DBP v.

CA
Requisites: Conditional Obligations

FACTS:

Private respondents were the original owners of an agricultural land

(113,695 square meters). They mortgage such to petitioner. They defaulted
in their obligation hence petitioners foreclosed the mortgaged and emerged
as the sole bidder in an auction. Title was transferred.

Petitioner and Private respondents entered into a Deed of Conditional Sale

to reconvey the foreclosed property.

Upon completing such payment, private respondent demanded the

execution of a Deed of Conveyance but they were informed that it was
impossible because of the CARL (10 June 1988).

Private respondents filed a complaint for specific performance with

damages.

HELD:

In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.

Applying in this case, the full payment by the Appellee retroacts to the time
the contract of conditional sale was executed on April 6, 1984. Hence it does
not come under the coverage of RA 6657.

The Deed of Condition sale was executed on 6 April 1984. They paid in full
on 6 April 1990.

Petitioner allowed the private respondents to fulfill the condition of effecting

full payment and invoked CARL which was enacted on 10 June 1988.

CARL was not intended to impair the contract that was concluded.
Moreover, Section 6 of CARL deals with “execution by the original land
owner” who is not the petitioner but the private respondents.

TOMIMBANG v. TOMIMBANG
Suspensive Condition: Meaning

FACTS:

Maria and Atty. Jose are siblings. Their parents donated to Maria an 8-door
apartment with the CONDITION that during the parent’s lifetime, they shall
retain control over the property and Maria shall be the administrator
thereof.

Maria tried and failed to apply for a loan from PAG-IBIG for renovations.

Jose offered to extend a credit line to Maria on the ff conditions:

1. P shall keep a record of all the advances
2. P shall start paying the loan upon completion
3. Upon completion, a loan and mortgage agreement based on the
amount of the advances made shall be executed
4. The loan agreement shall contain comfortable terms and conditions
which P could have obtained from PAG-IBIG

P accepted.

7 out of 8 was completed in the renovation. An altercation broke out

between P and R. They entered into a new agreement whereby P shall start
paying her loan and showed the records of the cash advances.

P payed 93,500 in 5 months.

R quarreled with another sister and they had a hearing at their barangay. R
reminded the payment however, P allegedly answered “wala tayong
pinirmahan”

P left and could no longer be found and she stopped paying.

R filed a complaint demanding P to pay 3,989,802.25 plust 12% interest per

annum.
ISSUES:

(1) Whether petitioner's obligation is due and demandable;

(2) Whether interest should be imposed on petitioner's indebtedness
and, if in the affirmative, at what rate.

HELD:

(1) The loan obligation arising from the loan is due and demandable.
Their younger brother testified that they made a new agreement and Maria
agreed to pay.

Hence, the parties mutually dispensed with the condition that P shall only
begin paying after the completion of all renovations.

There was a modificatory or partial novation.

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.

Novation may either be extinctive or modificatory, much being dependent

on the nature of the change and the intention of the parties. Extinctive
novation is never presumed; there must be an express intention to novate;
xxx.

An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one in its
stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation;
and (4) the birth of a new valid obligation. Novation is merely
modificatory where the change brought about by any subsequent
agreement is merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay); in this instance, the new
agreement will not have the effect of extinguishing the first but would
merely supplement it or supplant some but not all of its provisions.
There is partial novation when there is only a modification or change in
some principal conditions of the obligation. It is total, when the obligation
is completely extinguished. Also, the term principal conditions in Article
1291 should be construed to include a change in the period to comply with
the obligation. Such a change in the period would only be a partial
novation since the period merely affects the performance, not the creation
of the obligation

The payment by Maria is proof that the original agreement had been
novated.

There is partial novation when there is only a modification or change in

some principal conditions of the obligation. It is total, when the obligation is
completely extinguished. Also, the term principal conditions in Article 1291
should be construed to include a change in the period to comply with the
obligation. Such a change in the period would only be a partial novation
since the period merely affects the performance, not the creation of the
obligation

(2) Since the obligation in this case involves a loan and there is no
stipulation in writing as to interest due, the rate of interest shall be 12% per
annum computed from the date of extrajudicial demand.

VDA. DE MISTICA v. NAGUIAT

Potestative Suspensive Conditions

FACTS:

Eulalio Mistica, predecessor-in-interest of petitioner, is the owner of a land

in Bulacan. A portion was leased to Bernardino Naguiat.

Eulalio entered into a contract to sell with Naguiat on the lot (200m) fo
20,000. Advance payment of 2,000. 18,000 to pay in 10 years to start
immediately. Default, 12% per annum.

He gave a downpayment of 2,000 and a partial payment of 1000. However

he failed to make any payments and died in 1986.
Petitioner filed a complaint for rescission and to vacate the lot. Rent 200 per
month.

They answered that it cannot be rescinded because it was stipulated that

failure to pay will just earn a 12% interest.

In the wake of Eulalio, R contended that he also offered to pay the balance
but P refused hence there is no breach. R also said that he is the present
owner in fee simple of the subject lot by virtue of Free Patent Title by the
Bureau of Lands and his title has already become indefeasible and
incontrovertible.

HELD:

I. Recission in Article 1191

P contends that the interest did not extend the period to pay.

The Court disagrees. The contract was a Contract of Sale. There was no
stipulation that the title will be transferred until the full payment; nor there
was a stipulation giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.

The failure to pay in full the purchase price stipulated in a deed of sale does
not ipso facto grant the seller the right to rescind the agreement. Unless
otherwise stipulated by the parties, rescission is allowed only when the
breach of the contract is substantial and fundamental to the fulfillment of
the obligation.

The failure to pay within 10 years did not amount to a substantial breach. It
was stipulated in the Kasulatan that payment could be made even after ten
years from the execution of the Contract.

Moreover, there was no demand for the balance. P even refused payment.

The code prohibits potestative, suspensive, conditional obligations that

depend on the will of the debtor, because it is usually not meant to fulfill.

II. Rescission Unrelated to Registration

The issuance of a certificate of title in favor of respondents does not
determine whether petitioner is entitled to rescission.

III. Registration has never been a mode of acquiring ownership over

immovable property, because it does not create or vest title, but merely
confirms one already created or vested.

TRILLANA v. QUEZON COLLEGES

Potestative Suspensive Conditions

FACTS:

Damasa Crisostomo subscribed to 200 shares of stock (P100 each). Payment

“pagkatapos na ako ay makapag-pahuli ng isda” as initial payment and
balance payable in accordance with law and the RR of Quezon College.

He died. Quezon College presented a claim in her testate for collection of

20,000. It was opposed by the administrator (Trillana) and the CFU
dismissed the claim for the subscription was not registerd and authorized by
SEC.

HELD:

There is nothing in the record to show that the College accepted the term of
payment. As the application was inconsistent with the terms issued by
Quezon College, it was necessary for the College to express its agreement
because it’s unfair to immediately obligate the College in Damasa’s terms.
Hence, the offer had not ripened into an enforceable contract.

The proposal was solely based on his own will, facultative in nature,
rendering the obligation void.

VISCAYAN SAWMILL v. CA
Positive Suspensive Condition

FACTS:
RJH and Viscayan entered into a sale (May 1, 1983) involving scrap iron
subject to the condition that RJH will open a Letter of Credit for 250,000.

RJH started to gather scrap iron at Viscayan’s premises (May 17). Viscayan
directed Plaintiff-appellee’s men to stop in view of an alleged case against
RJH by Alberto Pursuelo (May 30).

Viscayan denied the matter and alleged that they sent a telegram (May 23)
to RJH cancelling the contract of sale because of failure to comply with the
conditions.

RJH informed that they opened the LOC at BPI on May 12 but the
transmittal was delayed.

May 26, BPI advised Viscayan that they received the opening of the LOC.

July 19, RJH sent a series of telegrams stating that the case against him had
been dismissed and demanding that Viscayan comply with the deed of sale,
otherwise a case will be filed.

However, Viscayan is unwilling to continue the sale due to RJH’s failure to

comply with essential pre-conditions of the contract.

Hence, RJH filed a complaint. However, it was returned unserved for

Viscayan was no longer in operation and the scrap iron and other pieces of
machinery can no longer be found.

Private respondent ordered RJH to comply with the contract by delivering

him the scrap iron.

HELD:

Article 1497 of the Civil Code states:

'The thing sold shall be understood as delivered when it is placed in the

control and possession of the vendee.'

In the case at bar, control and possession over the subject matter of the
contract was given to Plaintiff-appellee, the buyer, when the Viscayan as the
seller, allowed the buyer and his men to enter the corporation's premises
and to dig-up the scrap iron. The pieces of scrap iron then placed at the
disposal of the buyer. Delivery was therefore complete. The identification
and designation by the seller does not complete delivery.

Viscayan also argued that under Articles 1593 and 1597 of the Civil Code,
automatic rescission may take place by a mere notice to the buyer if the
latter committed a breach of the contract of sale.

It cannot take please for delivery had already been made.

Moreover, in the case at bar, the trial court ruled that rescission is improper
because the breach was very slight and the delay in opening the letter of
credit was only 11 days.

The trial court assumed that it was a contract of sale.

However, the SC held that, Plaintiff-appellee’s obligation to sell is

unequivocally subject to a positive suspensive condition, i.e., the private
respondent's opening, making or indorsing of an irrevocable and
unconditional letter of credit. Thus, there was no actual sale yet.

And since, it is a contract to sell, the failure to open LOC cannot even be
considered a breach.

Hence, Article 1191 of the CC does not apply.

In the first place, said Article 1497 falls under the Chapter 15 Obligations of
the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As
such, therefore, the obligation imposed therein is premised on an existing
obligation to deliver the subject of the contract. In the instant case, in view
of the private respondent's failure to comply with the positive suspensive
condition earlier discussed, such an obligation had not yet arisen. In the
second place, it was a mere accommodation to expedite the weighing and
hauling of the iron in the event that the sale would materialize. The private
respondent was not thereby placed in possession of and control over the
scrap iron. Thirdly, We cannot even assume the conversion of the initial
contract or promise to sell into a contract of sale by the petitioner
corporation's alleged implied delivery of the scrap iron because its action
and conduct in the premises do not support this conclusion. Indeed,
petitioners demanded the fulfillment of the suspensive condition and
eventually cancelled the contract.

DE LEON v. ONG
Effects of non-fulfillment of Suspensive condition

FACTS:

Petitioner Raymundo S. De Leon sold 3 parcels of land to respondent Benita

T. Ong. The said properties were mortgaged to a financial institution, Real
Savings & Loan Association Inc. (RSLAI).

The parties then executed a notarized deed of absolute sale with assumption
of mortgage. As indicated in the deed of mortgage, the parties stipulated
that De Leon shall execute a deed of assumption of mortgage in favor of Ong
after full payment of the 415,000. They also agreed that Ong shall assume
the mortgage for the outstanding loan of 684,500.

The respondent then subsequently gave petitioner 415,000 as partial

payment. On the other hand, de Leon handed the keys to Ong and de Leon
wrote a letter to inform RSLAI that the mortgage will be assumed by Ong.

Thereafter, Ong took repairs and made improvements in the properties.

Subsequently, Ong learned that the same properties were sold to a certain
Viloria after March 10, 1993 and changed the locks, rendering the keys given
to her useless. Respondent proceeded to RSLAI but she was informed that
the mortgage has been fully paid and that the titles have been given to the
said person.

Respondent then filed a complaint for specific performance and declaration

of nullity of the second sale and damages.

Petitioner insists that he entered into a contract to sell since the validity of
the transaction was subject to a suspensive condition, that is, the approval
by RSLAI of respondent’s assumption of mortgage. Because RSLAI did not
allow respondent to assume his (petitioner’s) obligation, the condition never
materialized. Consequently, there was no sale.
Respondent, on the other hand, asserts that they entered into a contract of
sale as petitioner already conveyed full ownership of the subject properties
upon the execution of the deed.

ISSUE:

Whether the deed was a Contract of Sale which conveys ownership or

Contract to Sell which subjects to a Suspensive condition?

RULING:

The deed was a contract of sale the parties entered into and not subject to a
suspensive condition.

In a contract of sale, the seller conveys ownership of the property to the

buyer upon the perfection of the contract. Should the buyer default in the
payment of the purchase price, the seller may either sue for the collection
thereof or have the contract judicially resolved and set aside. The non-
payment of the price is therefore a negative resolutory condition.

On the other hand, a contract to sell is subject to a positive suspensive

condition. The buyer does not acquire ownership of the property until he
fully pays the purchase price. For this reason, if the buyer defaults in the
payment thereof, the seller can only sue for damages.

Nothing in said instrument implied that petitioner reserved ownership of

the properties until the full payment of the purchase price. On the contrary,
the terms and conditions of the deed only affected the manner of payment,
not the immediate transfer of ownership from petitioner as seller to
respondent as buyer. Otherwise stated, the said terms and conditions
pertained to the performance of the contract, not the perfection thereof nor
the transfer of ownership.

In the case at bar, petitioner executed a notarized deed of absolute sale in

favor of respondent. Moreover, not only did petitioner turn over the keys to
the properties to respondent, he also authorized RSLAI to receive payment
from respondent and release his certificates of title to her. The totality of
petitioner’s acts clearly indicates that he had unqualifiedly delivered and
transferred ownership of the properties to respondent. Clearly, it was a
contract of sale the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was
subject to the condition that RSLAI had to approve the assumption of
mortgage, the said condition was considered fulfilled as petitioner prevented
its fulfillment by paying his outstanding obligation and taking back the
certificates of title without even notifying respondent. In this connection,
Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.

Hence, non-fulfillment of a suspensive condition (i.e paying the outstanding

mortgage obligation), does not prevent the perfection of the contract.

CIR v. PRIMETOWN
Obligation with a period

FACTS:

Mar 11, 1999. Gilbert Yap, vice chair of primetown applied for the refund or
credit of income tax respondent paid in 1997.

In Yap’s letter to petitioner Parcero of BIR, he stated that the increase in the
cost of labor and materials and diff in obtaining financing for projects cause
the Real Estate Industry to slowdown. Hence, Primetown suffered
71,879,228 that year.

And it was not liable for income tax. Still, Primetown paid its quarterly
corporate income tax and remitted creditable withholding tax from RE sales
to the BIR for 26,318,398.32. So Primetown was entitled to tax refund or tax
credit.

May 13, 1999, Revenue officer of BIR required respondent to submit

additional document to support.

Primetown responded but it was not acted upon.

April 14, 2000. Hence, it filed a petition for review in CTA.

Dec 15, 2000. CTA dismissed as it was filed beyond the 2 year prescriptive
period for filing a judicial claim for tax refund or tax credit.

The CTA found that respondent filed its final adjusted return on April 14,
1998.

CTA applied Article 13 of the Civil Code:

Art. 13. When the law speaks of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each; months, of
thirty days; days, of twenty-four hours, and nights from sunset to sunrise.

CTA stated that Section 229 of the NIRC is 730 days.

2000 was a leap year. Primetown’s petition was filed 731 days.

CA ruled, leap year is immaterial.

HELD:

Article 13 of the Civil Code provides that when the law speaks of a year, it is
understood to be equivalent to 365 days.

However, the Administrative Code of 1987 provides, year shall be

understood to be twelve calendar months. A calendar month is a month
designated in the calendar without regard to the number of days it may
contain.

Thus, the provision above only impliedly repealed all laws inconsistent with
the Administrative Code of 1987.

Being the more recent law, it governs the computation of legal periods. Lex
posteriori derogat priori.

We therefore hold that respondent's petition (filed on April 14, 2000) was
filed on the last day of the 24th calendar month from the day respondent
filed its final adjusted return. Hence, it was filed within the reglementary
period.

NAMARCO v. TECSON
As compared to CIR v. Primetown

FACTS:

On 1955 CFi rendered judgment (Price Stabilization Corp v. Tecson and Alto
Surety):

a. Tecson and Alto pay jointly and severally PRATRA 7,00 + 7% interest
from May 25, 1960 until fully paid + 500 atty’s fees

b. Tecson to indemnify his co-defendant Alto in case Alto pay the amount at
12% per annum

On Dec 21, 1965, NAMOCOR (as successor of Price Stab Corp), filed against
Tecson in the said case.

Tecson moved to dismiss, upon ground of lack of jurisdiction over the

subject matter and prescription action.

Plaintiffs admit the decision became final on December 21, 1955. This case
was filed on December 21, 1965 — but more than ten years have passed a
year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964
were both leap years, hence this present case was filed it was filed two days
too late.

NAMOCOR stated that since what is being computed is the number of years,
a calendar year should be used as the basis of computation.

HELD:

NAMOCOR’s theory contravenes the explicit provision of Art. 13 of the CC.

When the law spoke of months, it meant a “natural” month or “solar”
month, in the absence of express provision to the contrary.

Hence, a year is considered 365 days.

BERG v. MAGDALENA ESTATES
Disctinctions: Condition v. Period/Term

FACTS:

Ever since September 22, 1943 plaintiff, Berg and defendants under
Magdalena Estate, Inc. were co-owners of the Property, Crystal Arcade. One
third of it belonged to the plaintiff-petitioner and two thirds, to the
defendant-respondent. These parties executed a deed of sale that should
either of them sell his share, the other party will have an irrevocable option
to purchase it at the seller’s at the seller’s price. The two, eventually had a
disagreement on what really happened with regard to the deal.

On January. 1946, the petitioner offered his share for Php 200,000 and was
accepted by the defendant, including the stipulation that Berg was giving the
defendant a period of time which, including the extensions granted, would
expire on May 31, 1947.

The defendant claimed that, in spite of the acceptance of the offer, plaintiff
refused to accept the payment of the price and that because of this, they
suffered damages in the amount of Php 100,000 and asked for specific
performance. The plaintiff argued that this transaction, referred to by the
defendant, is not supported by any note or memorandum subscribed by the
parties and that this transaction falls under the statue of frauds and cannot
be the basis of the defendant’s special defense.

Freezing of their properties. In an application to sell or dispose their

properties, both parties filed for separate applications regarding the subject
property. In the defendant’s application, it desired a license in order “to use
a portion of the P400,000 requested as a loan from the National City Bank
of New York, Manila, or from any other bank in Manila, together with funds
to be collected from old and new sales of his real estate properties, for the
purchase of the one-third (1/3) of the Crystal Arcade property in the Escolta,
Manila, belonging to Mr. Ernest Berg.

The lower court found that there was no agreement reached between the
parties regarding the purchase and sale of the property in question, it
granted the case in favor of the petitioner.
ISSUE:

Whether the term of payment stipulated in the defendant’s application for

license to sell/purchase, “until they have obtained Php 400,000 from the
National City Bank of New York, or after it has obtained funds from other
sources”, is in line with the Civil Code.

APPLICABLE LAW:

Article 1193. Obligations for whose fulfillment a day certain has been fixed,
shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.

A day certain is understood to be that which must necessarily come,

although it may not be known when.

If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding Section. (1125a)

HELD:

Yes. The term of payment stipulated in the defendant’s application for

license to sell/purchase, “until they have obtained Php 400,000 from the
National City Bank of New York, or after it has obtained funds from other
sources”,is in line with the Civil Code (Art. 1125).

A day certain is understood to be that which must necessarily arrive, even

though it is unknown when. In order that an obligation may be with a term,
it is, therefore, necessary that it should arrive, sooner or later; otherwise, if
its arrival is uncertain, the obligation is conditional. To constitute a term,
the period must end on a day certain.

In considering this article as to which the defendant relies for the

enforcement of its right to buy the property, it would seem that it is not a
term, but a condition. Considering the first alternative, that is, until
defendant shall have obtained a loan from the National City Bank of New
York – it is clear that the granting of such loans is not definite and cannot be
held to come within the terms “day certain” provided for in the Civil code,
for it may or it may not happen.

The loan did not materialize. And if we consider that the period given was
until such time as defendant could raise money from other sources, we also
find it to be indefinite and contingent and so it is also a condition and not a
term within the meaning of the law.

Both parties did not put the terms in their agreement clearly in writing. The
lower courts’ judgment is affirmed.

VICTORIA PLANTERS v. VICTORIA MILLING

Disctinctions: Condition v. Period/Term

FACTS:

300 tons of sugar every day.

The petitioners Victorias Planters Association, Inc. and North Negros

Planters Association, Inc. and the respondent Victoria’s Milling Co., Inc
entered into a milling contract whereby they stipulated a 30-year period
within which the sugar cane produced by the petitioner would be milled by
the respondent central.

The parties also stipulated that in the event of force majuere, the contract
shall be deemed suspended during this period. The petitioner failed to
deliver the sugar cane during the four years of the Japanese occupation and
the two years after liberation when the mill was being rebuilt or a total of six
years.

ISSUE:

Can the petitioners be compelled to deliver sugarcane for six more years
after the expiration of the 30-yearperiod to make up for what they failed to
deliver to the respondent?

RULING:
No. Fortuitous event relieves the obligor from fulfilling the contractual
obligation under Article 1174 of the Civil Code. The stipulation in the
contract that in the event of force majeure the contract shall be deemed
suspended during the said period does not mean that the happening of any
of those events stops the running of the period agreed upon.

It only relieves the parties from the fulfillment of their respective obligations
during that time the petitioner from delivering the sugar cane and the
respondent central from milling. In order that the respondent central may
be entitled to demand from the petitioner the fulfillment of their part in the
contracts, the latter must have been able to perform it but failed or refused
to do so and not when they were prevented by force majeure such as war. To
require the petitioners to deliver the sugar cane which they failed to deliver
during the six years is to demand from them the fulfillment of an obligation,
which was impossible of performance during the time it became due. Nemo
tenetur ed impossibilia.

The respondent central not being entitled to demand from the petitioners
the performance of the latter’s part of the contracts under those
circumstances cannot later on demand its fulfillment. The performance of
what the law has written off cannot be demanded and required. The prayer
that the petitioners be compelled to deliver sugar cannot for six years more
to make up for what they failed to deliver, the fulfillment of which was
impossible, of granted, would in effect be an extension of the terms of the
contracts entered into by and between the parties.

JESPAJO REALTY v. CA
Potestative Period

FACTS:

Subject: Apartment Building owned by Jespajo Realty Corp.

Feb 1, 1985. It entered into separate contracts of lease with Tan Te Gutierrez
and Co Tong.

Tan Te occupied a room for 847 a month while Co Ten occupied the
Penthouse for 910 a month.
Period of Lease: Effective on Feb 1 and shall continue for an indefinite
period provided the lessee is up-to-date in the payment of his monthly
rentals. The LESSEE may terminate this contract any time by giving 60 days
prior written notice of termination to the LESSOR. Viol will be a ground for
termination of contract.

Rent Increase: 20% yearly.

They paid until Jan 1990 when Lessor Corp. sent a notice to them that the
rent is now 3500 a month. They sent a reply alleging that it is a
contravention of the terms of increased monthly rentals.

However, the lessor demanded that the lessees vacate the premises and pay
the amount of 7k.

The lessees offered to pay based on the contract but lessor refused. Hence,
they filed a case for consignation.

2107 and 2264 are the correct rentals. They prayed that the court issue
directing the LESSOR to honor the terms and conditions of the lease
contract.

They deposited with the City Treasurer of Manila for their rentals until
January 1991.

6 mos after. Lessor filed an ejectment suit.

Jespajo insists that the subject contract of lease did not provide for a
definite period hence it falls under the ambit of Art. 1687 of the NCC,
making the agreement effective on a month-to-month basis since rental
payments are made monthly.

HELD:

Art. 1687 finds no application in the case at bar.

The lease contract is with a period subject to a resolutory condition. The
condition imposed in order that the contract shall remain effective is that
the lessee is up-to-date in his monthly payments.

BALUYUT v. POBLETE
Effects: Oblig with a Period/Term

FACTS:

July 20, 1981. Guillermina Baluyut loaned from spouses Eugolio and Salud
Poblete for 850k under a promissory note. Mature in one 1 month.

Security: Real Estate Mortgage, house and lot.

She failed to pay her debt. Spouses extrajudicially foreclosed the REM.
August 27, 1982. It was sold by the Prov Sherrif to the Spouses.

Baluyut filed to redeem the property within the period required by law (1
year). Hence, the title was transferred to Eulogio and heirs of Salud.

Baluyut remained and refused to vacate. The respondents filed a petition for
the issuance of a writ of possession. Before they could take possession,
Baluyut filed an action for annulment of mortgage, extrajudicial foreclosure
and sale of the subject property and cancellation of title issued.

Baluyut contends that the maturity of the loan is one year, evidence by the
testimony of Atty. Mendoza, and that the issue regarding the real date of the
maturity can only be settled by a formal letter of demand, in the absence,
there is no demand.

HELD:

In the present case, the promissory note and the real estate mortgage are the
law between petitioner and private respondents. It is not disputed that
under the Promissory Note dated July 20, 1981, the loan shall mature in one
month from date of the said Promissory Note.

Foreclosure proceeding: Presumption of regularity.

Petitioner failed to convince that there was actually no compliance.

LL & CO. v HUANG

Effects: Obli with a Period/Term

FACTS:

Petitioner alleged that Huang and Fa violated their lease contract over a
1,112 sq2 lot, when they did not pay monthly rentals for a total of 4.32m.
Contract expired on Sep 16, 1996 but Huang refused to surrender possession
and pay the rent despite repeated demands.

The contract was entered into August 1991 (No exact date). They amended
on Aug 8:

1. They changed the lot from Lot 1A2 to 1A1.

2. Monthly rental shall be the same at 100 pesos per square meters or 111.2k
per month.

Terms and Conditions:

1. NO express demand is necessary for payment

2. The term is for FIVE years (Sept 16 1991 to Sept 15 1996), and with the
OPTION to renew.
3. The LESSEES shall have the option to Renovate at the expense of the
LESSEES and whatever improvements therein shall become the property of
the LESSOR without extra compensation of the same
4. 1 year deposit to be paid: 50% upon signing and 50% upon the effectivity
date of the Contract of Lease. The deposit shall be refundable.
5. The rental is subject to increase, based upon the imposition of Real Estate
Tax for every 2 years upon presentation of such to the Lessees, but not more
than 25%.
9. Violation of such is equivalent to forfeitures of the deposit in favor of
LESSOR and LESSEES agreed to vacate without going to court.

Huang, joined by Tsai Chun International Resources, denied allegations

stating that:
1. The amended contract did not reflect the intentions of the parties because
it did not contemplate an obsolete building, such that LL&CO did not
become the owner of the new 24m building they introduced on Lot 1A1
when the contract expired.
2. The failure to pay was due to LL&CO’s fault when it attempted to increase
the amount in viol of their contract
3. They are entitled to a renewal of their contract in view of the stipulated
automatic renewal and in view of the 24m improvement.

MTC, RTC and CA affirmed the dismissal of the unlawful detainer case and
extension of the lease for another 5 years.

ISSUE:

Whether or not the court could still extend the term of the lease, after its
expiration. Is expiration of the lease a proper ground in a case of unlawful
detainer?

HELD:

It cannot be extended by courts. In general, the power of the courts to fix a

longer term for a lease is discretionary, but always with due reference to the
parties’ freedom to contract. Thus, courts are not bound to extend the lease.

The Contract is for 5 years – “specifically” from Sept 16, 1991 to September
15, 1996, hence, it was for a determinate time or period. Art 1669, “it ceases
upon the day fixed, without a need of a demand”.

Ejectment was on Oct 6. Because there was no longer any lease that could be
extended, the MeTC, made a new contract for the parties, a power it did not
have.

Furthermore, the extension of a lease contract must be made before the

term of the agreement expires, not after.

Because the parties did not reach any agreement for renewal, respondents
can be ejected from the premises.

Automatic Renewal is not provided in the Contract:

It is also important to bear in mind that in a reciprocal contract like a lease,
the period of the lease must be deemed to have been agreed upon for the
benefit of both parties.

Its renewal may be authorized only upon their mutual agreement or at their
joint will.

First, demonstrating petitioner's disinterest in renewing the contract was its

letter. As a rule, the owner-lessor has the prerogative to terminate the lease
upon its expiration.

Second, disagreement over the increased rental precluded the possibility of

a mutual renewal.

Third, the improvements is not an intention to extend but its obedience to

the terms and conditions.

The improvements were a risk, having the knowledge that the contract is
only of a five-year lease period. The fact that the contractual stipulations
may turn out to be financially disadvantageous will not relieve the latter of
their obligations.

ISSUE:

Nonpayment of rentals

HELD:

Rental Reform Act of 2002: In case of refusal by the lessor to accept

payment, the lessee may deposit by way of consignation in court or with the
city treasurer or in the bank in the name and with notice to the lessor,
within one month after refusal.

Failure to deposit for 3 months shall constitute a ground for ejectment.

Civil Code:
Art. 1673. The lessor may judicially eject the lessee for any of the following
causes:

(1) When the period agreed upon, or that which is fixed for the duration of
lease under Articles 1682 and 1687, has expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed upon in the contract;

(4) When the lessee devotes the thing leased to any use or service not
stipulated which causes the deterioration thereof; or if he does not observe
the requirement in No. 2 of Article 1657, as regards the use thereof.

"The ejectment of tenants of agricultural lands is governed by special laws."

Respondents should have deposited the rent based on the previous rate.
Respondents failed to pay the rent from October 1993 to March 1998.

Article 1658 of the Civil Code provides only two instances in which the lessee
may suspend payment of rent; namely, in case the lessor fails to make the
necessary repairs or to maintain the lessee in peaceful and adequate
enjoyment of the property leased.

None of these is present in the case at bar.

Moreover, the mere subsequent payment of rentals by the lessee and the
receipt thereof by the lessor does not, absent any other circumstance that
may dictate a contrary conclusion, legitimize the unlawful character of the
possession. The lessor may still pursue the demand for ejectment.

However, the Court cannot authorize a unilateral increase in the rental rate,
considering that (1) the option to renew is reciprocal and, thus, the terms
and conditions thereof -- including the rental rate -- must likewise be
reciprocal; and (2) the contracted clause authorizing an increase -- "upon
presentation of the increased real estate tax to lessees" -- has not been
complied with by petitioner.