OBLIGATIONS AND

CONTRACTS CASE
DIGESTS

GOLDEN VALLEY EXPLORATION, INC. VS PINKIAN MINING

COMPANY AND COPPER VALLEY, INC.
PERLAS-BERNABE, J.
June 11, 2014

FACTS:
PMC entered into an Operating Agreement (OA) with GVEI, granting the
latter "full, exclusive and irrevocable possession, use, occupancy, and
control over the mining claim, and every matter pertaining to the
examination, exploration, development and mining of the mining
claims and the processing and marketing of the products" for a period
of 25 years.
In a letter, PMC extra-judicially rescinded the OA upon GVEIs violation of
Section 5.01, Article V, to wit: Should the PROPERTIES be placed in
commercial production the PINKIAN shall be entitled to a Royalty
computed as follows:
(a) For gold - 3.0 percent of net realizable value of gold
(b) For copper and others - 2.0 percent of net realizable value
xxxx
The aforesaid royalties shall be paid to [PMC] within five (5) days after
receipt of the smelter or refinery returns."

GVEI contested PMCs extra-judicial rescission of the OA through a

Letter, averring therein that its obligation to pay royalties to PMC
arises only when the mining claims are placed in commercial
production which condition has not yet taken place. PMC no longer
responded to GVEIs letter. Instead, it entered into a Memorandum
of Agreement with CVI.

ISSUE:
Whether or not there was a valid rescission of the Operating
Agreement

RULING: YES
In reciprocal obligations, either party may rescind the contract upon the others substantial
breach of the obligation/s he had assumed thereunder. The basis therefor is Article 1191 of
the Civil Code which states as follows:
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.

As a general rule, the power to rescind an obligation must be invoked judicially and
cannot be exercised solely on a partys own judgment that the other has committed a
breach of the obligation. This is so because rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in making the agreement. As
a well-established exception, however, an injured party need not resort to court
action in order to rescind a contract when the contract itself provides that it may be
revoked or cancelled upon violation of its terms and conditions.
Records reveal that when the OA was signed 15 mining claims were already covered
by a perfected mining lease contract This meant that GVEI could have immediately
extracted mineral deposits from the covered mineral land and carried out commercial
mining operations from the very start. However, despite earlier demands made by
PMC, no meaningful steps were taken by GVEI towards the commercial production of
the 15 perfected mining claims and the beneficial exploration of those remaining.
Compounding its breach, GVEI not only failed to pay royalties to PMC but also did not
carry out its obligation to conduct operations on and/or commercialize the mining.
Truth be told, GVEIs non-performance of the latter obligation under the OA actually
made the payment of royalties to PMC virtually impossible. Hence, GVEI cannot blame
anyone but itself for its breach of the OA, which, in turn, gave PMC the right to
unilaterally rescind the same.

SWIRE REALTY DEVELOPMENT CORPORATION VS JAYNE

YU
PERALTA, J.
March 9, 2015

FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation
entered into a Contract to Sell covering one residential condominium unit in
Makati. Respondent likewise purchased a parking slot in the same condominium
building for P600,000.00. Respondent paid the full purchase price of
P7,519,371.80 for the unit while making a down payment of P20,000.00 for the
parking lot. However, notwithstanding full payment of the contract price,
petitioner failed to complete and deliver the subject unit on time. This
prompted respondent to file a Complaint for Rescission of Contract with
Damages before the Housing and Land Use Regulatory Board (HLURB) Expanded
National Capital Region Field Office (ENCRFO). HLURB ENCRFO dismissed
respondents complaint. Respondent elevated the matter to the HLURB Board
of Commissioners which reversed and set aside the ruling of the HLURB
ENCRFO and ordered the rescission of the Contract to Sell. Petitioner appealed
to the Office of the President which was granted. Respondent appealed to CA
which reversed the decision of the OP.

ISSUE:
Whether rescission of the contract is proper in the instant
case

RULING:
Basic is the rule that the right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by
the other party who violates the reciprocity between them. The breach
contemplated in the said provision is the obligors failure to comply with
an existing obligation. When the obligor cannot comply with what is
incumbent upon it, the obligee may seek rescission and, in the absence
of any just cause for the court to determine the period of compliance,
the court shall decree the rescission.

It is evident that the report on the ocular inspection conducted on the

subject condominium project and subject unit shows that the amenities
under the approved plan have not yet been provided as of May 3, 2002,
and that the subject unit has not been delivered to respondent as of
August 28, 2002, which is beyond the period of development of
December 1999 under the license to sell. Incontrovertibly, petitioner had
incurred delay in the performance of its obligation amounting to breach
of contract as it failed to finish and deliver the unit to respondent within
the stipulated period. The delay in the completion of the project as well
as of the delay in the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to rescind the contract,
demand a refund and payment of damages.

MARCELO AGCAOILI VS GOVERNMENT SERVICE INSURANCE

SYSTEM
NARVASA, J.
August 30, 1988

FACTS:
Appellant GSIS approved an application of the appellee Agcaoili for the
purchase of the house and lot in the GSIS Housing Project at Marikina, subject
to the condition that the latter should occupy the house. Agcaoili was not
able to do so because the house was uninhabitable. Agcaoili did however ask
a homeless friend, a certain Villanueva, to stay in the premises as some sort
of watchman, pending completion of the construction of the house. Agcaoili
thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees.
Agcaoili paid the first monthly installment and the incidental fees, but
refused to make further payments until and unless the GSIS completed the
housing unit. What the GSIS did was to cancel the award and require Agcaoili
to vacate the premises. Agcaoili reacted by instituting suit in the Court of
First Instance of Manila for specific performance and damages.

ISSUE:
Whether or not the cancellation by GSIS of the award in favor of
petitioner Agcaoili just and proper

RULING:

It sold a house to Agcaoili, and required him to immediately occupy it under

pain of cancellation of the sale. Under the circumstances there can hardly
be any doubt that the house contemplated was one that could be occupied
for purposes of residence in reasonable comfort and convenience. There
would be no sense to require the awardee to immediately occupy and live in
a shell of a house, a structure consisting only of four walls with openings,
and a roof, and to theorize, as the GSIS does, that this was what was
intended by the parties, since the contract did not clearly impose upon it
the obligation to deliver a habitable house, is to advocate an absurdity, the
creation of an unfair situation. By any objective interpretation of its terms,
the contract can only be understood as imposing on the GSIS an obligation
to deliver to Agcaoili a reasonably habitable dwelling in return for his
undertaking to pay the stipulated price. Since GSIS did not fulfill that
obligation, and was not willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortizations as cause to cancel
the contract between them. It is axiomatic 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."

SPOUSES RODOLFO BEROT AND LILIA BEROT VS FELIPE C.

SIAPNO
SERENO, CJ.
July 9, 2014

FACTS:
Macaria Berot and spouses Rodolfo A. Berot and Lilia P. obtained a loan
from Felipe C. Siapno. As security for the loan, Macaria, appellant and
Lilia mortgaged to appellee a portion of a parcel of land. Macaria then
died. Because of the mortgagors default, appellee filed an action
against them for foreclosure of mortgage and damages. In answer, Berot
spouses alleged that the contested property was the inheritance of the
former from his deceased father, Pedro; that on said property is their
family home; that the mortgage is void as it was constituted over the
family home without the consent of their children, who are the
beneficiaries thereof; that their obligation is only joint; and that the
lower court has no jurisdiction over Macaria for the reason that no
summons was served on her as she was already dead.

ISSUE:
Whether or not the nature of the loan obligation contracted
by petitioners is joint or solidary

RULING:

The obligation is joint

Under Article 1207 of the Civil Code of the Philippines, the general rule
is that when there is a concurrence of two or more debtors under a
single obligation, the obligation is presumed to be joint:
Art. 1207. The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, orthat each one of
the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation
requires solidarity.
The law further provides that to consider the obligation as solidary in
nature, it must expressly be stated as such, or the law or the nature of
the obligation itself must require solidarity.

The testimony of petitioner Rodolfo, based from the records of the case,
only established that there was that existing loan to respondent, and
that the subject property was mortgaged as security for the said
obligation. His admission of the existence of the loan made him and his
late mother liable to respondent. We have examined the contents of the
real estate mortgagebut found no indication in the plain wordings of the
instrument that the debtors the late Macaria and herein petitioners
had expressly intended to make their obligation to respondent solidary in
nature. Absent from the mortgage are the express and indubitable terms
characterizing the obligation as solidary.
Respondent was not able to prove by a preponderance of evidence that
petitioners' obligation to him was solidary. Hence, applicable to this case
is the presumption under the law that the nature of the obligation herein
can only be considered as joint. It is incumbent upon the party alleging
otherwise to prove with a preponderance of evidence that petitioners'
obligation under the loan contract is indeed solidary in character.

THE END
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