OBLIGATIONS AND CONTRACT ASSIGNMENT NO.

4
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.
G.R. No. 149734, November 19, 2004

FACTS:
Spouses Daniel Vasquez and Ma. Luisa M. Vasquez (Petitioner), entered into a Memorandum of
Agreement (MOA) with Ayala Corporation (Respondent), dated April 23, 1981, for buying from the
Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc. which the main asset of
it was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by
Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don
Vicente Village." The development was then being undertaken for Conduit by G.P. Construction and
Development Corp. Under the MOA, Ayala was to develop the entire property, less what was defined as
the “Retained Area”, consisting of 18,736 square meters. The said area was to be retained by the Vasquez
spouses and the area to be developed by Ayala was called the “Remaining Area”. The Remaining Area
were 4 lots adjacent to the “Retained Area” and Ayala agreed to offer these lots for sale to the Vazquez
spouses at the prevailing price at the time of purchase. After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the project. Ayala then received a letter from Lancer General Builder
Corp. in which the latter was claiming a certain amount as subcontractor. G.P. Construction not being
able to reach an amicable settlement with Lancer, Lancer sued G.P. Construction, Conduit and Ayala in
the court. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of
the property. The suit was terminated only on 1987. Taking the position that Ayala was obligated to sell
the 4 lots adjacent to the "Retained Area" within 3 years from the date of the MOA, the Vasquez spouses
sent several "reminder" letters of the approaching so-called deadline. However, no demand after 1984,
was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters
signed by their authorized agent categorically stated that they expected development of Phase 1 to be
completed 3 years from the settlement of the legal problems with the previous contractor. By early 1990,
Ayala finished the development of the vicinity. The 4 lots were then offered to be sold to the Vasquez
spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at
1984 prices, thereby leading to a suit.
ISSUE:
Whether or not respondent incurred default or delay in the fulfillment of its obligation.

HELD:

No. 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 or extrajudicially. Under Article
1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners,
therefore, cannot demand performance after the 3 year period fixed by the MOA for the development of
the first phase of the property since this is not the same period contemplated for the development of the
subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners
should have petitioned the court to fix the period in accordance with Article 1197 of the Civil Code. As
no such action was filed by petitioners, their complaint for specific performance was premature, the
obligation not being demandable at that point. Accordingly, Ayala Corp. cannot likewise be said to have
delayed performance of the obligation. Even assuming that the MOA imposes an obligation on Ayala
Corp. to develop the subject lots, within 3 years from date thereof, Ayala Corp. could still not be held to
have been in delay since no demand was made by petitioners for the performance of its obligation.
Moreover, the letters were mere reminders and not categorical demands to perform. These letters were
sent before the obligation could become legally demandable. More importantly, petitioners waived the 3
year period as evidenced by their agent's letter to the effect that petitioners agreed that the 3 year period
should be counted from the termination of the case filed by Lancer.

ANITA C. BUCE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI
TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M.
TIONGCO, respondents.

G.R. No. 136913 May 12, 2000

FACTS:

Anita C. Buce, the petitioner, leased a 56-square meter parcel of land located at 2068 Quirino Avenue,
Pandacan, Manila. The lease contract was for a period of fifteen years to commence on 1 June 1979 and
to end on 1 June 1994 "subject to renewal for another ten (10) years, under the same terms and conditions.
The Petitioner then constructed a building and paid the required monthly rental of P200. Private
respondents, through their administrator Jose Tiongco, later demanded a gradual increase in the rental
until it reached P400 in 1985. For July and August 1991, petitioner paid private respondents P1,000 as
monthly rental. For July and August 1991, Anita paid private respondentsP1,000 as monthly rental.
In December 1991,Tionco’s counsel wrote Anita Buce about theincrease in the rent toP1,576.58 effective
January 1992 pursuant to the provisions of the Rent Control Law.Anita tenderedchecks for only
P400 each to Jose Tiongcobut Jose Tiongco refused to accept thepayment.Anita fileda
consignationwith the Regional Trial Court of Manila. RTC ruled that the petitioner cannot be ejected
from the premises but the increase of the rent was approved as a form of novation. The Court
of Appeals reversed the decision of RTC and ordered the immediate ejectment from the premises.

Issue: 1.Should the period of lease to renew the contract be given to the lessee or lessor?2.Whether or not
the Fernandez Case is applicable to the case?

Held:

As a general rule, it must be for the both parties but in the given case of contract of lease, it is given to the
lessor2.No, the ruling of Fernandez case is not applicable to the case Ratio: 1.As a general rule under
Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set for the benefit
of both parties. Renewal of the contract may be had only upon their mutual agreement or at the will
of both of them. In the given case, "this lease shall be for a period of fifteen yearseffective June 1,
1979,subject to renewal for another ten (10) years, under the same terms and conditions" does not
mean an autmoctic extenstion of the contract. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the intention of the lessors to automatically
extend the contract.However in the given case, Tioncowere not amenable to a renewal, they cannot be
compelled to execute a new contract when the old contract terminated on 1 June 1994. It is the owner-
lessor’s prerogative to terminate the lease at its expiration.The fulfilmentof a contract of lease
cannotbe made to depend exclusively upon the free and uncontrolled choice of the lessee and
completely depriving the owner of any say in the matter. Mutuality does not obtain in such a
contract of lease and no equality exists between the lessor and the lessee since the life of the
contract would be dictated solely by the lessee.

The Ferandez Case shall not apply because it was not specifically indicated who may exercise the
option to renew, neither was it stated that the option was given for the benefit of herein petitioner. In the
case of Fernandez, it was for the benefit of the lessee alone.

GREGORIO ARANETA, INC., Petitioner, v. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT

FACTS:
ACTION TO COMPEL PERFORMANCE UNDER CONTRACT; COURT HAS NO AUTHORITY TO
FIX PERIOD WHERE CONTRACT ESTABLISHES "REASONABLE TIME." — If the contract
provided a "reasonable time", then there was a period fixed, and all that the court should have done was to
determine if that reasonable time had already elapsed when suit was filed. If it had passed, then the court
should declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting
damages. On the other hand, if reasonable time had not yet elapsed, the court perforce was bound to
dismiss the action for being premature. But in no case can it be logically held that under the facts above
quoted the intervention of the court to fix the period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed by the parties.

Facts:
J. M. Tuason & Co., Inc.(Tauson)is the owner of a big tract land otherwise known as the Sta.
Mesa Heights Subdivision, and covered by a Torrens title in its name. On July1950, through Gregorio
Araneta, Inc., (Araneta) it sold a portion thereof to Philippine Sugar Estates Development Co., Ltd
(PSEDC) The parties stipulated, among in the contract of purchase and sale with mortgage, that the
buyer will build on the said parcel land the Sto. Domingo Church and Convent while the seller for
its part will —Construct streets on the NE and NW and SW sides of the land herein sold so that the latter
will be a block surrounded by streets on all four sides; and the street on the NE side shall be named "Sto.
Domingo Avenue.”The buyer, finished the construction of Sto. Domingo Church and Convent, but
the seller was unable to finish the construction of the street in the Northeast side named (Sto.
Domingo Avenue) because a third-party, bythe name of Manuel Abundo, who has been physically
occupying a middle part thereof, refused to vacate the same. on May 1958,PSEDC. filed its complaint
against Tuason seeking to compel the latter to comply with their obligation, as stipulated in the above-
mentioned deed of sale, and/or to pay damages in the event they failed or refused to perform said
obligation.Defendant Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did
not expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and
that the evidence presented at the trial was insufficient to warrant the fixing of such a period.The lower
court ruled the following: defendant is given two (2) years from the date of finality of this decision to
comply with the obligation to construct streets on the NE, NW and SW sides of the land sold to plaintiff
so that the same would be a block surrounded by streets on all four sides.

Issue: Was there a duly fixed period within which the obligation should complied with?

Held: Article 1197 of the Civil Code involves a two-step process. The Court must first determine that
"the obligation does not fix a period" but from the nature and the circumstances it can be inferred that a
period was intended". The trial Court appears to have pulled the two-year period set in its decision out of
thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil
Code. The contract shows that the parties were fully aware that the land described therein was
occupied by squatters, because the fact is expressly mentioned therein. As the parties must have known
that they could not take the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by Araneta. It follows that there is no justification in law for the
setting the date of performance at any other time than that of the eviction of the squatters occupying the
land in question. It is not denied that the case against one of the squatters, Abundo, was still
pending in the Court of Appeals when its decision in this case was rendered.

DEVELOPMENT BANK OF THE PHILIPPINES vs. STA. INES MELALE FOREST

FACTS:
On July 21, 1981, President Marcos issued Letter of Instructions addressed to the NDC, DBP, and the
Maritime Industry Authority. To acquire 100% of the shareholdings of Galleon Shipping
Corporation from its present owners. For the furtherance of the government’s policy to provide a
reliable liner service between the Philippines and its major trading partners. The Shareholders filed a
complaint stating that NDC, “without paying a single centavo, took over the complete, total, and
absolute ownership, management, control, and operation of defendant [Galleon] and all its assets,
even prior to the formality of signing a share purchase agreement, which was held in abeyance
because the defendant NDC was verifying and confirming the amounts paid by plaintiffs to
Galleon, and certain liabilities of Galleon to plaintiffs.”The Regional Trial Court upheld the validity of
Letter of Instructions No. 1155 and the Memorandum of Agreement executed by NDC and Galleon’s
stockholders, pursuant to Letter of Instructions No. 1155.NDC argues that Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings had no basis to compel it to pay Galleon’s shares of stocks
because no share purchase agreement was executed.

ISSUES:

1) Whether the Memorandum of Agreement between NDC and Galleon was perfected;

2) Whether the execution of a share purchase agreement is needed to effect the transfer of
Galleon’s shareholdings to NDC;

HELD:

Yes. The Supreme Court held that there exists a perfected contract as it reflects the intention of the
parties. When the “terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.” It is not disputed that NDC and
respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings executed a
Memorandum of Agreement pursuant to the directives of Letter of Instructions No. 1155.In Fernandez v.
Court of Appeals further emphasizes that ” the important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that task is of course to be discharged by
looking to the words they used to project that intention in their contract, all the words not just a particular
word or two, and words in context not words standing alone.” The Court of Appeals found that the
Memorandum of Agreement between NDC and Galleon was a perfected contract for NDC to
purchase 100% of Galleon’s shareholdings.2) Yes. The Supreme Court ruled in affirmative but quickly
pointed on the fact that NDC voluntarily caused delay of the execution of the share purchase agreement.
The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon was a
perfected contract for NDC to purchase 100% of Galleon’s shareholdings. However, a careful
reading of the Memorandum of Agreement shows that what the parties agreed to was the execution of a
share purchase agreement to effect the transfer of 100% of Galleon’s shareholdings to NDC, as seen in
clauses of the Letter of Instructions. The execution of a share purchase agreement was a condition
precedent to the transfer of Galleon’s shares to NDC. We uphold the Court of Appeals’ finding that the
failure to execute the share purchase agreement was brought about by NDC’s delay in reviewing the
financial accounts submitted by Galleon’s stockholders. The Memorandum of Agreement was executed
on August 10, 1981, giving the parties no more than sixty days or up to October 9, 1981, to prepare and
sign the share purchase agreement. However, it was only on April 26, 1982, or more than eight months
after the Memorandum of Agreement was signed, did NDC’s General Director submit his
recommendation on Galleon’s outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement. Article
1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment.” Considering NDC’s delay, the execution of the share purchase
agreement should be considered fulfilled with NDC as the new owner of 100% of Galleon’s shares of
stocks.

FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.
G.R. No. L-11827, July 31, 1961
FACTS:

Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the Dawahan Group. By a
"Deed of Assignment" dated September 29, 1952, Fonacier constituted and appointed Gaite as his true
and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration
and development of the mining claims. On March 19, 1954, Gaite in turn executed a general assignment
conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided by the “Deed of
Assignment". For some reason or another, Fonacier decided to revoke the authority granted by him to Gaite to
exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As
a result, a "Revocation of Power of Attorney and Contract" was executed on December 8, 1954, wherein Gaite
transferred to Fonacier, all his rights and interests on development and exploitation of said mining claims, in
consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and
the balance of P65,000.00 will be paid from and out of the first letter of credit covering the first shipment of
iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting
Co. Inc., its assigns, administrators, or successors in interests. To secure the payment of P65k, Fonacier
executed a surety bond with himself as principal, the Larap Mines and Smelting Co. and its stockholder as
sureties. Yet, this was refused by Gaite. He further required another bond underwritten by a bonding company
to
secure the payment of the balance. Hence a second bond was produced with Far Eastern
Surety as an additional surety, provided the liability of Far Eastern would only prosper when
there had been an actual sale of the iron ores of not less than the agreed amount of P65k,
moreover, its liability was to automatically expire on December 1955. On December 1955, the second bond
had expired and no sale amounting to the stipulation as prior agreed nor had the balance been paid to Gaite by
Fonacier. Thus such failure, prompted Gaite to file a complaint in the CFI of Manila for the payment of the
balance and other damages. The lower court ruled the obligation was one with a term and that the obligation
became due and demandable under Article 1198 of the New Civil Code. Hence, the defendants jointly filed an
appeal.

ISSUE:
Whether or not the Lower Court erred in holding the obligation of appellant Fonacier to pay appelle Gaite the
balance of P65,000, as one with a period or term and not one with a
suspensive condition; and that the term expired on December 1955

HELD:
No error was found, affirming the decision of the lower court. Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract was executed, either because the
appellant debtors had impaired the securities originally given and thereby forfeited any further time within
which to pay; or because the term of payment was originally of no more than one year, and the balance of
P65,000, became due and payable thereafter. The Lower Court was legally correct in holding the shipment or
sale of the iron ore is not a condition or suspensive to the payment of the balance of P65,000, but was only a
suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory
force as distinguished from its demand ability, is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. The sale of the ore to Fonacier
was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not
being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the
payment of the balance of the agreed price, but was intended merely to fix the future date of the payment.
While as to the right of Fonacier to insist that Gaite should wait for the sale or shipment of the ore before
receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period
granted them for making the payment. The appellant had indeed have forfeited the right to compel Gaite to
wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the
security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential
and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (first
bond). Under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: ART. 1198. The debtor
shall lose every right to make use of the period: “(2) When he does not furnish to the creditor the guaranties or
securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones
equally satisfactory.” Appellants' failure to renew or extend the surety company's bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.
Nevertheless, there is no merit in appellants' argument that Gaite's acceptance of the surety company's bond
with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal
after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to
gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the
ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the
defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier
by virtue of the
deed, first bond.