UP vs. De Los Angeles REYES, J.B.L., J.

: FACTS: On 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that 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; that 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," which stipulated the following: 3. In the event that the payments 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agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for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 in addition to the indebtedness that it had previously acknowledged. UP informed respondent ALUMCO that it had considered as rescinded and of no further legal effect the logging agreement that they had entered and UP filed a complaint against ALUMCO for the collection or payment of money together with other allegations. Issue: Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. Ruling: 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. 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. 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. A resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court.

Rivera vs. Del Rosario Facts: On May 16, 1983, Del Rosario children executed a Special Power of Attorney in favor of their mother and corespondent, Fidela, authorizing her to sell, lease, mortgage, transfer and convey their rights over a specific lot. Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land. Mariano went to his lawyer, Atty. Efren Barangan, to have three documents drafted: the Deed of Real Estate Mortgage, a Kasunduan (Agreement to Sell), and a Deed of Absolute Sale. The Kasunduan provided that the children of Mariano Rivera, would purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price was to be paid in three installments. Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she inadvertently affixed her signature on all the three documents.While Mariano was making payments to Oscar, Fidela en trusted the owners copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance with the Kasunduan. When Mariano unreasonably refused to return the TCT, one of the respondents, caused the annotation on the said title of an Affidavit of Loss of the owners duplicate copy of the title on September 7, 1992. This annotation was offset, however, when Mariano registered the Deed of Absolute Sale and afterwards caused the annotation of an Affidavit of Recovery of Title. Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued TCT No. 158443 (M) in the name of petitioners. Respondents filed a complaint asking that the Kasunduan be rescinded for failure of the Riveras to comply with its conditions, with damages. They also sought the annulment of the Deed of Absolute Sale on the ground of fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-161785 (M), and the reconveyance to them of the entire property with TCT No. T-50.668 (M) restored. The trial court ruled that Fidelas signature in the Deed of Absolute Sale was genuine, but found that Fidela never intended to sign the said deed. Noting the peculiar differences between the Kasunduan and the Deed of Absolute Sale, the trial court concluded that the Riveras were guilty of fraud in securing the execution of the deed and its registration in the Registry of Deeds. Issue: WON the contract entered into between the parties may be rescinded based on Art 1191? WON the deed of absolute sale is null and void in its entirety

as opposed to the CAs decision of validity pertaining to Nietos share? Void in its entirety. Ruling: Deed of Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find that the said deed is void in its entirety. Both petitioners and respondents admitted that Lot No. 1083-A had been expropriated by the government long before the Deed of Absolute Sale was entered into. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383 of the same Code. Both presuppose contracts validly entered into as well as subsisting, and both require mutual restitution when proper, nevertheless they are not entirely identical. Rescission of reciprocal obligations under Article 1191 is different from rescissible contracts under Chapter 6 of the law on contracts 45 under the Civil Code. While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution. Resolution is a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion May the contract entered into between the parties, however, be rescinded based on Article 1191? A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. The payment of the purchase price is a positive suspensive condition. Respondents bound themselves to deliver a deed of absolute sale and clean title after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition. Petitioners however failed to complete payment of the second installment. The nonfulfillment of the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but an event that prevents the vendors o bligation to convey title from acquiring binding force. Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from acquiring an obligatory force. While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is a principal action that is based on breach of a party, while rescission

under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code. The Deed of Absolute Sale in question is declared NULL and VOID in its entirety.

Iringan vs. CA QUISUMBING, J.: FACTS: Private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of the Tuguegarao Cadastre with the purchase price of P295,000.00. When the second payment was due, Iringan paid only [ P40,000 so Palao sent a letter to Iringan stating that he considered the contract as rescinded and that he would not accept any further payment considering that Iringan failed to comply with his obligation to pay the full amount of the second installment. Spouses alleged that the contract of sale was a consummated contract, hence, the remedy of Palao was for collection of the balance of the purchase price and not rescission. Issues: (1) Whether or not the contract of sale was validly rescinded. Ruling: (1) Petitioner contends that no rescission was effected simply by virtue of the letter sent by respondent stating that he considered the contract of sale rescinded. Petitioner asserts that a judicial or notarial act is necessary before one party can unilaterally effect a rescission. Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed rescission. Citing Manresa, the Court said that the requirement of then Article 1504, refers to a demand that the vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to create no obstacles to this contractual mode of extinguishing obligations. Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. Even if Article 1191 was applicable, petitioner would still not be entitled to automatic rescission. In Escueta v. Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him . But that right must be invoked judicially. Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a decree of rescission. Since a judicial or notarial act is required by law for a valid rescission

to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. 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.

DIJAMCO VS. CA CORONA, J.: Facts: It appears on record that plaintiffs were granted four separate loans by defendant bank. The subject of this complaint pertains to the fourth loan or the Real Estate Loan No. 2084. To secure the payment of the fourth loan, plaintiffs executed a real estate mortgage over a parcel of land located in Pasay City. Due to severe economic reverses, plaintiffs failed to remit monthly amortizations regularly on the fourth loan. It appears that plaintiffs were not only in arrears on the fourth loan but also on the second and third loans, as well. At the time that the plaintiffs were negotiating for the settlement of the second and third loans, the fourth loan was about ten (10) months in arrears. On March 6, 1983, defendant bank sought the assistance of the City Sheriff of Pasay City regarding defendant banks Petition for Extrajudicial Foreclosure of Mortgage under Act 3135 against spouses Remedios R. Dijamco and Teodoro S. Dijamco. In accordance with the June 11, 1986 agreement, petitioners remitted monthly interest for six months, until January 1987, after which petitioners stopped paying and sued respondent Premiere Development Bank on May 13, 1988. They claimed that the latter employed fraud and undue advantage in depriving them of their property and prayed for recovery of said property for P350,000 and damages. The RTC dismissed the complaint for utter lack of merit and the CA affirmed such dismissal. Ruling: Petitioners themselves admit that the respondent bank validly acquired the subject property at the auction sale, and that it was only after the title was consolidated and transferred to the bank that petitioner Remedios Dijamco signed the June 11, 1986 agreement to purchase the same property (not to repurchase it, as their right of redemption had long expired). Remedios voluntarily entered into the June 11, 1986 agreement without fraud or undue advantage from respondent bank. As such, the agreement was binding, valid and enforceable between the parties, pursuant to Articles 1315, 1159 and 1370 of the Civil Code of the Philippines. Indeed, the CA was correct in finding that the June 11, 1986 agreement was a contract to sell because (1) By its own terms, it [was] a contract whereby the appellants [were] granted the right to repurchase the property involved at the fixed price of P622,095.00 within a year provided they [paid]

monthly interest payments of P13,478.73; (2) No transfer or conveyance of ownership was effected by its terms; (3) The interest payments [were] not even part of the repurchase price because in case of failure to exercise the right to repurchase they would be considered as rentals for the use of the property. They [were] not to be returned (Condition No. 3); and (4) The interest payments were in a way a consideration to preserve the right to repurchase. In default of the interest payments, the right to repurchase terminates. A 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. Furthermore, inasmuch as the six months interest was the consideration for petitioners option to purchase the property during that period, the payments therefor could not possibly be credited as part of the purchase price of the contract to sell.