Digests by: VIADA2015
PRESCRIPTION
LEANO vs CA
FACTS: On November 13, 1985, Hermogenes Fernando, as vendor
and Carmelita Leao, as vendee executed a contract to sell involving
a piece of land, Lot No. 876-B, with an area of 431 square meters,
located at Sto. Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leao bound herself to pay Hermogenes
Fernando the sum of one hundred seven thousand and seven
hundred and fifty pesos (P107,750.00) as the total purchase price of
the lot. The manner of paying the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE
(P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN
PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN
(10) years at a monthly amortization of P1,747.30 to begin from December 7,
1985 with interest at eighteen per cent (18%) per annum based on
balances."
The contract also provided for a grace period of one month within
which to make payments, together with the one corresponding to the
month of grace. Should the month of grace expire without the
installments for both months having been satisfied, an interest of
18% per annum will be charged on the unpaid installments.
Should a period of ninety (90) days elapse from the expiration of the
grace period without the overdue and unpaid installments having
been paid with the corresponding interests up to that date,
respondent Fernando, as vendor, was authorized to declare the
contract cancelled and to dispose of the parcel of land, as if the
contract had not been entered into. The payments made, together
with all the improvements made on the premises, shall be considered
as rents paid for the use and occupation of the premises and as
liquidated damages.
After the execution of the contract, Carmelita Leao made several
payments in lump sum. Thereafter, she constructed a house on the
lot valued at P800,000.00. The last payment that she made was on
April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an
ejectment case earlier filed by respondent Fernando ordering
petitioner Leao to vacate the premises and to pay P250.00 per
month by way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the premises,
attorney's fees and costs of the suit. On August 24, 1993, the trial
court issued a writ of execution which was duly served on petitioner
Leao.
On September 27, 1993, petitioner Leao filed with the Regional Trial
Court of Malolos, Bulacan a complaint for specific performance with
preliminary injunction. Petitioner Leao assailed the validity of the
judgment of the municipal trial court for being violative of her right to
due process and for being contrary to the avowed intentions of
Republic Act No. 6552 regarding protection to buyers of lots on
installments. Petitioner Leao deposited P18,000.00 with the clerk of
1 Property of : Bea Reyes
court, Regional Trial Court, Bulacan, to cover the balance of the total
cost of Lot 876-B.
On November 4, 1993, after petitioner Leao posted a cash bond of
P50,000.00, the trial court issued a writ of preliminary injunction to
stay the enforcement of the decision of the municipal trial court.
On February 21, 1995, respondent Fernando filed a motion for
reconsideration18 and the supplement thereto. The trial court
increased the amount of P103,090.70 to P183,687.00 and ordered
petitioner Leao ordered to pay attorney's fees.
According to the trial court, the transaction between the parties was
an absolute sale, making petitioner Leao the owner of the lot upon
actual and constructive delivery thereof. Respondent Fernando, the
seller, was divested of ownership and cannot recover the same
unless the contract is rescinded pursuant to Article 1592 of the Civil
Code which requires a judicial or notarial demand. Since there had
been no rescission, petitioner Leao, as the owner in possession of
the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase price is payable
within a ten-year period, yet the same contract clearly specifies that the
purchase price shall be payable in monthly installments for which the
corresponding penalty shall be imposed in case of default. The plaintiff
certainly cannot ignore the binding effect of such stipulation by merely
asserting that the ten-year period for payment of the whole purchase price
has not yet lapsed. In other words, the plaintiff has clearly defaulted in the
payment of the amortizations due under the contract as recited in the
statement of account (Exhibit "2") and she should be liable for the payment
of interest and penalties in accordance with the stipulations in the contract
pertaining thereto.
The trial court disregarded petitioner Leaos claim that she made a
downpayment of P10,000.00, at the time of the execution of the
contract.
The trial court relied on the statement of account22 and the summary
prepared by respondent Fernando to determine petitioner Leao's
liability for the payment of interests and penalties.
The trial court held that the consignation made by petitioner Leao in
the amount of P18,000.00 did not produce any legal effect as the
same was not done in accordance with Articles 1176, 1177 and 1178
of the Civil Code.
In time, petitioner Leao appealed the decision to the Court of
Appeals.24 On January 22, 1997, Court of Appeals promulgated a
decision affirming that of the Regional Trial Court in toto.25 On
February 11, 1997, petitioner Leao filed a motion for
reconsideration.26 On April 18, 1997, the Court of Appeals denied
the motion.
ISSUE: Whether petitioner was in delay in the payment of the
monthly amortizations.
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HELD: Contrary to the findings of the trial court, the transaction
between the parties was a conditional sale not an absolute sale. The
intention of the parties was to reserve the ownership of the land in
the seller until the buyer has paid the total purchase price.
First, the contract to sell makes the sale, cession and conveyance
"subject to conditions" set forth in the contract to sell.
Second, what was transferred was the possession of the property,
not ownership. The possession is even limited by the following: (1)
that the vendee may continue therewith "as long as the VENDEE
complies with all the terms and conditions mentioned, and (2) that
the buyer may not sell, cede, assign, transfer or mortgage or in any
way encumber any right, interest or equity that she may have or
acquire in and to the said parcel of land nor to lease or to sublease it
or give possession to another person without the written consent of
the seller.
Finally, the ownership of the lot was not transferred to Carmelita
Leao. As the land is covered by a torrens title, the act of registration
of the deed of sale was the operative act that could transfer
ownership over the lot.31 There is not even a deed that could be
registered since the contract provides that the seller will execute
such a deed "upon complete payment by the VENDEE of the total
purchase price of the property" with the stipulated interest.
In a contract to sell real property on installments, the full payment of
the purchase price is a positive suspensive condition, the failure of
which is not considered a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to convey title from
acquiring any obligatory force.33 The transfer of ownership and title
would occur after full payment of the price.34
In the case at bar, petitioner Leao's non-payment of the installments
after April 1, 1989, prevented the obligation of respondent Fernando
to convey the property from arising. In fact, it brought into effect the
provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil
Code is inapplicable to the case at bar.35 However, any attempt to
cancel the contract to sell would have to comply with the provisions
of Republic Act No. 6552, the "Realty Installment Buyer Protection
Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the buyer,
which is simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.36 The law also provides for
the rights of the buyer in case of cancellation.
The decision in the ejectment case37 operated as the notice of
cancellation required by Sec. 3(b). As petitioner Leao was not given
then cash surrender value of the payments that she made, there was
still no actual cancellation of the contract. Consequently, petitioner
Leao may still reinstate the contract by updating the account during
the grace period and before actual cancellation.38
2 Property of : Bea Reyes
Should petitioner Leao wish to reinstate the contract, she would
have to update her accounts with respondent Fernando in
accordance with the statement of account39 which amount was
P183,687.00.40
On the issue of whether petitioner Leao was in delay in paying
the amortizations, we rule that while the contract provided that
the total purchase price was payable within a ten-year period,
the same contract specified that the purchase price shall be
paid in monthly installments for which the corresponding
penalty shall be imposed in case of default. Petitioner Leao
cannot ignore the provision on the payment of monthly
installments by claiming that the ten-year period within which to
pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In the case at bar, respondent Fernando performed his part of
the obligation by allowing petitioner Leao to continue in
possession and use of the property. Clearly, when petitioner
Leao did not pay the monthly amortizations in accordance with
the terms of the contract, she was in delay and liable for
damages. However, we agree with the trial court that the default
committed by petitioner Leao in respect of the obligation could be
compensated by the interest and surcharges imposed upon her
under the contract in question.
It is a cardinal rule in the interpretation of contracts that if the terms of
a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.
Thus, as there is no ambiguity in the language of the contract, there
is no room for construction, only compliance.
HEIRS OF BACUS vs CA
FACTS: On June 1, 1984, Luis Bacus leased to private respondent
Faustino Duray a parcel of agricultural land in Bulacao, Talisay,
Cebu. It had an area of 3,002 square meters, covered by Transfer
Certificate of Title No. 48866. The lease was for six years, ending
May 31, 1990. The contract contained an option to buy clause. Under
said option, the lessee had the exclusive and irrevocable right to buy
2,000 square meters of the property within five years from a year
after the effectivity of the contract, at P200 per square meter. That
rate shall be proportionately adjusted depending on the peso rate
against the US dollar, which at the time of the execution of the
contract was fourteen pesos.
Close to the expiration of the contract, Luis Bacus died on October
10, 1989. Thereafter, on March 15, 1990, the Duray spouses
informed Roque Bacus, one of the heirs of Luis Bacus, that they
were willing and ready to purchase the property under the option to
buy clause. They requested Roque Bacus to prepare the necessary
documents, such as a Special Power of Attorney authorizing him to
enter into a contract of sale,[ on behalf of his sisters who were then
abroad.
 Digests by: VIADA2015
On March 30, 1990, due to the refusal of petitioners to sell the
property, Faustino Durays adverse claim was annotated by the
Register of Deeds of Cebu, at the back of TCT No. 63269, covering
the segregated 2,000 square meter portion of the lot.
Subsequently, on April 5, 1990, Duray filed a complaint for specific
performance against the heirs of Luis Bacus with the Lupon
Tagapamayapa of Barangay Bulacao, asking that he be allowed to
purchase the lot specifically referred to in the lease contract with
option to buy. At the hearing, Duray presented a certification from the
manager of Standard Chartered Bank, Cebu City, addressed to Luis
Bacus, stating that at the request of Mr. Lawrence Glauber, a bank
client, arrangements were being made to allow Faustino Duray to
borrow funds of approximately P700,000 to enable him to meet his
obligations under the contract with Luis Bacus.
Having failed to reach an agreement before the Lupon, on April 27,
1990, private respondents filed a complaint for specific performance
with damages against petitioners before the Regional Trial Court,
praying that the latter, (a) execute a deed of sale over the subject
property in favor of private respondents; (b) receive the payment of
the purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus death,
private respondents conveyed to them the formers lack of interest to
exercise their option because of insufficiency of funds, but they were
surprised to learn of private respondents demand. In turn, they
requested private respondents to pay the purchase price in full but
the latter refused. They further alleged that private respondents did
not deposit the money as required by the Lupon and instead
presented a bank certification which cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court that
they caused the issuance of a cashiers check in the amount of
P650,000[6] payable to petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of private
respondents.
Unsatisfied, petitioners appealed to the respondent Court of Appeals
which denied the appeal on November 29, 1996, on the ground that
the private respondents exercised their option to buy the leased
property before the expiration of the contract of lease.
ISSUE: a) When private respondents opted to buy the property
covered by the lease contract with option to buy, were they already
required to deliver the money or consign it in court before petitioner
executes a deed of transfer?
b) Did private respondents incur in delay when they did not
deliver the purchase price or consign it in court on or before the
expiration of the contract?
HELD: On the first issue, petitioners contend that private
respondents failed to comply with their obligation because there was
neither actual delivery to them nor consignation in court or with the
Municipal, City or Provincial Treasurer of the purchase price before
the contract expired. Private respondents bank certificate stating that
3 Property of : Bea Reyes
arrangements were being made by the bank to release P700,000 as
a loan to private respondents cannot be considered as legal tender
that may substitute for delivery of payment to petitioners nor was it a
consignation.
Obligations under an option to buy are reciprocal obligations. The
performance of one obligation is conditioned on the simultaneous
fulfillment of the other obligation. In other words, in an option to buy,
the payment of the purchase price by the creditor is contingent upon
the execution and delivery of a deed of sale by the debtor. In this
case, when private respondents opted to buy the property, their
obligation was to advise petitioners of their decision and their
readiness to pay the price. They were not yet obliged to make
actual payment. Only upon petitioners actual execution and
delivery of the deed of sale were they required to pay. As earlier
stated, the latter was contingent upon the former. In Nietes vs.
Court of Appeals, 46 SCRA 654 (1972), we held that notice of the
creditors decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered to the
owner of the property upon performance of his part of the agreement.
Consequently, since the obligation was not yet due, consignation in
court of the purchase price was not yet required.
Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior tender of payment.
In instances, where no debt is due and owing, consignation is not
proper. Therefore, petitioners contention that private respondents
failed to comply with their obligation under the option to buy because
they failed to actually deliver the purchase price or consign it in court
before the contract expired and before they execute a deed, has no
leg to stand on.
Corollary, private respondents did not incur in delay when they
did not yet deliver payment nor make a consignation before the
expiration of the contract. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.
Only from the moment one of the parties fulfills his obligation,
does delay by the other begin.
In this case, private respondents, as early as March 15, 1990,
communicated to petitioners their intention to buy the property
and they were at that time undertaking to meet their obligation
before the expiration of the contract on May 31, 1990. However,
petitioners refused to execute the deed of sale and it was their
demand to private respondents to first deliver the money before
they would execute the same which prompted private
respondents to institute a case for specific performance in the
Lupong Tagapamayapa and then in the RTC. On October 30,
1990, after the case had been submitted for decision but before
the trial court rendered its decision, private respondents issued
a cashiers check in petitioners favor purportedly to bolster their
claim that they were ready to pay the purchase price. The trial
court considered this in private respondents favor and we
believe that it rightly did so, because at the time the check was
issued, petitioners had not yet executed a deed of sale nor
expressed readiness to do so. Accordingly, as there was no
compliance yet with what was incumbent upon petitioners under
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the option to buy, private respondents had not incurred in delay
when the cashiers check was issued even after the contract
expired.
MEGAWORLD vs TANSECO
FACTS: On July 7, 1995, petitioner Megaworld Globus Asia, Inc.
(Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into
a Contract to Buy and Sell a 224 square-meter (more or less)
condominium unit at a pre-selling project, "The Salcedo Park,"
located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1)
30% less the reservation fee of P100,000, or P4,940,611.19, by
postdated check payable on July 14, 1995; (2) P9,241,120.50
through 30 equal monthly installments of P308,037.35 from August
14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63
on October 31, 1998, the stipulated delivery date of the unit; provided
that if the construction is completed earlier, Tanseco would pay the
balance within seven days from receipt of a notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the
construction schedule as follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s
herein purchased shall be completed and delivered not later than October 31, 1998
with additional grace period of six (6) months within which to complete the Project and
the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil
disturbances, strikes or other labor disturbances, government and economic controls
making it, among others, impossible or difficult to obtain the necessary materials, acts
of third person, or any other cause or conditions beyond the control of the SELLER. In
this event, the completion and delivery of the unit are deemed extended accordingly
without liability on the part of the SELLER. The foregoing notwithstanding, the
SELLER reserves the right to withdraw from this transaction and refund to the BUYER
without interest the amounts received from him under this contract if for any reason not
attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes,
rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons
beyond its control, the Project may not be completed or it can only be completed at a
financial loss to the SELLER. In any event, all construction on or of the Project shall
remain the property of the SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving
unpaid the balance of P2,520,305.63 pending delivery of the unit.2
Megaworld, however, failed to deliver the unit within the stipulated
period on October 31, 1998 or April 30, 1999, the last day of the six-
month grace period.
A few days shy of three years later, Megaworld, by notice dated April
23, 2002 (notice of turnover), informed Tanseco that the unit was
ready for inspection preparatory to delivery.3 Tanseco replied
through counsel, by letter of May 6, 2002, that in view of Megaworlds
failure to deliver the unit on time, she was demanding the return of
P14,281,731.70 representing the total installment payment she had
made, with interest at 12% per annum from April 30, 1999, the
expiration of the six-month grace period. Tanseco pointed out that
none of the excepted causes of delay existed.
Her demand having been unheeded, Tanseco filed on June 5, 2002
with the Housing and Land Use Regulatory Boards (HLURB)
Expanded National Capital Region Field Office a complaint against
Megaworld for rescission of contract, refund of payment, and
damages.
4 Property of : Bea Reyes
In its Answer, Megaworld attributed the delay to the 1997 Asian
financial crisis which was beyond its control; and argued that default
had not set in, Tanseco not having made any judicial or extrajudicial
demand for delivery before receipt of the notice of turnover.
By Decision of May 28, 2003, the HLURB Arbiter dismissed
Tansecos complaint for lack of cause of action, finding that
Megaworld had effected delivery by the notice of turnover before
Tanseco made a demand. Tanseco was thereupon ordered to pay
Megaworld the balance of the purchase price, plus moral damages,
exemplary damages, and attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by
Decision of November 28, 2003, sustained the HLURB Arbiters
Decision on the ground of laches for failure to demand rescission
when the right thereto accrued. It deleted the award of damages,
however. Tansecos Motion for Reconsideration having been denied,
she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 2006 for failure to show that the
findings of the HLURB were tainted with grave abuse of discretion.
Her Motion for Reconsideration having been denied by Resolution
dated August 30, 2006, Tanseco filed a Petition for Review under
Rule 43 with the Court of Appeals.
By Decision of September 28, 2007,13 the appellate court granted
Tansecos petition.
The appellate court held that under Article 1169 of the Civil Code, no
judicial or extrajudicial demand is needed to put the obligor in default
if the contract, as in the herein parties contract, states the date when
the obligation should be performed; that time was of the essence
because Tanseco relied on Megaworlds promise of timely delivery
when she agreed to part with her money; that the delay should be
reckoned from October 31, 1998, there being no force majeure to
warrant the application of the April 30, 1999 alternative date; and that
specific performance could not be ordered in lieu of rescission as the
right to choose the remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a
finding of bad faith on the part of Megaworld in forcing her to accept
its long-delayed delivery; and attorneys fees, she having been
compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by Resolution of
January 8, 2008, Megaworld filed the present Petition for Review on
Certiorari, echoing its position before the HLURB, adding that
Tanseco had not shown any basis for the award of damages and
attorneys fees.
Tanseco, on the other hand, maintained her position too, and citing
Megaworlds bad faith which became evident when it insisted on
making the delivery despite the long delay, insisted that she
deserved the award of damages and attorneys fees.
ISSUE: Whether or not Megaworld is in delay.
HELD: Article 1169 of the Civil Code provides:
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Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
(Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal
obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of Megaworld,
and to pay the balance of the purchase price at or about the time of
delivery on the part of Tanseco. Compliance by Megaworld with its
obligation is determinative of compliance by Tanseco with her
obligation to pay the balance of the purchase price. Megaworld
having failed to comply with its obligation under the contract, it is
liable therefor.
That Megaworlds sending of a notice of turnover preceded
Tansecos demand for refund does not abate her cause. For demand
would have been useless, Megaworld admittedly having failed in its
obligation to deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
The Court cannot generalize the 1997 Asian financial crisis to be
unforeseeable and beyond the control of a business corporation. A
real estate enterprise engaged in the pre-selling of condominium
units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is
an everyday occurrence, hence, not an instance of caso fortuito.
Megaworlds excuse for its delay does not thus lie.
As for Megaworlds argument that Tansecos claim is considered
barred by laches on account of her belated demand, it does not lie
too. Laches is a creation of equity and its application is controlled by
equitable considerations. It bears noting that Tanseco religiously paid
all the installments due up to January, 1998, whereas Megaworld
reneged on its obligation to deliver within the stipulated period. A
circumspect weighing of equitable considerations thus tilts the scale
of justice in favor of Tanseco.
Tanseco is, as thus prayed for, entitled to be reimbursed the total
amount she paid Megaworld.
5 Property of : Bea Reyes
While the appellate court correctly awarded P14,281,731.70 then, the
interest rate should, however, be 6% per annum accruing from the
date of demand on May 6, 2002, and then 12% per annum from the
time this judgment becomes final and executory, conformably with
Eastern Shipping Lines, Inc. v. Court of Appeals.
Finally, since Article 1191 of the Civil Code does not apply to a
contract to buy and sell, the suspensive condition of full payment of
the purchase price not having occurred to trigger the obligation to
convey title, cancellation, not rescission, of the contract is thus the
correct remedy in the premises.
GENERAL MILLING vs RAMOS
FACTS: On August 24, 1989, General Milling Corporation (GMC)
entered into a Growers Contract with spouses Librado and Remedios
Ramos (Spouses Ramos). Under the contract, GMC was to supply
broiler chickens for the spouses to raise on their land in Barangay
Banaybanay, Lipa City, Batangas. To guarantee full compliance, the
Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property upon which their conjugal
home was built. The spouses further agreed to put up a surety bond
at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The
Deed of Real Estate Mortgage extended to Spouses Ramos a
maximum credit line of PhP 215,000 payable within an indefinite
period with an interest of twelve percent (12%) per annum.
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full
and faithful compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a
First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and
the improvements existing thereon, situated in the Barrio/s of Banaybanay,
Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto
being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the
Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P
215,000.00), Philippine Currency, which the maximum credit line payable within a x x x
day term and to secure the payment of the same plus interest of twelve percent (12%)
per annum.
Spouses Ramos eventually were unable to settle their account with
GMC. They alleged that they suffered business losses because of
the negligence of GMC and its violation of the Growers Contract.
On March 31, 1997, the counsel for GMC notified Spouses Ramos
that GMC would institute foreclosure proceedings on their mortgaged
property.
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of
Mortgage. On June 10, 1997, the property subject of the foreclosure
was subsequently sold by public auction to GMC after the required
posting and publication. It was foreclosed for PhP 935,882,075, an
amount representing the losses on chicks and feeds exclusive of
interest at 12% per annum and attorneys fees. To complicate
matters, on October 27, 1997, GMC informed the spouses that its
Agribusiness Division had closed its business and poultry operations.
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment
and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with
Damages. They contended that the extrajudicial foreclosure sale on
June 10, 1997 was null and void, since there was no compliance with
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the requirements of posting and publication of notices under Act No.
3135, as amended, or An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages.
They likewise claimed that there was no sheriffs affidavit to prove
compliance with the requirements on posting and publication of
notices. It was further alleged that the Deed of Real Estate Mortgage
had no fixed term. A prayer for moral and exemplary damages and
attorneys fees was also included in the complaint. Librado Ramos
alleged that, when the property was foreclosed, GMC did not notify
him at all of the foreclosure.
In its Answer, GMC argued that it repeatedly reminded Spouses
Ramos of their liabilities under the Growers Contract. It argued that it
was compelled to foreclose the mortgage because of Spouses
Ramos failure to pay their obligation. GMC insisted that it had
observed all the requirements of posting and publication of notices
under Act No. 3135.
Holding in favor of Spouses Ramos, the trial court ruled that the
Deed of Real Estate Mortgage was valid even if its term was not
fixed. Since the duration of the term was made to depend exclusively
upon the will of the debtors-spouses, the trial court cited
jurisprudence and said that the obligation is not due and payable until
an action is commenced by the mortgagee against the mortgagor for
the purpose of having the court fix the date on and after which the
instrument is payable and the date of maturity is fixed in pursuance
thereto.
The trial court held that the action of GMC in moving for the
foreclosure of the spouses properties was premature, because the
latters obligation under their contract was not yet due.
The CA sustained the decision of the trial court but anchored its
ruling on a different ground. Contrary to the findings of the trial court,
the CA ruled that the requirements of posting and publication of
notices under Act No. 3135 were complied with. The CA, however,
still found that GMCs action against Spouses Ramos was premature,
as they were not in default when the action was filed on May 7, 1997.
ISSUE: WHETHER OR NOT PETITIONER GMC MADE NO
DEMAND TO RESPONDENT SPOUSES FOR THE FULL
PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE
LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO
RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.
HELD: GMC asserts error on the part of the CA in finding that no
demand was made on Spouses Ramos to pay their obligation. On
the contrary, it claims that its March 31, 1997 letter is akin to a
demand.
We disagree.
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays
performance; and third, the creditor judicially or extrajudicially
requires the debtors performance.
6 Property of : Bea Reyes
According to the CA, GMC did not make a demand on Spouses
Ramos but merely requested them to go to GMCs office to discuss
the settlement of their account. In spite of the lack of demand made
on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real
Estate Mortgage allowing GMC to extrajudicially foreclose the
mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on
demand not being necessary for delay to exist, We agree with
the appellate court that GMC should have first made a demand
on the spouses before proceeding to foreclose the real estate
mortgage.
Development Bank of the Philippines v. Licuanan finds application to
the instant case:
The issue of whether demand was made before the foreclosure was effected
is essential. If demand was made and duly received by the respondents and
the latter still did not pay, then they were already in default and foreclosure
was proper. However, if demand was not made, then the loans had not yet
become due and demandable. This meant that respondents had not
defaulted in their payments and the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default in the payment of
his obligation.
In turn, whether or not demand was made is a question of fact. This
petition filed under Rule 45 of the Rules of Court shall raise only
questions of law. For a question to be one of law, it must not involve
an examination of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. It need not be reiterated
that this Court is not a trier of facts. We will defer to the factual
findings of the trial court, because petitioner GMC has not shown any
circumstances making this case an exception to the rule.
CRUZ vs GRUSPE
FACTS: The claim arose from an accident that occurred on October
24, 1999, when the mini bus owned and operated by Cruz and driven
by one Arturo Davin collided with the Toyota Corolla car of Gruspe;
Gruspes car was a total wreck. The next day, on October 25, 1999,
Cruz, along with Leonardo Q. Ibias went to Gruspes office,
apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspes
damaged car in 20 days, or until November 15, 1999, of the same
model and of at least the same quality; or, alternatively, they would
pay the cost of Gruspes car amounting to P350,000.00, with interest
at 12% per month for any delayed payment after November 15,
1999, until fully paid. When Cruz and Leonardo failed to comply with
 Digests by: VIADA2015
their undertaking, Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspes allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon, without
explaining and informing them of its contents; Cruz affixed his
signature so that his mini bus could be released as it was his only
means of income; Leonardo, a barangay official, accompanied Cruz
to Gruspes office for the release of the mini bus, but was also
deceived into signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted
by his widow, Esperanza. Meanwhile, Gruspe sold the wrecked car
for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of
Gruspe and ordered Cruz and Leonardo to pay P220,000.00,6 plus
15% per annum from November 15, 1999 until fully paid, and the
cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the
interest rate to 12% per annum pursuant to the Joint Affidavit of
Undertaking. It declared that despite its title, the Joint Affidavit of
Undertaking is a contract, as it has all the essential elements of
consent, object certain, and consideration required under Article
1318 of the Civil Code. The CA further said that Cruz and Leonardo
failed to present evidence to support their contention of vitiated
consent. By signing the Joint Affidavit of Undertaking, they voluntarily
assumed the obligation forvthe damage they caused to Gruspes car;
Leonardo, who was not a party to the incident, could have refused to
sign the affidavit, but he did not.
In their appeal by certiorari with the Court, Cruz and Esperanza
assail the CA ruling, contending that the Joint Affidavit of Undertaking
is not a contract that can be the basis of an obligation to pay a sum
of money in favor of Gruspe. They consider an affidavit as different
from a contract: an affidavits purpose is simply to attest to facts that
are within his knowledge, while a contract requires that there be a
meeting of the minds between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a
contract, Cruz and Esperanza claim that it is invalid because Cruz
and Leonardos consent thereto was vitiated; the contract was
prepared by Gruspe who is a lawyer, and its contents were never
explained to them.
Moreover, Cruz and Leonardo were simply forced to affix their
signatures, otherwise, the mini van would not be released. Also, they
claim that prior to the filing of the complaint for sum of money,
Gruspe did not make any demand upon them. Hence, pursuant to
Article 1169 of the Civil Code, they could not be considered in
default. Without this demand, Cruz and Esperanza contend that
Gruspe could not yet take any action.
ISSUE: (a) Whether or not the Joint Affidavit of Undertaking can be
considered as a contract
(b) Whether or not there was judicial or extrajuducial demand by
Gruspe
7 Property of : Bea Reyes
HELD: The Court finds the petition partly meritorious and accordingly
modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the denomination
or title given by the parties in their document is not conclusive of the
nature of its contents. In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be
pursued. If the terms of the document are clear and leave no doubt
on the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the
parties evident intention, the latter shall prevail over the former.
A simple reading of the terms of the Joint Affidavit of Undertaking
readily discloses that it contains stipulations characteristic of a
contract. As quoted in the CA decision, the Joint Affidavit of
Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same model
and of at least the same quality. In the event that they cannot replace
the car within the same period, they would pay the cost of Gruspes
car in the total amount of P350,000.00, with interest at 12% per
month for any delayed payment after November 15, 1999, until fully
paid. These, as read by the CA, are very simple terms that both Cruz
and Leonardo could easily understand.
There is also no merit to the argument of vitiated consent. An
allegation of vitiated consent must be proven by preponderance of
evidence; Cruz and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to be onerous and
lopsided, this does not necessarily prove the alleged vitiation of
consent.
They, in fact, admitted the genuineness and due execution of the
Joint Affidavit and Undertaking when they said that they signed the
same to secure possession of their vehicle. If they truly believed that
the vehicle had been illegally impounded, they could have refused to
sign the Joint Affidavit of Undertaking and filed a complaint, but they
did not. That the release of their mini bus was conditioned on their
signing the Joint Affidavit of Undertaking does not, by itself, indicate
that their consent was forced they may have given it grudgingly, but
it is not indicative of a vitiated consent that is a ground for the
annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint
Affidavit of Undertaking, the CA did not commit any legal error that
merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is
material in the computation of interest on the amount due. The RTC
ordered Cruz and Leonardo to pay Gruspe P350,000.00 as cost of
the car xxx plus fifteen percent (15%) per annum from November 15,
1999 until fully paid[.] The 15% interest (later modified by the CA to
be 12%) was computed from November 15, 1999 the date
stipulated in the Joint Affidavit of Undertaking for the payment of the
value of Gruspes car. In the absence of a finding by the lower courts
 Digests by: VIADA2015
that Gruspe made a demand prior to the filing of the complaint, the
interest cannot be computed from November 15, 1999 because until
a demand has been made, Cruz and Leonardo could not be said to
be in default. In order that the debtor may be in default[,] it is
necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially. Default generally begins
from the moment the creditor demands the performance of the
obligation. In this case, demand could be considered to have been
made upon the filing of the complaint on November 19, 1999, and it
is only from this date that the interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note

that it imposed interest rate on a per annum basis, instead of the per
month basis that was stated in the Joint Affidavit of Undertaking
without explaining its reason for doing so. Neither party, however,
questioned the change.

Nonetheless, the Court affirms the change in the interest rate from
12% per month to 12% per annum, as we find the interest rate
agreed upon in the Joint Affidavit of Undertaking excessive.

8 Property of : Bea Reyes