1. RUSTAN PULP & PAPER MILLS, INC. v.

INTERMEDIATE APPELLATE COURT

Facts:
• Petitioner established a pulp and paper mill in Baloi, Lanao del Norte.
• Respondent Romeo Lluch entered into a contract of sale with petitioner where Lluch agreed to sell at
P30 per cubic meter of pulp raw materials to petitioner.
• Contract is not exclusive because petitioner had the option to buy from other suppliers who are qualified
and holder of appropriate government authority or license to sell and dispose pulp wood. However, seller
shall have the priority to supply.
• It was further stipulated that the petitioner is barred from buying from other sellers of pulp wood emanating
from the respondent´s lumber and firewood concession.
• The petitioner also had the right to stop delivery when supply became sufficient provided that there is
sufficient notice.
• During the test run of the pulp mill, the machinery had major defects and it was recommended that
deliveries of the raw material, which had accumulated, be stopped. A letter was issued on Sept. 30, 1968 to
respondent requesting that deliveries be stopped within 30 days.
• Respondent sent a query if the deliveries were temporarily stopped or terminated completely, which was
not answered.
• Respondent and other suppliers continued deliveries.
• When petitioners informed respondents (Iligan Diversified Projects, Inc., Romeo A. Lluch and Roberto G.
Borromeo) to stop the delivery of pulp wood supplied by them according to a contract of sale between
them, respondents sued for breach of contract.
• The court dismissed the complaint but enjoined petitioners to respect the contract of sale if circumstances
warrant the full operation in a commercial scale of petitioner´s Baloi plant and to continue accepting
and paying for deliveries of pulp wood products from Romeo Lluch.
• On appeal in the IAC, the court modified the judgment by directing petitioners to pay respondents moral
damages.

Issue: Whether or not the IAC erred in holding that petitioner’s decision to suspend taking delivery of pulp
wood from respondent was not in the lawful exercise of its right under the contract of sale.

Held: NO.
It was preposterous that the petitioners continued to buy and accept pulp wood materials from other
sources, belying that they have more than sufficient supply of pulp wood, that their machineries were defective
or that the materials coming from the respondents were defective. The petitioner continued accommodating
all suppliers even after the commercial operation was delayed. This is a breach of contract.
It would also be unjust for the court to rule that the contract of sale be temporarily suspended until
petitioners were ready to accept deliveries from the respondent. This would make the resumption of the
contract purely dependent on the will of one party, the petitioners, who could claim that they have sufficient
supply of materials while accepting from other suppliers. The court would have been imposing a raw condition
that had not been agreed upon by the parties.
There is basis for the respondent´s apprehension inasmuch as it suggests a condition solely dependent
upon the will of petitioners. A purely potestative imposition of this character must be obliterated from the face of
the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment
of an already existing obligation and not to its imposition. A condition which is both potestative (or facultative)
and resolutory may be valid but is inapplicable to the case at hand because the proviso in the Taylor
case which allowed a condition for unilateral cancellation of the contract when the machinery did arrive on time
relates to the birth of the undertaking and not the fulfillment of an existing obligation. The contract speaks
loudly of the prerogative of the petitioner to the right to suspension of delivery (which petitioner took to mean
the right to terminate the contract) but what diminishes its legal efficacy is the condition attached to it which is
dependent exclusively on their will. The stipulation is inoperative and the decision appealed from is modified in
the sense that only petitioner Rustan Pulp and Paper Mills shall pay moral damages.

2. PRUDENTIAL GUARANTEE AND ASSURANCE, INC. v. ANSCOR LAND, INC.
Facts:
• On August 2, 2000, Anscor Land, Inc. (ALI) and Kraft Realty and Development Corporation (KRDC)
entered into a Construction Contract for the construction of an 8-unit townhouse (project) located in Capitol
Hills, Quezon City.
• Under the contract, KRDC was to build and complete the project within 275 continuous calendar days from
the date of receipt of a notice to proceed for the consideration of P18,800,000.00.
• As part of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00 to secure the
reimbursement of the down payment paid by ALI in case of failure to finish the project and a performance
bond amounting to P4,700,000.00 to guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project. The said bonds were issued in favor of ALI by herein
petitioner Prudential Guarantee and Assurance, Inc. (PGAI).
• Under the Performance Bond, the parties agreed on a time-bar provision which states: “…Furthermore, it is
hereby agreed and understood that PRUDENTIAL GUARANTEE AND ASSURANCE INC., shall not be
liable for any claim not discovered and presented to the company within ten days from the expiration of this
bond or from the occurrence of the default or failure of the principal, whichever is the earliest, and that the
obligee hereby waives his right to file any claim against the Surety after the termination of the period of ten
days above mentioned after which time this bond shall definitely terminate and be deemed absolutely
cancelled.”
• KRDC then received a notice to proceed on November 24, 1999. On October 16, 2000 or 325 days after
KRDC received the notice to proceed, and 50 days beyond the contract date of completion, ALI sent PGAI
a letter notifying the latter that the contract with KRDC was terminated due to "very serious delays". The
letter also informed PGAI that ALI "may be making claims against the said bonds".
• KRDC, through a letter on October 20, 2000, asked ALI to reconsider its decision to terminate the contract
and requested that it be allowed to continue with the project. On October 27, 2000, ALI replied with regrets
that it stands by its earlier decision to terminate the construction contract.
• Through a letter dated November 29, 2001, or exactly one (1) year after the expiration date in the
performance bond, ALI reiterated its claim against the performance bond issued by PGAI amounting
to P3,852,800.84. PGAI however did not respond to the letter.
• On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in the Construction
Industry Arbitration Commission (CIAC). PGAI answered with cross-claim contending that it was not a party
to the construction contract and that the claim of ALI against the bonds was filed beyond the expiration
period.
• On September 2, 2002, the CIAC rendered judgment awarding a total of P7,552,632.74 to ALI and a total
ofP1,292,487.81 to KRDC. CIAC also allowed the offsetting of the awards to both parties which resulted to
a net amount due to ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC found PGAI liable for
the reimbursement of the unliquidated portion of the down payment as a solidary liability under the surety
bond in the amount of P1,771,264.06.
• In the same judgment, the CIAC absolved PGAI from a claim against the performance bond. It reasoned
that ALI belatedly filed its claim on the performance bond. The CIAC accepted the view that the November
29, 2001 letter of ALI to PGAI was the first and only claim on the performance bond, which was filed
unquestionably beyond the allowed period for filing claims under the contract.
• The CIAC ruled that the October 16, 2000 letter of ALI to PGAI did not constitute a proper "claim" under the
performance bond. In so ruling, the CIAC relied on the tenor of the letter which used the phrase "may be
making claims against the said bonds". The CIAC interpreted this phrase as tentative at best and far from a
positive claim against PGAI. According to the CIAC, the letter merely informed PGAI of the termination of
the construction contract between ALI and KRDC and in no sense did such letter present a valid claim
against the performance bond issued by PGAI.
• ALI then filed a petition for review on October 3, 2002 with the CA questioning the decision of the CIAC to
release PGAI from its solidary liability on the performance bond. CA ruled in ALI’s favor.

Issues:
1. Whether or not the CIAC had jurisdiction over the dispute.
2. Whether or not the respondent made its claim on the performance bond within the period allowed by the
time-bar provision.

Held:
1. YES. EO No. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from
or connected with construction contracts entered into by parties that have agreed to submit their dispute to
voluntary arbitration. Under the aforequoted provision, it is apparent that a dispute must meet two (2)
requirements in order to fall under the jurisdiction of the CIAC: first, the dispute must be somehow
connected to a construction contract; and second, the parties must have agreed to submit the dispute to
arbitration proceedings. As regards the first requirement, the Performance Bond issued by the petitioner
was meant to guarantee the supply of labor, materials, tools, equipment, and necessary supervision to
complete the project. A guarantee or a surety contract under Article 204716 of the Civil Code of the
Philippines is an accessory contract because it is dependent for its existence upon the principal obligation
guaranteed by it. On the second requirement that the parties to a dispute must have previously agreed to
submit to arbitration, it is clear from Article 24 of the Construction Contract itself that the parties have
indeed agreed to submit their disputes to arbitration.
2. YES. The fact of contract termination had been made known to PGAI as early as October 16, 2000. This
termination consequently meant that the principal KRDC would no longer be able to supply "labor,
materials, tools, equipment and necessary supervision" to complete the project. It was at this time,
therefore, that PGAI’s obligation guaranteeing the project completion arose, although the amount of
payment was still undetermined. PGAI was informed within the time-bar provision and had all the
opportunity to conduct its evaluation and examination as to the validity of the termination. That ALI merely
used the word "may" in expressing its intent to proceed against the bond does not make its claim any less
categorical as argued by PGAI. The point is the very condition giving rise to the obligation to pay, i.e.
KRDC’s default and the resulting contract termination, was clearly mentioned in the 16 October 2000 letter.
The citation of this fact is more than sufficient to place PGAI in notice that ALI shall be making claims on
the bonds.

3. HEIRS OF RAMON GAITE v. THE PLAZA, INC.
Facts:
• On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through
its President, Jose C. Reyes, entered into a contract with Rhogen Builders (Rhogen), represented by
Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati.
• On July 18, 1980, to secure Rhogen’s compliance with its obligation under the contract, Gaite and FGU
Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The
Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 down payment to Gaite. Thereafter, Rhogen
commenced construction of the restaurant building.
• In a letter dated September 10, 1980, Gaite was ordered to cease and desist from continuing with the
construction of the building for violations of the National Building Code. The building permit for the
construction was thereafter revoked.
• On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/
observations on the stoppage order issued. Gaite notified Reyes that he is suspending all construction
works until Reyes and the Project Manager cooperate to resolve the issue he had raised to address the
problem. This was followed by another letter dated November 18, 1980 in which Gaite expressed his
sentiments on their aborted project and reiterated that they can still resolve the matter with cooperation
from the side of The Plaza.
• In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a
solution to the situation. Reyes made it clear they have no obligation to help Rhogen get out of the situation
arising from non-performance of its own contractual undertakings.
• On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the
Contractor’s Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the
Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the problem
concerning the revocation of the building permits, which he described as a "minor problem." Additionally,
Gaite demanded the payment ofP63,058.50 from The Plaza representing the work that has already been
completed by Rhogen.
• In the meantime that The Plaza is still evaluating the extent and condition of the works performed by
Rhogen to determine whether these are done in accordance with the approved plans, Reyes demanded
from Gaite the reimbursement of the balance of their initial payment of P1,155,000.00 from the value of the
works correctly completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of
removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.
• On March 26, 1981, The Plaza a case for breach of contract, sum of money and damages against Gaite
and FGU in the Court of First Instance (CFI) of Rizal and another case for nullification of the project
development contract. After the reorganization of the Judiciary in 1983, the cases were transferred to the
RTC of Makati and eventually consolidated. The court ruled in favor of The Plaza.
• Gaite appealed to CA, but CA affirmed the decision of the RTC with modification with regard only to the
award of damages.

Issue: Whether or not Gaite and Rhogen has a right to terminate the contract

Held: NO.
The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby
the latter’s obligation to pay the contract price or progress billing is conditioned on the former’s performance of
its undertaking to complete the works within the stipulated period and in accordance with approved plans and
other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid
the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the
jobsite. However, just two months after commencement of the project, construction works were ordered
stopped by the local building official and the building permit subsequently revoked on account of several
violations of the National Building Code and other regulations of the municipal authorities.
Petitioners may not justify Rhogen’s termination of the contract upon grounds of non-payment of
progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the
violations which were the basis for issuance of the stoppage order. Having breached the contractual obligation
it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen
was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on
Rhogen’s first progress billing, on account of the stoppage order and additionally due to disappearance of
owner-furnished materials at the jobsite. In failing to have the stoppage and revocation orders lifted or recalled,
Rhogen should take full responsibility in accordance with its contractual undertaking. Such non-observance of
laws and regulations of the local authorities affecting the construction project constitutes a substantial violation
of the Construction Contract which entitles The Plaza to terminate the same, without obligation to make further
payment to Rhogen until the work is finished or subject to refund of payment exceeding the expenses of
completing the works.

4. CATUNGAL v. RODRIGUEZ
Facts:
• This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/
Restraining Order filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with
the RTC Cebu, against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.
• In the said Complaint, it was alleged that Agapita T. Catungal owned a parcel of land in her name situated
in the Barrio of Talamban, Cebu City.
• On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell with
respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional
Deed of Sale dated July 26, 1990 between the same parties.
• The pertinent provisions of the Conditional Deed of Sale, among others, include: That the vendee should
pay the vendor P500k downpayment upon the signing of the agreement; and thereafter give the vendor the
balance of P24.5m payable in five separate checks (first check: P4.5m; remaining checks: P5m each) after
the vendee has successfully negotiated, secured and provided a Road Right of Way consisting of 12
meters in width cutting across Lot 10884 up to the national road. If however said Road Right of Way could
not be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the
problem by taking other options and should the situation ultimately prove futile, he shall take steps to
rescind or cancel the herein Conditional Deed of Sale. The contract also provided that the vendee has the
option to rescind the sale and shall then be reimbursed by the vendor the sum of P500k representing the
downpayment.
• In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys
and plans and through his efforts, the property was reclassified from agricultural land into residential land
which he claimed substantially increased the property’s value. He likewise alleged that he actively
negotiated for the road right of way as stipulated in the contract.
• On August 31, 1990 the spouses Catungal requested an advance of P5m on the purchase price for
personal reasons. Rodriquez refused. Shortly after his refusal to pay the advance, he purportedly learned
that the Catungals were offering the property for sale to third parties.
• Thereafter, Rodriguez received letters from Catungal essentially demanding that the former make up his
mind about buying the land because the spouses Catungal allegedly received other offers and they needed
money to pay for personal obligations and for investing in other properties/business ventures. Should
Rodriguez fail to exercise his option to buy the land, the Catungals warned that they would consider the
contract cancelled and that they were free to look for other buyers.
• On November 15, 1990, Rodriguez purportedly received a letter dated November 9, 199015 from Atty.
Catungal, stating that the contract had been cancelled and terminated.
• Rodriguez then filed a complaint in court, contending that Catungals’ unilateral rescission of the Conditional
Deed of Sale was unjustified, unwarranted, and arbitrary.
• Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction
upon posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the
defendants may sustain by reason of the injunction.
• On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim alleging that they had the
right to rescind the contract in view of (1) Rodriguez’s failure to negotiate the road right of way despite the
lapse of several months since the signing of the contract, and (2) his refusal to pay the additional amount of
P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to purchase the property.
The Catungals likewise contended that Rodriguez did not have an exclusive right to rescind the contract
and that the contract, being reciprocal, meant both parties had the right to rescind. The spouses Catungal
further claimed that it was Rodriguez who was in breach of their agreement and guilty of bad faith which
justified their rescission of the contract.
• Trial court ruled in favor of Rodriguez.
• Catungals appealed to CA, to no avail.

Issue: Whether or not the rescission of the Conditional Deed of Sale made by the defendants is with legal or
factual basis.

Held: NO.
In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject to the
same mixed condition as his obligation to pay the balance of the purchase price – i.e., the negotiation of a road
right of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the
balance of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has
the choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering
that the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite
the lack of road access.
The Catungals’ contended that Rodriguez’s obligation to negotiate and secure a road right of way was
one with a period and that period, i.e., "enough time" to negotiate, had already lapsed by the time they
demanded the payment of P5,000,000.00 from respondent. Even assuming arguendo that the Catungals were
correct that the respondent’s obligation to negotiate a road right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be unwarranted. Based on their theory, the Catungals had
a remedy under Article 1197 of the Civil Code which mandates: “If the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof. x x x ”
The decision is affirmed. The Court also fixed a period as regards with the negotiation for the road right
of way.

5. INSULAR LIFE ASSURANCE v. TOYOTA BEL-AIR
Facts:
• Toyota Bel-Air and Insular Life entered into a contract of lease over a lot and building in Makati City owned
by Insular Life. The Contract is for a five-year period, from April 16, 1992 to April 15, 1997.
• The conflict began upon the expiration of the lease wherein Toyota Bel-Air refused to vacate the property.
• This forced Insular Life to file a complaint in Metropolitan Trial Court (MeTC) for unlawful detainer against
Toyota Bel-Air where the verdict was in favor of Insular Life. It also ordered that failure of the respondent to
vacate the premises should warrant petitioner to receive payment of reasonable compensation at the rate
of P585k per month until possession of the premises is surrendered.
• MeTC issued an Writ of Execution, whereas it ordered the ejectment of respondent in the premises owned
by the petitioner. It also ordered the respondent to pay petitioner reasonable compensation at the rate of
P585k a month from April 15, 1997 until possession of the premises is surrendered to petitioner.
• Subsequently, the Deputy Sheriff of the MeTC executed the writ by levying on Toyota's personal and real
properties, and garnishing its bank accounts. He scheduled the auction of the levied properties on August
28, 1998.
• On August 24, 1998, Toyota filed a Petition for Certiorari with prayer for injunctive relief in the RTC. It
charged the MeTC with grave abuse of discretion in issuing the Writ of Execution since the writ amended
the dispositive portion of the decision it sought to execute by giving retroactive effect to the payment of
reasonable compensation of P585,640.00 by the inclusion of the phrase "from April 15, 1997."
• On August 28, 1998, Insular Life filed with the MeTC a Motion to Clarify Decision Dated July 3, 1998
praying that the court issue an order clarifying the dispositive portion of the Decision dated July 3, 1998. It
upheld the dispositive portion found in the Writ of Execution.
• On September 25, 1998, Toyota filed with the RTC a Motion to Consignate P1,171,280.00 in favor of
Insular Life and to submit the case for decision. The amount of P1,171,280.00 represented the reasonable
compensation for the months of July and August 1998.
• Five days later, or on September 30, 1998, the RTC rendered the herein assailed Decision, holding that the
MeTC acted with grave abuse of discretion in issuing the Writ of Execution dated August 12, 1998 by giving
retroactive effect to the reasonable compensation judgment of P585,640.00 by inserting the date "April 15,
1997" which was not provided for in the dispositive portion of the MeTC Decision.
• Insular Life filed a motion for reconsideration, which was denied.
• Hence, this Petition for Review on Certiorari.
• Insular Life contends that the case falls within the recognized exceptions to the rule that only the dispositive
portion of the decision controls the execution of judgment; that the pleadings, findings of fact and
conclusion of law expressed in the text of the MeTC's Decision dated July 13, 1998 should be resorted to,
 to clarify the ambiguity in the dispositive portion of the decision; that the intent to order payment of rent as
reasonable compensation from April 15, 1997, when possession became unlawful, can be inferred from the
text of the decision; that the RTC should not have nullified the entire Writ of Execution since only the matter
of reasonable compensation from April 15, 1997 was at issue; that consignation of rentals was improper
since the office of a writ of certiorari is to correct defects in jurisdiction solely and the legal requisites for a
valid consignation were not present; and that Toyota failed to resort to available remedies before availing
itself of the extraordinary remedy of certiorari. On the matter of the compromise agreement, Insular Life
reiterated that the agreement was a conditional compromise agreement which was voided for Toyota's
failure to comply with the conditions.
• Toyota claims that the parties had entered into a Compromise Agreement dated May 7, 1999 whereby
Toyota was obligated to pay Insular Life P8 million under the following terms and conditions: (a) the
delivery of 3 Toyota vehicles worth P1.5 million; (b) the issuance of 12 postdated corporate checks to
answer for the balance of P6.5 million in 12 monthly installments; and (c) the posting of a surety bond
which shall guarantee payment of installments. Toyota insists that the Compromise Agreement dated May
7, 1999 should be given effect considering that the preconditions contained in the Compromise Agreement
were complied with, or at the very least substantially complied with; and prayed that the case should be
remanded to the lower court for the purpose of approving the Compromise Agreement dated May 7, 1999.
• In a Resolution dated August 8, 2001, the Court remanded the case to the RTC for further proceedings to
determine whether Toyota had complied with the conditions contained in the Compromise Agreement dated
May 7, 1999 and thereafter elevate its findings and records thereof to the Court.
• In its Compliance dated March 24, 2003, the RTC found that Toyota failed to comply with conditions in the
Compromise Agreement.

Issue: Whether or not Insular Life can be compelled to comply with its obligation to end the present obligation.

Held: NO.
Jurisprudence teaches us that when a contract is subject to a suspensive condition, its birth or
effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled, and
if the suspensive condition does not take place, the parties would stand as if the conditional obligation has
never existed.
Thus, the issuance of 12 postdated checks and the posting of a surety bond are positive suspensive
conditions of the Compromise Agreement, the non-compliance with which was not a breach, casual or serious,
but a situation that prevented the obligation under the Compromise Agreement from acquiring obligatory force.
For its non-fulfillment, there was no contract or agreement to speak of, Toyota having failed to comply or
perform the suspensive conditions which enforce a juridical relation. Since Toyota was unable to comply with
the last two conditions of the agreement, which were suspensive conditions, Insular Life cannot be compelled
to comply with its obligation to end the present litigation. No right in favor of Toyota arose and no obligation on
the part of Insular Life was created.

6. SOLAR HARVEST v. DAVAO CORRUGATED
Facts:
• In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into an unwritten agreement. Solar
Harvest placed orders for customized boxes for its business of exporting bananas at USD 1.10 each.
• Petitioner made a full payment of USD 40,150.00.
• By Jan. 3, 2001 petitioner had not received any of the ordered boxes.
• On Feb. 19, 2001 Davao Corrugated replied that as early as April 3, 1998, order/boxes are completed and
Solar Harvest failed to pick them up from their warehouse within 30 days from completion as agreed upon.
Respondent mentioned that petitioner even placed additional order of 24,000.00 boxes, out of which,
14,000 had already been manufactured without any advance payment from Solar Harvest.
• Davao Corrugated then demanded that Solar Harvest remove boxes from their warehouse, pay balance of
USD 15,400.00 for the additional boxes and P132,000 as storage fee.
• On August 17, 2001 Solar harvest filed complaint against Davao Corrugated for sum of money and
damages claiming that the agreement was for the delivery of the boxes, which Davao Corrugated did not
do. They further alleged that whenever repeated follow-up was made to Davao Corrugated, they would only
see sample boxes and get promise of delivery. Due to Davao Corrugated’s failure to deliver, Solar Harvest
had to cancel the order and demanded payment and/or refund which Davao Corrugated refused to pay.
• Davao Corrugated counterclaimed that they had already completed production of the 36,500 boxes plus an
additional 14,000 boxes (which was part of the additional 24,000 order that is unpaid). The agreement was
for Solar Harvest to pick up the boxes, which they did not do. They even averred that on Oct. 8, 1998 Solar
Harvest’s representative Bobby Que even went to the warehouse to inspect and saw that indeed boxes
were ready for pick up. On Feb. 20, 1999, Que visited the factory again and said that they ought to sell
the boxes to recoup some of the costs of the 14,000 additional orders because their transaction to ship the
bananas did not materialize. Solar Harvest denies that they made the additional order.
• On August 17,2001, petitioner filed a complaint for sum of money and damages against respondent. On
March 20, 2004, the RTC ruled in favor of Davao Corrugated.
• Petitioner appealed to the CA, to no avail.

Issue: Whether or not Davao Corrugated was responsible for breach of contract as Solar Harvest had not yet
demanded from it the delivery of the boxes.

Held: NO.
CA held that it was unthinkable that for around 2 years petitioner merely followed up and did not
demand the delivery of the boxes. Even assuming that the agreement is for delivery by Davao Corrugated,
respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of
the boxes. There is no error in the decision of the RTC. Furthermore, the claim for reimbursement is actually
one for rescission or resolution of contract under Article 1191 of the Civ. Code. The right to rescind contracts
arises once the party defaults in the performance of his obligation. Article 1191 should be taken in conjunction
with Article 1169.
In reciprocal obligations, the general rule is that the fulfillment of the parties’ respective obligations
should be simultaneous. No demand is necessary because once a party fulfills his obligation and the other
party fails to do his, the latter automatically incurs delay. When dates are set, the default for each obligation is
determined by the rules given in the 1st paragraph of the article. Thus even in reciprocal obligations, if the
period for the fulfillment of the obligation is fixed, demand from the obligee is still necessary before the obligor
can be considered in default and before a cause of action for rescission will accrue. In the case of Solar
Harvest, merely following up the order was not the same as demanding for the boxes. The SC held that Solar
Harvests petition is denied and that Davao Corrugated did not commit breach of contract and may remove the
boxes from their premises after petitioner is given a period of time to remove them from their warehouse as
they deem proper (Court gave a 30-day period to comply with this).

7. LORENZO SHIPPING v. BJ MARTHEL
Facts:
• Petitioner Lorenzo Shipping is engaged in coastwise shipping and owns the cargo M/V Dadiangas
Express. BJ Marthel is engaged in trading, marketing and selling various industrial commodities.
• From 1987 onwards, respondent supplied petitioner with spare parts for the latter’s marine engines.
• Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this
request, respondent furnished petitioner with a formal quotation. It was stipulated in the contract that
delivery is within 2 months after receipt of firm order. The terms is 25% upon delivery, balance payable in 5
bi-monthly equal and installments not to exceed 90 days.
• Petitioner thereafter issued to respondent Purchase Order. For the procurement of one set of cylinder liner,
valued at P477,000, to be used for M/V Dadiangas Express. Instead of paying the 25% down payment for
the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the
former’s account with Allied Banking Corporation. The checks were supposed to represent the full payment
of the aforementioned cylinder liner.
• Subsequently, petitioner issued Purchase Order dated 15 January 1990 for yet another unit of cylinder
liner. This Purchase Order stated the term of payment the same as the first Purchase Order. On 26 January
1990, respondent deposited petitioner’s check that was postdated 18 January 1990, however, the same
was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks
were eventually returned by respondent to petitioner
• The parties presented disparate accounts of what happened to the check which was previously
dishonored. Petitioner claimed that it replaced said check with a good one. For its part, respondent insisted
that it returned said postdated check to petitioner.
• On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner’s warehouse in North Harbor,
Manila.
• Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and
damages before RTC Makati. In its complaint, respondent alleged that despite its repeated and oral and
written demands, petitioner obstinately refused to settle its obligations.
• The court a quo granted respondent’s prayer for the issuance of a preliminary attachment. On 09 August
1991, petitioner filed an Urgent Ex Parte Motion to Discharge Writ of Attachment attaching thereto a
counter-bond as required by the Rules of Court. On even date, the trial court issued an Order lifting the
levy on petitioner’s properties and the garnishment of its bank accounts.
• Petitioner afterwards filed its Answer alleging that time was of the essence in the delivery of the cylinder
liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said
items “within 2 months after receipt of firm order” from petitioner.
• Trial court dismissed the action.
• Respondent filed an appeal with the CA which reversed and set aside the Decision of the Court.

Issue: Whether or not there was late delivery of the subjects of the contract of sale to justify petitioner to
disregard the terms of the contract considering that time was of the essence thereof.

Held: NO.
While the quotation provided by respondent evidently stated that the cylinder liners were supposed to
be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was
due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these
significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of
delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011
likewise did not indicate the due date of delivery of the second cylinder liner.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No.
14011 yet it utterly failed to adduce any justification as to why said documents contained terms which are at
variance with those stated in the quotation provided by respondent. The only plausible reason for such failure
on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of the contract of sale.
Moreover, as the obscurity in the terms of the contract between respondent and petitioner was caused by the
latter when it omitted the date of delivery of the cylinder liners in the purchase orders and varied the term with
respect to the due date of the down payment, said obscurity must be resolved against it.
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the
essence of the contract. In such cases, the delivery must be made within a reasonable time. We, therefore,
hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20 April
1990 was made within a reasonable period of time considering that respondent had to place the order for the
cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work.
There having been no failure on the part of the respondent to perform its obligation, the power to rescind the
contract is unavailing to the petitioner.