CASE DIGESTS ON OBLIGATIONS AND CONTRACTSFROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 1 EDILBERTO U. VENTURA JR. vs.SPOUSES PAULINO and EVANGELINE ABUDA G.R. NO: 202932 FACTS: Socorro Torres and Esteban Abletes were married and both of them had children from prior marriages: Esteban had a daughter named Evangeline Abuda and Socorro had a son, who was the father of Edilberto U. Ventura, Jr. the petitioner in this case. In 1978, Evangeline and Esteban operated small business establishments located at Delpan Street, Tondo, Manila. In 1997, Esteban sold the Vitas and Delpan properties to Evangeline and her husband, Paulino Abuda According to Edilberto, when Esteban was diagnosed with colon cancer sometime in 1993, he decided to sell the Delpan and Vitas properties to Evangeline. Evangeline continued paying the amortizations on the two (2) properties situated in Delpan Street. Esteban passed away on 11 September 1997, while Socorro passed away on 31 July 1999. Leonora Urquila, the mother of Edilberto, discovered the sale. Edilberto filed a Petition for Annulment of Deeds of Sale before the RTC-Manila. Edilberto alleged that the sale of the properties was fraudulent because Esteban’s signature on the deeds of sale was forged. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 2 Respondents, on the other hand, argued that because of Socorro’s prior marriage to Crispin, her subsequent marriage to Esteban was null and void. Thus, neither Socorro nor her heirs can claim any right or interest over the properties purchased by Esteban and respondents. ISSUE: W/O/N there was actual contribution from Esteban in the Delpan property RULING: Edilberto claims that Esteban’s actual contribution to the purchase of the Delpan property was not sufficiently proven since Evangeline shouldered some of the amortizations. Thus, the law presumes that Esteban and Socorro jointly contributed to the acquisition of the Del pan property. We cannot sustain Edilberto s claim. Both the RTC-Manila and the CA found that the Delpan property was acquired prior to the marriage of Esteban and Socorro. Furthermore, even if payment of the purchase price of the Delpan property was made by Evangeline, such payment was made on behalf of her father. Article 1238 of the Civil Code provides: Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor s consent. But the payment is in any case valid as to the creditor who has accepted it. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 3 Thus, it is clear that Evangeline paid on behalf of her father, and the parties intended that the Delpan property would be owned by and registered under the name of Esteban. During trial, the Abuda spouses presented receipts evidencing payments of the amortizations for the Delpan property. On the other hand, Edilberto failed to show any evidence showing Socorro s alleged monetary contributions. As correctly pointed out by the CA: settled is the rule that in civil cases x x x the burden of proof rests upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an issue. x x x. Here it is Appellant who is duty bound to prove the allegations in the complaint which undoubtedly, he miserably failed to do so. PLANTERS DEVELOMENT BANK v SPOUSES LOPEZ G.R. NO: 186332 FACTS: Spouses Emesto and Florentina Lopez applied for and obtained a real estate loan in the amount of 3,000,000.00 from Planters Bank. The loan was intended to finance the construction of a four-story concrete dormitory building. The loan agreement dated May 18, 1983 provided that the loan is payable for fourteen (14) years and shall bear a monetary interest at twenty-one percent (21%) per annum (p.a.). Furthermore, partial drawdowns on the loan shall be based on project completion. To secure the payment of the loan, the spouses Lopez mortgaged a parcel of land CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 4 The parties signed an amendment to the loan agreement and the interest rate was increased to twenty-three percent (23%) p.a. and the term of the loan was shortened to three years. The parties executed a second amendment to the loan agreement. The interest rate was further increased to twenty-five percent (25%) p.a. The contract also provided that releases on the loan shall be subject to Planters Bank’s availability of funds. Meanwhile, the Philippine economy deteriorated and the price of the materials and the cost of labor escalated. Eager to finish the project, the spouses Lopez obtained an additional loan in the amount of P1,200,000.00 from Planters Bank. They entered into a third amendment to the loan agreement. The amount of the loan and the interest rate were increased to P4,200,000.00 and twenty-seven percent (27%) p.a., respectively. Furthermore, the term of the loan was shortened to one year. The spouses Lopez increased the amount secured by the mortgage to P4,200,000.00. However, Planters Bank unilaterally increased the interest rate to thirty-two percent (32%) p.a. 11 The spouses Lopez failed to avail the full amount of the loan because Planters Bank refused to release the remaining amount of P700,000.00. The spouses Lopez filed against Planters Bank complaint for rescission of the loan agreements and for damages with the Regional Trial Court (RTC) of Makati City. They alleged that they could not continue the construction of the dormitory building because Planters Bank had refused to release the remaining loan balance. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 5 In defense, Planters Bank argued that the spouses Lopez had no cause of action. It pointed out that its refusal to release the loan was the result of the spouses Lopez’s violations of the loan agreement, namely: (1) non-submission of the accomplishment reports; and (2) construction of a six-story building. As a counterclaim, Planters Bank prayed for the payment of the overdue released loan in the amount of P3,500,000.00, with interest and damages. Planters Bank foreclosed the mortgaged properties in favor of third parties after the spouses Lopez defaulted on their loan. ISSUE: W/O/N Planters Bank committed a breach of contract Planters Bank only committed a slight or casual breach of the contract Even assuming that Planters Bank substantially breached its obligation, the fourth paragraph of Article 1191 of the Civil Code expressly provides that rescission is without prejudice to the rights of third persons who have acquired the thing, in accordance with Article 1385 of the Civil Code. In turn, Article 1385 states that rescission cannot take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. Furthermore, the spouses Lopez’s failure to pay the overdue loan made them parties in default, not entitled to rescission under Article 1191 of the Civil Code. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 6 The estate of Florentina Lopez shall pay Planters Bank the amount of P3,500,000.00 with 12% monetary interest p.a. from June 22, 1984 until full payment of the obligation Planters Bank and the spouses Lopez undertook reciprocal obligations when they entered into a loan agreement. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other. The mere pecuniary inability of one contracting party to fulfill an engagement does not discharge the other contracting party of the obligation in the contract. Planters Bank’s slight breach does not excuse the spouses Lopez from paying the overdue loan in the amount of P3,500,000.00. Despite this finding, however, we cannot sustain the imposition of the interest rate in the loan contract. We are aware that the parties did not raise this issue in the pleadings. However, it is a settled rule that an appeal throws the entire case open for review once accepted by this Court. This Court has thus the authority to review matters not specifically raised or assigned as error by the parties, if their consideration is necessary in arriving at a just resolution of the case. In the present case, Planters Bank unilaterally increased the monetary interest rate to 32% p.a. after the execution of the third amendment to the loan agreement. This is patently violative of the element of mutuality of contracts. Our Civil Code has long entrenched the basic principle that the validity of or compliance to the contract cannot be left to the will of one party. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 7 EDS MANUFACTURING INC v HEALTHCHECK INT’L INC G.R. NO: 162802 FACTS: Healthcheck Inc. a 1-lcalth Maintenance Organization HMO) entered into a one-year contract with DLSUMC in which HCI was to provide the employees of EMI and their dependents as host of medical services and benefits Only two months into the program, problems began. HCI notified EMI that its accreditation with DLSUMC was suspended and advised it to avail of the services of nearby accredited institutions. Although HCI had yet to settle its accounts with it, DLSUMC resumed services. Despite this commitment, HCI failed to preserve its credit standing with DLSUMC prompting the latter to suspend its accreditation for a second time. A third suspension was still to follow on and remained in force until the end of the contract period. Complaints from EMI employees and workers were pouring in that their HMO cards were not being honored by the DLSUMC and other hospitals and physicians. EMI formally notified HCI that it was rescinding their April 1998 Agreement on account of HCI’s serious and repeated breach of its undertaking including but not limited to the unjustified non-availability of services. It demanded a return of premium for the unused period in the cost of P6 million. What went in the way of the rescission of the contract, was the failure of EMI to collect all the HMO cards of the employees and surrender them to HCI as stipulated in the CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 8 Agreement. HCI had to tell EMI on that its employees were still utilizing the cards even beyond the pretermination date set by EMI. It asked for the surrender of the cards so that it could process the pretermination of the contract and finalize the reconciliation of accounts. Without responding to this reminder, EMI sent HCI two letters demanding for the payment ofP5,884,205 as the 2/3 portion of the premium that remained unutilized after the Agreement was rescinded in the previous September. HCI pre-empted EMI’s threat of legal action by instituting the present case before the Regional Trial Court of Pasig. The cause of action it presented was the unlawful pretermination of the contract and failure of EMI to submit to a joint reconciliation of accounts and deliver such assets as properly belonged to HCI. EMI responded with an answer alleging that HCI reneged on its duty to provide adequate medical coverage after EMI paid the premium in full. Having rescinded the contract, it claimed that it was entitled to the unutilized portion of the premium, and that the accounting required by HCI could not be undertaken until it submitted the monthly utilization reports mentioned in the Agreement. RTC: The court ruled in favor of HCI. It found that EMI’s rescission of the Agreement was not done through court action or by a notarial act and was based on casual or slight breaches of the contract. Moreover, despite the announced rescission, the employees of EMI continued to avail of HCI’s services. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 9 CA: Reversed the decision of the RTC and ruled that although Healthcheck International, (HCI) substantially breached their agreement, it also appears that Eds Manufacturing, Inc. (EMI) did not validly rescind the contract between them. Thus, the CA dismissed the complaint filed by HCI, while at the same time dismissing the counterclaim filed by EMI. EMI filed a Motion for Partial Reconsideration against said decision. However, the same was denied in a Resolution dated March 16, 2004. ISSUE: W/O/N There was a valid rescission of the agreement of the parties RULING: We rule in the negative. First, Article 1191 of the Civil Code states: 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. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 10 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. The general rule is that rescission (more appropriately, resolution ) 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. Thus, the rescission referred to in Article 1191, more appropriately referred to as resolution, is on the breach of faith by one of the parties which is violative of the reciprocity between them. In the present case, it is apparent that HCI violated its contract with EMI to provide medical service to its employees in a substantial way. As aptly found by the CA, the various reports made by the EMI employees from July to August 1998 are living testaments to the gross denial of services to them at a time when the delivery was crucial to their health and lives. However, although a ground exists to validly rescind the contract between the parties, it appears that EMI failed to judicially rescind the same. In Iringan v. Court of Appeals, this Court reiterated the rule that in the absence of a stipulation, a party cannot unilaterally and extrajudicially rescind a contract. A judicial or notarial act is necessary before a valid rescission (or resolution) can take place. Thus – Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. It is to be noted that the law uses the phrase CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 11 "even though" emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies. x x x x But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v. Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially. The same article also provides: "The Court shall decree the resolution demanded, unless there should be grounds which justify the allowance of a term for the performance of the obligation." This requirement has been retained in the third paragraph of Article 1191, which states that "the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period." Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised solely on a party’s own judgment that the other committed a breach of the obligation. The operative act which produces the resolution of the contract is the decree of the CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 12 court and not the mere act of the vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. What is more, it is evident that EMI had not rescinded the contract at all. As observed by the CA, despite EMI s pronouncement, it failed to surrender the HMO cards of its employees although this was required by the Agreement, and allowed them to continue using them beyond the date of the rescission. The in-patient and the out-patient utilization reports submitted by 1 ICI shows entries as late as March 1999, signifying that EMI employees 1 were availing of the services until the contract period were almost over. The continued use by them of their privileges under the contract, with the apparent consent of EMI, belies any intention to cancel or rescind it, even as they felt that they ought to have received more than what they got. NUCCIO SAVERIO v ALFONSO PUYAT G.R. NO: 186433 FACTS: The respondent granted a loan to NSI. The loan carried an interest rate of 17% per annum, or at an adjusted rate of 25% per annum if payment is beyond the stipulated period. The petitioners received a total amount of P300,000.00 and certain machineries intended for their fertilizer processing plant business (business). The proposed business, however, failed to materialize. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 13 Nuccio made personal payments amounting to P600,000.00. However, the petitioners allegedly had an outstanding balance. When the petitioners defaulted in the payment of the loan, the respondent filed a collection suit with the RTC, alleging mainly that the petitioners still owe him the value of the machineries as shown by the Breakdown of Account he presented. The petitioners refuted the respondent’s allegation and insisted that they have already paid the loan. They submitted that their remaining obligation to pay the machineries’ value, if any, had long been extinguished by their business’ failure to materialize. They posited that, even assuming without conceding that they are liable, the amount being claimed is inaccurate, the penalty and the interest imposed are unconscionable, and an independent accounting is needed to determine the exact amount of their liability. The petitioners submit that the CA gravely erred in ruling that a proper accounting was not necessary. They argue that the Breakdown of Account - which the RTC used as a basis in awarding the claim, as affirmed by the CA - is hearsay since the person who prepared it, Ramoncito P. Puyat, was not presented in court to authenticate it. They also point to the absence of the award’s computation in the RTC ruling, arguing that assuming they are still indebted to the respondent, the specific amount of their indebtedness remains undetermined, thus the need for an accounting to determine their exact liability. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 14 ISSUE: W/O/N the respondent is entitled to the award of attorney’s fees RULING: On the final issue of the award of attorney’s fees, Article 1229 of the New Civil Code provides: Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Under the circumstances of the case, we find the respondent’s entitlement to attorney’s fees to be justified. There is no doubt that he was forced to litigate to protect his interest, i.e., to recover his money. We find, however, that in view of the partial payment of P600,000.00, the award of attorney’s fees equivalent to 25% should be reduced to 10% of the total amount due. The award of appearance fee of P3,000.00 and litigation cost of P10,000.00 should, however, stand as these are costs necessarily attendant to litigation. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 15 GATCHALIAN REALTY INC v EVELYN ANGELES G.R. NO: 202358 FACTS: Angeles purchased a house and lot from GRI valued at Php 750,000.00 and Php 450,000.00, respectively, with (24%) interest per annum to be paid by installment within a period of ten years. The house and lot were delivered to Angeles.Nonetheless, under the contracts to sell executed between the parties, GRI retained ownership of the property until full payment of the purchase price. After sometime, Angeles failed to satisfy her monthly installments with GRI. According to GRI, she was given at least 12 notices for payment in a span of 3 years but she still failed to settle her account despite receipt of said notices and without any valid reason. She was again given more time to pay her dues and likewise furnished with 3 notices reminding her to pay her outstanding balance with warning of impending legal action and/or rescission of the contracts, but to no avail. After giving a total of 51 months grace period for both contracts and in consideration of the continued disregard of the demands of GRI, Angeles was served with a notice of notarial rescission. Angeles was furnished by GRI with a demand letter demanding her to pay the amount of rentals for her use and occupation of the house and lot and to vacate the same. She was informed in said letter that the fifty percent (50%) refundable amount that she is entitled to has already been deducted with the reasonable value for the use of the CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 16 properties or the reasonable rentals she incurred during such period that she was not able to pay the installments due her. For her continued failure to satisfy her obligations with GRI and her refusal to vacate the house and lot, GRI filed a complaint for unlawful detainer against Angeles on 11 November 2003. ISSUE: W/O/N The court a quo erred in holding that the actual cancellation of the contract between the parties did not take place RULING: There was no actual cancellation of the contracts because of GRI’s failure to actually refund the cash surrender value to Angeles. Cancellation of the contracts for the house and lot was contained in a notice of notarial rescission dated 11 September 2003. The registry return receipts show that Angeles received this notice on 19 September 2003. GRI’s demand for rentals on the properties, where GRI offset Angeles’ accrued rentals by the refundable cash surrender value, was contained in another letter dated 26 September 2003. The registry return receipts show that Angeles received this letter on 29 September 2003. GRI filed a complaint for unlawful detainer against Angeles on 11 November 2003, 61 days after the date of its notice of notarial rescission, and 46 days after the date of its demand for rentals. For her part, Angeles sent GRI postal money orders in the total amount ofP120,000. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 17 The MeTC ruled that it was proper for GRI to compensate the rentals due from Angeles’ occupation of the property from the cash surrender value due to Angeles from GRI. The MeTC stated that compensation legally took effect in accordance with Article 1290 of the Civil Code, which reads: "When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation." In turn, Article 1279 of the Civil Code provides: In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist of a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts are due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 18 However, it was error for the MeTC to apply Article 1279 as there was nothing in the contracts which provided for the amount of rentals in case the buyer defaults in her installment payments. We cannot subscribe to GRI’s view that it merely followed our ruling in Pilar Development Corporation v. Spouses Villar (Pilar) when it deducted the cash surrender value from the rentals due. In Pilar, the developer also failed to refund the cash surrender value to the defaulting buyer when it cancelled the Contract to Sell through a Notice of Cancellation. It was this Court, and not the developer, that deducted the amount of the cash surrender value from the accrued rentals. Moreover, the developer in Pilar did not unilaterally impose rentals. It was the MeTC that decreed the amount of monthly rent. Neither did the developer unilaterally reduce the accrued rentals by the refundable cash surrender value. The cancellation of the contract took effect only by virtue of this Court’s judgment because of the developer’s failure to return the cash surrender value. This was how we ruled in Pilar: According to R.A. 6552, the cash surrender value, which in this case is equivalent to fifty percent (50%) of the total payment made by the respondent spouses, should be returned to them by the petitioner upon the cancellation of the contract to sell on August 31, 1998 for the cancellation to take effect. Admittedly, no such return was ever made by petitioner. Thus, the said cash surrender value is hereby ordered deducted from the award owing to the petitioner based on the MeTC judgment, and cancellation takes effect by virtue of this judgment. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 19 CONSOLIDATED INDUSTRIAL GASES INC. V ALABANG MEDICAL CENTER G.R. NO: 181983 FACTS: CIGI, as contractor and AMC, as owner, entered into a contract 4 whereby the former bound itself to provide labor and materials for the installation of a medical gas pipeline system for the first, second and third floors P9,856,725.18 which AMC duly paid in full. The herein legal controversy arose after the parties entered into another agreement continuation of the centralized medical oxygen and vacuum pipeline system in the hospital’s fourth & fifth floors (Phase 2 installation project) at the cost (P2,267,344.42). This second contract followed the same terms and conditions of the contract for the Phase 1 installation project. CIGI forthwith commenced installation works for Phase 2 while AMC paid the partial amount of (P1,000,000.00) with the agreement that the balance shall be paid through progress billing and within fifteen (15) days from the date of receipt of the original invoice sent by CIGI. CIGI sent AMC Charge Sales Invoice No. 125847 as completion billing for the unpaid balance of P1,267,344.42 for the Phase 2 installation project. When the sales invoice was left unheeded, CIGI sent a demand letter to AMC. AMC, however, still failed to pay thus prompting CIGI to file a collection suit before the RTC on September 15, 1998. 6 CIGI claimed that AMC’s obligation to pay the outstanding balance of the contract price for the Phase 2 installation project is already due and demandable pursuant to Article II, CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 20 page 4 of the contract stating that the project shall be paid through progress billing within fifteen (15) days from the date of receipt of original invoice. In its Answer with Counterclaim, 7 AMC averred that its obligation to pay the balance of the contract price has not yet accrued because CIGI still has not turned over a complete and functional medical oxygen and vacuum pipeline system. AMC alleged that CIGI has not yet tested Phases 1 and 2 which constitute one centralized medical oxygen and vacuum pipeline system of the hospital despite substantial payments already made. As counterclaim, AMC prayed for actual, moral and exemplary damages, and attorney’s fees. ISSUE: W/O/N CIGI’s demand for payment upon AMC is proper RULING: The subject installation contracts bear the features of reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other." In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 21 manner with what is incumbent upon him. From the moment one of the parties fulfils his obligation, delay by the other begins. Under the subject contracts, CIGI as contractor bound itself to install a centralized medical oxygen and vacuum pipeline system for the first to fifth floors of AMC, which in turn, undertook to pay the contract price therefore in the manner prescribed in the contract. Being reciprocal in nature, the respective obligations of AMC and CIGI are dependent upon the performance of the other of its end of the deal such that any claim of delay or non-performance can only prosper if the complaining party has faithfully complied with its own obligation. Here, CIGI complains that AMC refused to abide by its undertaking of full payment. While AMC does not dispute its liability to pay the balance of P1,267,344.42 being claimed by CIGI, it asserts, however that the same is not yet due because CIGI still has not turned over a complete and functional medical oxygen and vacuum pipeline system. CIGI is yet to conduct a test run of the installation and an orientation/seminar of AMC employees who will be involved in the operation of the system. CIGI, on the other hand, does not deny that it failed to conduct the agreed orientation/seminar and test run but it blames AMC for such omission and asserts that the latter failed to heed CIGI’s request for electrical facilities necessary for the test run. CIGI also contends that its obligation is merely to provide labor and installation. The Court has painstakingly evaluated the records of the case and based thereon, there can be no other conclusion than that CIGI’s allegations failed to muster merit. The Court finds that CIGI did not faithfully complete its prestations and hence, its demand for payment cannot prosper CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 22 based on the following grounds: (a) under the two installation contracts, CIGI was bound to perform more prestations than merely supplying labor and materials; and (b) CIGI failed to prove by substantial evidence that it requested AMC for electrical facilities as such, its failure to conduct a test run and orientation/seminar is unjustified. CASE DIGESTS ON OBLIGATIONS AND CONTRACTS FROM VOL. 707-710 OF THE SCRA SUBMITTED BY: Carvajal, Kim Apple S. Page 23
Report "Recent Case Digest in Obligations in Contract"