Cruzado v.

Bustos Case: An appeal from the judgment of CFI Pampanga allowing

declaring defendant Bustos as the rightful owner of the property in question. Bustos
and Escaler who has said to be detaining such land, refused to deliver the
possession thereof to plaintiff and refused to recognize his ownership of the same.
Facts: Agapito Cruzado was a poor man living in Pampanga, he had a job in court
but was still not enough to support his family. He aspired to hold the office of
procurador in the CFI of Pampanga but he was unable to give the required bond, an
indispensable condition for his appointment. Since Cruzado was friends with Bustos,
a rich woman in their place. He begged the latter to simulate a mortgage deed of a
certain property and have it executed in court in his favor only to pose that he has
real property to enable him to qualify to such position of procurador. In truth, the
said mortagage was a front and fraudulent but was effected by making a pretended
contract which bore the appearance of truth. It is unquestionable that the contract
of sale was perfect and binding upon both contracting parties since their names
both appear in that instrument to have agreed upon the thing sold. But it is also
undeniable that the said contract was not consummated. 1.) Cruzado did not pay
the purchase price of P2,200 2.) he never took possession of the land apparently
sold in the said deed. All that the vendee did was to pledge the land as a security
for the faithful discharge of the duties of his office. Santiago Cruzado, the son,
brought an action for recovery of possession, founded on the right transmitted to
him by his father at his death a right arising from the said simulated deed of sale
of the land in question. Issue: W/N the said deed of sale was simulated, not
with the intent to defraud 3rd persons, but for the sole purpose of making it appear
that Agapito Cruzado has real property? W/N rights of transmission acquired by
Santiago Cruzado from the death of his father, pertaining to the said land in contest
is valid and without defect? Ruling: Under the law, the contract of purchase and
sale, as consensual, is perfected by consent as to the price and the thing and is
consummated by the reciprocal delivery of the one and the other. Full ownership of
the thing sold being conveyed to the vendee, from which moment the right of action
derived from this right may be exercised. the record discloses that there was no
payment made by Cruzado to Bustos, thus, rendering the contract not to be
consummated. Art 1164 states that, a creditor has a right to the fruits of the time
the obligation to deliver it arise. However, he shall not acquire a property right
thereto until it has been delivered to him. Besides the failure to pay the
purchase price, neither the vendee nor his heirs, had at any time taken possession
of the land. Seven witnesses attest to the fact, Bustos and her husband while still
living, continued to possess the said land supposedly sold to Agapito Cruzado and
cultivated it, as she had done long before the sale of September 1875 to September
1891, the date of complaint by Santiago Cruzado. Consequently, at the death of
Agapito, he could not have transmitted to the Santiago as his successor any greater
right than a personal right to exact fulfillment of a contract, as plaintiff was not the
owner of the said land, he could not validly register it. This fulfillment of a right has
already prescribed since, under the law, prescription towards real property shall be

30 years. In the case at bar, the action to recover took 34 years to bring it to court,
thus has already prescribed. Petition is denied.

Pornellosa

SCRA 375
digested by LLB 1-4 College of Law, Polytechnic University of the Philippines
Facts: The lot in controversy is a part of the Santa Clara Estate on which many families have
settled through the consent of its owner, each paid a rental. In May 1941, the said Estate was
acquired by the Government & was entrusted to an office known as the Rural Progress Admin.,
which was later abolished & its functions was transferred to the Bureau of Lands. Recently, such
duties was given to the Land Tenure Administration.
The plaintiff acquired by purchase the right of occupation of the lot in question from Vicente San
Jose, predecessor-in-interest. After the purchase of the Santa Clara Estate by the Government, the
plaintiffs were allowed to make payments on account of the purchase price of the lot, as fenced,
included two hundred (200) sq.m. Thereafter, the plaintiffs found out that the lot had been
subdivided into two (2) smaller lots, No. 44 and 78. Lot No. 44 had been sold to Hermino
Guzman. The plaintiffs then filed a complaint to compel the Director of Lands to execute a Deed
of Sale in their favor & declare null and void the Deed of Sale of Lot No. 44, executed in favor
of respondent Hemino. The trial court rendered judgment in favor of plaintiff, but was reversed
by the Court of Appeals, dismissing the petitioners complaint. Hence, this petition.
Issue: Whether or not the plaintiffs are entitled to purchase from the Government the lot,
allegedly includes 200 sq.m.
Held: The judgment under review was affirmed.
The lot on which San Joses house stood had not been specified, nor had the boundaries thereof
been mentioned. Significantly, the plaintiff cannot show a contract whereby the Rural Progress
Admin., has sold or promised to sell them a lot of 200 sq.m. A party claiming a right granted or
created by law must prove his claim by competent evidence. He must rely on the strength of his
evidence and not on the weakness of that of his opponent.
Moreover the Deed of Sale allegedly executed by Vicente San Jose in favor of Pornellosa is a
mere private document and does not conclusively establish their right to the parcel of land. Acts
and contracts which have for their subject the creation, transmission, modification or
extinguishment of real rights over immovable property must appear in a public document.

Caleon v. Agus Development Corp. (G.R. No. 77365. April

7, 1992)
18 Aug

FACTS:
Agus Development Corporation leased to Rita Caleon its lot for P180.00/month. Caleon built a
4-door apartment and sub-leased it at P350.00/door/month without Agus consent. Agus filed an
ejectment suit under Batas Pambansa (B.P.) Blg. 25 after Caleon refused to vacate the lot. Caleon
argued that B.P. Blg. 25 cannot be applied because there is a perfected contract of lease without
any express prohibition on subleasing. The MTC ruled in favor of Agus. It was appealed to the
RTC but was dismissed outright. Hence this petition for review.
ISSUE:
Whether or not B.P. Blg. 25 is unconstitutional for being violative of non-impairment clause
on the ground that it impaired the lease contract.
HELD:
No. B.P. Blg. 25 is valid and constitutional. The lease contract is subordinate to the police power
of the state. Petition is denied.
RATIO:
B.P. Blg. 25 is derived from P.D. No. 20 which has been declared by the Supreme Court as police
power legislation so that the applicability thereof to existing contracts cannot be denied. The
constitutional guaranty of non-impairment of obligations of contract is limited by and subject to
the exercise of police power of the state in the interest of public health, safety, morals and
general welfare. In spite of the constitutional prohibition, the State continues to possess authority
to safeguard the vital interests of its people. Legislation appropriate to safeguarding said interest
may modify or abrogate contracts already in effect.

LORENZO SHIPPING VS. BJ MARTHEL Case Digest

LORENZO SHIPPING VS. BJ MARTHEL
443 SCRA 163
November 19, 2004
FACTS: Petitioner Lorenzo Shipping is engaged in coastwise shipping and owns the
cargo M/V Dadiangas Express. BJ Marthel is engaged in trading, marketing an dselling
various industrial commodities. Lorenzo Shipping ordered for the second time cylinder
lines from the respondent stating the term of payment to be 25% upon delivery, the
balance payable in 5 bi-monthly equal installments, no again stating the date of the
cylinders delivery. It was allegedly paid through post dated checks but the same was
dishonored due to insufficiency of funds. Despite due demands by the respondent,
petitioner falied contending that time was of the essence in the delivery of the cylinders

and that there was a delay since the respondent committed said items within two
months after receipt of fir order. RTC held respondents bound to the quotation with
respect to the term of payment, which was reversed by the Court of appeals ordering
appellee to pay appellant P954,000 plus interest. There was no delay since there was
no demand.
ISSUE: Whether or not respondent incurred delay in performing its obligation under the
contract of sale
RULING: By accepting the cylinders when they were delivered to the warehouse,
petitioner waived the claimed delay in the delivery of said items. Supreme Court geld
that time was not of the essence. There having been no failure on the part of the
respondent to perform its obligations, the power to rescind the contract is unavailing to
the petitioner.
Petition is denied. Court of appeals decision is affirmed.

Selegna Management vs United Coconut

November 19, 2010
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Mortgage Default Mora Solvendi Extrajudicial Foreclosure Right of Creditor

On September 19, 1995, spouses Edgardo and Zenaida Angeles and Selegna Mgmt. acquired a
P70 Million loan from UCPB. As security for the loan, Angeles executed a real estate mortgage
of their properties in Muntinlupa, Antipolo, Las Pias, Quezon and some condo units in Makati.
They also executed a promissory note in favor of UCPB. Later, Angeles increased the loan

amount to P103 Million with a 21% interest rate per annum which was to mature on March 26,
1999.
UCPB and Angeles agreed in their Credit Agreement that failure to pay any availment of the
accommodation or interest or any sum due constitutes a default in payment which would render
the loan amount immediately due in full (this is the Acceleration Clause).
Eventually, in 1999, Angeles went into default and their loan ballooned to P132 M. UCPB sent
them demand letters. In response, Angeles paid about P10 M in interest at the same time they
asked for a 60 day period to restructure the loan.
UCPB accepted the P10 M payment but was unsatisfied hence they filed for extrajudicial
foreclosure. Angeles filed for a TRO to forestall the foreclosure. It was not granted because they
failed to show any irreparable damage that may be caused them by reason of the foreclosure.
Upon Motion for Reconsideration, Angeles petition was granted but was later lifted. The
foreclosure went on on some of the properties in Antipolo. Angeles claimed they were not given
by UCPB any clear accounting on these.
The case was re-raffled anew in another RTC which later reinstated the injunction. UCPB filed
an appeal with the CA. The CA affirmed the RTC. UCPB filed for reconsideration which was
eventually granted.
In the main, Angeles averred that they have a clear right to injunction based on the fact that
UCPB never explained how the loan went up to P132 M; that UCPB refused to give them a
detailed accounting of the partial foreclosure and that they gave a P10 M payment which
prevented the determination of the maturity of the obligation.
ISSUE: Whether or not Angeles has a right to forestall the foreclosure.
HELD: No. Angeles is clearly in default per provisions laid down in their Credit Agreement with
UCPB which is the binding law between the parties. In fact, the parties stipulated in their credit
agreements, mortgage contracts and promissory notes that respondent was authorized to
foreclose on the mortgages, in case of a default by petitioners. That this authority was granted is
not disputed.
There are three requisites necessary for a finding of default. First, the obligation is demandable
and liquidated; second, the debtor delays performance; third, the creditor judicially or
extrajudicially requires the debtors performance. All three were present in this case.
The 1st requisite is present notwithstanding a detailed accounting of the partially foreclosed
properties. A debt is liquidated when the amount is known or is determinable by inspection of the
terms and conditions of the relevant promissory notes and related documentation. Failure to

furnish a debtor a detailed statement of account does not ipso facto result in an unliquidated
obligation.
It is in fact clear from the agreement of the parties that when the payment is accelerated due to an
event of default, the penalty charge shall be based on the total principal amount outstanding, to
be computed from the date of acceleration until the obligation is paid in full. Their Credit
Agreement even provides for the application of payments. It appears from the agreements that
the amount of total obligation is known or, at the very least, determinable.
Further, in the Real Estate Mortgage agreement between the parties (in the Event of Default
clause), Angeles granted UCPB the right to extrajudicially foreclose the properties mortgaged
which secured the loan/obligation.

TANGUILIG VS. CA
G.R. No. 117190 January 2, 1997

Facts: Petitioner Jacinto M. Tanguilig doing business under the name and style J. M. T.
Engineering and General Merchandising entered into a construction contract with respondent
Vicente Herce, Jr. for the construction windmill system for him in the amount of P 60,000.
Respondent paid petitioner a down payment of P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00 in view of the said agreement.
Thereafter, petitioner filed a complaint due to the refusal and failure of respondent to pay the
balance. Respondent denied the claim, saying that he had already paid the alleged unpaid amount
to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which
the windmill system was to be connected. According to respondent, since the deep well formed
part of the system, the payment he tendered to SPGMI should be credited to his account by
petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be
offset by the defects in the windmill system which caused the structure to collapse after a strong
wind hit their place.
Petitioner denied that the construction of a deep well was included in the agreement to build the
windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and
its installation, exclusive of other incidental materials needed for the project. He also disowned
any obligation to repair or reconstruct the system and insisted that he delivered it in good and
working condition to respondent who accepted the same without protest. Besides, its collapse
was attributable to a typhoon, a force majeure, which relieved him of any liability. Also, he
argues that private respondent was already in default in the payment of his outstanding balance
of P15,000.00 and hence should bear his own loss
Issue: Whether or not demand was necessary in the repair of the windmill system.

Ruling: No. 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.
When the windmill failed to function properly it became incumbent upon petitioner to institute
the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot
be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost.

Agcaoili

Facts: In this case, appellant GSIS approved an application of the appellee Agcaoli for the
purchase of a house and lot in the GSIS Housing Project at Nangka, Marikina, subject to the
condition that the latter should forthwith occupy the house, a condition that Agcaoli tried to
fulfill but could not because the house was absolutely uninhabitable. However, Agcaoli ask a
homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending
completion of the construction of the house.
Agcaoli after paying the first installment and other fees, having thereafter refused to make
further payment of other stipulated installments until GSIS had made the house habitable; and
appellant having refused to do so, opting instead to cancel the award and demanded the vacation
by Agcaoli of the premises; and the latter having sued the GSIS in the Court of First Instance of
Manila for specific performance with damages and having obtained a favorable judgment, the
cases was appealed by the GSIS.
Issue: Whether or not Agcaoli is entitled for specific performance with damages.
Held: Appeal of GSIS must fail.
There was then a perfected contract of sale between the parties; there had been a meeting of
minds upon the purchase by Agcaoli of a determinate house and lot from GSIS at a definite price
which is payable in amortizations and from that moment the parties acquired the right to
reciprocally demand performance. It was, to be sure, the duty of the GSIS, as seller, to deliver
the thing soled in acondition suitable for its enjoyment by the buyer, in other words to deliver the
house subject of the contract in a reasonably livable state. This it failed to do.
Since GSIS failed to fulfill its obligation, and was not willing to put the house in a habitable
state, it cannot invoke Agcaolis suspension of payment as cause to cancel the contract between
them. In recipient obligation, neither party incur in delay of the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. Nor may the GSIS
succeed in justifying its cancellation of the award by the claim tha Agcaoli had not complied
with the condition of occupying the house within three (3) days. The record shows that Agcaoli
did try to fulfill the condition.

Finally appellant having caused the ambiguity as the exact prestation of the agreement, the
question of interpretation arising therefrom, should be resolved against it.

ABESAMIS VS. WOODCRAFT WORKS, INC.

FACTS:
This case was a contract in the delivery of logs before the end of July 1951 but not earlier than
April of same year as an option depending on availability of logs and vessels between Woodcraft
Works and Abesamis Shipping. The failure of the appellant to send vessels to Dolores, Samar
was because of the storm that swept away all the log on May 5, 1951. Under contract the
delivery period of date was accomplished and that have been agreed to avoid the storm.
Woodcraftworks sued Abesamis to bear all loss as a result of typhoon
ISSUE:
Whether or not Abesamis is liable to pay of the loss?
HELD:
As a consequence of typhoon that struck on May 5 there was yet no delay on the part of the
Abasamis. The obligation between parties are the reciprocal one, appellant to furnish the vessel
and appellee to furnish the logs. It was also the obligation to benefit both parties. The period that
agreed upon are decided to actually avoid typhoons.The corresponding loss must be shouldered
by the appellee.

HEIRS OF BACUS V. CA
G.R. No. 127695 December 3, 2001

Facts: Luis Bacus leased to Faustino Duray a parcel of agricultural land with total land area of
3,002 of square meters. The lease contract was for six years ending in 1990. Said lease contract
contained an option to buy clause. under the said option, the lessee had the exclusive and
irrevocable right to buy 2,000 square meters five years from a year after the effectivity of the
contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the
peso rate against the uS dollar, which at the time of the execution of the contract was P14.00.
Luis Bacus died on 1989. Thereafter, Duray informed the heirs of Bacus that they are willing and
ready to purchase the property under the option to buy clause. The heirs however refused to sell
the same.
Said refusal to sell prompted Duray to file a complaint for specific performance against the heirs
of Bacus. He showed that he is ready and able to meet his obligations under the contract with
Bacus.

Issue: Whether or not the heirs of Luis Bacus can be compelled to sell the portion of the lot
under the option to buy clause.
Ruling: Yes. Obligations under an option to buy are reciprocal obligations. The performance of
one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other
words, in an option to buy, the payment of the purchase price by the creditor is contingent upon
the execution and delivery of the deed of sale by the debtor.
When the Durays exercised their option to buy the property their obligation was to advise the
Bacus of their decision and readiness to pay the price, they were not yet obliged to make the
payment. Only upon the Bacus actual execution and delivery of the deed of sale were they
required to pay.
The Durays did not incur in delay when they did not yet deliver the payment nor make a
consignation before the expiration of the contract. In reciprocal obligations, neither party incurs
in delay if the other party does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. Only from the moment one of the parties fulfills his obligation,
does delay by the other begin

RCBC vs CA
GR Nos. 128833, 128834, 128866, 20 April 1998
289 SCRA 292
FACTS
GOYU was granted credit facilities and accommodations by the RCBC initially in the
amount of P 30 million. Upon GOYUs application, the credit was increased to P50 Million, then
P90 Million, then P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of
RCBC, which were registered with the RD. Under the 4 contracts, GOYU committed itself to
insure the mortgaged properties with an insurance company approved by RCBC, and
subsequently endorse and deliver the insurance policies to RCBC. GOYU then obtained 10
policies from MICO. GOYUs buildings were gutted by fire and it claimed indemnity from
MICO but the latter denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts or that the
proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights to the
proceeds, filed for specific performance and damges before the RTC of Manila Br 3. The trial
court ruled in favor of GOYU for the fire loss claims but ordered it to pay RCBC its loan
obligations. On appeal to the CA, it affirmed the ruling with regard to the liabilities of MICO and
RCBC. The trial court and appellate courts both held that, since the endorsements do not bear the
signature of any officer of GOYU, they concluded that the endorsements are defective. The CA
then ordered GOYU to pay its obligation to RCBC without any interest, surcharges and
penalties.
ISSUE
Whether or not the ruling of the appellate court is correct.

HELD
The Court held in the negative. The essence or rationale for the payment of interest or
cost of money is separate and distinct from that of surcharges and penalties. The charging of
interest for loans forms a very essential and fundamental element of the banking business.
Petitions granted.

SPS. GUANIO VS MAKATI SHANGRI-LA HOTEL

7 February 2011

Facts: Petitioner spouses, Luigi M. Guanio and Anna Hernandez-Guanio, booked respondent
Makati Shangri-La Hotel for their reception. However, during the wedding itself and even during
the initial food tasting they encountered bad service from the employees of the hotel. Due to that,
the Guanio spouses sent a letter-complaint to Makati Shangri-La wherein the latter responded
with an apology. Despite that, the Guanio spouses still filed a Complaint for breach of contract to
the Regional Trial Court of Makati City. The Guanio spouses contends that the apology is an
admission of the bad service the hotel has rendered to them. On the other hand, Makati ShangriLa denies it stating that their apology is only a standard followed by their employees to express
empathy in reference to the inconvenience experienced by their dissatisfied customers.
Issue: Whether or not the apology made by Makati Shagri-La is considered anadmission of
breach of contract
Ruling: For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna
Hernandez-Guanio booked at the Shangri-la Hotel Makati. Scheduled food tastings were made
prior to the event. The parties eventually agreed on a final price at P1,150 per person. On July
27, 2001, the parties finalized and forged their contract. Petitioners claim that during the
reception, respondents representatives, Catering Director Bea Marquez and Sales Manager Tessa
Alvarez, did not show up despite their assurance that they would; their guests complained of the
delay in the service of the dinner; certain items listed in the published menu were unavailable;
the hotels waiters were rude and unapologetic when confronted about the delay; and despite
Alvarezs promise that there would be no charge for the extension of the reception beyond 12:00
midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up
to 4:00 A.M. the next day. Petitioners further claim that they brought wine and liquor in
accordance with their open bar arrangement, but these were not served to the guests who were
forced to pay for their drinks.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. and
received an apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in
charge of Food and Beverage. They nevertheless filed a complaint for breach of contract and
damages before the RTC of Makati City.
Issue: Whether or not the apology made by Makati Shagri-La is considered anadmission of
breach of contract.
Ruling:What applies in the present case is Article 1170 of the Civil Code which reads: Art. 1170.
Those who in the performance of their obligations are guilty of fraud, negligence or delay, and
those who in any manner contravene the tenor thereof, are liable for damages. RCPI v. Verchez,
et al. enlightens: In culpa contractual x x x the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing
the obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests of the promissee that
may include his expectation interest , which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been performed, or
his reliance interest ,which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or hisrestitution interest, which is his interest in having restored to him any benefit that
he has conferred on the other party. Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for action. The effect of every infraction is
to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the
failure of another to observe his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence or of the attendance of fortuitous event
to excuse him from his ensuing liability.

FGU Insurance Corporation vs. G.P. Sarmiento Trucking

Corporation and Lambert Eroles
Posted on November 24, 2012

G.R. No. 141910

August 6, 2002
FACTS:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on June 18, 1994, 30 units of
Condura S.D. white refrigerators aboard its Isuzu truck driven by Lambert Eroles, to the Central
Luzon Appliances in Dagupan City. While traversing the North Diversion Road along McArthur
highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it
to fall into a deep canal, resulting in damage to the cargoes.
FGU, an insurer of the shipment, paid the value of the covered cargoes (P204,450.00) to
Concepcion Industries, Inc.,. Being subrogee of CIIs rights & interests, FGU, in turn, sought
reimbursement from GPS. Since GPS failed to heed the claim, FGU filed a complaint for
damages & breach of contract of carriage against GPS and Eroles with the RTC. In its answer,
respondents asserted that GPS was only the exclusive hauler of CII since 1988, and it was not so
engaged in business as a common carrier. Respondents further claimed that the cause of damage
was purely accidental.
GPS filed a motion to dismiss the complaint by way of demurrer to evidence on the ground that
petitioner had failed to prove that it was a common carrier.
The RTC granted the motion to dismiss on April 30, 1996. It subsequently dismissed the
complaint holding that GPS was not a common carrier defined under the law & existing
jurisprudence. The subsequent motion for reconsideration having been denied, FGU interposed
an appeal to the CA. The CA rejected the FGUs appeal & ruled in favor of GPS. It also denied
petitioners motion for reconsideration.
ISSUES:
1. WON GPS may be considered a common carrier as defined under the law & existing
jurisprudence.
2. WON GPS, either as a common carrier or a private carrier, may be presumed to have been
negligent when the goods it undertook to transport safely were subsequently damaged while in
its protective custody & possession.
3. Whether the doctrine of Res ipsa loquitur is applicable in the instant case.
HELD:
1. The SC finds the conclusion of the RTC and the CA to be amply justified. GPS, being an
exclusive contractor & hauler of Concepcion Industries, Inc., rendering/offering its services to no
other individual or entity, cannot be considered a common carrier. Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air, for hire or compensation, offering their services to the
public, whether to the public in general or to a limited clientele in particular, but never on an

exclusive basis. The true test of a common carrier is the carriage of passengers/goods, providing
space for those who opt to avail themselves of its transportation service for a fee. Given accepted
standards, GPS scarcely falls within the term common carrier.
2. GPS cannot escape from liability. In culpa contractual, the mere proof of the existence of the
contract & the failure of its compliance justify, prima facie, a corresponding right of relief. The
law will not permit a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have been
lost/suffered. The remedy serves to preserve the interests of the promisee that may include his:
1. Expectation interest interest in having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been performed;
2. Reliance interest interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not been made;
3. Restitution interest interest in having restored to him any benefit that he has conferred on the
other party.
Agreements can accomplish little unless they are made the basis for action. The effect of every
infraction is to create a new duty, or to make recompense to the one who has been injured by the
failure of another to observe his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the diligence of a
good father of a family or, exceptionally by stipulation or by law such as in the case of common
carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him
from his ensuing liability.
A default on, or failure of compliance with, the obligation gives rise to a presumption of lack of
care & corresponding liability on the part of the contractual obligor the burden being on him to
establish otherwise. GPS has failed to do so.
Eroles, on the other hand, may not be ordered to pay petitioner without concrete proof of his
negligence/fault. The driver, not being a party to the contract of carriage between petitioners
principal and defendant, may not be held liable under the agreement. A contract can only bind the
parties who have entered into it or their successors who have assumed their personality/juridical
position. Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract
can neither favor nor prejudice a third person. Petitioners civil action against the driver can only
be based on culpa aquiliana, which would require the claimant for damages to prove the
defendants negligence/fault.

3. Res ipsa loquitur holds a defendant liable where the thing which caused the injury complained
of is shown to be under the latters management and the accident is such that, in the ordinary
course of things, cannot be expected to happen if those who have its management/control use
proper care. In the absence of the defendants explanation, it affords reasonable evidence that the
accident arose from want of care. It is not a rule of substantive law and does not create an
independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural
convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of
producing specific proof of negligence. The maxim simply places the burden of going forward
with the proof on the defendant.
However, resort to the doctrine may only be allowed when:
(a) the event is of a kind which does not ordinarily occur in the absence of negligence;
(b) other responsible causes are sufficiently eliminated by the evidence (includes the conduct of
the plaintiff and third persons); and
(c) the indicated negligence is within the scope of the defendants duty to the plaintiff.
Thus, it is not applicable when an unexplained accident may be attributable to one of several
causes, for some of which the defendant could not be responsible.
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the parties.
Nevertheless,for the doctrine to apply, the requirement that responsible causes (other than those
due to defendants conduct) must first be eliminated should be understood as being confined only
to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa
contractual immediately attaches by a failure of the covenant or its tenor.
On the other hand, while the truck driver, whose civil liability is predicated on culpa acquiliana,
can be said to have been in control & management of the vehicle, it is not equally shown that the
accident has been exclusively due to his negligence. If it were so, the negligence could allow res
ipsa loquitur to properly work against him. However, clearly this is not the case.

FGU INSURANCE CORPORATION V. SARMIENTO

G.R. No. 141910. AUGUST 6, 2002

Facts:G.P. Sarmiento Trucking Corporation undertook to deliver refrigerators aboard one of its
Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the
Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion
road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU
Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc.,
the value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from
GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages
and breach of contract of carriage against GPS and its driver Lambert Eroles. Respondents
asserted that that the cause of damage was purely accidental.
Issue:Whether or not GPS is liable for damages arising from negligence.
Ruling:In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation
recognizes the existence of a contract of carriage between it and petitioner and admits that the
cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation in this case, the delivery of
the goods in its custody to the place of destination gives rise to a presumption of lack of care
and corresponding liability on the part of the contractual obligor the burden being on him to
establish otherwise. GPS has failed to do so.
Respondent driver, without concrete proof of his negligence or fault, may not himself be ordered
to pay petitioner. The driver, not being a party to the contract of carriage between petitioner and
defendant, may not be held liable under the agreement. A contract can only bind the parties who
have entered into it or their successors who have assumed their personality or their juridical
position. Petitioners civil action against the driver can only be based on culpa aquiliana, which,
unlike culpa contractual, would require the claimant for damages to prove negligence or fault on
the part of the defendant.