G.R. No. L-28602 - University of the Philippines vs. De los Angeles

Case Summary (G.R. No. L-28602)

Key Dates and Procedural Posture

Logging agreement between UP and ALUMCO: 2 December 1960.
Acknowledgment of Debt and Proposed Manner of Payments (ALUMCO): 9 December 1964.
ALUMCO indebtedness as of 8 December 1964: P219,362.94; additional indebtedness for 9 December 1964–15 July 1965: P61,133.74.
UP notified ALUMCO it considered the contract rescinded: 19 July 1965.
UP filed suit for collection and other relief (Civil Case No. 9435, CFI Rizal): 7 September 1965; preliminary attachment and preliminary injunction against ALUMCO issued 30 September 1965.
ALUMCO filed petitions to enjoin UP’s re-awarding of the concession; the CFI issued an order enjoining UP from awarding logging rights: 25 February 1966 (order later challenged).
Court of First Instance declared UP in contempt and restrained Sta. Clara from logging: 14 January 1967; motion for reconsideration denied 12 December 1967.
Supreme Court issued a writ of preliminary injunction in the certiorari proceeding: 9 February 1968. Decision under review: writ of certiorari granted and the 25 February 1966 injunction order was set aside.

Applicable constitutional framework for this decision: the 1935 Constitution (decision date predates 1987).

Factual Background

UP held a segregated timber grant to generate income. ALUMCO obtained exclusive logging rights under the 1960 agreement and logged for several years. By late 1964 ALUMCO had accumulated substantial unpaid royalties and fees. ALUMCO executed an “Acknowledgment of Debt and Proposed Manner of Payments” on 9 December 1964, which (among other things) expressly provided that, upon ALUMCO’s default, UP would have “the right and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit,” and stipulated liquidated damages. Despite this, ALUMCO continued cutting and incurred further indebtedness through mid‑1965. UP notified ALUMCO of extrajudicial rescission on 19 July 1965, sued on 7 September 1965, and moved to have a new concessionaire take over operations. While a new contract was awarded and operations began under Sta. Clara, ALUMCO obtained from the trial court an injunction preventing UP from awarding the concession to others (25 February 1966). The CFI later found UP in contempt and restrained Sta. Clara, but that contempt finding was appealed and left undecided by the Supreme Court in this certiorari action.

Central Legal Issue

Whether UP could validly treat and act upon the logging contract as rescinded extrajudicially on account of ALUMCO’s defaults, or whether judicial action declaring rescission was a prerequisite before UP could ignore ALUMCO’s contractual rights and make other arrangements for exploitation of the Land Grant.

Governing Law and Authorities

Act No. 3608 (Land Grant’s statutory purpose: endowment for UP).
Civil Code provisions invoked by the Court: Article 1191 (resolution for non‑performance) and Article 2203 (duty to mitigate damages).
Controlling jurisprudence relied upon by the Court: Froilan v. Pan Oriental Shipping Co., L‑11897 (31 October 1964) (recognizing the validity of contractual stipulations allowing extrajudicial rescission), and cited Spanish Supreme Court precedents construing Article 1124 of the Spanish Civil Code (the Spanish analogue of Article 1191). The Court also noted prior Philippine cases distinguishing circumstances requiring judicial intervention.

Legal Principles Articulated

Parties may validly contractually stipulate that a breach by one party will give the other the right to consider the contract rescinded without prior judicial intervention. Such stipulations are not prohibited by law.
Extrajudicial rescission is provisional: the party treating the contract as rescinded acts at its own risk and must notify the other party. If the other party contests the rescission, the ultimate resolution is subject to judicial review; the court alone can ultimately affirm or set aside the extrajudicial resolution and award appropriate relief (including damages) depending on the merits.
The law does not require an injured party to await a judicial decree before taking reasonable extrajudicial measures to protect its interests; inaction could conflict with the duty to mitigate damages (Civil Code, Art. 2203).
A trial court abuses its discretion when it issues injunctive orders that prevent a party from protecting its rights in the absence of sufficient evidence and when the plaintiff has shown a prima facie right and the defendant’s alleged prejudice is compensable by damages.

Application of Law to the Facts

The written Acknowledgment of Debt plainly conferred on UP an express contractual right to treat the 1960 logging agreement as rescinded upon ALUMCO’s default without the need for prior judicial declaration. That stipulation fell squarely within the doctrine affirmed in Froilan and consistent with the Spanish jurisprudential line interpreting extrajudicial resolution under the counterpart provision of the Civil Code.
UP made a prima facie showing of breach and default sufficient to warrant its extrajudicial rescission: substantial unpaid accounts were acknowledged, the 9 December 1964 instrument fixed timelines and remedies, and ALUMCO continued to operate and incur further indebtedness. ALUMCO’s defenses (misconduct of a former manager, rotten logs, operational stoppages) did not, on their face, negate the prima facie showing or constitute a clear, incontrovertible excuse for nonpayment, particularly where ALUMCO had itself executed the acknowledgment of debt.
Given UP’s prima facie case and the provisional nature of extrajudicial rescission, the CFI’s issuance of an injunction restraining UP from awarding the concession to others — without receiving adequate evidence on the contested issues and despite prior inter

Case Syllabus (G.R. No. L-28602)

Citation and Court

Reported in 146 Phil. 108.
G.R. No. L-28602.
Decision date: September 29, 1970.
Decision author: Reyes, J.B.L., J.
Vote: Dizon, Makalintal, Zaldivar, Ruiz Castro, Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur. Concepcion, C.J., on official leave.
Relief sought by petitioner: certiorari and prohibition to annul three orders of the Court of First Instance of Rizal (Quezon City).

Parties

Petitioner: University of the Philippines (UP).
Respondents: Walfredo de los Angeles, in his capacity as Judge of the Court of First Instance in Quezon City; Associated Lumber Manufacturing Company, Inc. (ALUMCO).
Other private parties mentioned: Sta. Clara Lumber Company, Inc.; Jose Rico; Cesar Guy (former general manager of ALUMCO).

Nature of Petition and Orders Challenged

Petition for certiorari and prohibition seeking annulment of three orders issued in Civil Case No. 9435, Court of First Instance of Rizal (Quezon City).
The three orders challenged:
- Order dated 25 February 1966: enjoined UP from awarding logging rights over its timber concession (the Land Grant).
- Order dated 14 January 1967: adjudged UP in contempt of court and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights or conducting logging operations on the concession.
- Order dated 12 December 1967: denied reconsideration of the contempt order.
As prayed, this Court issued a writ of preliminary injunction against enforcement or implementation of the three questioned orders by resolution dated 9 February 1968.

Material Facts — Land Grant and Logging Agreement

The Land Grant was segregated from the public domain and given as an endowment to UP to be operated and developed for raising additional income for its support pursuant to Act 3608.
On or about 2 November 1960, UP and ALUMCO entered into a logging agreement granting ALUMCO exclusive authority to cut, collect and remove timber from the Land Grant from the date of the agreement to 31 December 1965, extendible for a further period of five years by mutual agreement.
ALUMCO cut and removed timber under the agreement and profited from operations prior to the December 1964 instrument.
As of 8 December 1964, ALUMCO had an unpaid account of P219,362.94 which it failed to pay despite repeated demands.

Material Facts — Acknowledgment of Debt and Subsequent Defaults

After notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument dated 9 December 1964 entitled “Acknowledgment of Debt and Proposed Manner of Payments,” approved by the president of UP.
Quoted provisions of that instrument include:
- Paragraph 3: If payments contemplated are insufficient to liquidate the indebtedness, the balance outstanding shall be paid in full no later than June 30, 1965.
- Paragraph 5: If the debtor fails to comply with its promises in the document, the creditor (UP) has the right and power to consider the logging agreement of 2 December 1960 as rescinded without necessity of judicial suit, and the creditor shall be entitled to P50,000.00 as liquidated damages.
ALUMCO continued operations but incurred an additional unpaid account of P61,133.74 for the period 9 December 1964 to 15 July 1965.
On 19 July 1965, UP informed ALUMCO it had considered the logging agreement rescinded as of that date.
UP filed suit against ALUMCO on 7 September 1965 (Civil Case No. 9435) to collect the stated sums and obtained an order dated 30 September 1965 for preliminary attachment and preliminary injunction restraining ALUMCO from continuing logging operations.

Material Facts — Bidding, New Concessionaire, and Lower Court Proceedings

UP invited bids for the concession and awarded it to Sta. Clara Lumber Company, Inc.; the logging contract with Sta. Clara was signed on 16 February 1966.
ALUMCO filed motions to discharge writs of attachment and to dissolve the preliminary injunction; these motions were denied by the court below.
Procedural actions by ALUMCO:
- 12 November 1965: petition to enjoin UP from conducting the bidding.
- 27 November 1965: second petition for preliminary injunction.
- 25 February 1966: respondent judge issued an order enjoining UP from awarding logging rights over the concession to any other party (first of the questioned orders).
UP received the 25 February 1966 order after contracting with Sta. Clara and after Sta. Clara had commenced logging operations.
On motion dated 12 April 1966 by ALUMCO and Jose Rico, the court issued an order dated 14 January 1967 declaring UP in contempt and directing Sta. Clara to refrain from exercising logging rights or conducting logging operations.
UP’s motion for reconsideration of the contempt order was denied on 12 December 1967.
The order finding