In reciprocal obligations arising from the same cause, where each party is a debtor and creditor of the other, the performance of one obligation is conditioned upon the simultaneous fulfillment of the other; thus, a party cannot demand performance from the other if it has not complied or is not ready to comply in a proper manner with what is incumbent upon it.

Consolidated Industrial Gases, Inc. (CIGI), a seller and installer of industrial gas systems, and Alabang Medical Center (AMC), a hospital operator, entered into two contracts. The first, on August 14, 1995, was for the installation of a medical gas pipeline system for the hospital's first to third floors (Phase 1), which AMC fully paid. The dispute arose from a second contract on October 3, 1996, for the continuation of the system to the fourth and fifth floors (Phase 2), under the same terms as Phase 1.

• CIGI and AMC entered into a contract on August 14, 1995, for the installation of a medical gas pipeline system for the 1st, 2nd, and 3rd floors (Phase 1) of AMC's hospital for P9,856,725.18, which AMC paid in full.
• On October 3, 1996, they entered into a second contract for the continuation of the system to the 4th and 5th floors (Phase 2) for P2,267,344.42, under the same terms as Phase 1. AMC paid P1,000,000.00, with the balance payable through progress billing within 15 days of invoice receipt.
• On August 4, 1997, CIGI sent a completion billing invoice for the unpaid balance of P1,267,344.42 for Phase 2. AMC did not pay.
• CIGI sent a demand letter on January 7, 1998, which AMC also unheeded, leading CIGI to file a collection suit.
• CIGI claimed payment was due, while AMC argued the obligation had not accrued because CIGI had not turned over a complete and functional system, specifically failing to test Phases 1 and 2 and conduct an orientation seminar.
• CIGI's Installation Manager, Tolentino, testified that CIGI finished installation in October 1997 but could not test the system because AMC did not supply the necessary electrical power, despite verbal notification to AMC's Medical Director, Dr. Ty, and a written request on August 23, 1999.
• Tolentino admitted CIGI had not conducted the contractually required commissioning and lecture/seminar, claiming it could only be done after a successful test run.
• Dr. Ty testified that payment was due only upon completion, CIGI failed to perform a test run and seminar as per the contract, and denied receiving any request for electricity for a test run prior to CIGI's demand for payment. She stated the hospital had adequate electrical facilities for a test run.
• AMC presented photographs of allegedly defective and incomplete parts of the installation.
• AMC filed a Motion for Leave to Admit Amended Answer with Counterclaims seeking rescission and refund of P10,856,000.00, plus P17,220,084.90 for interest expenses on loans, which the RTC denied.

• CIGI argued that AMC's obligation to pay the outstanding balance for the Phase 2 project was due and demandable as per the contract.
• CIGI claimed it could not conduct the test run because AMC failed to provide the necessary electrical power, despite requests.
• CIGI contended that its primary obligation was to provide labor and materials for the installation.
• CIGI asserted that AMC raised the issue of defective parts too late (four years after the complaint was filed) and that deterioration could occur if the system was idle.
• CIGI argued that the CA erred in relying on Tolentino's testimony, which allegedly did not state CIGI failed to complete the project.
• CIGI maintained that rescission was not a proper remedy as it was not raised timely in the RTC and that its breach, if any, was not substantial.

• AMC contended that its obligation to pay the balance had not yet accrued because CIGI failed to turn over a complete and functional medical oxygen and vacuum pipeline system.
• AMC alleged CIGI did not conduct the contractually required test run for Phases 1 and 2 and the orientation/seminar for AMC employees.
• AMC claimed the installed system had patently defective and incomplete parts.
• AMC denied receiving any request from CIGI for electrical power for a test run and asserted it had sufficient electrical facilities.
• AMC counterclaimed for actual damages (interest on loans used for the project), moral and exemplary damages, and attorney's fees, and later sought rescission of the contracts and a refund of payments made.
• AMC argued that if it were to pay the balance, it should only be upon CIGI's turnover of a fully functional system.

• Whether CIGI's demand for payment of the balance of the contract price for the Phase 2 installation project upon AMC is proper.
• Whether CIGI faithfully complied with its contractual obligations.
• Whether AMC is entitled to rescission of the installation contracts.
• Whether AMC is entitled to actual damages.

• CIGI's demand for payment upon AMC is not proper because CIGI did not faithfully complete its prestations under the reciprocal installation contracts. CIGI was contractually bound not only to supply labor and materials but also to perform a pressure drop, leak testing, test run, painting/color coding, and conduct an orientation/seminar for AMC employees before formal turnover.
• CIGI failed to prove by substantial evidence that it requested AMC for electrical facilities for the test run; Tolentino's testimony about Pineda making the request was hearsay as Pineda was not presented as a witness. Thus, CIGI's failure to conduct the test run and orientation/seminar was unjustified.
• Since CIGI failed to perform its correlative obligations, its right to demand payment from AMC for the Phase 2 project has not yet accrued. AMC cannot be legally ordered to pay until CIGI completes ALL its prestations under both Phase 1 and Phase 2 contracts, as they comprise one centralized system requiring a single, simultaneous test run.
• The breach committed by CIGI (failure to conduct test run and seminar) does not justify rescission of the installation contracts because these provisions are not essential parts of the contracts that defeat the very object of the parties. The alleged defective parts were also not sufficiently proven to be factory defects or due to CIGI's negligence, and warranty clauses in the contracts address such contingencies.
• AMC is not entitled to actual damages representing interest payments on its loan, as it failed to prove a direct correlation between the interest charges and CIGI's failure to complete the project. The loan was also used for other hospital construction aspects, and proof of the specific portion attributable to the CIGI project was lacking.
• The Supreme Court SET ASIDE the CA's Amended Decision and ORDERED CIGI to comply with all its obligations (test run, seminar, etc.) within 60 days, and ORDERED AMC to allow CIGI access to electrical facilities and pay the balance of P1,267,344.42 upon and simultaneously with the turnover of the fully functional system. The award of attorney's fees to AMC was deleted.

• Reciprocal Obligations — Obligations arising from the same cause, where each party is a debtor and creditor of the other, such that one obligation is dependent upon the other. They are to be performed simultaneously, so performance by one is conditioned upon the simultaneous fulfillment by the other. Neither party incurs delay if the other does not comply. Applied here, CIGI could not demand payment from AMC because CIGI had not yet fully performed its own obligations (test run, seminar).
• Pacta Sunt Servanda / Obligations Arising from Contracts — Contracts have the force of law between the contracting parties and should be complied with in good faith. The Court emphasized that CIGI was bound by all stipulations in the installation contracts, including the conduct of a test run and seminar, not just supplying labor and materials.
• Hearsay Rule — A witness can testify only to facts of personal knowledge derived from their own perception. Testimony about what was learned from others is hearsay and generally lacks probative value. Applied to CIGI Installation Manager Tolentino’s testimony that his supervisor, Pineda, requested electricity from AMC; since Pineda was not presented, Tolentino's statement was hearsay regarding the fact of the request.
• Substantial Breach for Rescission — Rescission is not permitted for slight or casual breaches but only for substantial and fundamental violations that defeat the very object of the parties in making the agreement. The Court found CIGI's failure to conduct the test run and seminar was not a substantial breach warranting rescission, as these were not essential parts of the installation that would render the system useless, and the contracts contained warranty provisions for defects.
• Proof of Actual or Compensatory Damages — Actual damages must be proved with a reasonable degree of certainty and cannot be based on speculation, conjecture, or guesswork; competent proof of the actual amount of loss is required. AMC failed to provide substantial evidence directly correlating its loan interest payments to CIGI's breach or specifying the portion of the loan attributable to CIGI's project, thus its claim for actual damages was denied.

• "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 manner with what is incumbent upon him. From the moment one of the parties fulfils his obligation, delay by the other begins."
• "For having failed to perform its correlative obligation to AMC under their reciprocal contract, CIGI cannot unilaterally demand for the payment of the remaining balance by simply sending an invoice and billing statement to the former. Its right to demand for and collect payment will only arise upon its completion of ALL its prestations under the subject contracts."
• "[R]escission 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."

• Cortes v. Court of Appeals — Cited for the definition of reciprocal obligations and the principle of simultaneous performance.
• Asuncion v. Evangelista — Referenced as the source for the definition of reciprocal obligations in Cortes.
• Spouses Yao v. Matela — Cited as an example of an exception to the rule that the Supreme Court only reviews questions of law, allowing review of factual issues when findings of lower courts are conflicting.
• Barredo v. Leaño — Cited for the principle that parties are bound by the stipulations in their contract if not contrary to law, morals, public order, or public policy. Also cited in relation to the rule that rescission is not for slight breaches.
• Real v. Sangu Philippines, Inc. — Cited for the principle that self-serving allegations are not equivalent to proof.
• Gulam v. Spouses Santos — Cited for the hearsay rule and the distinction between admissibility and weight of evidence.
• Subic Bay Metropolitan Authority v. CA — Cited for the rule that in reciprocal obligations, before a party can demand performance, it must perform its own obligation.
• Primelink Properties & Development Corporation v. Lazatin-Magat — Cited for the rule that a prayer for "other reliefs equitable and just" justifies granting relief not specifically prayed for, supporting the discussion on rescission despite the RTC's denial of the amended counterclaim.
• Arroyo, Jr. v. Taduran — Referenced as the source for the rule on general prayers for relief in Primelink.
• Viloria v. Continental Airlines, Inc. — Cited for the principle that rescission is only for substantial and fundamental breaches.
• Central Bank of the Philippines v. Spouses Bichara — Referenced in Viloria regarding substantial breach for rescission.
• Pacific Basin Securities Co., Inc. v. Oriental Petroleum and Minerals Corp. — Cited for the rule that actual damages must be proven with reasonable certainty and cannot be presumed.
• Development Bank of the Philippines v. CA — Referenced in Pacific Basin regarding the proof required for actual damages.
• Macasaet v. R. Transport Corporation — Cited for the principle that bare allegations do not amount to competent proof of actual pecuniary loss.
• Financial Building Corporation v. Rudlin International Corporation — Cited for the rule that one is entitled to adequate compensation only for pecuniary loss duly proved.

• Rules of Court, Rule 45 — The basis for CIGI's petition for review on certiorari before the Supreme Court, which generally covers questions of law.
• Civil Code, Article 1169 — Defines when delay (mora) occurs, and states that in reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply; delay by one begins when the other fulfills their obligation. This was central to the ruling that CIGI could not demand payment.
• Civil Code, Article 1159 — States that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. This supported the Court's stance that CIGI was bound by all terms of the contracts.
• Civil Code, Article 1248 — States that unless there is an express stipulation, the creditor cannot be compelled to partially receive the prestations in which the obligation consists. Applied to argue AMC cannot be forced to accept an incomplete project.