II.
RECIPROCAL OBLIGATIONS
A. Definition
Reciprocal obligations
● Must have reciprocity between them
● Arise from the same cause
● Correlative obligations that are dependent on
each other
● Performed simultaneously
Vermen Realty Development Corp v CA (1993)
Rule: Reciprocal obligations are created or established
at the same time, out of the same cause, and which
results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the
performance of one is conditioned on the simultaneous
fulfilment of the other obligation.
Integrated Pacakging Corp v CA (2000)
Rule: Reciprocal obligations are to be performed
simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfilment of the
other.
Comments of Sir Casis on the above definitions of
reciprocal obligations in jurisprudence:
- In general, all contracts are, by nature, reciprocal
- The “simultaneous performance” definition is
problematic because in reality, the acts of each
party do not happen at the same time. Hence,
“simultaneous” here is only relative.
B. Implied Power to Rescind
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
- “Implied” means that it is a condition imposed by
law, even if there is no corresponding agreement
between parties.
1. Trigger
● In case one of the obligors fails to comply with
the obligation (note: in reciprocal obligations a
party is both a creditor and debtor with respect to
the other)
● This is a tacit resolutory condition - one
imposed by law which extinguishes rights and
obligations
● Injured party has power to rescind
2. Breach contemplated
● Breach must be substantial - to defeat the
purpose of the obligation
Ong v CA (1999)
Facts: Petitioner Ong and respondent spouses Robles
had a Contract to Sell. They agreed that upon Ong’s
payment of the purchase price of P2Million (including
downpayment, payment of the loan in BPI, and
quarterly installements), the spouses Robles will deliver
the deed of sale and clean title of 2 parcels of land.
Nonetheless, upon execution of the contract, Ong
already took possession of the 2 parcels of land. At
some point, the checks that Ong paid to Robles were
dishonored for insufficiency of funds. He also failed to
pay the loan in BPI, Hence, the Robleses, through a
letter, demanded Ong to return the lands. The Trial
Court and CA ruled in favor of the Robleses. The SC
upheld the rulings but clarified that the rescission should
not be based on Art. 1191.
Rule: “The breach contemplated in Art.1191 is the
obligor’s failure to comply with an obligation already
extant, not a failure of a condition to render binding that
obligation.”
Ratio: The case differentiated between contract of sale
and contract to sell. In a contract of sale, the title is
transferred upon execution of the contract. In a contract
to sell, the title is transferred only upon full payment. “In
a contract to sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not
a breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from
acquiring an obligatory force.”
*word of caution on Ong v. CA: it was only in this case that
the SC distinguished between Contract to Sell and
Contract of Sale. In most other cases, a Contract to Sell,
like other contracts, is also a reciprocal obligation that
implies the power to rescind.
Vda de Mistica v Naguiat (2003)
Facts: Mistica leased a part of his land to Naguiat. They Angeles v Calasanz (1985)
eventually entered a contract of sale of said portion. Facts:
Naguiat already made partial payments but failed to Rule:
complete payment, even after Mistica’s death. He Ratio:
offered to pay the balance during Mistica’s funeral, but
Mistica’s heirs did not accept it. More than 10 years
since the execution of the contract,, Mistica’s heirs filed Nolasco v Cuerpo (2015)
a complaint for rescission of the contract on the ground
Facts:
that Naguiat failed to complete payment. The lower
Rule:
court, CA and SC disallowed the rescission.
Ratio:
Rule: “Rescission is allowed only where the breach is
substantial and fundamental to the fulfilment to the 3. Distinguished from other types of rescission
obligation.”

Ratio: “The failure of respondent to pay the balance of Termination Rescission

the purchase price within ten years from the execution
of the Deed did not amount to a substantial breach. In Enforces the terms prior to Not predicated on
the Kasulatan, it was stipulated that payment could be termination economic interest but on a
made even after ten years from the execution of the breach of faith
contract, provided the vendee paid 12% interest. The
stipulations of the contract constitute the law between Has to fulfill obligations Declares a contract void
the parties; thus, the courts have no alternative but to prior to termination ab initio, restores parties
enforce them as agreed upon and written.” to original status (mutual
restitution)

Sps Cannu v Sps Galang (2005)

Note: similar to void ab initio and annulled marriages
Facts: The Galang spouses had a mortgage with the
NHMFC to buy a house. They cannot sustain paying for
the mortgage so they had an agreement with the Cannu Art 1191 Art 1380
spouses in the sale of the property on the condition that
the latter would also assume the remaining mortgage
Rescission of reciprocal Rescission of contracts
obligations. The Cannus’ then took possession of the
obligations
land. However, the Cannus’ assumption of the
mortgage was not approved by NHMFC. Eventually, the
Breach of faith by By reason of economic
Galang spouses were able to pay the balance of their
defendant violating prejudice/ interest
loan with the NHMFC. When NHMFC was about to
reciprocity
issue the title to the Galang spouses, the Cannus’ filed
a complaint for specific performance seeking to be
Principal action Subsidiary action
declared owners of the property, promising to reimburse
the Galangs. The TC ruled in favor of the Galangs,
ordering them to return the payments already made to
them by the Cannus.
Pryce Corp v PAGCOR (2005)
Rule: “Rescission will not be permitted for a slight Rule:
breach of the contract. Rescission may be had only for Ratio:
such breaches that are substantial and fundamental as
to defeat the object of the parties in making the
agreement. The question of whether a breach of Ong v CA (1999)
contract is substantial depends upon the attending Rule:
circumstances and not merely on the percentage of the Ratio:
amount not paid.”

Ratio: Even though the remaining balance that the

Sps Cannu v Sps Galang (2005)
Cannus haven’t paid constituted only 18% of the total
purchase price, it has been 18 months since their last Rule:
payment before Galang paid the balance of the loan Ratio:
with the NHMFC. This length of time without paying is
tantamount to their intention to renege in their
obligation. Deiparine v CA (1993)
Facts: Sps Cannu v Sps Galang (2005)
Rule: Facts:
Ratio: Rule:
Ratio:

Laperal v Solid Gomes (2005)

Facts:
Rule:
Ratio:
4. Judicial or extrajudicial
● There is no need for a judicial procedure to
rescind an obligation. The law does not prohibit a
party to enter into an agreement wherein the
terms stipulate the right to rescind upon violation
of the obligation,
● Tolentino: If obligation is not yet performed but
the other party is ready and willing, an extra-
judicial declaration is sufficient. However, if
obligations have already been performed and the
other party opposes rescission, a court action
must be taken.
● However, this is not absolute, a party can still
question before the court the validity of the
rescission. (UP v De Los Angeles)
● However, in Iringan v CA the court held that a
judicial or notarial act is necessary for a
rescission to take place.
Spouses Lam v Kodak Phils (2016)
Rule: “Court intervention for the rescission of contracts
only becomes necessary when the non performing party
disputes the rescission. However, when both parties
exercised their right to resolve, extrajudicial rescission
is enough.”
Ratio: Both parties in this case sent letters to each
other, both informing the other of their mutual desire to
rescind the contract. In this case, court intervention is
not necessary and an extrajudicial rescission would
suffice.
Nissan Car Lease Phils. V Lica Management (2016)
Rule: “Even when there are no contractual grounds,
extrajudicial rescission shall be recognized as long as
the opposing party doesn’t question the same.
However, even if there were contractual grounds for
extrajudicial rescission, the opposing party may still
dispute it with the courts as to whether or not the
rescission was proper.”
Ratio: While NCLPI and LMI’s lease contract doesn’t
contain a provision expressly authorizing extrajudicial
rescission, LMI can nevertheless rescind the contract,
without prior court approval.
5. Subject to rights of third party acquirers

NOTE: Im not sure what rule applies, although

Iringan was the most recent case, it made no Art. 1385. Rescission creates the obligation to return
mention of reversing UP, nor did it even mention the things which were the object of the contract,
it as a precedent rule together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
UP v De Los Angeles (1970)
Neither shall rescission take place when the things
Facts:
which are the object of the contract are legally in the
Rule:
possession of third persons who did not act in bad faith.
Ratio:
In this case, indemnity for damages may be demanded
from the person causing the loss. (1295)
Angeles v Calasanz (1985)
Rule:
Ratio: Acquisition of a 3rd party of a thing due bars and action for
rescission bars an action for rescission if the 3rd person:
1. Is in lawful possession of the thing due
Iringan v CA (2001) 2. Acted in good faith
Facts:
Rule: A valid transfer to a 3rd person who acquires the property
Ratio:
in good faith defeats the action for rescission. BUT, if the
transfer is gratuitous (not onerous), the creditor will have a
better right over the 3rd person, regardless if the latter ● If a transferee acted in bad faith, he is liable for
acted in good or bad faith. damages.
● In cases when there are successive transferees,
In the event that rescission has been decreed whenever someone along the succession line
(extrajudicially or judicially), if the 3rd person: acts in good faith, him and all transferees after
him cannot be liable for damages, regardless if
the subsequent transferees acted in bad faith.
Acted in good faith 1. Not obliged to
pay the fruits of ● For example, in a case where the debtor
the thing alienated the thing to the first transferee who
received by him acted in good faith, and the thing was
2. Entitled to successively alienated to a second transferee,
reimbursements who acted in bad faith, both the first and second
for any transferees are not liable. But if the second
necessary
transferee connived with the debtor to use the
expenses
incurred first transferee as an innocent intermediator, then
3. Not liable for any the second transferee would still be liable.
loss or ● Gratuitous acquisition of the thing by a transferee
deterioration of who acted in good faith shall still be liable for
thing, except if he damages.
acted
fraudulently

Acted in bad faith Not entitled to damages
from the debtor who
alienated the thing to him
In both cases above mentioned, the 3rd person must
return the thing received by him.
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the latter
for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively. (1298a)
● This article applies to anyone (referred to as the
Acquirer or Transferee) who acquires a thing by
alienation from a debtor.
● Liability of transferees to indemnify for
damages will arise when:
a. The debtor alienated the thing in fraud
of the creditor.
b. The transferees acted in bad faith when
they acquired the thing.
c. The thing is impossible to return to the
creditor for any cause.
● Bad Faith of transferee: When a transferee
knows the intention of the transferor to defraud
the creditor, and the transferee makes no effort to
inquire or verify the fraud, then the transferee
acted in bad faith. What matters is knowledge of
the transferee when he acquired the thing.
C. In case both parties are in breach
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. (n)
Yao v Matela (2006)
Facts: Petitioners partially paid respondents for the
substandard performance of respondent’s obligation to
build a townhouse. This may be an example of a
contravention of the tenor of the obligation.
Rule: If both parties breached their contract, and it can
not be conclusively determined who the first infractor is,
Article 1192 will apply.
Ratio: Since it cannot be conclusively determined who
the first violator is, then justice and equity call for the
application of the said Article.
Ong v Bagnalnal (2006)
Facts: After the petitioner failed to pay the respondent
the 4th progress billing for the construction of a
boutique, the respondent never came back to fully fulfill
the obligation. Ong never paid the progress billing due
to allegations that the respondent used materials not
prescribed in their contract.
Rule: The damages for the second breach, which would
have been payable by the second infractor, is
compensated instead by the mitigation of the first
infractor’s damages.
Ratio: Considering the finding that there had been no
novation, it is clear that it was Ong who first violated the
contract by not paying the 4th billing.