SAN BEDA COLLEGE ALABANG

OBLIGATIONS AND CONTRACTS

Section A
Group 11 Bacay, Belarmino, Capistrano & Ortega
Case No.11: PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) ET AL
vs. COURT OF APPEALS

FACTS:
Carlitos Bautista, a third year commerce student in the Philippine School of
Business Administration (PSBA) was stabbed on the second-floor premises of the
school by assailants who were not members of the schools academic community. His
parents then filed a suit in the RTC of Manila for damages against PSBA and its
corporate officers.
The plaintiffs (now private respondents) sought to adjudge them liable for the
victims untimely demise due to their alleged negligence, recklessness and lack of
security precautions, means and methods before, during and after the attack on the
victim.
Defendants (now petitioners) sought to have the suit dismissed, alleging that
since they are sued under Article 2180 of the Civil Code, the complaint states no cause
of action and not within the scope of the said provision since it is an academic
institution. The trial court, however, overruled the petitioners contention and its decision
was later affirmed by the appellate court.
ISSUE:
Whether or not the decision of the appellate court anchored on the law of quasidelicts is valid.

HELD:
The Supreme Court held that although they agreed on the decision of the Court
of Appeals to deny the petition of motion to dismiss by the PSBA, they do not agree to
the premises stated by the appellate courts ruling.
Article 2180, in the conjunction with Article 2176 of the Civil Code establishes the
rule of in loco parentis, they cannot be held liable to the acts of Carlitos assailants
which were not students of the PSBA and because of the contractual relationship.
When an academic institution accepts students for enrollment, there is a contract
between them, resulting in bilateral obligations which both parties are bound to comply
with. The institution must provide their students with an atmosphere that promotes or
assists its primary undertaking of imparting knowledge and maintain peace and order
within its premises.
In the circumstances, there is no finding that the contract between the school and
Bautista had been breached thru the formers negligence in providing proper security
measures.
Therefore, the Supreme Court dismissed the petition and the case was
remanded to the Trial Court to determine if the school neglected its obligation to perform
based on the contractual relation of them and the students.

Case No. 22: VICTORINO D. MAGAT VS. HON. LEO D. MEDIALDEA AND SANTIAGO
A. GUERRERO
FACTS:
The Defendant (herein private respondent) entered into a contract with the U.S.
Navy Exchange in Subic Bay for the operation of a fleet of taxicabs with a required
taximeter and radio transceiver. An agent acting on the Defendant's behalf proposed to
the Plaintiff (herein petitioner) to import such taximeters and radio transceivers from
Japan through the latter's business connections to fulfill the former's contract. The
Plaintiff, through various dealings, was a regular supplier of materials or goods for the
U.S. Navy in the Philippines from either the local origin or imported from U.S. or Japan.
As such, the Defendant and his agent were able to import the taximeters required in the
contract with the help of the Plaintiff and his Japanese business associates. The
Defendant's agent then made representations with the Plaintiff to procure radio
transceivers, amounting to $77,620.59, to be delivery to the Defendant within 60-90
days after the receipt of the proper radio frequency. While awaiting for it, the Plaintiff
had instructed his agent to secure the radio transceivers. Later upon receiving the said
required frequency of 34.2 MHZ and the instruction of the Defendant to proceed with the
order, the Plaintiff waited for the former to open the letter of credit before delivering such
goods. As a common practice in foreign importation, the buyer opens a letter of credit in
favor of the foreign supplier. Contrary to what was communicated to the Plaintiff, the
Defendant advice his banker not to give due course to the letter of credit and therefore
did not pay for the said goods ordered despite affirmations that the latter had financial
capabilities to do so.
Eventually, the Plaintiff learned that the Defendant had been operating without
radio transceivers and when questioned by the U.S. Navy Authorities, the latter cited the
former for reason of delay. The Plaintiff, through counsel, sent a letter to the Defendant
questioning whether or not there was still an intention to fulfill the agreements or on the
cancellation of such however there's was no reply. Subsequently, the Plaintiff filed for
damages and loses which may be incurred by his business in the future. The
Defendant's counsel however moved to dismiss the complaint for lack of cause of action

on the grounds that the loss or damage suffered are non-existing which is a mere
anticipation in the future. The Court of First Instance of Rizal's presiding Judge
Medialdea grants such Motion to Dismiss.
ISSUE:
Whether or not Plaintiff has cause of action?
HELD:
Yes. Elements of cause of action are: [1] the existence of a legal right to the
plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the
defendant in violation of the plaintiff's right, with consequent injury or damage to the
latter for which he may maintain an action for recovery of damages or other appropriate
relief.
In the complaint of the Plaintiff detailing the beginning of transaction up to the
refusal of open the letter of credit by the Defendant, there is reasonable legal sufficiency
for cause of action to be satisfied for the failure to fulfill an obligation by either of the
contracting parties which would then cause loss of expected profit. It is recoverable
under Article 1170 of the Civil Code whereby, Those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof are liable for damages.
The damages which the obligor is liable for includes not only the value of the loss
suffered by the obligee [dao emergente] but also the profits which the latter failed to
obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those
damages that are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at
the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton
attitude, he shall be liable for all damages which may be reasonably attributed to the
non-performance of the obligation.
Case is remanded to the court of origin for further proceedings. No costs.

Case No. 33: FAR EAST BANK AND TRUST COMPANY, petitioner, vs. THE
HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA,
respondents.
FACTS:
Private respondent Luis Luna applied for, and was accorded, a FAREASTCARD
issued by Petitioner (FEBTC). The bank also issued a supplemental card to private
respondent Clarita Luna upon request of Luis.
In August 1988, Clarita lost her credit card and immediately informed FEBTC. In
cases of this nature, the banks internal security procedures and policy would appear to
be to meanwhile so record the lost card, along with the principal card, as a "Hot Card"
or "Cancelled Card" in its master file.
This case arose when Luis felt embarrassed in the incident where he tendered a
despedida lunch at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila.
He then presented his card, but was not honored, so Luis was forced to pay in cash the
bill amounting to P588.13.
Still feeling aggrieved despite the apologies made by the vice president of the
FEBTC, Luis filed a complaint for damages. RTC favored Luis and rendered a decision
ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b)
P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees. On appeal, the
appellate court, affirmed the decision of the lower court. Hence, this petition.

ISSUE:
Whether or not the damages awarded is valid?
HELD:
No. The Supreme Court held that in culpa contractual, moral damages may be
recovered where the defendant is shown to have acted in bad faith or with malice in the

breach of the contract. Bad faith, in this context, includes gross, but not simple,
negligence. Concededly, the bank was remiss in indeed neglecting to personally inform
Luis of his own cards cancellation but such negligence cannot be considered so gross
as to amount to malice or bad faith. The Court finds, therefore, the award of moral
damages made by the court a quo, affirmed by the appellate court, to be inordinate and
substantially devoid of legal basis.
Exemplary or corrective damages, in turn, are intended to serve as an example
or as correction for the public good in addition to moral, temperate, liquidated or
compensatory damages but it would also be just as arduous to sustain the exemplary
damages granted by the courts below.
Therefore, the appealed decision is MODIFIED by the Supreme Court by deleting
the award of moral and exemplary damages to private respondents; in its stead,
petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by
way of nominal damages. In all other respects, the appealed decision is AFFIRMED.