable. firms.
However, the SC ruled that MRR is negligent
Telefast v. Castro
considering the circumstances surrounding the
incident, as follows: - In the case at bar, petitioner and private
o Person – Cangco was at his prime (20s) respondent Sofia C. Crouch entered into a
and could’ve alighted safely, as he has contract whereby, for a fee, petitioner
done so in the past, even if the train undertook to send said private respondent’s
was still moving. Moreover, there was a message overseas by telegram. This, petitioner
passenger who alighted earlier when did not do, despite performance by said
the train was moving faster as private respondent of her obligation by paying
compared to when Cangco alighted. the required charges. Petitioner was therefore
o Time – it was nighttime, but the guilty of contravening its obligation to said
platform was poorly lit; private respondent and is thus liable for
o Place – Cangco was familiar with the damages.
place as it was his daily routine to take
the train going home. Moreover, the Meralco v. Ramoy
employees of MRR were negligent when
- MERALCO is liable for damages to the Ramoys
they allowed watermelons to be stacked
for the sudden disconnection of their electric
on the platform which caused the fall of
power supply which turned out to be without
Cangco.
any valid ground, pursuant to Articles 1170
Standard of Care: and 1173 of the Civil Code. Therefore,
MERALCO failed to exercise the required
1. Ordinary: that which is expected of a good utmost diligence as a public utility service
father of a family (bonus pater pamilyas); provider, hence, liable for culpacontractual
being negligent in its performance of its

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obligation derived from the Service Contract - For the liability under Article 2189 of the Civil
between MERALCO and its consumers, one of Code to attach, it is not necessary that the
which is the Ramoys. defective public works belong to the province,
city or municipality from which responsibility
Mindanao Terminal v. Phoenix Assurance
is exacted. What said article requires is
- Stevedoring companies are required only that the province, city or municipality
to exercise ordinary diligence has either "control or supervision" over
- A stevedoring company which was charged the public building in question.
with the loading and stowing the cargoes of - In the case at bar, there is no question that the
Del Monte Produce aboard M/V Mistrau, had Sta. Ana Public Market, despite the
acted merely as a labor provider in the case at Management and Operating Contract between
bar. There is no specific provision of law respondent City and Asiatic Integrated
that imposes a higher degree of diligence Corporation remained under the control of the
than ordinary diligence for a stevedoring former. As evidenced by:
company or one who is charged only with o contract between the City and
the loading and stowing of cargoes. It was Asiatic (prior approval of the City of
neither alleged nor proven by Phoenix and Manila is needed before the program of
McGee that Mindanao Terminal was bound by improvement, rehabilitation and
contractual stipulation to observe a higher reconstruction of the public market may
degree of diligence than that required of a be made by Asiatic; if the present
good father of a family. We therefore conclude employees/personnel of the city public
that following Article 1173, Mindanao market will be discharged by Asiatic;)
Terminal was required to observe ordinary o fact of supervision and control of
diligence only in loading and stowing the the City over subject public market
cargoes of Del Monte Produce aboard M/V was admitted by Mayor Ramon
Mistrau. Bagatsing in his letter to Secretary of
Finance Cesar Virata.
Jimenez v. City of Manila

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o the City employed a market master exceptions under Article 1174 of the New Civil
for the Sta. Ana Public Market Code.
whose primary duty is to take direct
Gilat Satellite Networks, Ltd. v. UCPB
supervision and control of that
particular market, more specifically, - Article 2209 of the Civil Code is clear: if
to check the safety of the place for the an obligation consists in the payment of a
public sum of money, and the debtor incurs a
delay, the indemnity for damages, there
Nakpil & Sons v. CA
being no stipulation to the contrary, shall
- To be exempt from liability for loss because of be the payment of the interest agreed
an act of God, the obligor must be free from upon, and in the absence of stipulation,
any previous negligence or misconduct by the legal interest.
which that loss or damage may have been - Delay arises from the time the obligee
occasioned. judicially or extrajudicially demands from the
- In this case, both United and Nakpil were obligor the performance of the obligation, and
negligent in the plans, designs, the latter fails to comply. Delay, as used in
specifications, and construction of the Article 1169, is synonymous with default or
PBA building is equivalent to bad faith in mora, which means delay in the fulfilment of
the performance of their respective tasks. obligations. It is the nonfulfillment of an
As shown in the report by the Commissioner, obligation with respect to time. In order for the
United have made substantial deviations from debtor (in this case, the surety) to be in
the plans and specifications and failed to default, it is necessary that the following
observe the workmanship in the construction requisites be present: (1) that the obligation be
as well as to exercise supervision in the demandable and already liquidated; (2) that
construction. For the Nakpils, there were the debtor delays performance; and (3) that
inadequacies or defects in the plans and the creditor requires the performance judicially
specifications prepared by them. In sum, the or extrajudicially.
case at bar does not fall under any of the

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- Having held that a surety upon demand equipment, including the licensed software;
fails to pay, it can be held liable for and that the equipment had been installed
interest, even if in thus paying, its and in fact, gone into operation.
liability becomes more than the principal
Rivera v. Sps. Chua
obligation. The increased liability is not
because of the contract, but because of - Demand is no longer necessary because the
the default and the necessity of judicial law is explicit that when the debtor fails to
collection. pay upon maturity date, when the obligation is
- However, for delay to merit interest, it must be due and demandable, he therefore incurs
inexcusable in nature. delay. Art. 1169 of the NCC states, “Those
- We agree with petitioner that records are obliged to deliver or to do something incur in
bereft of proof to show that respondents delay delay from the time the obligee judicially or
was indeed justified by the circumstances that extrajudicially demands from them the
is, One Virtuals advice regarding petitioners fulfillment of their obligation. However, the
alleged breach of obligations. The lower courts demand by the creditor shall not be necessary
Decision itself belied this contention when it in order that delay may exist: 1) When the
said that plaintiff is not disputing that it did obligation or the law expressly so declare xxx.”
not complete commissioning work on one of the - It is not sufficient that the law or obligation
two systems because One Virtual at that time fixes a date for performance; it must further
is already in default and has not paid GILAT. state expressly that after the period lapses,
Assuming arguendo that the commissioning default will commence.
work was not completed, respondent has no - The clause in the Promissory Note
one to blame but its principal, One Virtual; if containing the stipulation of interest
only it had paid its obligation on time, which expressly requires Rivera to pay 5%
petitioner would not have been forced to stop monthly interest from the date of default
operations. Moreover, the deposition of Mr. until the entire obligation is fully paid. It
Erez Antebi, vice president of Gilat, repeatedly is evident that the maturity of the obligation on
stated that petitioner had delivered all a date certain, December 31, 1995, will give

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rise to the obligation to pay interest. The date necessary before the obligor can be
of default under the Promissory Note is 1 considered in default and before a cause
January 1996, the day following 31 December of action for rescission will accrue.
1995, the due date of the obligation. On that
Agcaoili v. GSIS
date, Rivera became liable for the stipulated
interest which the Promissory Note says is - When both parties are already in delay,
equivalent to 5% a month. there is no delay. Accordingly, the debtor
is not liable for interest from the moment
Solar Harvest Inc. v. Davao Corrugated
payment was tendered but was not
- In reciprocal obligations, as in a contract accepted by the creditor for no justifiable
of sale, the general rule is that the reason, or when the creditor fails to fulfill
fulfillment of the parties' respective his part of the obligation.
obligations should be simultaneous. - Respondent did not fulfill its obligation to
Hence, no demand is generally necessary deliver the house in a habitable state;
because, once a party fulfills his therefore, it cannot invoke the petitioner’s
obligation and the other party does not suspension of payment as a cause to cancel
fulfill his, the latter automatically incurs the contract between them. There was a
in delay. But when different dates for perfected contract of sale, it was then the duty
performance of the obligations are fixed, the of GSIS as seller to deliver the thing sold in a
default for each obligation must be determined condition suitable for its enjoyment by the
by the rules given in the first paragraph of the buyer and for the purpose contemplated. The
present article, that is, the other party would house contemplated was one that could be
incur in delay only from the moment the other occupied for purpose of residence in
party demands fulfillment of the former's reasonable comfort and convenience.
obligation. Thus, even in reciprocal
obligations, if the period for the Arrieta v. Naric
fulfillment of the obligation is fixed, - In general, every debtor who fails in
demand upon the obligee is still performance of his obligations is bound to

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indemnify for the losses and damages caused started the pawnshop business in 1983, he
thereby. The phrase "any manner thought of opening a vault with the nearby
contravenes the tenor" of the obligation bank for the purpose of safekeeping the
includes any illicit act which impairs the valuables but was discouraged by the Central
strict and faithful fulfillment of the Bank since pawned articles should only be
obligation or every kind or defective stored in a vault inside the pawnshop. The
performance. very measures which petitioners had
allegedly adopted show that to them the
Sicam v. Jorge possibility of robbery was not only
- Fortuitous events by definition are foreseeable, but actually foreseen and
extraordinary events not foreseeable or anticipated. Sicam’s testimony, in effect,
avoidable. It is therefore, not enough that contradicts petitioners’ defense of
the event should not have been foreseen fortuitous event.
or anticipated, as is commonly believed
NPC v. CA
but it must be one impossible to foresee or
to avoid. The mere difficulty to foresee - If upon the happening of a fortuitous
the happening is not impossibility to event or an act of God, there concurs a
foresee the same. corresponding fraud, negligence, delay or
- The burden of proving that the loss was due to violation or contravention in any manner
a fortuitous event rests on him who invokes it. of the tenor of the obligation as provided
And, in order for a fortuitous event to for in Article 1170 of the Civil Code,
exempt one from liability, it is necessary which results in loss or damage, the
that one has committed no negligence or obligor cannot escape liability.
misconduct that may have occasioned the - The principle embodied in the act of God
loss. doctrine strictly requires that the act must be
- Sicam had testified that there was a security one occasioned exclusively by the violence
guard in their pawnshop at the time of the of nature and human agencies are to be
robbery. He likewise testified that when he excluded from creating or entering into

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the cause of the mischief. When the effect, estate enterprise engaged in the pre-selling of
the cause of which is to be considered, is condominium units is concededly a master in
found to be in part the result of the projections on commodities and currency
participation of man, whether it be from active movements and business risks. The
intervention or neglect, or failure to act, the fluctuating movement of the Philippine
whole occurrence is thereby humanized, as it peso in the foreign exchange market is an
was, and removed from the rules applicable to everyday occurrence, and fluctuations in
the acts of God. currency exchange rates happen every
- Thus, it has been held that when the day, thus, not an instance of caso
negligence of a person concurs with an act of fortuito.
God in producing a loss, such person is not
TMBI v. Feb-Mitsui and Manalastas
exempt from liability by showing that the
immediate cause of the damage was the act of - The theft or the robbery of goods is not
God. To be exempt from liability for loss considered a fortuitous event of a force
because of an act of God, he must be free from majeure. Nevertheless, a common carrier
any previous negligence or misconduct by may absolve itself of liability for a
which the loss or damage may have been resulting loss: 1. If it proves that it
occasioned. exercised extraordinary diligence in
transporting and safekeeping the goods;
Fil-Estate v. Sps. Ronquillo
or 2. If it stipulated with the
- The Asian financial crisis in 1997 cannot be shipper/owner of the goods to limit its
generalized as unforeseeable and beyond the liability for the loss, destruction, or
control of a business corporation. It is deterioration of the goods to a degree less
unfortunate that petitioner apparently met than extraordinary diligence. However, a
with considerable difficulty e.g. increase cost stipulation diminishing or dispensing
of materials and labor, even before the with the common carrier’s liability for
scheduled commencement of its real estate acts committed by thieves or robbers who
project as early as 1995. However, a real do not act with grave or irresistible

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threat, violence, or force is void under Art. - It is well-settled that the diligence
1745 of the Civil Code for being contrary to required of banks is more than that of a
public policy. good father of a family. Banks are
required to exercise the highest degree of
Sanico and Castro v. Colipano diligence in its banking transactions.
- Sanico's attempt to evade liability by arguing - The SC held that BPI failed to exercise the
that he exercised extraordinary diligence when highest degree of diligence that is not only
he hired; Castro, who was allegedly an expected but required of a banking institution.
experienced and time-tested driver, whom he The Court once ruled in one case that banks
had even accompanied on a test-drive and in are under obligation to treat the accounts of
whom he was personally convinced of the their depositors with meticulous care. The
driving skills, are not enough to exonerate him diligence required of banks is more than
from liability - because the liability of that of a good father of a family. Banks
common carriers does not cease upon are required to exercise the highest
proof that they exercised all the diligence degree of diligence in their banking
of a good father of a family is the transactions.
selection and supervision of their - In releasing the dollar bills without listing
employees. down their serial numbers, BPI failed to
- The only defenses available to common exercise the highest degree of care and
carriers are (1) proof that they observed diligence required of it. BPI exposed not only
extraordinary diligence as prescribed in its client but also itself to the situation that led
Article 1756, and (2) following Article to this case. Had BPI listed down the serial
1174 of the Civil Code, proof that the numbers, BPI’s presentation of a copy of such
injury or death was brought about by an listed serial numbers would establish whether
event which "could not be foreseen, or the returned dollar bills came from BPI or not.
which, though foreseen, were inevitable,"
or a fortuitous event.

BPI v. Spouses Quiaoit

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 J. Dumaual 2020-2021

REMEDIES FOR BREACH OF OBLIGATIONS forbidden him/her, it shall also be undone at

his/her expense.
Article 1165 – When what is to be delivered is a
determinate thing, the creditor, in addition to the Article 1170 – Those who in the performance of their
right granted him by Article 11704, may compel obligations are guilty of fraud, negligence, or
the debtor to make the delivery. If the thing is delay, and those who in any manner contravene
indeterminate or generic, he may ask the the tenor thereof, are liable for damages.
obligation be complied with at the expense of
Article 1177 – After pursuing the property in
the debtor. If the obligor delays or has promised to
possession of the debtor to satisfy their claims,
deliver the same thing to two or more persons who
the creditors may exercise all rights and bring
do not have the same interest, he/she shall be
all the actions of the creditor except those
responsible for any fortuitous event until he/she has
inherent in his/her person. They may also impugn
effected the delivery.
the acts which the debtor may have done to defraud
Article 1166 – the obligation to give a determinate them.
ting includes that of delivering all its accessions
Article 1178 – Subject to the laws, all rights
and accessories even though they may not have
acquired in virtue of an obligation are
been mentioned
transmissible, if there has been no stipulation to
Article 1167 – If a person obliged to do something the contrary.
fails to do it, the same shall be executed at
Article 1191 – The power to rescind obligations is
his/her cost. This same rule shall be observed if
implied in reciprocal ones, in case one of the
he/she does it in contravention of the tenor of
obligors should not comply with what is
the obligation. It may also be decreed that was has
incumbent upon him/her. The injured party may
been done poorly be undone.
choose between the fulfillment and the
Article 1168 – When the obligation consists in NOT rescission of the obligation, with the payment
DOING and the obligor does what has been of damages in either case. He/She may also seek
rescission even after he/she has chosen fulfillment if
4
Can hold obligors, who are guilty of fraud, negligence, or delay in the the fulfillment becomes impossible. The court shall
performance of their obligations, for damages

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 J. Dumaual 2020-2021

decree the rescission claimed unless there be the government is subject to attachment or
just cause authorizing the fixing of a period. execution.
This is understood to be without prejudice to the
Article 1708 - The laborer's wages shall not be
rights of third persons who have acquired the thing
subject to execution or attachment, except for
in accordance with Articles 1385 and 1388 and the
debts incurred for food, shelter, clothing and medical
Mortgage Law.
attendance.
Article 1385 – Rescission creates the obligation
FAMILY CODE
to return the things which were the object of
the contract, together with their fruits, and the Article 153 - The family home is deemed constituted
price with its interests; consequently, it can be on a house and lot from the time it is occupied as a
carried out only when he/she who demands family residence. From the time of its
rescission can return whatever he/she may be constitution and so long as any of its
obliged to restore. beneficiaries actually resides therein, the
family home continues to be such and is
Article 1388 – Whoever acquires in bad faith the
exempt from execution, forced sale or
things alienated in fraud of creditors, shall
attachment except as hereinafter provided and to
indemnify the latter for damages suffered by
the extent of the value allowed by law.
them on account of the alienation, whenever,
due to any cause it should be impossible for him/her Article 155 - The family home shall be exempt
to return them. from execution, forced sale or attachment
except: (1) For nonpayment of taxes; (2) For debts
Article 2236 – The debtor is liable with all
incurred prior to the constitution of the family
his/her property, present and future for the
home; (3) For debts secured by mortgages on the
fulfillment of his/her obligations, subject to the
premises before or after such constitution; and
exemptions provided for by law.
(4) For debts due to laborers, mechanics,
Article 302 - Neither the right to receive legal architects, builders, materialmen and others
support nor any money or property obtained as who have rendered service or furnished
such support or any pension or gratuity from material for the construction of the building.

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 J. Dumaual 2020-2021

RULES OF COURT (f) Provisions for individual or family use

sufficient for four months;
Rule 38, Section 13
(g) The professional libraries and equipment of
Property exempt from execution. — Except as
judges, lawyers, physicians, pharmacists,
otherwise expressly provided by law, the following
dentists, engineers, surveyors, clergymen,
property, and no other, shall be exempt from
teachers, and other professionals, not exceeding
execution:
three hundred thousand pesos in value;
(a) The judgment obligor's family home as provided
(h) One fishing boat and accessories not
by law, or the homestead in which he resides, and
exceeding the total value of one hundred
land necessarily used in connection therewith;
thousand pesos owned by a fisherman and by
(b) Ordinary tools and implements personally the lawful use of which he earns his livelihood;
used by him in his trade, employment, or livelihood;
(i) So much of the salaries, wages, or earnings
(c) Three horses, or three cows, or three of the judgment obligor for his personal
carabaos, or other beasts of burden, such as the services within the four months preceding the
judgment obligor may select necessarily used by him levy as are necessary for the support of his family;
in his ordinary occupation;
(j) Lettered gravestones;
(d) His necessary clothing and articles for
(k) Monies, benefits, privileges, or annuities accruing
ordinary personal use, excluding jewelry;
or in any manner growing out of any life
(e) Household furniture and utensils necessary insurance;
for housekeeping, and used for that purpose by
(l) The right to receive legal support, or money
the judgment obligor and his family, such as the
or property obtained as such support, or any
judgment obligor may select, of a value not
pension or gratuity from the Government;
exceeding one hundred thousand pesos;
(m) Properties specially exempted by law.

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 J. Dumaual 2020-2021

1. Extra-judicial Remedies possession of them; (2) In case of the insolvency

of the buyer, a right of stopping the goods in
A. Expressly Granted by Law
transitu after he has parted with the
Article 1786 – Every partner is a debtor of the possession of them; (3) A right of resale as
partnership for whatever he may have limited by this Title; (4) A right to rescind the
promised to contribute thereto. He shall also be sale as likewise limited by this Title. Where the
bound for warranty in case of eviction with ownership in the goods has not passed to the buyer,
regard to specific and determinate things the unpaid seller has, in addition to his other
which he may have contributed to the remedies a right of withholding delivery
partnership, in the same cases and in the same similar to and coextensive with his rights of
manner as the vendor is bound with respect to the lien and stoppage in transitu where the
vendee. He shall also be liable for the fruits thereof ownership has passed to the buyer.
from the time they should have been delivered,
2. Judicial Remedies
without the need of any demand.
A. Principal Remedies
Article 1788 - A partner who has undertaken to
contribute a sum of money and fails to do so Article 1191 - The power to rescind obligations is
becomes a debtor for the interest and damages implied in reciprocal ones, in case one of the
from the time he should have complied with his obligors should not comply with what is incumbent
obligation. The same rule applies to any amount upon him. The injured party may choose between
he may have taken from the partnership the fulfillment and the rescission of the
coffers, and his liability shall begin from the obligation, with the payment of damages in
time he converted the amount to his own use. either case. He may also seek rescission, even after
he has chosen fulfillment, if the latter should become
Article 1526 - Subject to the provisions of this Title,
impossible. The court shall decree the rescission
notwithstanding that the ownership in the goods
claimed, unless there be just cause authorizing the
may have passed to the buyer, the unpaid seller
fixing of a period. This is understood to be without
of goods, as such, has: (1) A lien on the goods or
prejudice to the rights of third persons who have
right to retain them for the price while he is in

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 J. Dumaual 2020-2021

acquired the thing, in accordance with articles 1385 2. Subsidiary Remedies

and 1388 and the Mortgage Law.
Article 1380 - Contracts validly agreed upon may
Article 1385 - Rescission creates the obligation be rescinded in the cases established by law.
to return the things which were the object of
Article 1177 - The creditors, after having
the contract, together with their fruits, and the
pursued the property in possession of the
price with its interest; consequently, it can be
debtor to satisfy their claims, may exercise all
carried out only when he who demands
the rights and bring all the actions of the
rescission can return whatever he may be
latter for the same purpose, save those which
obliged to restore. Neither shall rescission take
are inherent in his person; they may also impugn
place when the things which are the object of the
the acts which the debtor may have done to defraud
contract are legally in the possession of third
them.
persons who did not act in bad faith. In this case,
indemnity for damages may be demanded from REMEDIES FOR BREACH OF OBLIGATION
the person causing the loss.
What are the remedies against a debtor for failure
Article 1388 - Whoever acquires in bad faith the to comply with OBLIGATIONS TO GIVE A
things alienated in fraud of creditors, shall DETERMINATE THING?
indemnify the latter for damages suffered by
them on account of the alienation, whenever, - Specific performance
due to any cause, it should be impossible for
- Equivalent Performance – Damages
him to return them. If there are two or more
alienations, the first acquirer shall be liable first, and o Damages may be obtained exclusively
so on successively. or in addition to the first action

Article 1170 - Those who in the performance of their What are the remedies against a debtor for failure
obligations are guilty of fraud, negligence, or delay, to comply with OBLIGATIONS TO GIVE A
and those who in any manner contravene the tenor GENERIC THING?
thereof, are liable for damages.
- Specific performance

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 J. Dumaual 2020-2021

- Substitute performance – done by Atty. Balane Commentary

someone else at the expense of the debtor
- Specific performance is the performance of
- Equivalent damages
the prestation itself
o May be obtained exclusively or in
- In obligations to do or not do, specific
addition to the first two actions
performance is not available since it will
What are the remedies against a debtor for failure go against the Constitutional prohibition
to comply with OBLIGATIONS NOT TO GIVE? against involuntary servitude
- Equivalent performance is the payment of
- Substitute performance
damages.
- Equivalent performances
- Substitute performance is when someone
o Damages may be obtained exclusively
else performs or something else is
or in addition to the first two actions
performed at the expense of the debtor.
** The Constitutional Prohibition regarding - In obligations not to do (1168), the debtor
imprisonment for debt applies except in subsidiary may be compelled to undo but in the event
imprisonment when it the civil liability arising from that it is impossible to undo, the only
crime is not paid. remedy is an action for damages.
- Enforcement of Creditor’s Remedies under
Obligation Specific Equivale Substitu 1177:
Perform nt te o To levy by attachment and execution
ance Perform perform upon all the property of debtor
ance ance
except if the property is exempted by
1. To give
Determinate Thing x x law
Determinable thing x x x o Accion Subrogatoria – the debtor of
my debtor, is my debtor. Requisites
2. To do are:
Very personal x  Creditor has a right of credit
Not very personal x x against the debtor
3. Not to do. x x  Credit is due and demandable

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Failure of debtor collect his/her

 parties and rescission will
own credit from a third person benefit the creditor.
either through malice or  The creditor has no other
negligence legal remedy.
 Right (of account) is not intuit  The debtor’s acts are
personae (personal in nature) fraudulent.
o Accion Pauliana o Accion Directa – A direct action by
 Right of creditors to rescind the creditor against his/her debtor’s
alienations by debtors which debtor; a remedy which gives the
are prejudicial to them to the creditor the prerogative to act in
extent of the prejudice his/her own name, such as the
 EXAMPLE: Van donates land to actions of the lessor against the
Ellize but he owes Ellis. Van has sublessee, the laborer of an
no other property. Ellis can independent contractor against the
rescind the donation to Ellize. owner, the principal against the
The donation is rescissible to the subagent, and the vender-a-retro
extent of the debt. against the transferee of the vendee.
 Requisites: o This is an exception to the relativity
 There is credit in favor of of contracts.
the plaintiff o Example: There are two (2) separate
 The debtor has performed contracts. There’s a contract of lease
an act subsequent to the between Abi and Jake and a contract of
contract giving sub-lease between Jake and Syd. Syd
advantage to other owe Jake 7,000 pesos. Jake owes Abi
persons. 5,000 pesos. Ordinarily, Abi cannot sue
 The creditor is prejudiced C since there is no relationship
by the debtor’s acts
which are in favor of third

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 J. Dumaual 2020-2021

between them but in Article 16525, Abi have against third persons (accion
can sue Syd for 5,000 pesos. subrogatoria). Remember that the creditor is
o Example: There are two separate subrogated with the rights of the debtor.
contracts. The contract for a piece of
What are the personal rights of the debtor?
work between Marc and Frances and
the contract for labor between Frances - Right to subsistence and support he/she
and Airei. Marc owes Frances 10,000 receives
pesos which is not fully paid yet. - Public rights
Frances owes Airei 5,000 pesos for - Rights pertaining to honor
unpaid wages. Airei can go after Marc - Rights to use remaining powers available to
directly for the 5,000 pesos. him/her (SPA, Agency, Deposit,
Administrator)
What kind of properties can the obligee go after for
- Non-patrimonial rights
levy and execution?
- Personal rights arising from patrimomnial
- Non-exempt properties of the debtor sources
- The debtor is liable with all his property,
What is a RESCISSIBLE CONTRACT7?
present and future, for the fulfillment of
his/her obligations, subject to exemptions - A rescissible contract is a contract which
provided for by law.6 is valid because it contains all the
- If the properties are not enough, the creditor essential requisites prescribed by law, but
goes to any claims which the debtor may which is defective because of injury or
damage to either of the contracting
5
Article 1652. The sublessee is subsidiarily liable to the lessor for any rent parties or to 3rd persons, as a consequence
due from the lessee. However, the sublessee shall not be responsible of which it may be rescinded by means of a
beyond the amount of rent due from him, in accordance with the terms of proper action for rescission.
the sublease, at the time of the extra-judicial demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed not to have
been made, so far as the lessor's claim is concerned, unless said payments
were effected in virtue of the custom of the place.
6 7
Article 2236, NCC Article 1380, NCC

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- Rescission is a remedy granted by law to the  Rescission under 1191 may be

contracting parties, and even to third denied when there is sufficient
persons, to secure the reparation of reason to justify the extension of
damages caused to them by a contract, the time to perform while under
even if the same should be valid, by means 1380 such reason does NOT
of the restoration of things to their affect the right to ask for
condition prior to the celebration of the rescission.
contract. - Rescissible contracts are valid until voided
- This is not to be confused with resolution, and can’t be attacked collaterally. Direct
discussed in Article 1191. This chapter on proceeding is necessary.
rescissible contracts is the proper rescissible. - Rescission is a subsidiary action which
According to Scaevola, rescission is a process presupposes that the creditor has exhausted
designated to render inefficacious a contract the property of the debtor. Fraudulent
validly entered into and normally binding, by conveyance must be shown.
reason of external conditions, causing an - As a rule, Recission benefits only the
economic prejudice to a party or to his creditor who has obtained it. The extent of
creditors. the revocation is only to the amount of
o Similarities between 1380 and 1191 prejudice suffered by the creditor. As to the
 Both presupposes a valid excess, the alienation is maintained.
contract was entered
What are the signs/badges of fraud in a fraudulent
 Both require mutual restitution
conveyance?
when declared proper
o Differences between 1380 and 1191 - Consideration of conveyance is inadequate
 Recsission under 1191 may be - Transfer made by the debtor after the suit
demanded only by the party to has begun and while the case is pending
the contract while in 1380, a against him
third person prejudiced by the - There is a sale upon credit by insolvent
contract may do so. debtor

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 J. Dumaual 2020-2021

- Evidence of large indebtedness or complete - The person demanding rescission must be

insolvency able to return whatever he may be obliged
- Transfer of all or nearly all of the to restore if rescission is granted.
properties of the debtor who is insolvent o This requisite is only applicable if the
- Transfer made between a father and his one who suffers the lesion is a party
son to the contract.
- Failure of the vendee to take exclusive o This requisite does not apply when a
possession of the property defrauded creditor resorts to accion
- If the alienation is GRATUITOUS, the good pauliana.
faith of the transferee does not protect - The things which are the object of the
him/her, otherwise, it is tantamount to contract must not have passed legally to
unjust enrichment. When the contract the possession of a third person acting in
cannot be rescinded because the party is good faith.
in Good Faith, the party who caused the o Whoever acquires in bad faith the
loss is liable for damages. things alienated in fraud of
- If the alienation is by onerous title, the creditors, shall indemnify the latter
transferee must be a party to the fraud to for damages suffered by them on
have a rescissible contract. account of the alienation, whenever,
due to any cause, it should be
** Badges of fraud and 1387 are mere
impossible for him to return them.
presumptions and may be rebutted by clear and
o If there are 2 or more alienations, the
convincing evidence. 1st acquirer shall be liable 1st, and so
What are the requisites of Rescission? on successively.
- The action for rescission must be brought
- The contact must be a rescissible contract within the prescriptive period of 4 years.
under Article 1381 or Article 1382.
- The person asking for rescission must have Who can bring the action for Rescission?
no other legal means to obtain reparation
for the damages suffered by him.

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- The person injured by the rescissible reciprocal obligations. However,

contract rescission shall take effect only at the
- The heirs of the aforementioned person time notice was given to the other party
- The creditors by virtue of the right granted but without prejudice to the right of such
under 1177 party to question the validity of
rescission. Court action here is only to
Cases:
determine the validity of the rescission, such
Universal Food Corp v. CA as to determine if there was substantial
breach. However still, the rescission takes
- The power to rescind obligations is effect from notice and not from court
implied in reciprocal ones, in case one of decision.
the obligors should not comply with what
is incumbent upon him. The injured party UP v. De Los Angeles
may choose between fulfillment and
- Of course, it must be understood that the
rescission of the obligation, with payment
act of party in treating a contract as
of damages in either case.
cancelled or resolved on account of
- In this case before us, there is no controversy infractions by the other contracting party
that the provisions of the Bill of Assignment must be made known to the other and is
are reciprocal in nature. The petitioner
always provisional, being ever subject to
corporation violated the Bill of Assignment,
scrutiny and review by the proper court. If the
specifically paragraph 5-(a) and (b), by
other party denies that rescission is
terminating the services of the respondent
justified, it is free to resort to judicial
patentee Magdalo V. Francisco, Sr., without
action in its own behalf, and bring the
lawful and justifiable cause.
matter to court. Then, should the court,
Magdalena Estate v. Myrick after due hearing, decide that the
resolution of the contract was not
- Rescission under Art. 1911 not warranted, the responsible party will be
necessarily judicial: since it is implied in sentenced to damages; in the contrary case,

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the resolution will be affirmed, and the party to resolved or rescind it. An
consequent indemnity awarded to the party allegation of such violation in a detainer suit
prejudiced. may be proved by competent evidence. And if
- In other words, the party who deems the proved a justice of the peace court might make
contract violated may consider it resolved a finding to that effect, but it certainly cannot
or rescinded, and act accordingly, declare and hold that the contract is resolved
without previous court action, but it or rescinded. It is beyond its power so to do.
proceeds at its own risk. For it is only the And as the illegality of the possession of realty
final judgment of the corresponding court by a party to a contract to sell is premised
that will conclusively and finally settle upon the resolution of the contract, it follows
whether the action taken was or was not that an allegation and proof of such violation,
correct in law. But the law definitely does a condition precedent to such resolution or
not require that the contracting party rescission, to render unlawful the possession
who believes itself injured must first file of the land or building erected thereon by the
suit and wait for a judgment before party who has violated the contract, cannot be
taking extrajudicial steps to protect its taken cognizance of by a justice of the peace
interest. Otherwise, the party injured by the court.
other's breach will have to passively sit and - True, the contract between the parties
watch its damages accumulate during the provided for extrajudicial rescission. This
pendency of the suit until the final judgment of has legal effect, however, where the other
rescission is rendered when the law itself party does not oppose it. Where it is
requires that he should exercise due diligence objected to, a judicial determination of the
to minimize its own damages. issue is still necessary.
- A stipulation entitling one party to take
Zulueta v. Mariano possession of the land and building if the
- A violation by a party of any of the other party violates the contract does not
stipulations of a contract on agreement to ex proprio vigore confer upon the former
sell real property would entitle the other the right to take possession thereof if

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 J. Dumaual 2020-2021

objected to without judicial intervention Philippine Co., 47 Phil. 821, 827) The question
and' determination. of whether a breach of a contract is
substantial depends upon the attendant
Palay Inc. v Clave
circumstances.
- Well settled is the rule, as held in previous - The breach of the contract adverted to by the
jurisprudence, that judicial action for the defendants-appellants is so slight and casual
rescission of a contract is not necessary when we consider that apart from the initial
where the contract provides that it may downpayment of P392.00 the plaintiffs-
be revoked and cancelled for violation of appellees had already paid the monthly
any of its terms and conditions. installments for a period of almost nine (9)
- However, even in the cited cases, there was years. In other words, in only a short time, the
at least a written notice sent to the entire obligation would have been paid.
defaulter informing him of the rescission.
Boysaw v. Interphil Promotions
As stressed in University of the Philippines vs.
Walfrido de los Angeles the act of a party in - The power to rescind obligations is implied, in
treating a contract as cancelled should be reciprocal ones, in case one of the obligors
made known to the other. should not comply with what is incumbent
upon him.
Angeles v. Calansanz - There is no doubt that the contract in
- The right to rescind the contract for non- question gave rise to reciprocal
performance of one of its stipulations, obligations. "Reciprocal obligations are
therefore, is not absolute. The general rule is those which arise from the same cause,
that rescission of a contract will not be and in which each party is a debtor and a
permitted for a slight or casual breach, creditor of the other, such that the
but only for such substantial and obligation of one is dependent upon the
fundamental breach as would defeat the obligation of the other. They are to be
very object of the parties in making the performed simultaneously, so that the
agreement. (Song Fo & Co. v. Hawaiian-

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 J. Dumaual 2020-2021

performance of one is conditioned upon the Central Bank v. CA

simultaneous fulfillment of the other".
- The agreement is a loan agreement,
- The power to rescind is given to the
which is a reciprocal obligation. In
injured party. "Where the plaintiff is the
reciprocal obligations, the obligation or
party who did not perform the
promise of each party is the
undertaking which he was bound by the
consideration for that of the other; &
terms of the agreement to perform, he is
when one party has performed or is ready
not entitled to insist upon the
& willing to perform his part of the
performance of the contract by the
contract, the other party who has not
defendant, or recover damages by reason
performed or is not ready & willing to
of his own breach ".
perform incurs in delay. The promise of
Pilipinas Bank v. IAC Tolentino to pay was the consideration for the
obligation of the Bank to furnish the P80,000.
- While it is true that a contractual
When Tolentino executed a real estate
provision allowing "automatic rescission"
mortgage, he signified his willingness to pay
(without prior need of judicial rescission,
the loan. From such date, the obligation of the
resolution or cancellation) is VALID, the
Bank to furnish the P80,000 accrued. The
remedy of one who feels aggrieved because of
Bank’s delay started in 1965, lasted for 3
the recission is to go to Court for the
years or when the Monetary Board issued
cancellation of the rescission itself. In case the
Resolution No. 967 in 1968, which prohibited
rescission is found unjustified under the
the Bank from doing further business.
circumstances, still in the instant case there is
Resolution No. 1049 cannot interrupt the
a clear WAIVER of the stipulated right of
default of the Bank in releasing the P63,000
"automatic rescission," as evidenced by the
because said resolution merely prohibited the
many extensions granted private respondents
Bank from making new loans.
by the petitioner. In all these extensions,
- Since the Bank was in default in
the petitioner never called attention to
fulfilling its reciprocal obligation under
the proviso on "automatic rescission."
the loan agreement, Tolentino may choose

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 J. Dumaual 2020-2021

between specific performance or demands rescission can return whatever

rescission with damages in either case; he may be obliged to restore. To rescind is
but since the Bank is now prohibited from to declare a contract void at its inception and
doing further business, the Court cannot to put an end to it as though it never was. It is
grant specific performance. Rescission is not merely to terminate it and release the
the only alternative remedy left. However, parties from further obligations to each other,
rescission is only for the P63,000 balance, but to abrogate it from the beginning and
because the bank is in default only insofar as restore the parties to their relative
such amount is concerned. positions as if no contract has been
made.
Unlad Resources Development v. Dragon
Swire Realty Development Corporation v. Jayne Yu
- Rescission under Art. 1301, it shall be the
duty of both parties to return the things - Basic is the rule that the right of rescission of
which were the object of the contract as a party to an obligation under Article 1191 of
provided under Art. 1385. This same the Civil Code is predicated on a breach of
article was likewise held applicable to faith by the other party who violates the
Rescission under Art. 1911. The SC held reciprocity between them. The breach
that “mutual restitution is required in contemplated in the said provision is the
cases involving rescission under Article obligor’s failure to comply with an
1191. This means bringing the parties existing obligation. When the obligor
back to their original status prior to the cannot comply with what is incumbent
inception of the contract.” upon it, the obligee may seek rescission
- Rescission has the effect of "unmaking a and, in the absence of any just cause for
contract, or its undoing from the the court to determine the period of
beginning, and not merely its compliance, the court shall decree the
termination." Hence, rescission creates the rescission.
obligation to return the object of the contract. It - In the instant case, the CA aptly found that
can be carried out only when the one who the completion date of the condominium unit

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 J. Dumaual 2020-2021

was November 1998 but was extended to Olivarez Realty v. Castillo

December 1999. However, at the time of the
- SC characterized the contract as a contract to
ocular inspection conducted by the HLURB, the
sell, not a contract of conditional sale. In a
unit was not yet completely finished as the
contract of conditional sale, the buyer
kitchen cabinets and fixtures were not yet
automatically acquires title to the property
installed and the agreed amenities were not
upon full payment of the purchase price. This
yet available.
transfer of title is “by operation of law without
- From the foregoing, it is evident that the ocular
any further act having to be performed by the
inspection conducted on the subject
seller.” In a contract to sell, transfer of
condominium project and subject unit shows
title to the prospective buyer is not
that the amenities under the approved plan
automatic. “The prospective seller must
have not yet been provided as of May 3, 2002,
convey title to the property through a
and that the subject unit has not been
deed of conditional sale.” The distinction is
delivered to respondent as of August 28, 2002,
important to determine the applicable laws
which is beyond the period of development of
and remedies in case a party does not fulfill
December 1999 under the license to sell.
his or her obligations under the contract. In
Incontrovertibly, petitioner had incurred
contracts of conditional sale, our laws on sales
delay in the performance of its obligation
under the Civil Code of the Philippines apply.
amounting to breach of contract as it
On the other hand, contracts to sell are not
failed to finish and deliver the unit to
governed by our law on sales but by the Civil
respondent within the stipulated period.
Code provisions on conditional obligations.
The delay in the completion of the project
- Specifically, Article 1191 of the Civil Code on
as well as of the delay in the delivery of
the right to rescind reciprocal obligations does
the unit are breaches of statutory and
not apply to contracts to sell. Failure to fully
contractual obligations which entitle
pay the purchase price in contracts to sell is
respondent to rescind the contract,
not the breach of contract under Art. 1191.
demand a refund and payment of
Failure to fully pay the purchase price is
damages.
merely an event which prevents the seller’s

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 J. Dumaual 2020-2021

obligation to convey title from acquiring - An extrajudicial rescission based on grounds

binding force. This is because there can be not specified in the contract would not
no rescission of an obligation that is still preclude a party to treat the same as
nonexistent, the suspensive condition (the rescinded. The rescinding party, however,
condition of having the buyer pay the full by such course of action, subjects himself
purchase price) having not happened. to the risk of being held liable for
- In this case, Castillo reserved his title to the damages when the extrajudicial
property and undertook to execute a deed of rescission is questioned by the opposing
absolute sale upon Olivarez Realty party in court. This was made clear in the
Corporation’s full payment of the purchase case of U.P. v. De los Angeles, wherein the
price. Since Castillo still has to execute a Court held as follows:
deed of absolute sale to Olivarez Realty - Of course, it must be understood that the
Corporation upon full payment of the act of a party in treating a contract as
purchase price, the transfer of title is not cancelled or resolved on account of
automatic. As this case involves a infractions by the other contracting party
contract to sell, Article 1191 of the Civil must be made known to the other and is
Code of the Philippines does not apply. always provisional, being ever subject to
The contract to sell is instead cancelled, scrutiny and review by the proper court. If
and the parties shall stand as if the the other party denies that rescission is
obligation to sell never existed. justified, it is free to resort to judicial action in
its own behalf, and bring the matter to court.
NCLPI v. Lica and PROTON
Then, should the court, after due hearing,
- Whether a contract provides for it or not, decide that the resolution of the contract was
the remedy of rescission is always not warranted, the responsible party will be
available as a remedy against a sentenced to damages; in the contrary case,
defaulting party. When done without prior the resolution will be affirmed, and the
judicial imprimatur, however, it may still be consequent indemnity awarded to the party
subject to a possible court review. x x x prejudiced.

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 J. Dumaual 2020-2021

- In other words, the party who deems the brand new or had hidden defects, they could
contract violated may consider it resolved or not renege on their obligation of paying
rescinded, and act accordingly, without Prudential the loan amount.
previous court action, but it proceeds at its - Spouses Batalla erroneously relies on
own risk. For it is only the final judgment Supercars Management & Development
of the corresponding court that will Corporation v. Flores as basis to rescind the
conclusively and finally settle whether loan agreement with Prudential on account of
the action taken was or was not correct the perceived defects of the car delivered to
in law. them. In the said case, only the contract of
sale with the car dealer was rescinded on
Spouses Batalla v. Prudential Bank
account of breach of contract for delivering a
- Under this premise, it is not hard to see defective vehicle. While therein lendee-bank
the absurdity in the position of Spouses was originally impleaded for rescission of
Batalla that they could rescind the car contract, the trial court dropped it as party-
loan agreement and promissory note with defendant because the breach of contract
Prudential on the ground of alleged pertained to the contract of sale and not to the
defects of the car delivered to them by car loan agreement. In the same vein,
Honda. The transactions of Spouses Batalla Spouses Batalla's recourse in case of
with Prudential and Honda are distinct and defects in the motor vehicle delivered to
separate from each other. From the time them was limited against Honda and does
Spouses Batalla accepted the loan not extend to Prudential as it merely lent
proceeds from Prudential, the loan the money to purchase the car.
agreement had been perfected. As such,
Saddul v. Losloso
they were bound to comply with their
obligations under the loan agreement - Petitioner filed an amended complaint for
regardless of the outcome of the contract accion pauliana, an action for rescission,
of sale with Honda. Even assuming that the which is subsidiary in nature, and which
car that Spouses Batalla received was not may only be filed when the party

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 J. Dumaual 2020-2021

suffering damage has no other legal

means to obtain reparation for the same.
- It was not shown that [petitioner] has
exhausted other legal remedies to obtain relief
other than the institution of an accion
pauliana. In fact, what appears is that the
loan was secured by a chattel mortgage,
thus, giving [petitioner] another option in
law to satisfy [her] claim against the
Spouses Dela Cruz thereby precluding
them from directly filing a complaint for
accion pauliana. Her claim that the
properties subject of the chattel mortgage [has]
been attached by [other] creditors becomes of
no moment in light of the fact that she did not
exhaust other available remedies before
resorting to accion pauliana. Worse, there is
still no judgment or order of execution for
the satisfaction of her claim against the
Spouses Dela Cruz upon which
[petitioner's] complaint was grounded.
Hence, her accion pauliana case has clearly
no leg to stand on. Besides, the filing of
accion pauliana cannot be justified based
solely on her sweeping conclusion that
her credit cannot be fully satisfied with.
[Petitioner's] suit clearly lacks a cause of
action if not prematurely filed.

Civil Law Review 2, Atty. Crisostomo Uribe Page 35