EN BANC

[G.R. No. 47362. Diciembre 19, 1940.]

JUAN F. VILLAROEL, recurrente-apelante, contra BERNARDINO ESTRADA, recurrido-epelado.
D. Felipe Agoncillo en representacion del recurrente-apelante.
D. Crispin Oben en representacion del recurrido-apelado.
SYLLABUS
1. CONTRATOS; PROMESA NUEVA DE PAGAR UNA DEUDA PRESCRITA; OBLIGACION MORAL COMO
CONSIDERECION DE UN CONTRATO. No se funda la presente accion en la obligacion original eontraida por la madre del
demandado, que ya ha preserito, sino en la que contrajo el demandado el 9 de agosto de 1930 (Exhibito B) al asumir el
cumplimiento de aquella obligacion, ya prescrita. Siendo el dcmandado el unico heredelo de la primitiva deudora, con derecho a
sucederla en su herencia, aquella deuda contraida por su madre legalmente, aunque perdio su eficacia por prescripcion, ahora es,
sin embargo, para el una obligacion moral, que es consideracion suficiente a crear y hacer efieaz y exigible su obligacion
voluntariamente contraida el 9 de agosto de 1930 en el Exhibito B.
2. ID.; ID.; ID. La regla de que una promesa nueva de pagar una deuda prescrita debe ser hecha por la misma
persona obligada o por otra legalmente autorizada por ella, no es aplicable al caso presente en que no se exige el cumplimiento
de la obligacion de la obligada originalmente, sino del que despues quiso voluntariamente asumir esta obligacion.

DECISION

AVANCEA, Pres p:
El 9 de mayo de 1912, Alejandra F. Callao, madre del demandado Juan F. Villarroel, obtuvo de los esposos Mariano
Estrada y Severina un prestamo de P1,000 pagadero al cabo de siete anos (Exhibito A). Alejandra fallecio, dejando como unico
heredero al demandado. Los esposos Mariano Estrada y Severina fallecieron tambien, dejando como unico heredero al
demandante Bernardino Estrada. El 9 de agosto de 1930, el demandado suscribio un documento (Exhibito B) por el cual declara
en deber al demandante la cantidad de P1,000, con un interes de 12 por ciento al ao. Esta accion versa sobre el cobro de esta
cantidad.
El Juzgado de Primera Instancia de Laguna, en el cual se interpuso esta accion, condeno al demandado a pagar al
demandante la cantidad reclamada de P1,000 con sus intereses legales de 12 por ciento al aiio desde el 9 de agosto de 1930
hasta su completo pago. Se apelo de esta sentencia.
Se notara que las partes en la presente causa son, respectivamente, los unicos herederos de los acreedores y de la
deudora originales. Esta accion se ejercita en virtud de la obligacion que el demandado, como unico hijo de la primitiva deudora,
contrajo en favor del demandante, unico heredero de los primitivos acreedores. Se admite que la cantidad de P1,000 a que se
contrae esta obligacion es la misma deuda de la madre del demandado a los padres del demandante.
Aunque la accion para recobrar la deuda original ha prescrito ya cuando se interpuso la demanda en esta causu, la
cuestion que se suscita en esta apelacion es principalmente la de si, no obstante tal prescripcion, es procedelltc la accion
entablada. Sin embargo, no se funda la presente accion en la obligacion original contraida por la madl e del demandado, que ya
ha prescrito, sino en la que contrajo el demandado el 9 de agosto de 1930 (Exhibito B) al asumir el cumplimiento de aquella
obligacion, ya prescrita. Siendo el demandado el unico heredero de la primitiva deudora, con derecho a sucederla en su herencia,
aquella deuda contraida por su madre legalmente, aunque perdio su eficacia por prescripcion, ahora es, sin embargo, para el una

obligacion moral, que es consideracion suficiente a crear y hacer eficaz y exigible su obligacion voluntariamente contraida el 9 de
agosto de 1930 en el Exhibito B.
La regla de que una promesa nueva de pagar una deuda prescrita debe ser hecha por la misma persona obligada o por
otra legalmente autorizada por ella, no es aplicable al caso presente en que no se exige el cumplimiento de la obligacion de la
obligada originalmente, sino del que despues quiso voluntariamente asumir esta obligacion.
Se confirma la sentencia apelada, con las costas al apelante. Asi se ordena.
Imperial, Diaz, Laurel y Horrilleno, MM., estan conformes.
||| (Villaroel v. Estrada, G.R. No. 47362, [December 19, 1940], 71 PHIL 140-142)
Villaroel v. Estrada, 71 Phil. 140 (1940)
Petitioner:
JUAN F. VILLARROEL
Respondent:
BERNARDINO ESTRADA,
Ponente: Avancea
DOCTRINE:
(Natural Obligation)
Not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize theretention of what has been delivered or rendered by reason thereof.
FACTS:
1. On May 9, 1912, Alexander F. Callao, mother of Juan F. Villaroel, obtained from the spouses Mariano Estrada and Severina debt of
P1,000, payable after seven years
2. Alejandra, passed away, leaving Villaroel as sole heir. The spouses Mariano Estrada and Severina also passed away, leaving
Bernardino Estrada as sole heir.
3. On August 9, 1930, Villaroel gave a document to Estrada, in which he declared in owing the amount of P1,000, with an interest of 12
percent per year. This action turns on the collection of this amount.
4. The Court of First Instance of Lagoon, in as interposed this action, and decided for Villaroel to pay the amount demanded of P1,000
with its legal interests of 12 percent from August 9, 1930 to its complete payment. Villaroel appealed.
ISSUES:
WON Villaroel should pay the amount despite the prescription of the original debt
RULING + RATIO:
The present action is not based on the original obligation contracted by the mother Villaroel, which has prescribed, but on that which he
contracted on August9, 1930 when assuming the fulfillment of that obligation. Being the sole heir of the indebted one, with right her
inheritance, that debt which was contracted by his mother legally, although no longer effective by prescription, now is, nevertheless, a
moral obligation. That consideration is sufficient to create and to make his obligation voluntarily contracted, effective August of 1930.
The rule in which a new promise to pay a prescribed debt must be done only by the same person or another who is legally authorized
by her, is not applicable to the present case, because Villaroel voluntarily wanted to assume this obligation.
Disposition
The appealed sentence is confirmed, with costs to the apellant.

[G.R. No. 46274. November 2, 1939.]

A. O. FISHER, plaintiff-appellee, vs. JOHN C. ROBB, defendant-appellant.
Marcial P. Lichauco and Manuel M. Mejia for appellant.
Wolfson, Barrion & Baradi and Ignacio Ycaza for appellee.
SYLLABUS
1. ONEROUS CONTRACTS; CONSIDERATION; ARTICLE 1261 OF THE CIVIL CODE. The promise made by an
organizer of a dog racing course to a stockholder to return to him certain amounts paid by the latter in satisfaction of his
subscription, upon the belief of said organizer that he was morally responsible because of the failure of the enterprise, is not the
consideration required by article 1261 of the Civil Code as an essential element for the legal existence of an onerous contract
which would bind the promisor to comply with his promise.

DECISION

VILLA-REAL, J p:
The defendant John C. ROBB appeals to this Court from the judgment of the Court of First Instance of Manila, the
dispositive part of which reads:
"Judgment is hereby rendered in favor of the plaintiff and against the defendant, who is ordered to pay to
the former the sum of P2,000, with interest at the legal rate from March 11, 1938, until paid, plus costs."
The facts established at the trial without discussion are the following:
In September, 1935, the board of directors of the Philip pine Greyhound Club, Inc., told the herein defendant-appellant
John C. ROBB, to make a business trip to Shanghai to study the operation of a dog racing course. In Shanghai, the defendantappellant stayed at the American Club where he became acquainted with the plaintiff-appellee, A. O. Fisher, through their mutual
friends. In the course of a conversation, the defendant-appellant came to know that the plaintiff-appellee was the manager of a dog
racing course. Upon knowing the purpose of the defendant-appellant's trip, the plaintiff-appellee showed great interest and invited
him to his establishment and for several days gave him information about the business. It seems that the plaintiff became
interested in the Philippine Greyhound Club, Inc., and asked the defendant if he could have a part therein as a stockholder. As the
defendant-appellant answered in the affirmative, the plaintiff-appellee thereupon filled a subscription blank and, through his bank in
Shanghai, sent to the Philippine Greyhound Club, Inc., in Manila a telegraphic transfer for P3,000 in payment of the first installment
of his subscription. Later on the defendant-appellant returned to Manila from Shanghai.
Some months thereafter, when the board of directors of the Philippine Greyhound Club, Inc., issued a call for the payment
of the second installment of the subscriptions, the defendant-appellant sent a radiogram to the plaintiff-appellee in Shanghai,
requesting him to send the amount of the second installment of his subscription. The plaintiff-appellee did so and sent P2,000
directly to the Philippine Greyhound Club, Inc., in payment of the said installment. Due to the manipulations of those who
controlled the Philippine Greyhound Club, Inc., during the absence of the defendant in Manila, the enterprise failed. Upon his
return to Manila, the defendant-appellant undertook the organization of a company called The Philippine Racing Club, which now
manages the race track of the Santa Ana Park. The defendant immediately endeavored to save the investment of those who had
subscribed to the Philippine Greyhound Club, Inc., by having the Philippine Racing Club acquire the remaining assets of the
Philippine Greyhound Club, Inc. The defendant-appellant wrote a letter to the plaintiff-appellee in Shanghai explaining in detail the
critical condition of the Philippine Greyhound Club, Inc., and outlining his plans to save the properties and assets of the plaintiffappellee that he felt morally responsible to the stockholders who had paid their second installment (Exh. C). In answer to said
letter, the plaintiff-appellee wrote the defendant-appellant requiring him to return the entire amount said by him to the Philippine

Greyhound Club, Inc., (Exhibit E). Upon receiving this letter, the defendant-appellant answered the plaintiff-appellee on March 16,
1936, to the effect that it was not his duty under the law to reimburse the plaintiff-appellee for any loss which he might have
suffered in connection with the Philippine Greyhound Club, Inc., in the same way that he could not expect anyone to reimburse him
for his own losses which were much more than those of the plaintiff-appellee (Exh. B).
The principal question to be decided in this appeal is whether or not the trial court erred in holding that there was
sufficient consideration to justify the promise made by the defendant-appellant in his letters Exhibits B and C.
In the fifth paragraph of the letter Exhibit B, dated March 16, 1936, addressed by the defendant-appellant to the plaintiffappellee, the former said: "I feel a moral responsibility for these second payments, which were made in order to carry out my plan
(not the first payments, as you have it in your letter), and Mr. Hilscher and I will see to it that stockholders who made second
payments receive these amounts back as soon as possible, out of our own personal funds." And in the seventh paragraph of the
same letter Exhibit B, same defendant-appellant states the following: "As it is, I have had to take my loss along with every one else
here, and so far as I can see that is what all of us must do. The corporation is finally flat, so it is out of the question to receive back
any of your investment from that source; the only salvage will be the second payment that you made, and that will come from
Hilscher and me personally, as I say, not because of any obligation, but simply be cause we have taken it on ourselves to do that.
(And I wish I could find someone who would undertake to repay a part of my own losses in the enterprise!)" And in the seventh
paragraph of the letter Exhibit C, dated February 21, 1936, addressed by the same defendant-appellant to the same plaintiffappellee, the former said the following: "However, Mr. Hilscher and I feel a personal responsibility to those few stockholders who
made their second payments, including yourself, and it is our intention to personally repay the amounts of the second payments
made by those few.
. . . " And, finally, paragraph 8 of the same letter Exhibit C states: "We are to receive a certain share of the
new Philippine Racing Club for our services as promoters of that organization, and as soon as this is received by
us, we will be in a position to compensate you and the few others who made the second payment, for the amount
of those second payments. That, as I have said, will come from us personally, in an effort to make things easier for
those who were sportsmen enough to try to save the Grey hound organization by making second payments."
Article 1254 of the Civil Code provides as follows:
"A contract exists from the moment one or more persons consent to be bound with respect to another or
others to deliver something or to render some services."
And article 1261 of the same Civil Code provides the following:
"ART. 1261. There is no contract unless the following requisites exist:
"1. The consent of the contracting parties;
"2. A definite object which is the subject-matter of the contract;
"3. A consideration for the obligation established."
In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally responsible for the second
payments which had been made to carry out his plan, and that Mr. Hilscher and he would do everything possible so that the
stockholders who had made second payments may receive the amount paid by them from their personal funds without delay, not
because they were bound to do so, but because they voluntarily assumed the responsibility to make such payment as soon as
they receive from the Philippine Racing Club certain shares for their services as promoters of said organization, nevertheless, it
does not appear that the plaintiff-appellee had consented to said form of reimbursement of the P2,000 which he had directly paid
to the Philippine Greyhound Club, Inc., in satisfaction of the second installment.
The first essential requisite, therefore, required by the cited article 1261 of the Civil Code for the existence of a contract,
does not exist.
As to the third essential requisite, namely, "A consideration for the obligation established," article 1274 of the same Code
provides:
"In onerous contracts the consideration as to each of the parties is the delivery or performance or the
promise of delivery or performance of a thing or service by the other party; in remuneratory contracts the
consideration is the service or benefit for which the remuneration is given, and in contracts of pure beneficence the
consideration is the liberality of the benefactors."
And article 1275 of the same Code provides:
"ART. 1275. Contracts without consideration or with an illicit consideration produce no effect whatsoever.
A consideration is illicit when it is contrary to law or morality."

Manresa, in volume 8, 4th edition, pages 618-619 of his Commentaries on the Civil Code, interpreting article 1274 to
1277 of the Civil Code, has this to say:
"Considering the concept of the consideration as the explanation and motive of the contract, it is related to
the latter's object and even more to its motives with which it is often confused. It is differentiated from them,
however, in that the former is the essential reason for the contract, while the latter are the particular reasons of a
contracting party which do not affect the other party and which do not preclude the existence of a different
consideration. To clarify by an example: A thing purchased constitutes the consideration for the purchaser and not
the motives which have influenced his mind, like its usefulness, its perfection, its relation to another, the use
thereof which he may have in mind, etc., a very important distinction, which precludes the annulment of the
contract by the sole influence of the motives, unless the efficacy of the former had been subordinated to
compliance with the latter as conditions.
"The jurisprudence shows some cases wherein this important distinction is established. The consideration
of contracts, states the decision of February 24, 1904, is distinct from the motive which may prompt the parties in
executing them. The inaccuracies committed in expressing its accidental or secondary details do not imply lack of
consideration or false consideration, wherefore, they do not affect the essence and validity of the contract. In a
loan the consideration in its essence is, for the borrower the acquisition of the amount, and for the lender the power
to demand its return, whether the money be for the former or for another person and whether it be invested as
stated or otherwise.
"The same distinction between the consideration and the motive is found in the decisions of November 23,
1920 and March 5, 1924."
The contract sought to be judicially enforced by the plain tiff-appellee against the defendant-appellant is onerous in
character, because it supposes the deprivation of the latter of an amount of money which impairs his property, which is a burden,
and for it to be legally valid it is necessary that it should have a consideration consisting in the lending or promise of a thing or
service by such party. The defendant-appellant is required to give a thing, namely, the payment of the sum of P2,000, but the
plaintiff-appellee has not given or promised anything or service to the former which may compel him to make such payment. The
promise which said defendant-appellant has made to the plain tiff-appellee to return to him P2,000 which he had paid to the
Philippine Greyhound Club, Inc., as second installment of the payment of the amount of the shares for which he had subscribed,
was prompted by a feeling of pity which said defendant-appellant had for the plaintiff-appellee as a result of the loss which the
latter had suffered because of the failure of the enterprise. The obligation which the said defendant-appellant had contracted with
the plaintiff-appellee is, therefore, purely moral and, as such, is not demand able in law but only in conscience, over which human
judges have no jurisdiction.
As to whether a moral obligation is a sufficient consideration, read in volume 12 of the American Jurisprudence, pages
589-590, paragraphs 96, 67, the following:
"SEC. 96. Moral obligation. Although there is authority in support of the broad proposition that a moral
obligation is sufficient consideration, such proposition is usually denied . . .
"The case presenting the question whether a moral obligation will sustain an express executory promise
may be divided into five classes: (1) Cases in which the moral obligation arose wholly from ethical considerations,
unconnected with any legal obligations, perfect or imperfect, and without the receipt of actual pecuniary or material
benefit by the promisor prior to the subsequent promise; (2) cases in which the moral obligation arose from a legal
liability already performed or still enforceable; (3) cases in which the moral obligation arose out of, or was
connected with, a previous request or promise creating originally an enforceable legal liability, which, however, at
the time of the subsequent express promise had become discharged or barred by operation of a positive rule of
law, so that at that time there was no enforceable legal liability; (4) cases in which the moral obligation arose from,
or was connected with, a previous request or promise which, however, never created any enforceable legal liability,
because of a rule of law which rendered the original agreement void, or at least unenforceable; and (5) cases in
which the moral obligation arose out of, or was connected with, the receipt of actual material or pecuniary benefit
by the promisor, without, however, any previous request or promise on his part, ex press or implied, and therefore,
of course, without any original legal liability, perfect or imperfect.
"Sec. 97. Moral obligation unconnected with legal liability or legal benefit. Although, as subsequently
shown there was formerly some doubt as to the point. it is now well established that a mere moral obligation or
conscientious duty arising wholly from ethical motives or a mere conscientious duty unconnected with any legal

obligation, perfect or imperfect, or with the receipt of benefit by the promisor of a material or pecuniary nature will
not furnish a consideration for an executory promise. . . . "
In view of the foregoing considerations, we are of the opinion and so hold, that the promise made by an organizer of a
dog racing course to a stockholder to return to him certain amounts paid by the latter in satisfaction of his subscription upon the
belief of said organizer that he was morally responsible because of the failure of the enterprise, is not the consideration required by
article 1261 of the Civil Code as an essential element for the legal existence of an onerous contract which would bind the promisor
to comply with his promise.
Wherefore, the appealed judgment is reversed and the defendant is absolved from the complaint, with the costs to the
plaintiff.
Avancea, C.J., Imperial, Diaz, Laurel, Concepcion and Moran, JJ., concur.
||| (Fisher v. Robb, G.R. No. 46274, [November 2, 1939], 69 PHIL 101-108)

EN BANC
[G.R. No. 48006. July 8, 1942.]
FAUSTO BARREDO, petitioner, vs. SEVERINO GARCIA and TIMOTEA ALMARIO, respondents.
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents.
SYLLABUS
1. DAMAGES; QUASI-DELICT OR "CULPA AQUILIANA"; PRIMARY AND DIRECT RESPONSIBILITY OF EMPLOYERS
UNDER ARTICLES 1902-1910 OF THE CIVIL CODE. A head-on collision between a taxi and a carretela resulted in the death
of a 16-year-old boy, one of the passengers of the carretela. A criminal action was filed against the taxi driver and he was
convicted and sentenced accordingly. The court in the criminal case granted the petition that the right to bring a separate civil
action be reserved. Thereafter the parents of the deceased brought suit for damages against the proprietor of the taxi, the
employer of the taxi driver, under article 1903 of the Civil Code. Defendant contended that his liability was governed by the
Revised Penal Code, according to which his responsibility was only secondary, but no civil action had been brought against the
taxi driver. Held: That this separate civil action lies, the employer being primarily and directly responsible in damages under articles
1902 and 1903 of the Civil Code.
2. ID.; ID.; ID. A quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil Code, with a substantivity
all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this principle, and on the wording
and spirit of article 1903 of the Civil Code, the primary and direct responsibility of employers may be safely anchored.
3. ID.; ID.; ID. The individuality of cuasi-delito or culpa extra- contractual looms clear and unmistakable. This legal
institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal
terminology, this responsibility is often referred to as culpa aquiliana. The Partidas also contributed to the genealogy of the present
fault or negligence under the Civil Code: for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque,
como quier que el non fizo a sabiendas el dao al otro, pero acaescio por su culpa."
4. ID.; ID.; ID. The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the
five sources of obligations is this legal institution of cuasi-delito or culpa extra- contractual: "los actos . . . en que intervenga
cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation shall be governed by Chapter II of
Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code is exclusively devoted to the legal institution of
culpa aquiliana.
5. ID.; ID.; ID.; DISTINCTION BETWEEN CRIMES UNDER THE PENAL CODE AND THE "CULPA AQUILIANA" OR
"CUASI-DELITO" UNDER THE CIVIL CODE. A distinction exists between the civil liability arising from a crime and the

responsibility for cuasi-delitos or culpa extra-contractual. The same negligent act causing damages may produce civil liability
arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-contractual
under articles 1902-1910 of the Civil Code. Plaintiffs were free to choose which remedy to enforce. Some of the differences
between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil Code are enumerated in the decision.
6. ID.; ID.; ID.; OPINIONS OF JURISTS. The decision sets out extracts from opinions of jurists on the separate
existence of cuasi- delicts and the employer's primary and direct liability under article 1903 of the Civil Code.
7. ID.; ID.; ID.; SENTENCES OF THE SUPREME TRIBUNAL OF SPAIN. The decision cites sentences of the Supreme
Tribunal of Spain upholding the principles above set forth: that a cuasi-delict or culpa extra- contractual is a separate and distinct
legal institution, independent from the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of
the Civil Code, primarily and directly responsible for the negligent acts of his employee.
8. ID.; ID.; ID.; DECISIONS OF THIS COURT. Decisions of this Court are also cited holding that, in this jurisdiction, the
separate individuality of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with
regard to a negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for which, after
such a conviction, he could have been sued for his civil liability arising from his crime.
9. ID.; ID.; ID.; FOUNDATIONS OF DOCTRINES ABOVE SET FORTH; LITERAL MEANING OF THE LAW. The
Revised Penal Code punishes not only reckless but also simple negligence; if it should be held that articles 1902-1910, Civil Code,
apply only to negligence not punishable by law, culpa aquiliana would have very little application in actual life. The literal meaning
of the law will not be used to smother a principle of such ancient origin and such full-grown development as culpa aquiliana.
10. ID.; ID.; ID.; ID.; DEGREE OF PROOF. There are numerous cases of criminal negligence which can not be shown
beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases, defendant can and should be made
responsible in a civil action under articles 1902 to 1910, Civil Code. Ubi jus ibi remedium.
11. ID.; ID.; ID.; ID.; EXPEDITIOUS REMEDY. The primary and direct responsibility of employer under article 1903,
Civil Code, is more likely to facilitate remedy for civil wrongs. Such primary and direct responsibility of employers is calculated to
protect society.
12. ID.; ID.; ID.; ID.; PRACTICE OF RELYING SOLELY ON CIVIL RESPONSIBILITY FOR A CRIME. The harm done
by such practice is pointed out, and the principle of responsibility for fault or negligence under articles 1902 et seq., of the Civil
Code is restored to its full vigor.

DECISION

BOCOBO, J p:
This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in damages for the
death of Faustino Garcia caused by the negligence of Pedro Fontanilla, a taxi driver employed by said Fausto Barredo.
At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of Rizal, there
was a head-on collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapilis.
The carretela was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered injuries from which he died
two days later. A criminal action was filed against Fontanilla in the Court of First Instance of Rizal, and he was convicted and
sentenced to an indeterminate sentence of one year and one day to two years of prision correccional. The court in the criminal
case granted the petition that the right to bring a separate civil action be reserved. The Court of Appeals affirmed the sentence of
the lower court in the criminal case. Severino Garcia and Timotea Almario, parents of the deceased, on March 7, 1939, brought an
action in the Court of First Instance of Manila against Fausto Barredo as the sole proprietor of the Malate Taxicab and employer of
Pedro Fontanilla. On July 8, 1939, the Court of First Instance of Manila awarded damages in favor of the plaintiffs for P2,000 plus
legal interest from the date of the complaint. This decision was modified by the Court of Appeals by reducing the damages to
P1,000 with legal interest from the time the action was instituted. It is undisputed that Fontanilla's negligence was the cause of the
mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's responsibility, the Court of Appeals
found:
". . . It is admitted that defendant is Fontanilla's employer. There is no proof that he exercised the
diligence of a good father of a family to prevent the damage. (See p. 22, appellant's brief.) In fact it is shown he
was careless in employing Fontanilla who had been caught several times for violation of the Automobile Law and

speeding (Exhibit A) violations which appeared in the records of the Bureau of Public Works available to the
public and to himself. Therefore, he must indemnify plaintiffs under the provisions of article 1903 of the Civil Code."
The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code; hence, his
liability is only subsidiary, and as there has been no civil action against Pedro Fontanilla, the person criminally liable, Barredo
cannot be held responsible in this case. The petitioner's brief states on page 10:
". . . The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the diligence
of a good father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the
respondents. In other words, the Court of Appeals insists on applying in this case article 1903 of the Civil Code.
Article 1903 of the Civil Code is found in Chapter II, Title 16, Book IV of the Civil Code. This fact makes said article
inapplicable to a civil liability arising from a crime as in the case at bar simply because Chapter II of Title 16 of
Book IV of the Civil Code, in the precise words of article 1903 of the Civil Code itself, is applicable only to "those
(obligations) arising from wrongful or negligent acts or omissions not punishable by law.'"
The gist of the decision of the Court of Appeals is expressed thus:
". . . We cannot agree to the defendant's contention. The liability sought to be imposed upon him in this
action is not a civil obligation arising from a felony or a misdemeanor (the crime of Pedro Fontanilla), but an
obligation imposed in article 1903 of the Civil Code by reason of his negligence in the selection or supervision of
his servant or employee."
The pivotal question in this case is whether the plaintiffs may bring this separate civil action against Fausto Barredo, thus
making him primarily and directly responsible under article 1903 of the Civil Code as an employer of Pedro Fontanilla. The
defendant maintains that Fontanilla's negligence being punishable by the Penal Code, his (defendant's) liability as an employer is
only subsidiary, according to said Penal Code, but Fontanilla has not been sued in a civil action and his property has not been
exhausted. To decide the main issue, we must cut through the tangle that has, in the minds of many, confused and jumbled
together delitos and cuasi delitos, or crimes under the Penal Code and fault or negligence under articles 1902-1910 of the Civil
Code. This should be done, because justice may be lost in a labyrinth, unless principles and remedies are distinctly envisaged.
Fortunately, we are aided in our inquiry by the luminous presentation of this perplexing subject by renown jurists and we are
likewise guided by the decisions of this Court in previous cases as well as by the solemn clarity of the considerations in several
sentences of the Supreme Tribunal of Spain.
Authorities support the proposition that a quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil
Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this
principle, and on the wording and spirit of article 1903 of the Civil Code, the primary and direct responsibility of employers may be
safely anchored.
The pertinent provisions of the Civil Code and Revised Penal Code are as follows:
CIVIL CODE
"ART. 1089. Obligations arise from law, from contracts and quasi- contracts, and from acts and omissions
which are unlawful or in which any kind of fault or negligence intervenes."
xxx xxx xxx
"ART. 1092. Civil obligations arising from felonies or misdemeanors shall be governed by the provisions
of the Penal Code.
"ART. 1093. Those which are derived from acts or omissions in which fault or negligence, not punishable
by law, intervenes shall be subject to the provisions of Chapter II, Title XVI of this book."
xxx xxx xxx
"ART. 1902. Any person who by an act or omission causes damage to another by his fault or negligence
shall be liable for the damage so done.
"ART. 1903. The obligation imposed by the next preceding article is enforcible, not only for personal acts
and omissions, but also for those of persons for whom another is responsible.
"The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the
minor children who live with them.

"Guardians are liable for damages done by minors or incapacitated persons subject to their authority and
living with them.
"Owners or directors of an establishment or business are equally liable for any damages caused by their
employees while engaged in the branch of the service in which employed, or on occasion of the performance of
their duties.
"The State is subject to the same liability when it acts through a special agent, but not if the damage shall
have been caused by the official upon whom properly devolved the duty of doing the act performed, in which case
the provisions of the next preceding article shall be applicable.
"Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or
apprentices while they are under their custody.
"The liability imposed by this article shall cease in case the persons mentioned therein prove that they
exercised all the diligence of a good father of a family to prevent the damage.".
"Art. 1904.Any person who pays for damage caused by his employees may recover from the latter what
he may have paid.".
REVISED PENAL CODE
"Art. 100. Civil liability of a person guilty of felony. Every person criminally liable for a felony is also
civilly liable.
"Art. 101. Rules regarding civil liability in certain cases. The exemption from criminal liability
established in subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11 of this Code does not
include exemption from civil liability, which shall be enforced subject to the following rules:
"First. In cases of subdivisions 1, 2 and 3 of article 12 the civil liability for acts committed by any imbecile
or insane person, and by a person under nine years of age, or by one over nine but under fifteen years of age, who
has acted without discernment, shall devolve upon those having such person under their legal authority or control,
unless it appears that there was no fault or negligence on their part.
"Should there be no person having such insane, imbecile or minor under his authority, legal guardianship,
or control, or if such person be insolvent, said insane, imbecile, or minor shall respond with their own property,
excepting property exempt from execution, in accordance with the civil law.
"Second. In cases falling within subdivision 4 of article 11, the persons for whose benefit the harm has
been prevented shall be civilly liable in proportion to the benefit which they may have received.
"The courts shall determine, in their sound discretion, the proportionate amount for which each one shall
be liable.
"When the respective shares can not be equitably determined, even approximately, or when the liability
also attaches to the Government, or to the majority of the inhabitants of the town, and, in all events, whenever the
damage has been caused with the consent of the authorities or their agents, indemnification shall be made in the
manner prescribed by special laws or regulations.
"Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the
fear shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable,
saving always to the latter that part of their property exempt from execution.
"ART. 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment. In
default of persons criminally liable, innkeepers, tavern keepers, and any other persons or corporations shall be
civilly liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or
some general or special police regulation shall have been committed by them or their employees.
"Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their
houses from guests lodging therein, or for the payment of the value thereof, provided that such guests shall have
notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within the
inn; and shall furthermore have followed the directions which such innkeeper or his representative may have given
them with respect to the care of and vigilance over such goods. No liability shall attach in case of robbery with
violence against or intimidation of persons unless committed by the innkeeper's employees.
"ART. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the next
preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of

industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of
their duties."
xxx xxx xxx
"ART. 365. Imprudence and negligence. Any person who, by reckless imprudence, shall commit any
act which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its
maximum period to prision correccional in its minimum period; if it would have constituted a less grave felony, the
penalty of arresto mayor in its minimum and medium periods shall be imposed.
"Any person who, by simple imprudence or negligence, shall commit an act which would otherwise
constitute a grave felony, shall suffer the penalty of arresto mayor in its medium and maximum periods; if it would
have constituted a less serious felony, the penalty of arresto mayor in its minimum period shall be imposed."
It will thus be seen that while the terms of article 1902 of the Civil Code seem to be broad enough to cover the driver's
negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or omissions "not punishable by law." But
inasmuch as article 365 of the Revised Penal Code punishes not only reckless but even simple imprudence or negligence, the
fault or negligence under article 1902 of the Civil Code has apparently been crowded out. It is this overlapping that makes the
"confusion worse confounded." However, a closer study shows that such a concurrence of scope in regard to negligent acts does
not destroy the distinction between the civil liability arising from a crime and the responsibility for cuasi- delitos or culpa extracontractual. The same negligent act causing damages may produce civil liability arising from a crime under article 100 of the
Revised Penal Code, or create an action for cuasi-delito or culpa extra-contractual under articles 1902-1910 of the Civil Code.
The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal institution is of ancient
lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal terminology, this responsibility
is often referred to as culpa aquiliana. The Partidas also contributed to the genealogy of the present fault or negligence under the
Civil Code, for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a
sabiendas el dao al otro, pero acaescio por su culpa."
The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources of
obligations is this legal institution of cuasi-delito or culpa extra- contractual: "los actos . . . en que intervenga cualquier genero de
culpa o negligencia." Then article 1093 provides that this kind of obligation shall be governed by Chapter II of Title XVI of Book IV,
meaning articles 1902-1910. This portion of the Civil Code is exclusively devoted to the legal institution of culpa aquiliana.
Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil
Code are:.
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of
indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law clearly
covering them, while the latter, cuasi-delitos, include all acts in which "any kind of fault or negligence intervenes." However, it
should be noted that not all violations of the penal law produce civil responsibility, such as begging in contravention of ordinances,
violation of the game laws, infraction of the rules of traffic when nobody is hurt. (See Colin and Capitant, "Curso Elemental de
Derecho Civil," Vol. 3, p. 728.).
Let us now ascertain what some jurists say on the separate existence of quasi-delicts and the employer's primary and
direct liability under article 1903 of the Civil Code.
Dorado Montero in his essay on "Responsabilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414) says:
"El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes
personas. Asi, existe una responsabilidad civil propiamente dicha, que en ningun caso lleva aparejada
responsabilidad criminal alguna, y otra que es consecuencia indeclinable de la penal que nace de todo delito o
falta."
"The juridical concept of civil responsibility has various aspects and comprises different persons. Thus,
there is a civil responsibility, properly speaking, which in no case carries with it any criminal responsibility, and
another which is a necessary consequence of the penal liability as a result of every felony or misdemeanor."
Maura, an outstanding authority, was consulted on the following case: There had been a collision between two trains
belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An employee of the latter had been prosecuted in

a criminal case, in which the company had been made a party as subsidiarily responsible in civil damages. The employee had
been acquitted in the criminal case, and the employer, the Ferrocarril del Norte, had also been exonerated. The question asked
was whether the Ferrocarril Cantabrico could still bring a civil action for damages against the Ferrocarril del Norte. Maura's opinion
was in the affirmative, stating in part (Maura, Dictamenes, Vol. 6, pp. 511-513):
"Quedando las cosas asi, a proposito de la realidad pura y neta de los hechos, todavia menos parece
sostenible que exista cosa juzgada acerca de la obligacion civil de indemnizar los quebrantos y menoscabos
inferidos por el choque de los trenes. El titulo en que se funda la accion para demandar el resarcimiento, no puede
confundirse con las responsabilidades civiles nacidas de delito, siquiera exista en este, sea el cual sea, una culpa
rodeada de notas agravatorias que motivan sanciones penales, mas o menos severas. La lesion causada por
delito o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones, que cual la pena
misma ataen al orden publico; por tal motivo vienen encomendadas, de ordinario, al Ministerio Fiscal; y claro es
que si por esta via se enmiendan los quebrantos y menoscabos, el agraviado excusa procurar el ya conseguido
desagravio; pero esta eventual coincidencia de los efectos, no borra la diversidad originaria de las acciones civiles
para pedir indemnizacion.
"Estas, para el caso actual (prescindiendo de culpas contractuales, que no vendrian a cuento y que
tienen otro regimen), dimanan, segun el articulo 1902 del Codigo Civil, de toda accion u omision, causante de
daos o perjuicios, en que intervenga culpa o negligencia. Es trivial que acciones semejantes son ejercitadas ante
los Tribunales de lo civil cotidianamente, sin que la Justicia punitiva tenga que mezclarse en los asuntos. Los
articulos 18 al 21 y 121 al 128 del Codigo Penal, atentos al espiritu y a los fines sociales y politicos del mismo,
desenvuelven y ordenan la materia de responsabilidades civiles nacidas de delito, en terminos separados del
regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes legislativos del Corpus
Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de la obligacion de indemnizar a titulo de
culpa civil; pero viene al caso y es necesaria una de las diferenciaciones que en el tal paralelo se notarian.
"Los articulos 20 y 21 del Codigo Penal, despues de distribuir a su modo las responsabilidades civiles,
entre los que sean por diversos conceptos culpables del delito o falta, las hacen extensivas a las empresas y los
establecimientos al servicio de los cuales estan los delincuentes; pero con caracter subsidiario, o sea, segun el
texto literal, en defecto de los que sean responsables criminalmente. No coincide en ello el Codigo Civil, cuyo
articulo 1903, dice; La obligacion que impone el articulo anterior es exigible, no solo por los actos y omisiones
propios, sino por los de aquellas personas de quienes se debe responder; personas en la enumeracion de las
cuales figuran los dependientes y empleados de los establecimientos o empresas, sea por actos del servicio, sea
con ocasion de sus funciones. Por esto acontece, y se observa en la jurisprudencia, que las empresas, despues
de intervenir en las causas criminales con el caracter subsidiario de su responsabilidad civil por razon del delito,
son demandadas y condenadas directa y aisladamente, cuando se trata de la obligacion, ante los tribunales civiles.
"Siendo como se ve, diverso el titulo de esta obligacion, y formando verdadero postulado de nuestro
regimen judicial la separacion entre justicia punitiva y tribunales de lo civil, de suerte que tienen unos y otros
normas de fondo en distintos cuerpos legales, y diferentes modos de proceder, habiendose por aadidura,
abstenido de asistir al juicio criminal la Compaia del Ferrocarril Cantabrico, que se reservo ejercitar sus acciones,
parece innegable que la de indemnizacion por los daos y perjuicios que le irrogo el choque, no estuvo sub judice
ante el Tribunal del Jurado, ni fue sentenciada, sino que permanecio intacta, al pronunciarse el fallo de 21 de
marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose mas arriba, que tal accion quedaba
legitimamente reservada para despues del proceso; pero al declararse que no existio delito, ni responsabilidad
dimanada de delito, materia unica sobre que tenian jurisdiccion aquellos juzgadores, se redobla el motivo para la
obligacion civil ex lege, y se patentiza mas y mas que la accion para pedir su cumplimiento permanece incolume,
extraa a la cosa juzgada."
"As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there should
be res judicata with regard to the civil obligation for damages on account of the losses caused by the collision of
the trains. The title upon which the action for reparation is based cannot be confused with the civil responsibilities
born of a crime, because there exists in the latter, whatever each nature, a culpa surrounded with aggravating
aspects which give rise to penal measures that are more or less severe. The injury caused by a felony or
misdemeanor upon civil rights requires restitutions, reparations, or indemnifications which, like the penalty itself,
affect public order; for this reason, they are ordinarily entrusted to the office of the prosecuting attorney; and it is
clear that if by this means the losses and damages are repaired, the injured party no longer desires to seek
another relief; but this coincidence of effects does not eliminate the peculiar nature of civil actions to ask for
indemnity.

"Such civil actions in the present case (without referring to contractual faults which are not pertinent and
belong to another scope) are derived, according to article 1902 of the Civil Code, from every act or omission
causing losses and damages in which culpa or negligence intervenes. It is unimportant that such actions are every
day filed before the civil courts without the criminal courts interfering therewith. Articles 18 to 21 and 121 to 128 of
the Penal Code, bearing in mind the spirit and the social and political purposes of that Code, develop and regulate
the matter of civil responsibilities arising from a crime, separately from the regime under common law, of culpa
which is known as aquiliana, in accordance with legislative precedent of the Corpus Juris. It would be unwarranted
to make a detailed comparison between the former provisions and that regarding the obligation to indemnify on
account of civil culpa; but it is pertinent and necessary to point out to one of such differences.
"Articles 20 and 21 of the Penal Code, after distributing in their own way the civil responsibilities among
those who, for different reasons, are guilty of felony or misdemeanor, make such civil responsibilities applicable to
enterprises and establishments for which the guilty parties render service, but with subsidiary character, that is to
say, according to the wording of the Penal Code, in default of those who are criminally responsible. In this regard,
the Civil Code does not coincide because article 1903 says: 'The obligation imposed by the next preceding article
is demandable, not only for personal acts and omissions, but also for those of persons for whom another is
responsible.' Among the persons enumerated are the subordinates and employees of establishments or
enterprises, either for acts during their service or on the occasion of their functions. It is for this reason that it
happens, and it is so observed in judicial decisions, that the companies or enterprises, after taking part in the
criminal cases because of their subsidiary civil responsibility by reason of the crime, are sued and sentenced
directly and separately with regard to the obligation, before the civil courts.
"Seeing that the title of this obligation is different, and the separation between punitive justice and the civil
courts being a true postulate of our judicial system, so that they have different fundamental norms in different
codes, as well as different modes of procedure, and inasmuch as the Compaia del Ferrocarril Cantabrico has
abstained from taking part in the criminal case and has reserved the right to exercise its actions, it seems
undeniable that the action for indemnification for the loses and damages caused to it by the collision was not sub
judice before the Tribunal del Jurado, nor was it the subject of a sentence, but it remained intact when the decision
of March 21 was rendered. Even if the verdict had not been that of acquittal, it has already been shown that such
action had been legitimately reserved till after the criminal prosecution; but because of the declaration of the nonexistence of the felony and the non- existence of the responsibility arising from the crime, which was the sole
subject matter upon which the Tribunal del Jurado had jurisdiction, there is greater reason for the civil obligation ex
lege, and it becomes clearer that the action for its enforcement remain intact and is not res judicata."
Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil Code is largely
based and whose provisions on cuasi-delito or culpa extra-contractual are similar to those of the Spanish Civil Code, says,
referring to article 1384 of the French Civil Code which corresponds to article 1903, Spanish Civil Code:
"The action can be brought directly against the person responsible (for another), without including the
author of the act. The action against the principal is accessory in the sense that it implies the existence of a
prejudicial act committed by the employee, but it is not subsidiary in the sense that it can not be instituted till after
the judgment against the author of the act or at least, that it is subsidiary to the principal action; the action for
responsibility (of the employer) is in itself a principal action." (Laurent, Principles of French Civil Law, Spanish
translation, Vol. 20, pp. 734-735.)
Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the responsibility of the
employer is principal and not subsidiary. He writes:
"Cuestion 1. La responsabilidad declarada en el articulo 1903 por las acciones u omisiones de aquellas
personas por las que se debe responder, es subsidiaria? es principal? Para contestar a esta pregunta es
necesario saber, en primer lugar, en que se funda el precepto legal. Es que realmente se impone una
responsabilidad por una falta ajena? Asi parece a primera vista; pero semejante afirmacion seria contraria a la
justicia y a la maxima universal, segun la que las faltas son personales, y cada uno responde de aquellas que le
son imputables. La responsabilidad de que tratamos se impone con ocasion de un delito o culpa, pero no por
causa de ellos, sino por causa del cuasi delito, esto es, de la imprudencia o de la negligencia del padre, del tutor,
del dueo o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas que enumera el
articulo citado (menores de edad, incapacitados, dependientes, aprendices) causan un dao, la ley presume que
el padre, el tutor, el maestro, etc., han cometido una falta de negligencia para prevenir o evitar el dao. Esta falta
es la que la ley castiga. No hay, pues, responsabilidad por un hecho ajeno, sino en la apariencia; en realidad la

responsabilidad se exige por un hecho propio. La idea de que esa responsabilidad sea subsidiaria es, por lo tanto,
completamente inadmisible."
"Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those persons
for whom one is responsible, subsidiary or principal? In order to answer this question it is necessary to know, in the
first place, on what the legal provision is based. Is it true that there is a responsibility for the fault of another person?
It seems so at first sight; but such assertion would be contrary to justice and to the universal maxim that all faults
are personal, and that everyone is liable for those faults that can be imputed to him. The responsibility in question
is imposed on the occasion of a crime or fault, but not because of the same, but because of the cuasi-delito, that is
to say, the imprudence or negligence of the father, guardian, proprietor or manager of the establishment, of the
teacher, etc. Whenever anyone of the persons enumerated in the article referred to (minors, incapacitated persons,
employees, apprentices) causes any damage, the law presumes that the father, guardian, teacher, etc. have
committed an act of negligence in not preventing or avoiding the damage. It is this fault that is condemned by the
law. It is, therefore, only apparent that there is a responsibility for the act of another; in reality the responsibility
exacted is for one's own act. The idea that such responsibility is subsidiary is, therefore, completely inadmissible."
743:

Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Codigo Civil Espaol," says in Vol. VII, p.
"Es decir, no se responde de hechos ajenos, porque se responde solo de su propia culpa, doctrina del
articulo 1902; mas por excepcion, se responde de la ajena respecto de aquellas personas con las que media
algun nexo o vinculo, que motiva o razona la responsabilidad. Esta responsabilidad, es directa o es subsidiaria?
En el orden penal, el Codigo de esta clase distingue entre menores e incapacitados y los demas, declarando
directa la primera (articulo 19) y subsidiaria la segunda (articulos 20 y 21); pero en el orden civil, en el caso del
articulo 1903, ha de entenderse directa, por el tenor del articulo que impone la responsabilidad precisamente por
los actos de aquellas personas de quienes se deba responder.'"
"That is to say, one is not responsible for the acts of others, because one is liable only for his own faults,
this being the doctrine of article 1902; but, by exception, one is liable for the acts of those persons with whom there
is a bond or tie which gives rise to the responsibility. Is this responsibility direct or subsidiary? In the order of the
penal law, the Penal Code distinguishes between minors and incapacitated persons on the one hand, and other
persons on the other, declaring that the responsibility for the former is direct (article 19), and for the latter,
subsidiary (articles 20 and 21); but in the scheme of the civil law, in the case of article 1903, the responsibility
should be understood as direct, according to the tenor of that article, for precisely it imposes responsibility 'for the
acts of those persons for whom one should be responsible."

Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles above set forth: that
a quasi- delict or culpa extra-contractual is a separate and distinct legal institution, independent from the civil responsibility arising
from criminal liability, and that an employer is, under article 1903 of the Civil Code, primarily and directly responsible for the
negligent acts of his employee.
One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon Lafuente died as
the result of having been run over by a street car owned by the "Compaia Electrica Madrilea de Traccion." The conductor was
prosecuted in a criminal case but he was acquitted. Thereupon, the widow filed a civil action against the street car company,
praying for damages in the amount of 15,000 pesetas. The lower court awarded damages; so the company appealed to the
Supreme Tribunal, alleging violation of articles 1902 and 1903 of the Civil Code because by final judgment the non-existence of
fault or negligence had been declared. The Supreme Court of Spain dismissed the appeal, saying:.
"Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el Tribunal a
quo, al condenar a la Compaia Electrica Madrilea al pago del dao causado con la muerte de Ramon Lafuente
Izquierdo, desconoce el valor y efectos juridicos de la sentencia absolutoria dictada en la causa criminal que se
siguio por el mismo hecho, cuando es lo cierto que de este han conocido las dos jurisdicciones bajo diferentes
aspectos, y como la de lo criminal declaro dentro de los limites de su competencia que el hecho de que se trata no
era constitutivo de delito por no haber mediado descuido o negligencia graves, lo que no excluye, siendo este el
unico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no calificadas, fuente de obligaciones
civiles segun el articulo 1902 del Codigo Civil, y que alcanzan, segun el 1903, entre otras personas, a los
Directores de establecimientos o empresas por los daos causados por sus dependientes en determinadas
condiciones, es manifiesto que la de lo civil, al conocer del mismo hecho bajo este ultimo aspecto y al condenar a
la Compaia recurrente a la indemnizacion del dao causado por uno de sus empleados, lejos de infringir los
mencionados textos, en relacion con el articulo 116 de la Ley de Enjuiciamiento Criminal, se ha atenido

estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccion propia, ni contrariar en lo mas minimo el fallo
recaido en la causa."
"Considering that the first ground of the appeal is based on the mistaken supposition that the trial court, in
sentencing the Compaia Madrilea to the payment of the damage caused by the death of Ramon Lafuente
Izquierdo, disregards the value and juridical effects of the sentence of acquittal rendered in the criminal case
instituted on account of the same act, when it is a fact that the two jurisdictions had taken cognizance of the same
act in its different aspects, and as the criminal jurisdiction declared within the limits of its authority that the act in
question did not constitute a felony because there was no grave carelessness or negligence, and this being the
only basis of acquittal, it does not exclude the co-existence of fault or negligence which is not qualified, and is a
source of civil obligations according to article 1902 of the Civil Code, affecting, in accordance with article 1903,
among other persons, the managers of establishments or enterprises by reason of the damages caused by
employees under certain conditions, it is manifest that the civil jurisdiction in taking cognizance of the same act in
this latter aspect and in ordering the company, appellant herein, to pay an indemnity for the damage caused by
one of its employees, far from violating said legal provisions, in relation with article 116 of the Law of Criminal
Procedure, strictly followed the same, without invading attributes which are beyond its own jurisdiction, and without
in any way contradicting the decision in that cause." (Italics supplied.).
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case, either separately or with the street car company. This is precisely
what happens in the present case: the driver, Fontanilla, has not been sued in a civil action, either alone or with his employer.
Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal of Spain said that
this did not exclude the co-existence of fault or negligence, which is not qualified, on the part of the conductor, under article 1902
of the Civil Code. In the present case, the taxi driver was found guilty of criminal negligence, so that if he had even sued for his
civil responsibility arising from the crime, he would have been held primarily liable for civil damages, and Barredo would have been
held subsidiarily liable for the same. But the plaintiffs are directly suing Barredo, on his primary responsibility because of his own
presumed negligence which he did not overcome under article 1903. Thus, there were two liabilities of Barredo: first, the
subsidiary one because of the civil liability of the taxi driver arising from the latter's criminal negligence; and, second, Barredo's
primary liability as an employer under article 1903. The plaintiffs were free to choose which course to take, and they preferred the
second remedy. In so doing, they were acting within their rights. It might be observed in passing, that the plaintiffs chose the more
expeditious and effective method of relief, because Fontanilla was either in prison, or had just been released, and besides, he was
probably without property which might be seized in enforcing any judgment against him for damages.
Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly, notwithstanding
the acquittal of the employee (the conductor) in a previous criminal case, with greater reason should Barredo, the employer in the
case at bar, be held liable for damages in a civil suit filed against him because his taxi driver had been convicted. The degree of
negligence of the conductor in the Spanish case cited was less than that of the taxi driver, Fontanilla, because the former was
acquitted in the previous criminal case while the latter was found guilty of criminal negligence and was sentenced to an
indeterminate sentence of one year and one day to two years of prision correccional.
(See also Sentence of February 19, 1902, which is similar to the one above quoted.).
In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against a railroad
company for damages because the station agent, employed by the company, had unjustly and fraudulently, refused to deliver
certain articles consigned to the plaintiff. The Supreme Court of Spain held that this action was properly under article 1902 of the
Civil Code, the court saying:
"Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con relacion a
las pruebas del pleito: 1., que las expediciones facturadas por la compaia ferroviaria a la consignacion del actor
de las vasijas vacias que en su demanda relacionan tenian como fin el que este las devolviera a sus remitentes
con vinos y alcoholes; 2., que llegadas a su destino tales mercancias no se quisieron entregar a dicho
consignatario por el jefe de la estacion sin motivo justificado y con intencion dolosa, y 3., que la falta de entrega
de estas expediciones al tiempo de reclamarlas el demandante le originaron daos y perjuicios en cantidad de
bastante importancia como expendedor al por mayor que era de vinos y alcoholes por las ganancias que dejo de
obtener al verse privado de servir los pedidos que se le habian hecho por los remitentes en los envases:
"Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este
recurso, porque la demanda inicial del pleito a que se contrae no contiene accion que nazca del incumplimiento
del contrato de transporte, toda vez que no se funda en el retraso de la llegada de las mercancias ni de ningun

otro vinculo contractual entre las partes contendientes, careciendo, por tanto, de aplicacion el articulo 371 del
Codigo de Comercio, en que principalmente descansa el fallo recurrido, sino que se limita a pedir la reparacion de
los daos y perjuicios producidos en el patrimonio del actor por la injustificada y dolosa negativa del porteador a la
entrega de las mercancias a su nombre consignadas, segun lo reconoce la sentencia, y cuya responsabilidad esta
claramente sancionada en el articulo 1902 del Codigo Civil, que obliga por el siguiente a la Compaia demandada
como ligada con el causante de aquellos por relaciones de caracter economico y de jerarquia administrativa."
"Considering that the sentence in question recognizes, in virtue of the facts which it declares, in relation to
the evidence in the case: (1) that the invoice issued by the railroad company in favor of the plaintiff contemplated
that the empty receptacles referred to in the complaint should be returned to the consignors with wines and liquors;
(2) that when the said merchandise reached their destination, their delivery to the consignee was refused by the
station agent without justification and with fraudulent intent, and (3) that the lack of delivery of these goods when
they were demanded by the plaintiff caused him losses and damages of considerable importance, as he was a
wholesale vendor of wines and liquors and he failed to realize the profits when he was unable to fill the orders sent
to him by the consignors of the receptacles:
"Considering that upon this basis there is need of upholding the four assignments of error, as the original
complaint did not contain any cause of action arising from non-fulfilment of a contract of transportation, because
the action was not based on the delay of the goods nor on any contractual relation between the parties litigant and,
therefore, article 371 of the Code of Commerce, on which the decision appealed from is based, is not applicable;
but it limits itself to asking for reparation for losses and damages produced on the patrimony of the plaintiff on
account of the unjustified and fraudulent refusal of the carrier to deliver the goods consigned to the plaintiff as
stated by the sentence, and the carrier's responsibility is clearly laid down in article 1902 of the Civil Code which
binds, in virtue of the next article, the defendant company, because the latter is connected with the person who
caused the damage by relations of economic character and by administrative hierarchy." (Emphasis supplied.)
The above case is pertinent because it shows that the same act may come under both the Penal Code and the Civil Code.
In that case, the action of the agent was unjustified and fraudulent and therefore could have been the subject of a criminal action.
And yet, it was held to be also a proper subject of a civil action under article 1902 of the Civil Code. It is also to be noted that it was
the employer and not the employee who was being sued.
Let us now examine the cases previously decided by this Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial court awarded
damages to the plaintiff, a laborer of the defendant, because the latter had negligently failed to repair a tramway, in consequence
of which the rails slid off while iron was being transported, and caught the plaintiff whose leg was broken. This Court held:.
"It is contended by the defendant, as its first defense to the action that the necessary conclusion from
these collated laws is that the remedy for injuries through negligence lies only in a criminal action in which the
official criminally responsible must be made primarily liable and his employer held only subsidiarily to him.
According to this theory the plaintiff should have procured the arrest of the representative of the company
accountable for not repairing the track, and on his prosecution a suitable fine should have been imposed, payable
primarily by him and secondarily by his employer.
"This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the Civil
Code makes obligations arising from faults or negligence not punished by the law, subject to the provisions of
Chapter II of Title XVI. Section 1902 of that chapter reads:
" 'A person who by an act or omission causes damage to another when there is fault or negligence shall
be obliged to repair the damage so done.
" 'SEC. 1903. The obligation imposed by the preceding article is demandable, not only for personal acts
and omissions, but also for those of the persons for whom they should be responsible.
" 'The father, and on his death or incapacity, the mother, is liable for the damages caused by the minors
who live with them.
xxx xxx xxx
" 'Owners or directors of an establishment or enterprise are equally liable for the damages caused by their
employees in the service of the branches in which the latter may be employed or in the performance of their duties.
xxx xxx xxx

" 'The liability referred to in this article shall cease when the persons mentioned therein prove that they
employed all the diligence of a good father of a family to avoid the damage.'"
"As an answer to the argument urged in this particular action it may be sufficient to point out that nowhere
in our general statutes is the employer penalized for failure to provide or maintain safe appliances for his workmen.
His obligation therefore is one 'not punished by the laws' and falls under civil rather than criminal jurisprudence. But
the answer may be a broader one. We should be reluctant, under any conditions, to adopt a forced construction of
these scientific codes, such as is proposed by the defendant, that would rob some of these articles of effect, would
shut out litigants against their will from the civil courts, would make the assertion of their rights dependent upon the
selection for prosecution of the proper criminal offender, and render recovery doubtful by reason of the strict rules
of proof prevailing in criminal actions. Even if these articles had always stood alone, such a construction would be
unnecessary, but clear light is thrown upon their meaning by the provisions of the Law of Criminal Procedure of
Spain (Ley de Enjuiciamiento Criminal), which, though never in actual force in these Islands, was formerly given a
suppletory or explanatory effect. Under article 111 of this law, both classes of action, civil and criminal, might be
prosecuted jointly or separately, but while the penal action was pending the civil was suspended. According to
article 112, the penal action once started, the civil remedy should be sought therewith, unless it had been waived
by the party injured or been expressly reserved by him for civil proceedings for the future. If the civil action alone
was prosecuted, arising out of a crime that could be enforced only on private complaint, the penal action
thereunder should be extinguished. These provisions are in harmony with those of articles 23 and 133 of our Penal
Code on the same subject.
"An examination of this topic might be carried much further, but the citation of these articles suffices to
show that the civil liability was not intended to be merged in the criminal nor even to be suspended thereby, except
as expressly provided in the law. Where an individual is civilly liable for a negligent act or omission, it is not
required that the injured party should seek out a third person criminally liable whose prosecution must be a
condition precedent to the enforcement of the civil right.
"Under article 20 of the Penal Code the responsibility of an employer may be regarded as subsidiary in
respect of criminal actions against his employees only while they are in process of prosecution, or in so far as they
determine the existence of the criminal act from which liability arises, and his obligation under the civil law and its
enforcement in the civil courts is not barred thereby unless by the election of the injured person. Inasmuch as no
criminal proceeding had been instituted, growing out of the accident in question, the provisions of the Penal Code
can not affect this action. This construction renders it unnecessary to finally determine here whether this subsidiary
civil liability in penal actions has survived the laws that fully regulated it or has been abrogated by the American
civil and criminal procedure now in force in the Philippines.
"The difficulty in construing the articles of the code above cited in this case appears from the briefs before
us to have arisen from the interpretation of the words of article 1093, 'fault or negligence not punished by law,' as
applied to the comprehensive definition of offenses in articles 568 and 590 of the Penal Code. It has been shown
that the liability of an employer arising out of his relation to his employee who is the offender is not to be regarded
as derived from negligence punished by the law, within the meaning of articles 1902 and 1093. More than this,
however, it cannot be said to fall within the class of acts unpunished by the law, the consequences of which are
regulated by articles 1902 and 1903 of the Civil Code. The acts to which these articles are applicable are
understood to be those not growing out of pre-existing duties of the parties to one another. But where relations
already formed give rise to duties, whether springing from contract or quasi contract, then breaches of those duties
are subject to articles 1101, 1103, and 1104 of the same code. A typical application of this distinction may be found
in the consequences of a railway accident due to defective machinery supplied by the employer. His liability to his
employee would arise out of the contract of employment, that to the passengers out of the contract for passage,
while that to the injured bystander would originate in the negligent act itself."
In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 or 9-year-old child Salvador Bona brought a civil
action against Moreta to recover damages resulting from the death of the child, who had been run over by an automobile driven
and managed by the defendant. The trial court rendered judgment requiring the defendant to pay the plaintiff the sum of P1,000 as
indemnity: This Court in affirming the judgment, said in part:
"If it were true that the defendant, in coming from the southern part of Solana Street, had to stop his auto
before crossing Real Street, because he had met vehicles which were going along the latter street or were coming
from the opposite direction along Solana Street, it is to be believed that, when he again started to run his auto
across said Real Street and to continue its way along Solana Street northward, he should have adjusted the speed

of the auto which he was operating until he had fully crossed Real Street and had completely reached a clear way
on Solana Street. But, as the child was run over by the auto precisely at the entrance of Solana Street, this
accident could not have occurred if the auto had been running at a slow speed, aside from the fact that the
defendant, at the moment of crossing Real Street and entering Solana Street, in a northward direction, could have
seen the child in the act of crossing the latter street from the sidewalk on the right to that on the left, and if the
accident had occurred in such a way that after the automobile had run over the body of the child, and the child's
body had already been stretched out on the ground, the automobile still moved along a distance of about 2 meters,
this circumstance shows the fact that the automobile entered Solana Street from Real Street, at a high speed
without the defendant having blown the horn. If these precautions had been taken by the defendant, the deplorable
accident which caused the death of the child would not have occurred."
It will be noticed that the defendant in the above case could have been prosecuted in a criminal case because his
negligence causing the death of the child was punishable by the Penal Code. Here is therefore a clear instance of the same act of
negligence being a proper subject-matter either of a criminal action with its consequent civil liability arising from a crime or of an
entirely separate and independent civil action for fault or negligence under article 1902 of the Civil Code. Thus, in this jurisdiction,
the separate individuality of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with
regard to a negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for which, after
such a conviction, he could have been sued for this civil liability arising from his crime.
Years later (in 1930) this Court had another occasion to apply the same doctrine. In Bernal and Enverso vs. House and
Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the parents of the five- year-old child, Purificacion Bernal, brought a civil action to
recover damages for the child's death as a result of burns caused by the fault and negligence of the defendants. On the evening of
April 10, 1925, the Good Friday procession was held in Tacloban, Leyte. Fortunata Enverso with her daughter Purificacion Bernal
had come from another municipality to attend the same. After the procession the mother and the daughter with two others were
passing along Gran Capitan Street in front of the offices of the Tacloban Electric & Ice Plant, Ltd., owned by defendant J. V. House,
when an automobile appeared from the opposite direction. The little girl, who was slightly ahead of the rest, was so frightened by
the automobile that she turned to run, but unfortunately she fell into the street gutter where hot water from the electric plant was
flowing. The child died that same night from the burns. The trial court dismissed the action because of the contributory negligence
of the plaintiffs. But this Court held, on appeal, that there was no contributory negligence, and allowed the parents P1,000 in
damages from J. V. House who at the time of the tragic occurrence was the holder of the franchise for the electric plant. This Court
said in part:
"Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led to order
the dismissal of the action because of the contributory negligence of the plaintiffs. It is from this point that a
majority of the court depart from the stand taken by the trial judge. The mother and her child had a perfect right to
be on the principal street of Tacloban, Leyte, on the evening when the religious procession was held. There was
nothing abnormal in allowing the child to run along a few paces in advance of the mother. No one could foresee the
coincidence of an automobile appearing and of a frightened child running and falling into a ditch filled with hot
water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and Pacific Co. ([1907], 7 Phil.,
359), still rule. Article 1902 of the Civil Code must again be enforced. The contributory negligence of the child and
her mother, if any, does not operate as a bar to recovery, but in its strictest sense could only result in reduction of
the damages."
It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil Code. It is thus that
although J. V. House could have been criminally prosecuted for reckless or simple negligence and not only punished but also
made civilly liable because of his criminal negligence, nevertheless this Court awarded damages in an independent civil action for
fault or negligence under article 1902 of the Civil Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915]), the action was for damages for the death of the plaintiff's
daughter alleged to have been caused by the negligence of the servant in driving an automobile over the child. It appeared that the
cause of the mishap was a defect in the steering gear. The defendant Leynes had rented the automobile from the International
Garage of Manila, to be used by him in carrying passengers during the fiesta of Tuy, Batangas. Leynes was ordered by the lower
court to pay P1,000 as damages to the plaintiff. On appeal this Court reversed the judgment as to Leynes on the ground that he
had shown that he exercised the care of a good father of a family, thus overcoming the presumption of negligence under article
1903. This Court said:
"As to selection, the defendant has clearly shown that he exercised the care and diligence of a good
father of a family. He obtained the machine from a reputable garage and it was, so far as appeared, in good
condition. The workmen were likewise selected from a standard garage, were duly licensed by the Government in
their particular calling, and apparently thoroughly competent. The machine had been used but a few hours when

the accident occurred and it is clear from the evidence that the defendant had no notice, either actual or
constructive, of the defective condition of the steering gear."
The legal aspect of the case was discussed by this Court thus:.
"Article 1903 of the Civil Code not only establishes liability in cases of negligence, but also provides when
the liability shall cease. It says:
" 'The liability referred to in this article shall cease when the persons mentioned therein prove that they
employed all the diligence of a good father of a family to avoid the damage.'"
"From this article two things are apparent: (1) That when an injury is caused by the negligence of a
servant or employee there instantly arises a presumption of law that there was negligence on the part of the master
or employer either in the selection of the servant or employee, or in supervision over him after the selection, or
both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he
has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved
from liability.
"This theory bases the responsibility of the master ultimately on his own negligence and not on that of his
servant."
The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the latter case,
the complaint alleged that the defendant's servant had so negligently driven an automobile, which was operated by defendant as a
public vehicle, that said automobile struck and damaged the plaintiff's motorcycle. This Court, applying article 1903 and following
the rule in Bahia vs. Litonjua and Leynes, said in part (p. 41) that:
"The master is liable for the negligent acts of his servant where he is the owner or director of a business
or enterprise and the negligent acts are committed while the servant is engaged in his master's employment as
such owner"
Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton & Harrison Co., 55
Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for the death of his seven-year-old son Moises.
The little boy was on his way to school with his sister Marciana. Some large pieces of lumber fell from a truck and pinned the boy
underneath, instantly killing him. Two youths, Telesforo Binoya and Francisco Bautista, who were working for Ora, an employee of
defendant Norton & Harrison Co., pleaded guilty to the crime of homicide through reckless negligence and were sentenced
accordingly. This Court, applying articles 1902 and 1903, held:
"The basis of civil law liability is not respondent superior but the relationship of pater familias. This theory
bases the liability of the master ultimately on his own negligence and not on that of his servant." (Bahia vs. Litonjua
and Leynes [1915], 30 Phil., 624; Cangco vs. Manila Railroad Co. [1918], 38 Phil., 768.)
In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff brought an action for
damages for the demolition of its wharf, which had been struck by the steamer Helen C belonging to the defendant. This Court
held (p. 526):
"The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed
captain, authorized to navigate and direct a vessel of any tonnage, and that the appellee contracted his services
because of his reputation as a captain, according to F. C. Cadwallader. This being so, we are of the opinion that
the presumption of liability against the defendant has been overcome by the exercise of the care and diligence of a
good father of a family in selecting Captain Lasa, in accordance with the doctrines laid down by this court in the
cases cited above, and the defendant is therefore absolved from all liability."
It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases above set forth.
He is, on the authority of these cases, primarily and directly responsible in damages under article 1903, in relation to article 1902,
of the Civil Code.
Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila vs. Manila Electric
Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a street car of the Manila Electric Co. took
place on June 8, 1925. The truck was damaged in the amount of P1,788.27. Sixto Eustaquio, the motorman, was prosecuted for
the crime of damage to property and slight injuries through reckless imprudence. He was found guilty and sentenced to pay a fine
of P900, to indemnify the City of Manila for P1,788.27, with subsidiary imprisonment in case of insolvency. Unable to collect the
indemnity from Eustaquio, the City of Manila filed an action against the Manila Electric Company to obtain payment, claiming that

the defendant was subsidiarily liable. The main defense was that the defendant had exercised the diligence of a good father of a
family to prevent the damage. The lower court rendered judgment in favor of the plaintiff. This Court held, in part, that this case
was governed by the Penal Code, saying:
"With this preliminary point out of the way, there is no escaping the conclusion that the provisions of the
Penal Code govern. The Penal Code in easily understandable language authorizes the determination of subsidiary
liability. The Civil Code negatives its application by providing that civil obligations arising from crimes or
misdemeanors shall be governed by the provisions of the Penal Code. The conviction of the motorman was a
misdemeanor falling under article 604 of the Penal Code. The act of the motorman was not a wrongful or negligent
act or omission not punishable by law. Accordingly, the civil obligation connected up with the Penal Code and not
with article 1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while the Civil Code
negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises and not a case of civil
negligence."
xxx xxx xxx
"Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code. Indeed, as
pointed out by the trial judge, any different ruling would permit the master to escape scot- free by simply alleging
and proving that the master had exercised all diligence in the selection and training of its servants to prevent the
damage. That would be a good defense to a strictly civil action, but might or might not be to a civil action either as
a part of or predicated on conviction for a crime or misdemeanor. (By way of parenthesis, it may be said further
that the statements here made are offered to meet the argument advanced during our deliberations to the effect
that article 1902 of the Civil Code should be disregarded and codal articles 1093 and 1903 applied.)"
It is not clear how the above case could support the defendant's proposition, because the Court of Appeals based its
decision in the present case on the defendant's primary responsibility under article 1903 of the Civil Code and not on his subsidiary
liability arising from Fontanilla's criminal negligence. In other words, the case of City of Manila vs. Manila Electric Co., supra, is
predicated on an entirely different theory, which is the subsidiary liability of an employer arising from a criminal act of his employee,
whereas the foundation of the decision of the Court of Appeals in the present case is the employer's primary liability under article
1903 of the Civil Code. We have already seen that this is a proper and independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in the employ of
the Manila Electric Company had been convicted of homicide by simple negligence and sentenced, among other things, to pay the
heirs of the deceased the sum of P1,000. An action was then brought to enforce the subsidiary liability of the defendant as
employer under the Penal Code. The defendant attempted to show that it had exercised the diligence of a good father of a family
in selecting the motorman, and therefore claimed exemption from civil liability. But this Court held:
"In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption from civil
liability established in article 1903 of the Civil Code for all who have acted with the diligence of a good father of a
family, is not applicable to the subsidiary civil liability provided in article 20 of the Penal Code."
The above case is also extraneous to the theory of the defendant in the instant case, because the action there had for its
purpose the enforcement of the defendant's subsidiary liability under the Penal Code, while in the case at bar, the plaintiff's cause
of action is based on the defendant's primary and direct responsibility under article 1903 of the Civil Code. In fact, the above case
destroys the defendant's contention because that decision illustrates the principle that the employer's primary responsibility under
article 1903 of the Civil Code is different in character from his subsidiary liability under the Penal Code.
In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the distinction between
civil liability arising from a crime, which is governed by the Penal Code, and the responsibility for cuasi-delito or culpa aquiliana
under the Civil Code, and has likewise failed to give due importance to the latter type of civil action.
The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth. Suffice it to say
that the question involved was also civil liability arising from a crime. Hence, it is as inapplicable as the two cases above discussed.
The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil
Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent
act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or negligence
under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude
that the employer in this case the defendant-petitioner is primarily and directly liable under article 1903 of the Civil Code.

The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this case. But
inasmuch as we are announcing doctrines that have been little understood in the past, it might not be inappropriate to indicate their
foundations.
Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we were to hold
that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by law, according to the literal import of
article 1093 of the Civil Code, the legal institution of culpa aquiliana would have very little scope and application in actual life.
Death or injury to persons and damage to property through any degree of negligence even the slightest would have to be
indemnified only through the principle of civil liability arising from a crime. In such a state of affairs, what sphere would remain for
cuasi-delito or culpa aquiliana? We are loath to impute to the lawmaker any intention to bring about a situation so absurd and
anomalous. Nor are we, in the interpretation of the laws, disposed to uphold the letter that killeth rather than the spirit that giveth
life. We will not use the literal meaning of the law to smother and render almost lifeless a principle of such ancient origin and such
full-grown development as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902 to 1910 of the
Spanish Civil Code.
Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required, while in a civil
case, preponderance of evidence is sufficient to make the defendant pay in damages. There are numerous cases of criminal
negligence which can not be shown beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases,
the defendant can and should be made responsible in a civil action under articles 1902 to 1910 of the Civil Code. Otherwise, there
would be many instances of unvindicated civil wrongs. Ubi jus ibi remedium.
Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the driver and exhaust
his (the latter's) property first, would be tantamount to compelling the plaintiff to follow a devious and cumbersome method of
obtaining relief. True, there is such a remedy under our laws, but there is also a more expeditious way, which is based on the
primary and direct responsibility of the defendant under article 1903 of the Civil Code. Our view of the law is more likely to facilitate
remedy for civil wrongs, because the procedure indicated by the defendant is wasteful and productive of delay, it being a matter of
common knowledge that professional drivers of taxis and similar public conveyances usually do not have sufficient means with
which to pay damages. Why then, should the plaintiff be required in all cases to go through this roundabout, unnecessary, and
probably useless procedure? In construing the laws, courts have endeavored to shorten and facilitate the pathways of right and
justice.
At this juncture, it should be said that the primary and direct responsibility of employers and their presumed negligence
are principles calculated to protect society. Workmen and employees should be carefully chosen and supervised in order to avoid
injury to the public. It is the masters or employers who principally reap the profits resulting from the services of these servants and
employees. It is but right that they should guarantee the latter's careful conduct for the personnel and patrimonial safety of others.
As Theilhard has said, "they should reproach themselves, at least, some for their weakness, others for their poor selection and all
for their negligence." And according to Manresa, "It is much more equitable and just that such responsibility should fall upon the
principal or director who could have chosen a careful and prudent employee, and not upon the injured person who could not
exercise such selection and who used such employee because of his confidence in the principal or director." (Vol. 12, p. 622, 2nd
Ed.) Many jurists also base this primary responsibility of the employer on the principle of representation of the principal by the
agent. Thus, Oyuelos says in the work already cited (Vol. 7, p. 747) that before third persons the employer and employee "vienen
a ser como una sola personalidad, por refundicion de la del dependiente en la de quien le emplea y utiliza." ("become as one
personality by the merging of the person of the employee in that of him who employs and utilizes him.") All these observations
acquire a peculiar force and significance when it comes to motor accidents, and there is need of stressing and accentuating the
responsibility of owners of motor vehicles.
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this subject, which
has given rise to the overlapping or concurrence of spheres already discussed, and for lack of understanding of the character and
efficacy of the action for culpa aquiliana, there has grown up a common practice to seek damages only by virtue of the civil
responsibility arising from a crime, forgetting that there is another remedy, which is by invoking articles 1902-1910 of the Civil Code.
Although this habitual method is allowed by our laws, it has nevertheless rendered practically useless and nugatory the more
expeditious and effective remedy based on culpa aquiliana or culpa extra-contractual. In the present case, we are asked to help
perpetuate this usual course. But we believe it is high time we pointed out to the harm done by such practice and to restore the
principle of responsibility for fault or negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time we
caused the stream of quasi-delict or culpa aquiliana to flow on its own natural channel, so that its waters may no longer be diverted
into that of a crime under the Penal Code. This will, it is believed, make for the better safeguarding of private rights because it reestablishes an ancient and additional remedy, and for the further reason that an independent civil action, not depending on the
issues, limitations and results of a criminal prosecution, and entirely directed by the party wronged or his counsel, is more likely to
secure adequate and efficacious redress.

In view of the foregoing, the judgment of the Court of Appeals should be and is hereby affirmed, with costs against the
defendant- petitioner.
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.
||| (Barredo v. Garcia, G.R. No. 48006, [July 8, 1942], 73 PHIL 607-621)

FIRST DIVISION
[G.R. No. L-32599. June 29, 1979.]
EDGARDO E. MENDOZA, petitioner, vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First
Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents.
David G. Nitafan for petitioner.
Arsenio R. Reyes for respondent Timbol.
Armando M. Pulgado for respondent Salazar.

DECISION

MELENCIO-HERRERA, J p:
Petitioner, Edgardo Mendoza, seeks a review on Certiorari of the Orders of respondent Judge in Civil Case No. 80803 dismissing his
Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo Salazar.
The facts which spawned the present controversy may be summarized as follows:
On October 22, 1969, at about 4:00 o'clock in the afternoon, a three-way vehicular accident occurred along Mac-Arthur Highway,
Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and driven by respondent Rodolfo
Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya. As a consequence of said
mishap, two separate Informations for Reckless Imprudence Causing Damage to Property were filed against Rodolfo Salazar and
Freddie Montoya with the Court of First Instance of Bulacan. The case against truck-driver Montoya, docketed as Criminal Case No.
SM-227, was for causing damage to the jeep owned by Salazar, in the amount of P1,604.00, by hitting it at the right rear portion
thereby causing said jeep to hit and bump an oncoming car, which happened to be petitioner's Mercedes Benz. The case against jeepowner-driver Salazar, docketed as Criminal Case No. SM-228, was for causing damage to the Mercedes Benz of petitioner in the
amount of P8,890.00.
At the joint trial of the above cases, petitioner testified that jeep-owner-driver Salazar overtook the truck driven by Montoya, swerved to
the left going towards the poblacion of Marilao, and hit his car which was bound for Manila. Petitioner further testified that before the
impact, Salazar had jumped from the jeep and that he was not aware that Salazar's jeep was bumped from behind by the truck driven
by Montoya. Petitioner's version of the accident was adopted by truck-driver Montoya. Jeep-owner-driver Salazar, on the other hand,
tried to show that, after overtaking the truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the
poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic; that while he was at a stop position,
his jeep was bumped at the rear by the truck driven by Montoya causing him to be thrown out of the jeep, which then swerved to the
left and hit petitioner's car, which was coming from the opposite direction.
On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in its decretal portion: LLpr

"IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya GUILTY beyond reasonable doubt
of the crime of damage to property thru reckless imprudence in Crim. Case No. SM-227, and hereby sentences
him to pay a fine of P972.50 and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual damages,
with subsidiary imprisonment in case of insolvency, both as to fine and indemnity, with costs.
"Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crim. Case No. SM-228, with costs
de oficio, and his bond is ordered cancelled.
"SO ORDERED." 1
Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that the collision
between Salazar's jeep and petitioner's car was the result of the former having been bumped from behind by the truck driven by
Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but only against jeepowner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with the Court of First Instance
of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being the owner of the gravel and sand truck
driven by Montoya, for indemnification for the damages sustained by his car as a result of the collision involving their vehicles. Jeepowner-driver Salazar and truck-owner Timbol were joined as defendants, either in the alternative or in solidum, allegedly for the reason
that petitioner was uncertain as to whether he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that the Complaint is barred
by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner Timbol for reasons stated in
the afore-mentioned Motion to Dismiss. On September 30, 1970, petitioner sought before this Court the review of that dismissal, to
which petition we gave due course. prcd
On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case as against the former.
Respondent Judge reasoned out that "while it is true that an independent civil action for liability under Article 2177 of the Civil Code
could be prosecuted independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect
on January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the same would be
barred pursuant to Section 2, Rule 111 . . ." 2 Petitioner's Motion for Reconsideration thereof was denied in the order dated February
23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court "for a more decisive interpretation of the rule." 3
On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two mentioned Orders, to which we
required jeep-owner-driver Salazar to file an Answer.
The Complaint against truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's Complaint against truck-owner Timbol.
In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's allegations that the civil suit is barred by the
prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no reservation to file a separate civil case was made by
petitioner and where the latter actively participated in the trial and tried to prove damages against jeep-driver Salazar only; and that the
Complaint does not state a cause of action against truck-owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as
the one solely responsible for the damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it
must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3)
it must be a judgment on the merit; and (4) there must be, between the first and second actions, identity of parties, identity of subject
matter and identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is no identity of
cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal case truck-

driver Montoya was not prosecuted for damage to petitioner's car but for damage to the jeep. Neither was truck-owner Timbol a party in
said case. In fact as the trial Court had put it "the owner of the Mercedes Benz cannot recover any damages from the accused Freddie
Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-228." 4 And more importantly, in
the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal negligence under Article 100 of the
Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Article 2176 of the Civil
Code. As held in Barredo vs. Garcia, et al.: 5
"The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under
the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal
negligence (governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of
the Civil Code, and that the same negligent act may produce either a civil liability arising from a crime under the
Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still
more concretely, the authorities above cited render it inescapable to conclude that the employer in this case the
defendant petitioner is primarily and directly liable under article 1903 of the Civil Code."
That petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in the complaint, to
wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep owned and driven by Salazar
suddenly swerved to his (petitioner's) lane and collided with his car; That the sudden swerving of Salazar's jeep was caused either by
the negligence and lack of skill of Freddie Montoya, Timbol's employee, who was then driving a gravel and sand truck in the same
direction as Salazar's jeep; and that as a consequence of the collision, petitioner's car suffered extensive damage amounting to
P12,248.20 and that he likewise incurred actual and moral damages, litigation expenses and attorney's fees. Clearly, therefore, the two
factors that a cause of action must consist of, namely: (1) plaintiff's primary right, i.e., that he is the owner of a Mercedes Benz, and (2)
defendant's delict or wrongful act or omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeepowner Salazar or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to swerve and collide with petitioner's car,
were alleged in the Complaint. 6

Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge committed reversible error when he
dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal proceedings and regardless of
the result of the latter. prcd
"Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a
felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the
latter."
But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that petitioner's failure to make a reservation in
the criminal action of his right to file an independent civil action bars the institution of such separate civil action, invoking section 2, Rule
111, Rules of Court, which says:
"Section 2. Independent civil action. In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil
Code of the Philippines, an independent civil action entirely separate and distinct from the criminal action, may be
brought by the injured party during the pendency of the criminal case, provided the right is reserved as required in
the preceding section. Such civil action shall proceed independently of the criminal prosecution, and shall require
only a preponderance of evidence."
Interpreting the above provision, this Court, in Garcia vs. Florido, 7 said:
"As we have stated at the outset, the same negligent act causing damages may produce a civil liability arising from
crime or create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law,
while the latter is a distinct and independent negligence, having always had its own foundation and individuality.
Some legal writers are of the view that in accordance with Article 31, the civil action based upon quasi-delict may
proceed independently of the criminal proceeding for criminal negligence and regardless of the result of the latter.
Hence, 'the proviso in Section 2 of Rule 111 with reference to . . . Articles 32, 33 and 34 of the Civil Code is
contrary to the letter and spirit of the said articles, for these articles were drafted . . . and are intended to constitute
as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedural,

may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code,
which do not provide for the reservation required in the proviso.' . . ."
In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as Articles 2176 and 2177 of
the Civil Code create a civil liability distinct and different from the civil action arising from the offense of negligence under the Revised
Penal Code, no reservation, therefore, need be made in the criminal case; that Section 2 of Rule 111 is inoperative, "it being
substantive in character and is not within the power of the Supreme Court to promulgate; and even if it were not substantive but
adjective, it cannot stand because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of
1940."
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by the fact that petitioner
failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-delict. LibLex
The suit against jeep-owner-driver Salazar
The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a different picture altogether.
At the outset it should be clarified that inasmuch as civil liability coexists with criminal responsibility in negligence cases, the offended
party has the option between an action for enforcement of civil liability based on culpa criminal under Article 100 of the Revised Penal
Code, and an action for recovery of damages based on culpa aquiliana under Article 2177 of the Civil Code. The action for
enforcement of civil liability based on culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously
instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party. 8
The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his cause of action against
jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active participation and intervention in the
prosecution of the criminal suit against said Salazar. The latter's civil liability continued to be involved in the criminal action until its
termination. Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action as his action
for civil liability was deemed impliedly instituted in Criminal Case No. SM-228.
Neither would an independent civil action be. Noteworthy is the basis of the acquittal of jeep-owner-driver Salazar in the criminal case,
expounded by the trial Court in this wise:
"In view of what has been proven and established during the trial, accused Freddie Montoya would be held liable
for having bumped and hit the rear portion of the jeep driven by the accused Rodolfo Salazar.
"Considering that the collision between the jeep driven by Rodolfo Salazar and the car owned and driven by
Edgardo Mendoza was the result of the hitting on the rear of the jeep by the truck driven by Freddie Montoya, this
Court believes that accused Rodolfo Salazar cannot be held liable for the damages sustained by Edgardo
Mendoza's car." 9
Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner driver Salazar cannot be held liable for the
damages sustained by petitioner's car. In other words, "the fact from which the civil might arise did not exist." Accordingly, inasmuch as
petitioner's cause of action as against jeep-owner-driver Salazar is ex-delictu, founded on Article 100 of the Revised Penal Code, the
civil action must be held to have been extinguished in consonance with Section 3(c), Rule 111 of t he Rules of Court 10 which provides:
"Sec. 3. Other civil actions arising from offenses. In all cases not included in the preceding section the following
rules shall be observed:
xxx xxx xxx
(c) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil might arise did not exist. . . ."

And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result would be the same, it
being clear from the judgment in the criminal case that Salazar's acquittal was not based upon reasonable doubt, consequently, a civil
action for damages can no longer be instituted. This is explicitly provided for in Article 29 of the Civil Code quoted hereunder:
"Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved
beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action
requires only a preponderance of evidence. . . .
"If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the
absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the
acquittal is due to that ground."
In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge's Order dated January 30,
1971 dismissing the complaint, albeit on different grounds. LLphil
WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private respondent Felino Timbol is
set aside, and respondent Judge, or his successor, hereby ordered to proceed with the hearing on the merits; 2) but the Orders dated
January 30, 1971 and February 23, 1971 dismissing the Complaint in Civil Case No. 80803 against respondent Rodolfo Salazar are
hereby upheld.
No costs. SO ORDERED.
||| (Mendoza v. Arrieta, G.R. No. L-32599, [June 29, 1979], 180 PHIL 92-104)
FIRST DIVISION
[G.R. No. 23769. September 16, 1925.]
SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado & Hilado, Ross, Lawrence & Selph and Antonio T. Carrascoso, Jr., for appellant.
Arroyo, Gurrea & Muller for appellee.
SYLLABUS
1. CONTRACTS; SALES; INSTANT CASE. The written contract examined and found to provide for the delivery by the
Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses.
2. ID.; ID,.; ID.; PAYMENT. The terms of payment fixed by the parties are controlling. The time of payment stipulated
for in the contract should be treated as of the essence of the contract.
3. ID.; ID.; ID.; ID.; RESCISSION. The general rule is that rescission will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making
the agreement.
4. ID.; ID.; ID.; ID.; ID. A delay in payment for a small quantity of molasses for some twenty days is not such a violation
of an essential condition of the contract as warrants rescission for non-performance.
5. ID.; ID.; ID.; MEASURE OF DAMAGES FOR BREACH OF CONTRACT. The facts examined and Song Fo &
Company allowed P3,000 on account of the greater expense to which it was put in being compelled to secure molasses in the
open market.
6. ID.; ID.; ID. The facts examined and Song Fo & Company allowed nothing for lost profits on account of the breach of
the contract, because of failure of proof.

DECISION

MALCOLM, J p:
In the Court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action for
breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50, with legal interest,
and costs. In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had
defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was
compelled to cancel and rescind the said contract. The case was submitted for decision on a stipulation of facts and the exhibits
therein mentioned. The judgment of the trial court condemned the defendant to pay for the plaintiff a total of P35,317.93, with legal
interest from the date of the presentation of the complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the following
assignment of errors: "I. The lower court erred in finding that the appellant had agreed to sell to the appellee 400,000, and not only
300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded without sufficient cause the contract
for the sale of molasses executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee
and not in favor of the appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower court erred in
denying appellant's motion for a new trial." The specified errors raise three questions which we will consider in the order suggested
by the appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses? The trial
court found the former amount to be correct. The appellant contends that the smaller amount was the basis of the agreement.
The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The first mentioned
exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to Song Fo & Company on December 13, 1922. It
reads:
"SILAY, OCC. NEGROS, P. I.
"December 13, 1922.
"MESSRS. SONG FO AND CO.
"Iloilo, Iloilo.
"DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central,
we wish to state as follows:
"He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same
condition, and the same to start after the completion of our grinding season. He requested if possible to let you
have molasses during January, February and March or in other words, while we are grinding, and we agreed with
him that we would to the best of our ability, altho we are somewhat handicapped. But we believe we can let you
have 25,000 gallons during each of the milling months, altho it interfere with the shipping of our own and planters
sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we
stated we believe that this is possible and will do our best to let you have these extra 100,000 gallons during the
next year the same to be taken by you before November 1st, 1923, along with the 300,000, making 400,000
gallons in all.
"Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at
the end of each month for molasses delivered to you.
"Hoping that this is satisfactorily and awaiting your answer regarding this matter, we remain.
"Yours very truly,
"HAWAIIAN-PHILIPPINE COMPANY
"By: R.C. PITCAIRN
"Administrator."
Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on December 16, 1922.
This letter reads:
"December 16th, 1922.

"MESSRS. HAWAIIAN-PHILIPPINE CO.,

"Silay, Neg. Occ., P. I.
"DEAR SIRS: We are in receipt of your favors dated the 9th and the 13th inst. and understood all their
contents.
"In connection to yours of the 13th inst, we regret to hear that you mentioned Mr. Song Fo the one who
visited your Central, but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song
Fo & Co.
"With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you
have stated and in order to make the contract clear, we hereby quote below our old contract as amended, as per
our new arrangements.
"(a) Price, at 2 cents per gallon delivered at the central.
"(b) All handling charges and expenses at the central and at the dock at Mambaguid for our account.
"(c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the
round trip dock to central and central to dock. This service to be restricted to one trip for the six tanks.
"Yours very truly,
"SONG FO & COMPANY
"By__________________
"Manager."
We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The HawaiianPhilippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The Hawaiian-Philippine Co. also believed it
possible to accommodate Song Fo & Company by supplying the latter company with an extra 100,000 gallons. But the language
used with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself obliged to
deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter written by the manager of Song Fo &
Company on October 17, 1922, expressly mentions an understanding between the parties of a contract for 300,000 gallons of
molasses.
We sustain appellant's point of view on the first question and rule that the contract between the parties provided for the
delivery by the Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company? The trial
judge answers No, the appellant Yes.
Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song Heng)
gave us to understand that you would pay us at the end of each month for molasses delivered to you." In Exhibit G, we find Song
Fo & Company stating that they understand the contents of Exhibit F, and that they "confirm all the arrangements you have stated,
and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a)
Price, at 2 cents per gallon delivered at the central." In connection with the portion of the contract having reference to the payment
for the molasses, the parties have agreed on a table showing the date of delivery of the molasses, the account and date thereof,
the date of receipt of account by plaintiff, and date of payment. The table mentioned is as follows:
Date of receipt
Date of delivery Account and date of account by Date of payment
thereof plaintiff
1922 1923 1923
Dec. 18 P206.16 Dec. 26/22 Jan. 5 Feb. 20
Dec. 29 206.16 Jan. 3/23 do Do.
1923

Jan. 5 206.16 Jan. 9/23 Mar. 7 or 8 Mar. 31

Feb. 12 206.16 Mar. 12/23 do Do.
Feb. 27 206.16 do do Do.
Mar. 5 206.16 do do Do.
Mar. 16 206.16 Mar. 20/23 Apr. 2/23 Apr. 19
Mar. 24 206.16 Mar. 31/23 do Do.
Mar. 29 206.16 do do Do.
Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered.
Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March 28, 1923,
from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-Philippine Co. to Song Fo & Company, mentions "payment on
presentation of bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated
April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to Song Fo & Company
on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the termination of the contract, gave as the reason for the
rescission, the breach of Song Fo & Company of this condition: "You will recall that under the arrangements made for taking our
molasses, you were to meet our accounts upon presentation and at each delivery." Not far removed from this statement, is the
allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant, at the end of each month upon presentation of
accounts."
Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is that Song
Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of each month. Under this
hypothesis, Song Fo & Company should have paid for the molasses delivered in December, 1922, and for which accounts were
received by it on January 5, 1923, not later than January 31 of that year. Instead, payment was not made until February 20, 1923.
All the rest of the molasses was paid for either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be
treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be imagined, the
Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song Fo & Company. But
actually, there is her present no outstanding fact which would legally sanction the rescission of the contract by the HawaiianPhilippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such
breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment
for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract as warrants
rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting
payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment
so that the Hawaiian-Philippine Co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner,
Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company
to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial judge in this respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by the
Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as agreed upon by the parties.
The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to secure
molasses from other sources. Three hundred thousand gallons of molasses was the total of the agreement, as we have seen. As
conceded by the plaintiff 55,006 gallons of molasses were delivered by the defendant to the plaintiff before the breach. This leaves
244,994 gallons of molasses undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the
plaintiff at page 25 of its brief 100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc., at two
centavos a gallon. As this is the same price specified in the contract between the plaintiff and the defendant, the plaintiff
accordingly suffered no material loss in having to make this purchase. So 244,994 gallons minus the 100,000 gallons just
mentioned leaves as a result 144,994 gallons. As to this amount, the plaintiff admits that it could have secured it and more than the
Central Victorias Milling Company one and one-half centavos per gallon. In other words, the plaintiff had to pay the Central
Victorias Milling Company one and one-half centavos a gallon more for the molasses than it would have had to pay the HawaiianPhilippine Co. Translated into pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions
existing at the central of the Hawaiian-Philippine Co. may have been different than those found at the Central North Negros Sugar

Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but through expenses of transportation
and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the molasses in the open
market, we would concede under the first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach of the contract. The only evidence in the record
on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of Song Fo & Company, been
called as a witness, he would have testified that the plaintiff would have realized a profit of P14,948.43, if the contract of December
13, 1922, had been fulfilled by the defendant. Indisputably, this statement falls far short of presenting proof on which to make a
finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same line of thought
as found in the decision of the trial court, which we have found to be unsustainable. In the second place, had Mr. Song Heng taken
the witness-stand and made the statement attributed to him, it would have been insufficient proof of the allegations of the
complaint, and the fact that it is a part of the stipulation by counsel does not change this result. And lastly, the testimony of the
witness Song Heng, if we may dignify it as such, is a mere conclusion, not a proven fact. As to what items make up the more than
P14,000 of alleged lost profits, whether loss of sales or loss of customers, or what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of
action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error are accordingly
found to be well in taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover from
the defendant the sum of P3,000, with legal interest from October 2, 1923, until payment. Without special finding as to costs in
either instance, it is ordered.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.
||| (Song Fo & Co. v. Hawaiian Philippine Co., G.R. No. 23769, [September 16, 1925], 47 PHIL 821-830)

THIRD DIVISION
[G.R. No. 108346. July 11, 2001.]
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A.
RAYMUNDO and GEORGE RAYMUNDO, respondents.
Marciano J. Cagatan and Mariano R. Logarta for petitioners.
M.B. Tomacruz for private respondents.
SYNOPSIS
Petitioners entered into a deed of sale with assumption of mortgage with private respondents paying a downpayment of P800,000 and
assuming the mortgage amount of P1.8M in favor of BPI. Petitioners further agreed "to strictly and faithfully comply with all the terms
and conditions appearing in the real estate mortgage signed and executed by the vendor in favor of BPI . . . as if the same were
originally signed and executed by the vendee." As part of the deed, petitioner Avelina with her husband's consent executed an
undertaking that during the pendency of the application for the assumption of mortgage she agreed to continue paying said loan in
accordance with the mortgage deed and that in the event of violation of any of the terms and conditions of the deed of real estate
mortgage, she agreed that the P800,000 downpayment shall be forfeited as liquidated damages and the deed of sale with assumption
of mortgage shall be deemed automatically cancelled. When the bank denied the application for assumption of mortgage, petitioners
stopped making payments. Thus, notice of cancellation/rescission was sent to petitioners for non-performance of their obligation.
Aggrieved, petitioners filed a complaint against private respondent for specific performance, nullity of cancellation, writ of possession
and damages. Both parties admitted that their agreement mandated that petitioners should pay the purchase price balance of P1.8M to
private respondents in case the request to assume the mortgage would be disapproved. The trial court dismissed the complaint, but on

reconsideration, directed the parties to proceed with the sale. On appeal, the Court of Appeals upheld the validity of the rescission.
Hence, this recourse. ADCIca
The failure of the vendee to pay the balance of the purchase price constitutes a breach on the performance of a reciprocal obligation,
and not a violation of the terms and conditions of the mortgage contract. This gave rise to the vendor's right to rescind the contract.
However, the automatic rescission and forfeiture of payment clauses in the mortgage contract does not apply. Considering that the
rescission of the contract was based on Article 1191 of the Civil Code, mutual restitution by the parties is required.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; SALES; CONSTRUED; CASE AT BAR. In a contract of sale, the seller obligates itself to
transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its equivalent.
Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred
ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and
the execution of the Deed of Sale is deemed equivalent to delivery.
2. ID.; ID.; RESCISSION; OBLIGOR'S FAILURE TO COMPLY WITH EXISTING OBLIGATION. The right of rescission of a party to
an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation. When the
obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court shall decree the rescission. IEHScT
3. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents' right to
rescind the same in accordance with law.
4. ID.; ID.; ID.; FORFEITURE OF PAYMENT DOES NOT APPLY WHERE BREACH WAS NON-PERFORMANCE; MUTUAL
RESTITUTION, REQUIRED. As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of
payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of
this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required
to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and
the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by
petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.
5. ID.; ID.; ID.; OBLIGATION CREATED. Rescission creates the obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void
at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has
been made. IDAEHT

DECISION

PANGANIBAN, J p:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured
party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits
received.
The Case

Before us is a Petition for Review on Certiorari 1 questioning the Decision 2 of the Court of Appeals (CA) in CA-GR CV No. 32991
dated October 9, 1992, as well as its Resolution 3 dated December 29, 1992 denying petitioner's motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated
November 14, 1990 dismissing the [C]omplaint is REINSTATED. The bonds posted by plaintiffs-appellees and
defendants-appellants are hereby RELEASED." 5
The Facts
The factual antecedents of the case, as found by the CA, are as follows:
" . . .. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land,
together with the house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati
and covered by TCT No. 142177. Defendant George Raymundo [herein private respondent] is David's father who
negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which was,
however, under lease (Exh. '6', p. 232, Record of Civil Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-12, Record) was
executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the
following terms and conditions:
'xxx xxx xxx
'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, to
his entire and complete satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid
title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land
mentioned and described above, together with the house and other improvements thereon.
'That the aforesaid parcel of land, together with the house and other improvements thereon, were
mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila, to
secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in
favor of the said Bank of the Philippine Islands, on _________ and which Real Estate Mortgage was
ratified before Notary Public for Makati, _________, as Doc. No. _____, Page No. ____, Book No. ____,
Series of 1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage
obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the Philippine Islands, in the name of the
VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in
the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and
other charges for late payment levied by the Bank, as if the same were originally signed and executed by
the VENDEE.
'It is further agreed and understood by the parties herein that the capital gains tax and documentary
stamps on the sale shall be for the account of the VENDOR; whereas, the registration fees and transfer
tax thereon shall be for the account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband,
Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record). the pertinent Portions of which read, as follows:

'xxx xxx xxx

'Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage
obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the terms and
conditions of the Deed of Real Estate Mortgage dated _________, signed and executed by Mr. David A.
Raymundo with the said Bank, acknowledged before Notary Public for Makati, ______, as Doc. No. ___,
Page No. ____, Book No. _____, Series of 1986 of his Notarial Register.

'WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet
approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the
Bank in the name of Mr. David A. Raymundo, in accordance with the terms and conditions of the said
Deed of Real Estate Mortgage, including all interests and other charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of
attesting and confirming our private understanding concerning the said mortgage obligations to be
assumed. cCEAHT
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the
mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the Bank of the Philippine islands, I, Mrs. Avelina D. Velarde, with the consent of
my husband, Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and assigns,
to strictly and faithfully comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on the property purchased is
approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan
in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I
hereby agree that my downpayment of P800,000.00, plus all payments made with the Bank of the
Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by
way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr.
David A. Raymundo shall resume total and complete ownership and possession of the property sold by
way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically
cancelled and be of no further force or effect, in the same manner as if (the) same had never been
executed or entered into.
'3. That I am executing this Undertaking for purposes of binding myself, my heirs, successors and assigns,
to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank of
the Philippine Islands, and the covenants, stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby
confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage
obligations by the Vendee with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a
loan that plaintiffs were to secure from a bank with defendant's help. Defendants had a standing approved credit
line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an

application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to
continue paying the monthly interests of the loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned
mortgage for three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00;
and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17 and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not
approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the
mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January
21, 1987 provided: (a) you deliver actual possession of the property to her not later than January 15, 1987
for her immediate occupancy; (b) you cause the release of title and mortgage from the Bank of P.I. and
make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed
of sale in her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'K', '4', p.
223, Record).
"On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of
the subject property allegedly due to the latter's failure to comply with the terms and conditions of the Deed of Sale
with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)." ' 6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of
cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati,
Branch 149. The case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who
dismissed the Complaint in a Decision dated November 14, 1990. 7 Thereafter, petitioners filed a Motion for Reconsideration. 8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A. Abad Santos was assigned
to the sala she vacated. In an Order dated May 15, 1991, 9 Judge Abad Santos granted petitioners' Motion for Reconsideration and
directed the parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in
turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeals
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier Decision dismissing petitioners'
Complaint. Upholding the validity of the rescission made by private respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the consideration of this sale,
the VENDEE (Velarde)' would assume to pay the mortgage obligation on the subject property in the amount of
P1.8 million in favor of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the Vendee
Velarde includes the downpayment of P800,000.00 and the balance of P1.8 million, and the balance of P1.8 million
cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage
obligation on the subject property. In other words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly and faithfully comply with all
the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of
BPI . . . as if the same were originally signed and executed by the Vendee.' (p. 2, thereof, p. 12, Record). This was
reiterated by Velarde in the document entitled 'Undertaking' wherein the latter agreed to continue paying said loan
in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo.
Moreover, it was stipulated that in the event of violation by Velarde of any terms and conditions of said deed of real

estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would
be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be cancelled automatically and
of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by
Velarde of the mortgage obligation of Raymundo in the amount of P1.8 million. This would mean that Velarde had
to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The application
with BPI for the approval of the assumption of mortgage would mean that, in case of approval, payment of the
mortgage obligation will now be in the name of Velarde. And in the event said application is disapproved, Velarde
had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted
this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n.,
October 8, 1989). This being the case, the non-payment of the mortgage obligation would result in a violation of the
contract. And, upon Velarde's failure to pay the agreed price, the[n] Raymundo may choose either of two (2)
actions (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velarde's
non-payment of the balance of the purchase price. As borne out by the evidence, Velarde had to pay in full in case
of BPI's disapproval of the application for assumption of mortgage. What Velarde should have done was to pay the
balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was
strongly given weight by the lower court in reversing the decision rendered by then Judge Ynares-Santiago. In said
letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions which, to
the mind of this Court, would constitute a new undertaking or new agreement which is subject to the consent or
approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde and
Raymundo. These are mere offers or, at most, an attempt to novate. But then again, there can be no novation
because there was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA
493).

"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of
Mortgage would be deemed 'automatically cancelled and of no further force and effect, as if the same had never
been executed or entered into.' While it is true that even if the contract expressly provided for automatic rescission
upon failure to pay the price, the vendee may still pay, he may do so only for as long as no demand for rescission
of the contract has been made upon him either judicially or by a notarial act (Article 1592, Civil Code). In the case
at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of cancellation/rescission of the contract
due to the latter's failure to comply with their obligation. The rescission was justified in view of Velarde's failure to
pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the
agreement. As adverted to above, the agreement of the parties involved a reciprocal obligation wherein the
obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other
party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation
by appellees Velarde would create a right to demand payment or to rescind the contract, or to criminal prosecution
(Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellees' failure, therefore, to pay
the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde
having violated the contract, they have lost their right to its enforcement and hence, cannot avail of the action for
specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)." 10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum, 12 interpose the following assignment of errors:
"I
The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the
contract.

"II
The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was
justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new conditions'
constituting mere offers or an attempt to novate necessitating a new agreement between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioners aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach of contract, considering
that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the monthly
amortizations ceased to be their obligation and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As
admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private
respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners
received notice of the bank's disapproval of their application to assume respondents' mortgage, they should have paid the balance of
the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain
conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor
a price certain in money or its equivalent. 13
Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred
ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and
the execution of the Deed of Sale is deemed equivalent to delivery. 14
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon.
Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own
obligation to pay the full purchase price. IHcTDA
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had
signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the
disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as
would warrant a rescission. They cite several cases 15 in which this Court declared that rescission of a contract would not be permitted
for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith, considering that
they have already made the initial payment of P800,000 and three (3) monthly mortgage payments.

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their
nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents' right to rescind
the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:
"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should
become impossible."
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other
party who violates the reciprocity between them. 16 The breach contemplated in the said provision is the obligor's failure to comply with
an existing obligation. 17 When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. 18
In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to
comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in
the contract of sale, a violation that consequently gave rise to private respondents' right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this
was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay
was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original
contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of
the right to rescind.
Misplaced is petitioners' reliance on the cases 19 they cited, because the factual circumstances in those cases are not analogous to
those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered.
Moreover, the buyer's offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach involved a mere one-week
delay in paying the balance of P1,000, which was actually paid. In Tan, the alleged breach was private respondent's delay of only a few
days, which was for the purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment of the
contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not
normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified
offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence,
private respondents were left with the legal option of seeking rescission to protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the
terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the
contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the
parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. 20 To rescind is to declare a contract void at its inception and to put an end to it as

though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it. from
the beginning and restore the parties to their relative positions as if no contract has been made. 21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by petitioners. Suffice it to
say that the three conditions appearing on the January 7, 1987 letter of petitioners to private respondents were not part of the original
contract. By that time, it was already incumbent upon the former to pay the balance of the sale price. They had no right to demand
preconditions to the fulfillment of their obligation, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to
petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded contract, with legal interest thereon from
January 8, 1987, the date of rescission. No pronouncement as to costs. SO ORDERED.
||| (Sps. Velarde v. Court of Appeals, G.R. No. 108346, [July 11, 2001], 413 PHIL 360-376)

EN BANC
[G.R. No. L-42283. March 18, 1985.]
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL.,
defendants-appellants.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RECIPROCAL OBLIGATIONS; RIGHT TO RESCIND; MAY BE EXERCISED
EXTRA-JUDICIALLY. Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the
failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from
entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention
(Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276) "Well settled is, however, the rule that a judicial action for the rescission
of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, 334, and cases cited therein) . . . .
2. ID.; ID.; ID.; ID.; ID.; NOTICE, INDISPENSABLE. The rule that it is not always necessary for the injured party to resort to court for
rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions, was
qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that: "Of course, it must be
understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party
must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other
party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. . . .
3. ID.; ID.; ID.; ID.; NOT ABSOLUTE. The right to rescind the contract for non-performance of one of its stipulations, therefore, is not
absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that "The general rule is that rescission of a
contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of
whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L23720, Jan. 17, 1968)." . . . .

4. ID.; ID.; ID.; RESCISSION NOT PROPER WHERE THERE IS SUBSTANTIAL PERFORMANCE OF OBLIGATION. The breach of
the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment
of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in
only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3,920.00
excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the
rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31
SCRA 829) It would unjustly enrich the defendants-appellants. Article 1234 of the Civil Code which provides that: "If the obligation has
been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee."
5. ID.; ID.; ID.; RIGHT OF RESCISSION; ACCEPTANCE OF DELAYED PAYMENTS OF INSTALLMENTS CONSTITUTES WAIVER
AND ESTOPPEL. The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the
defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of
installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract,
the defendants-appellants have waived and are now estopped from exercising their alleged right of rescission.
6. ID.; ID.; CONTRACT TO SELL FALLS INTO THE CATEGORY OF A CONTRACT OF ADHESION. The contract to sell entered
into by the parties has some characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the contract.
The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms
and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to
them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 361).
7. ID.; ID.; ID.; CONSTRUED AGAINST ONE WHO CAUSED IT. The contract to sell, being a contract of adhesion, must be
construed against the party causing it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a
contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to
buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a
contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is
most unfair to the buyers."

DECISION

GUTIERREZ, JR., J p:
This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to
sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffsappellees, to pay P500.00 attorney's fees and costs. cdrep
The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been raised for
appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura
Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7%
interest per annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in
monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffsappellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous
occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed to meet subsequent
payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch X to compel
the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent
payments for the land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty
taxes and incidental expenses for the registration and transfer of the land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated
paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding
to the month of August, 1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the said contract.
LLphil
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads:
"WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs
and against the defendants declaring that the contract subject matter of the instant case was NOT VALIDLY
cancelled by the defendants. Consequently, the defendants are ordered to execute a final Deed of Sale in favor of
the plaintiffs and to pay the sum of P500.00 by way of attorney's fees. Costs against the defendants."
A motion for reconsideration filed by the defendants-appellants was denied.
As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law.
The defendants-appellants assigned the following alleged errors of the lower court:
First Assignment of Error
THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF
COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND
VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A
FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF
P500.00 AS ATTORNEY'S FEES.
The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendantsappellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract which provides:

xxx xxx xxx

"SIXTH. In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments
herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the
one corresponding to the said month of grace; it is understood, however, that should the month of grace herein
granted to the party of the SECOND PART expired; without the payments corresponding to both months having
been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood
further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned,
and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest

up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no effect, and
as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this contract in
favor of other persons, as if this contract had never been entered into. In case of such cancellation of the contract,
all the amounts paid in accordance with this agreement together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for
the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement, and the party
of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges
himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART." (Italics supplied
by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite demands for more than
four (4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this
Court upheld the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation
similar to paragraph 6 of the contract in this case. The defendants-appellants also argue that even in the absence of the aforequoted
provision, they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6 of the contract to
sell is contrary to law insofar as it provides that in case of specified breaches of its terms, the sellers have the right to declare the
contract cancelled and of no effect, because it granted the sellers an absolute and automatic right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
"The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
"The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the later should
become impossible."
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the failure of the other to perform
the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into an agreement that
violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co.,
et al., 12 SCRA 276)
"Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v.
Commissioner of Customs, 37 SCRA 327, 334, and cases cited therein).
"Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by
this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504)."
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself
provides that it may be rescinded for violation of its terms and conditions, was qualified by this Court in University of the Philippines v.
De los Angeles, (35 SCRA 102) where we explained that:
"Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account
of infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,

decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
"In other words, the party who deems the contract violated many consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was not correct in
law . . .
"We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v.
International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in
every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction
can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation,
unless attack thereon should become barred by acquiescence, estoppel or prescription."
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corp. v.
Court of Appeals (33 SCRA 1) the Court stated that
"The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song
Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is
substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan.
17, 1968)." . . .
The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides:
"SECOND. That in consideration of the agreement of sale of the above described property, the party of the
SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE
HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows:
"(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and
"(b) The sum of FORTY ONE AND 20/100 ONLY (P41.20) on or before the 19th day of each month, from this date
until the total payment of the price above stipulated, including interest."
because they failed to pay the August installment, despite demand, for more than four (4) months.
The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In
other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only
P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction
the rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier,
31 SCRA 829) It would unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that: cdphil
"If the obligation has been substantially performed in good faith, the obligor may recover as though there had been
a strict and complete fulfillment, less damages suffered by the obligee."
also militates against the unilateral act of the defendants-appellants in cancelling the contract.
We agree with the observation of the lower court to the effect that:

"Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is
likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel
of land which they can really call their own."
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
"NINTH. That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND
PART, as not exacting a strict compliance with the conditions of paragraph 6 of this contract, as well as any other
condonation that the party of the FIRST PART may give to the party of the SECOND PART with regards to the
obligations of the latter, should not be interpreted as a renunciation on the part of the party of the FIRST PART of
any right granted it by this contract, in case of default or non-compliance by the party of the SECOND PART."

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely
once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the defendants-appellants,
instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffsappellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have
waived and are now estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
"But defendants do not deny that in spite of the long arrearages, neither they nor their predecessor, Teodoro de
Guzman, even took steps to cancel the option or to eject the appellees from the home-lot in question. On the
contrary, it is admitted that the delayed payments were received without protest or qualification. . . . Under these
circumstances, We cannot but agree with the lower court that at the time appellees exercised their option,
appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the
non-payment of six months rentals by appellees by their having accepted without qualification on July 21, 1964 the
full payment by appellees of all their arrearages."
The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671.67 due from
the plaintiffs-appellees. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have
exceeded P3,920.00, a substantial portion of the said payments were applied to the interests since the contract specifically provides for
a 7% interest per annum on the remaining balance. The defendants-appellants rely on paragraph 2 of the contract which provides:
"SECOND. That in consideration of the agreement of sale of the above described property, the party of the
SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE
HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum . . . ."
(Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendants-appellants a
total sum of P4,533.38, the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12
of the contract which provides:
"TWELFTH. That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party
to the FIRST PART will execute in favor of the party of the SECOND PART, the necessary deed or deeds to
transfer to the latter the title of the parcel of land sold, free from all liens and encumbrances other than those
expressly provided in this contract; it is understood, however, that all the expenses which may be incurred in the
said transfer of title shall be paid by the party of the SECOND PART, as above stated."
Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of
adhesion.

We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of
adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which
they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to
question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v.
Teves (83 SCRA 361), we held that:
xxx xxx xxx
". . .' (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto, .. there
are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation.
Such contracts are called contracts of adhesion, because the only participation of the party is the signing of his
signature or his `adhesion' thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment
plan fall into this category.' (Paras, Civil Code of the Philippines, Seventh ed., Vol. I, p. 80.)" (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3,920.00
plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon
payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the
plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially
where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be
deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious
in its effect which, in essence, and in its entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate
amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the
contract. Upon payment of the balance of P671.67 without any interest thereon, the defendants-appellants must immediately execute
the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of
the contract. The attorney's fees are justified. cdrep
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the
plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (671.67)
without any interests. Costs against the defendants-appellants. SO ORDERED.
||| (Angeles v. Calasanz, G.R. No. L-42283, [March 18, 1985], 220 PHIL 10-23)

THIRD DIVISION
[G.R. No. 55665. February 8, 1989.]
DELTA MOTOR CORPORATION, petitioner, vs. EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr.,
VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS,
respondents.
Alcasid, Villanueva & Associates for petitioner.
Luna, Puruganan, Sison & Ongkiko for respondents.
SYLLABUS

1.CIVIL LAW; OBLIGATIONS AND CONTRACT; RESCISSION; ART. 1191, NEW CIVIL CODE, CONSTRUED. Construing Art.
1191 of the new Civil Code, the Supreme Court has stated that, "[r]escission will be ordered only where the breach complained of is
substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or
casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he
question of whether a breach a contract is substantial depends upon the attendant circumstances."
2.ID.; ID.; POWER TO RESCIND, NOT ABSOLUTE. The power to rescind under Art. 1191 is not absolute. "[T]he act of a party in
treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court."
3.ID.; ID.; ID.; NON-PERFORMANCE OF SUSPENSIVE CONDITION. While there is merit in Delta's claim that the sale is subject to
suspensive conditions, the Court finds that it has, nevertheless, waived performance of these conditions and opted to go on with the
contracts although at a much higher price. Art. 1545 of the Civil Code provides: "Where the obligation of either party to a contract of
sale us subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition . . . [Emphasis supplied.]
4.ID.; ID.; SALE; PERFECTION THEREOF. As provided by the Civil Code: Art. 1319. "Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract." Art. 1475. "The contract of sale is
perfected at the moment there is a meeting of minds upon thing which is the object of the contract and upon the price." Thus, the
moment private respondents accepted the offer of Delta, the contract of sale between them was perfected and neither party could
change the terms.

DECISION

CORTES, J p:
Petitioner, through this petition for review by certiorari, appeals from the decision of respondent appellate court in CA-G.R. No. 59848R entitled "Eduarda Samson Genuino, et al. v. Delta Motor Corporation" promulgated on October 27, 1980.
The facts are as follows:
Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized and existing under Philippine laws.
On the other hand, private respondents are the owners of an iceplant and cold storage located at 1879 E. Rodriguez Sr. Avenue,
Quezon City doing business under the name "Espaa Extension Iceplant and Cold Storage."
In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black iron pipes.
The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes schedule 40, 2" x 20' including delivery at
P66,000 with the following terms of payment:
a.20% of the net contract price or P13,200.00 will be due and payable upon signing of the contract papers.
b.20% of the net contract price or P13,200.00 will be due and payable before commencement of delivery.
c.The balance of 60% of the net contract price or P39,600.00 with 8% financing charge per annum will be covered
by a Promissory Note bearing interest at the rate of 14% per annum and payable in TWELVE (12) equal monthly
installment (sic), the first of which will become due thirty (30) days after the completion of delivery. Additional 14%
will be charged for all delayed payments. [Exh. "A"; Exh. "1".].
The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black iron pipes schedule 40, 1 1/4" x
20' including delivery at P5,400.00 with the following terms of payment:

a.50% of the net contract price or P2,700.00 will be due and payable upon signing of the contract papers.
b.50% of the net contract price or P2,700.00 will be due and payable before commencement of delivery. [Exh. "C";
Exh. "2".]
Both letter-quotations also contain the following stipulations as to delivery and price offer:
DELIVERY.
Ex-stock subject to prior sales.
xxx xxx xxx
Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order
placed after said period will be subject to our review and confirmation. [Exhs. "A" and "C"; Exhs. "1" and "2".]
Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by signing his name in the space
provided on July 17, 1972 and July 24, 1972 for the first and second letter-quotations, respectively.
It is undisputed that private respondents made initial payments on both contracts for the first contract, P13,200.00 and, for the
second, P2,700.00 for a total sum of P15,900.00 on July 28, 1972 [Exhs. "B" and "D"].
Likewise unquestionable are the following the nondelivery of the iron pipes by Delta; the nonpayment of the subsequent installments by
the Genuinos; and the non-execution by the Genuinos of the promissory note called for by the first contract.
The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to deliver the iron pipes but the
Genuinos did not accept the offer because the construction of the ice plant building where the pipes were to be installed was not yet
finished.
Almost three years later, on April 15, 1975, Hector Genuino, in behalf of Espaa Extension Ice Plant and Cold Storage, asked Delta to
deliver the iron pipes within thirty (30) days from its receipt of the request. At the same time private respondents manifested their
preparedness to pay the second installment on both contracts upon notice of Delta's readiness to deliver.
Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972. The company called the attention of
the Genuinos to the stipulation in their two (2) contracts that the quoted prices were good only within thirty (30) days from date of offer.
Whereupon Delta sent new price quotations to the Genuinos based on its current price of black iron pipes, as follows: cdphil
P241,800.00 for 1,200 lengths of black iron pipes schedule 40, 2" x 20' [Exh. "G-1".]
P17,550.00 for 150 lengths of black iron pipes schedule 40,1 1/4' x 20' [Exh. "G-2".]
The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance with damages seeking to compel
Delta to deliver the pipes. Delta, in its answer prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code. The
case was docketed as Civil Case No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City.
After trial the Court of First Instance ruled in favor of Delta, the dispositive portion of its decision reading as follows:
WHEREFORE, premises considered, judgment is rendered:
1.Declaring the contracts, Annexes "A" and "C" of the complaint rescinded;
2.Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the latter as down payments on the
aforesaid contracts;

3.Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,
4.To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.].
On appeal, the Court of Appeals reversed and ordered private respondents to make the payments specified in "Terms of Payment
(b)" of the contracts and to execute the promissory note required in the first contract and thereafter, Delta should immediately
commence delivery of the black iron pipes. ** [CA Decision, p. 20; Rollo, p. 75.].
The Court of Appeals cited two main reasons why it reversed the trial court, namely:
1.As Delta was the one who prepared the contracts and admittedly, it had knowledge of the fact that the black iron
pipes would be used by the Genuinos in their cold storage plant which was then undergoing construction and
therefore, would require sometime before the Genuinos would require delivery, Delta should have included in said
contracts a deadline for delivery but it did not. As a matter of fact neither did it insist on delivery when the Genuinos
refused to accept its offer of delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.]
2.Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very much higher than the prices it
previously quoted would mean an amendment of the contracts. It would be too unfair for the plaintiffs if they will be
made to bear the increase in prices of the black iron pipes when they had already paid quite an amount for said
items and defendant had made use of the advance payments. That would be unjust enrichment on the part of the
defendant at the expense of the plaintiffs and is considered an abominable business practice. [CA Decision, pp.
18-19; Rollo, pp. 73-74.]
Respondent court denied Delta's motion for reconsideration hence this petition for review praying for the reversal of the Court of
Appeals decision and affirmance of that of the trial court.
Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions required of private respondents as
vendees. These conditions are: payment of 20% of the net contract price or P13,200.00 and execution of a promissory note called for
by the first contract; and payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta posits, are
suspensive conditions and only upon their performance or compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12;
Rollo, pp. 17-20.] Thus, when private respondents did not perform their obligations; when they refused to accept petitioner's offer to
deliver the goods; and, when it took them three (3) long years before they demanded delivery of the iron pipes that in the meantime,
great and sudden fluctuation in market prices have occurred; Delta is entitled to rescind the two (2) contracts.

Delta relies on the following provision of law on rescission:

Art. 1191.The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where the breach complained of is
substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or
casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he
question of whether a breach a contract is substantial depends upon the attendant circumstances." [Universal Food Corporation v.
Court of Appeals, G. R. No. L-29155, May 13, 1970, 33 SCRA 1, 18]. cdphil

In the case at bar, the conduct of Delta indicates that the Genuinos non-performance of its obligations was not a substantial breach, let
alone a breach of contract, as would warrant rescission.
Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to deliver the black iron pipes was rejected
by the Genuinos who were "not ready to accept delivery because the cold storage rooms have not been constructed yet. Plaintiffs
(private respondents herein) were short-funded, and did not have the space to accommodate the pipes they ordered' [CFI Decision, p.
9; Rollo, p. 49].
Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager of the Technical Service
department of petitioner:
QYou stated that you sent a certain Evangelista to the Espaa Extension and Cold Storage to offer the delivery
subject matter of the contract and then you said that Mr. Evangelista reported (sic) to you that plaintiff
would not accept delivery, is that correct, as a summary of your statement?
AYes, sir.
QNow, what did you do in the premises (sic)?
AYes, well, we take the word of Mr. Evangelista. We could not deliver the said black iron pipes, because as per
information the Ice Plant is not yet finished.
QDid you not report that fact to . . . any other defendant-officials of the Delta Motor Corporation?
ANo.
QAnd you did not do anything after that?
ABecause taking the word of my Engineer we did not do anything. [TSN, December 8, 1975, pp. 18-19.]
xxx xxx xxx
And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any argument but
merely demanded that the quoted prices be increased. Thus, in its answer to private respondents' request for delivery of the pipes,
Delta countered:
Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron pipes.
We regret to say, however, that we cannot base our price on our proposals dated July 3 and July 18, 1972 as per
the following paragraph quoted on said proposal:
"Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof.
Any order placed after said period will be subject to our review and confirmation."
We are, therefore, enclosing our re-quoted proposal based on our current price. [Exh. "G".]
Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to
scrutiny and review by the proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA
102, 107; Emphasis supplied.]
In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts with the Genuinos. It only raised
rescission as a defense when it was sued for specific performance by private respondents.

Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact that not only does it have
in its possession and ownership the black iron pipes, but also the P15,900.00 down payments private respondents have paid. And if
petitioner Delta claims the right to rescission, at the very least, it should have offered to return the P15,900.00 down payments [See Art.
1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)]. cdrep
It is for these same reasons that while there is merit in Delta's claim that the sale is subject to suspensive conditions, the Court finds
that it has, nevertheless, waived performance of these conditions and opted to go on with the contracts although at a much higher price.
Art. 1545 of the Civil Code provides:
Art. 1545.Where the obligation of either party to a contract of sale us subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive performance of the condition . . .
[Emphasis supplied.]
Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the increase in the cost of
goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation makes reference to Delta's price offer as remaining
firm for thirty (30) days and thereafter will be subject to its review and confirmation. The offers of Delta, however, were accepted by the
private respondents within the thirty (30) day period. And as stipulated in the two (2) letter-quotations, acceptance of the offer gives rise
to a contract between the parties:
In the event that this proposal is acceptable to you, please indicate your conformity by signing the space provided
herein below which also serves as a contract of this proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".]
And as further provided by the Civil Code:
Art. 1319.Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract . . .
Art. 1475.The contract of sale is perfected at the moment there is a meeting of minds upon thing which is the
object of the contract and upon the price.
Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was perfected and neither
party could change the terms thereof. prcd
Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission. As testified to by
petitioner's Vice-President of Marketing for the Electronics, Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in
the two (2) contracts as to delivery, ex-stock subject to prior sales, means that "the goods have not been delivered and that there are
no prior commitments other than the sale covered by the contracts . . . once the offer is accepted, the company has no more option to
change the price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron
pipes due to the increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents Genuinos should
comply with the original terms of their contracts.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED.
||| (Delta Motor Corp. v. Genuino, G.R. No. 55665, [February 8, 1989], 252 PHIL 32-41)

THIRD DIVISION
[G.R. No. 101762. July 6, 1993.]
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS and SENECA
HARDWARE CO., INC., respondents.

Ramon P. Gutierrez for petitioner.

Adriano Velasco for private respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATION AND CONTRACTS; RECIPROCAL OBLIGATION; ITS NATURE. Reciprocal obligations are those
created or established at the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other obligation
(Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to petitioner
construction materials worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation under the
agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase
I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent; upon completion of Vermen Pines
Condominiums Phase II, private respondent shall be given option to transfer to similar units therein.
2. ID.; RESCISSION (BETTER TERM IS "RESOLUTION") OF RECIPROCAL OBLIGATION UNDER ARTICLE 1191 OF THE CIVIL
CODE; GENERAL RULE; PETITIONER'S NON-FULFILLMENT OF ITS OBLIGATION UNDER THE OFFSETTING AGREEMENT
CONSTITUTES SUBSTANTIAL BREACH, NECESSITATING RESOLUTION OF THE CONTRACT. Article 1191 of the Civil Code
provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal obligations, where one of the
obligors fails to comply with what is incumbent upon him. The general rule is that rescission of a contract will not be permitted for a
slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing
the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances (Universal Food
Corp. vs. Court of Appeals, 33 SCRA 1, [1970]). The impossibility of fulfillment of the obligation on the part of petitioner necessitates
resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting
Agreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase II was one of the factors
which were considered by private respondent when it entered into the agreement. Since the construction of the Vermen Pines
Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give private respondent the option to
transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may never come.

DECISION

BIDIN, J p:
Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set aside the decision of the
Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q-45232. The dispositive portion of the assailed decision reads as
follows:
"WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the 'Offsetting Agreement'
(Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of the Vermen Pines Condominium should be
returned by plaintiff-appellant to defendant-appellee upon payment by the latter of the sum of P330,855.25 to the
former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of Condo (sic) Units Nos.
601 and 602, and three (3) day rental of Room 402 during the Holy Week of 1982, respectively. In addition,
defendant-appellee is hereby ordered to pay plaintiff-appellant, who was compelled to litigate and hire the services
of counsel to protect its interests against defendant-appellee's violation of their Offsetting Agreement, the sum of
P10,000.00 as an award for attorney's fee (sic) and other expenses of litigation. The claim for unrealized profits in
a sum equivalent to 10% to 20% percent or P522,000.00 not having been duly proved, is therefore DENIED. No
costs." (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and private respondent Seneca Hardware
Co., Inc., as Second Party, entered into a contract denominated as "Offsetting Agreement". The said agreement contained the following
stipulations:

"1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM located at Bakakeng Road,
Baguio City;
"2. That the SECOND PARTY is in business of construction materials and other hardware items;
"3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential condominium units, studio
type, with a total floor area of 76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY SIX
THOUSAND (P276,000.00) PESOS only;
"4. That the FIRST PARTY desires to buy from the SECOND PARTY construction materials mostly steel bars,
electrical materials and other related items worth FIVE HUNDRED FIFTY TWO THOUSAND (P552,000.00)
PESOS only;
"5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY SIX THOUSAND
(P276,000.00) PESOS in cash upon delivery of said construction materials and the other TWO HUNDRED
SEVENTY SIX THOUSAND (P276,000.00) PESOS shall be paid in the form of two (2) residential condominium
units, studio type, with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00;
"6. That, for every staggered delivery of construction materials, fifty percent (50%) shall be paid by the FIRST
PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%) shall be credited to the said condominium unit in
favor of the SECOND PARTY;
"7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction materials under the agreed price
and conditions stated in the price quotation approved by both parties and made an integral part of this document;
"8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items in the purchase order
seven (7) days from receipt of said purchase order until such time that the whole amount of P552,000.00 is settled;
"9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road, Baguio City;
"10. That the freight cost of said materials shall be borne fifty percent (50%) by the FIRST PARTY and fifty percent
(50%) by the SECOND PARTY;
"11. That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM PHASE II which is the
subject of this contract, shall deliver to the SECOND PARTY the possession of residential condominium, Phase I,
Unit Nos. 601 and 602, studio type with a total area of 76.2 square meters or less, worth P276,000.00;
"12. That after the completion of Vermen Pines Condominium Phase II, the SECOND PARTY shall be given by the
FIRST PARTY the first option to transfer from Phase I to Phase II under the same price, terms and conditions."
(Rollo, pp. 26-28).
As found by the appellate court and admitted by both parties, private respondent had paid petitioner the amount of P110,151.75, and at
the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen Pines
Condominiums, petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p.
28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession, the officers of the private respondent
corporation had to rent another unit for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the
private respondent corporation requested for a clarification of the petitioner's action of preventing them and their families from
occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another tenant because private
respondent corporation had not paid anything for purchase of the condominium unit. Petitioner corporation demanded payment of
P27,848.25 representing the balance of the purchase price of Room 601.
In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied. Consequently, construction
of the condominium project stopped and has not been resumed since then.

On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City (Branch 92) for rescission of the
Offsetting Agreement with damages. In said complaint, private respondent alleged that petitioner Vermen Realty Corporation had
stopped issuing purchase orders of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of
deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting Agreement.
In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff therein): although petitioner
issued purchase orders, it was private respondent who could not deliver the supplies ordered, alleging that they were out of stock.
(However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders were,
alleged that she was going to produce the same in court, but the same was never produced (Rollo. p. 30). Moreover, private
respondent quoted higher prices for the construction materials which were available. Thus, petitioner had to resort to its other suppliers.
Anent the query as to why Unit 602 was leased to another tenant, petitioner averred that this was done because private respondent
had not paid anything for it. cdphil
As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made deliveries of construction materials worth
P219,727.00, leaving a balance of P27,848.25 representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium
unit was P138,000.00.

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (private respondent in
this petition) to pay defendant (petitioner in this petition) on its counterclaim in the amount of P27,848.25 representing the balance due
on the purchase price of condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.
Petitioner now comes before Us with the following assignment of errors:
I
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE
COURT, WHEN IT SUPPLANTED CONTRARY TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S
CONCLUSIONS THAT PETITIONER DID NOT VIOLATE THE 'OFFSETTING AGREEMENT' IT ENTERED INTO
WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY BASELESS 'PERCEPTION' THAT IT WAS
PETITIONER WHICH DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE STOPPAGE OF THE
CONSTRUCTION OF PHASE II OF THE CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID
PROJECT WAS STOPPED.
II
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE
COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE 'OFFSETTING
AGREEMENT' BECAUSE IT DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT AND
DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT DESPITE THE FACT THAT THE
EXHIBITS ATTESTING TO THIS FACT WAS FORMALLY OFFERED IN EVIDENCE IN COURT AND
MENTIONED BY IT IN ITS DECISION.
III
"THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE
COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE 'OFFSETTING
AGREEMENT' DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS THAT
PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE CONSTRUCTION MATERIAL (SIC)
FROM THE FORMER." (Rollo, p. )

The issue presented before the Court is whether or not the circumstances of the case warrant rescission of the Offsetting Agreement
as prayed for by Private Respondent when he instituted the case before the trial court.
We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement are reciprocal in nature.
Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual
relationship of creditor and debtor between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous
fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private
respondent shall deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting
Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall
deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent;
upon completion of Vermen Pines Condominiums Phase II, private respondent shall be given option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal
obligations, where one of the obligors fails to comply with what is incumbent upon him.
The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of
contract is substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation in the Offsetting Agreement. It
averred that contrary to the appellate court's ruling, the mere stoppage of the loan for the construction of Phase II of the Vermen Pines
Condominiums should not have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement. Petitioner
moreover stresses that contrary to private respondent's averments, purchase orders were sent, but there was failure to deliver the
materials ordered because they were allegedly out of stock. Petitioner points out that, as admitted by private respondent's witness,
petitioner had the discretion to order or not to order constructions materials, and that it was only after petitioner approved the price,
after making a canvass from other suppliers, that the latter would issue a purchase order. Petitioner argues that this was the agreement,
and therefore the law between the parties, hence, when no purchase orders were issued, no provision of the agreement was violated.
llcd
Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the Vermen Pines
Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it
has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it.
It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting Agreement. The
discontinuance of delivery of construction materials to petitioner stemmed from the failure of petitioner to send purchase orders to
private respondent. The allegation that petitioner had been sending purchase orders to private respondent, which the latter could not fill,
cannot be given credence. Perhaps in the beginning, it would send purchase orders to private respondent (as evidenced by the
purchase orders presented in court), and the latter would deliver the construction materials ordered. However, according to private
respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When petitioner's
witness, Treasurer of the petitioner corporation, was asked to produce the purchase orders in court, the latter promised to do so, but
this was never complied with.
On the other hand, petitioner would never be able to fulfill its obligation in allowing private respondent to exercise the option to transfer
from Phase I to Phase II, as the construction of Phase II has ceased and the subject condominium units will never be available.
The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the nonfulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the
option of whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private
respondent when it entered into the agreement. Since the construction of the Vermen Pines Condominium Phase II has stopped,
petitioner would be in no position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the
height of injustice to make private respondent wait for something that may never come.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. LexSO ORDERED.
||| (Vermen Realty Development Corp. v. Court of Appeals, G.R. No. 101762, [July 6, 1993])

FIRST DIVISION
[G.R. No. 77647. August 7, 1989.]
CETUS DEVELOPMENT INC., petitioner, vs. COURT OF APPEALS and EDERLINA NAVALTA, respondents.
[G.R. No. 77648. August 7, 1989.]
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and ONG TENG, respondents.
[G.R. No. 77649. August 7, 1989.]
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and JOSE LIWANAG, respondents.
[G.R. No. 77650. August 7, 1989.]
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and LEANDRO CANLAS, respondents.
[G.R. No. 77651. August 7, 1989.]
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and VICTORIA SUDARIO, respondents.
[G.R. No. 77652. August 7, 1989.]
CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and FLORA NAGBUYA, respondents.
SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTION; UNLAWFUL DETAINER; DEMAND A JURISDICTIONAL REQUIREMENT FOR THE
PURPOSE OF BRINGING THE SUIT. We hold that the demand required and contemplated in Section 2, aforequoted, is a
jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of
lease. It partakes of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is full
compliance with the demand, there arises no necessity for court action.
2. ID.; ID.; ID.; ID.; REQUISITES THAT MUST CONCUR BEFORE AN ACTION MAY BE FILED. For the purpose of bringing an
ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and
(2) there must be demand both to pay or to comply and vacate with in the period specified in Section 2, Rule 70, namely 15 days in
case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer while
the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARTICLE 1169 OF THE CIVIL CODE; APPLICABLE IN CASE AT BAR. It is very
clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private respondents
to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month basis were not
alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the
creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code

which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the following exceptions
where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of the
obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the obligor has
rendered it beyond his power to perform.
4. ID.; ID.; ID.; DEMAND REQUIRED UNDER ART. 1169 CIVIL CODE; MAY BE ORAL OR WRITTEN. The demand required in
Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies upon the creditor.
Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand required under
Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be pursued.
5. ID.; ID.; FAILURE TO SEND COLLECTOR WHEN CUSTOMARY, CONSIDERED VALID DEFENSE FOR NON-PAYMENT OF
RENT; DOMICILE OF LESSEE, PLACE OF PAYMENT IN THE ABSENT OF AGREEMENT. Petitioner claims that its failure to send
a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector is not one of the
obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly established
that it has been customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides
that where no agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the defendants.
Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying the same was not imputable
to them. Rather, it was attributable to petitioner's omission or neglect to collect.
6. ID.; WHERE THERE IS LACK OF DEMAND FOR PAYMENT, ARTICLE 1256 OF THE CIVIL CODE, NOT APPLICABLE; CASE AT
BAR. Petitioner argues that neither is its refusal to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f
the creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified on the part of petitioner
or non-acceptance without reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand
for payment of the rentals.

DECISION

MEDIALDEA, J p:
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CA-GR Nos. SP-079450
entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch
XI, Ederlina Navalta, et. al., respondents."
The following facts appear in the records:
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora Nagbuya were the
lessees of the premises located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These
individual verbal leases were on a month-to-month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the
rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and
Flora Nagbuya at the rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the Susana Realty who
went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc., a corporation duly
organized and existing under the laws of the Philippines. From April to June, 1984, the private respondents continued to pay their
monthly rentals to a collector sent by the petitioner. In the succeeding months of July, August and September 1984, the respondents
failed to pay their monthly individual rentals as no collector came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the subject premises
and to pay the back rentals for the months of July, August and September, 1984, within fifteen (15) days from the receipt thereof.
Immediately upon the receipt of the said demand letters on October 10, 1984, the private respondents paid their respective arrearages

in rent which were accepted by the petitioner subject to the unilateral condition that the acceptance was without prejudice to the filing of
an ejectment suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the same condition.
For failure of the private respondents to vacate the premises as demanded in the latter dated October 9, 1984, the petitioner with the
Metropolitan Trial Court of Manila complaints for ejectment against the former, as follows: (1) 105972-CV, against Ederlina Navalta; (2)
105973-CV, against Jose Liwanag; (3) 4 CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against
Victoria Sudario and (6) 105977-CV, against Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense. They claimed that since the occupancy of
the premises they paid their monthly rental regularly through a collector of the lessor; that their non-payment of the rentals for the
months of July, August and September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector; that they
were at a loss as to where they should pay their rentals; that sometime later, one of the respondent called the office of the petitioner to
inquire as to where they would make such payments and he was told that a collector would be sent to receive the same; that no
collector was ever sent by the petitioner; and that instead they received a uniform demand letter dated October 9, 1984.
The private respondents, thru counsel, later filed a motion for was consolidation of the six cases and as a result thereof, the said cases
were consolidated in The Metropolitan Trial Court of Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4,
1985, the trial court rendered its decision dismissing the six cases, a pertinent portion of which reads, as follow: Cdpr
"The records of this case show how that the time of the filing of this complaints, the rental had all been paid. Hence,
the plaintiff cannot eject the defendants from the leased premises, because at the time these cases were instituted,
there are no rentals in arrears.
"The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case, the alleged
rental arrearages were paid immediately after receipt of the demand letter, removes its cause of action in an
unlawful detainer case, even if the acceptance was without prejudice.
xxx xxx xxx
"Furthermore, the court has observed that the account involved which constitutes the rentals of the tenants are
relatively small to which the ejectment may not lie on grounds of equity and for humanitarian reasons.

"Defendants' counterclaim for litigation expenses has no legal and factual basis for assessing the same against
plaintiff.
"WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to costs.
"Defendants' counterclaim is likewise dismissed.
"SO ORDERED." (pp 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial Court of Manila and the
same was assigned to Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals).
In its decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the Court of Appeals. Said
petition was dismissed on January 30, 1987, for lack of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the following errors:
ASSIGNMENT OF ERRORS
"I

"RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO

LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL
DETAINER IN THESE CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE PRIVATE
RESPONDENTS TENDERED, AND PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS
RENTAL IN ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT
OF PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT' PREMISES AND TO PAY THE RENTALS
IN ARREARS.
"II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO
LACK OF JURISDICTION, WEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE
CASES NOTWITHSTANDING THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF
PRIVATE RESPONDENT.
"III
"RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO
LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO
CIRCUMVENT THE RENT CONTROL LAW." (pp. 164-165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of action when the complaints
for unlawful detainer were filed considering the fact that upon demand by petitioner from private respondents for payment of their back
rentals, the latter immediately tendered payment which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of Court, which provides:
"Sec. 2. Landlord to proceed against tenant only after demand. No landlord or his legal representative or assign,
shall bring such action against a tenant for failure to pay rent due or to comply with the conditions of his lease,
unless the tenant shall have failed to pay such rent or comply with such conditions for a period of fifteen (15) days
or five (5) days in case of building, after demand therefor, made upon him personally, or by serving written notice
of such demand upon the person found on the premises, or by posting such notice on the premises if no persons
be found thereon."
It interpreted the said provision as follows:
". . . the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants
failed to pay rent after the demand therefor. It is not the failure per se to pay rent as agreed in the contract, but the
failure to pay the rent after a demand therefor is made, that entitles the lessor to bring an action for unlawful
detainer. In other words, the demand contemplated by the above-quoted provision is not a demand to vacate, but a
demand made by the landlord upon his tenant for the latter to pay the rent due. If the tenant fails to comply with the
said demand within the period provided, his possession becomes unlawful and the landlord may then bring the
action for ejectment." (p. 28, Rollo, G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of
bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that
must be pursued before resorting to judicial action so much so that when there is full compliance with the demand, there arises no
necessity for court action. LLpr
As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a demand to vacate, the
answer can be gleaned from said Section 2. This section presupposes the existence of a cause of action for unlawful detainer as it
speaks of "failure to pay rent due or comply with the conditions of the lease." The existence of said cause of action gives the lessor the
right under Article 1659 of the New Civil Code to ask for the rescission of the contract of lease and indemnification for damages, or only
the latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the demand
referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is the option chosen,
the demand must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly, the rule that
has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay rent and to vacate are

necessary to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan, et al. vs. Tomassi, L-16574, February 28,
1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423; Dikit vs. Icasiano, 89 Phil. 44).
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply
with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate with in the period specified in
Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the existence of the
cause of action for unlawful detainer while the second refers to the jurisdictional requirement of demand in order that said cause of
action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private
respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month
basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an
obligation when the creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169,
New Civil Code which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the following
exceptions where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances
of the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the
obligor has rendered it beyond his power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies
upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand
required under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation matured. Coupled with
the fact that no collector was sent as previously done in the past, the private respondents cannot be held guilty of mora solvendi or
delay in the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private respondents
lost no time in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to
vacate was premature as it was an exercise of a non-existing right to rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand to pay and to vacate
under Section 2, Rule 70 does not extinguish The cause of action for ejectment as the lessor is not only entitled to recover the unpaid
rents but also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action for ejectment
especially when accepted with the written condition that it was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical
or ridiculous not to accept the tender of payment of rentals merely to preserve the right to file an action for unlawful detainer. However,
this line of argument presupposes that a cause of action for ejectment has already accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason
that sending a collector is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to
send a collector, it has been duly established that it has been customary for private respondents to pay the rentals through a collector.
Besides Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place
of payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals as
the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect. LLjur

Petitioner also argues that neither is its refusal to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f the
creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified on the part of petitioner
or non-acceptance without reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand
for payment of the rentals.

In sum, We hold that respondent court of appeals did not commit grave abuse of discretion amounting to lack of jurisdiction in its
conclusion affirming the trail court's decision dismissing petitioner's complaint for lack of cause of action. We do not agree, however the
reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated January 30, 1987 of
respondent Court of Appeals is hereby AFFIRMED. SO ORDERED.
||| (Cetus Development Inc. v. Court of Appeals, G.R. No. 77647, 77648, 77649, 77650, 77651, 77652, [August 7, 1989], 257 PHIL 7383)

SECOND DIVISION
[G.R. No. 108129. September 23, 1999.]
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF APPEALS, PHILIPPINE PHOSPHATE
FERTILIZER, CORP., respondents.
Gancayco Law Offices for petitioner.
Quiroz Dumas and Capistrano Law Offices for private respondent.
SYNOPSIS
On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five hundred metric tons of sulfuric acid from private respondent
Philippine Phosphate Fertilizer Corporation. Petitioner agreed to secure the means of transport to pick-up the sulfuric acid from private
respondents' loadports in Basay, Negros Oriental and Sangi, Cebu. On October 3, 1986, petitioner paid the purchased price of 500 MT
of sulfuric acid. Then, it chartered M/T Sultan Kayumanggi to carry the agreed volumes of freight from designated loading areas. But
the vessel was able to withdraw a partial amount of sulfuric acid from Basay and Sangi because it tilted. And later, it sank with a total
amount of 227.51 MT of sulfuric acid on board. Petitioner sent a demand letter to private respondent for delivery of the 272.49 MT of
sulfuric acid. Petitioner then filed a complaint against private respondent for specific performance and/or damages before the Regional
Trial Court of Pasig. The private respondent filed an answer with counterclaim and alleged that it was the petitioner which was remiss
in the performance of its obligation in arranging the shipping requirements of its purchases and, hence, should pay damages. Petitioner
prevailed in the trial court. However, on appeal, the Court of Appeals reversed the decision of the trial court and instead found
petitioner guilty of delay and therefore, liable for damages.
Hence, this petition.
The Court agreed with the Court of Appeals that the private respondent had no obligation to agree to the additional order and may not
be faulted for its inability to meet the said additional requirements of the petitioner. And the respondent's incapacity to agree to the
delivery of another 227.51 MT. was not a legal justification for the petitioner's refusal to lift the remaining 272.481. On the other hand,
petitioner was found guilty of delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the
cargo at its designated loadports. When petitioner failed to comply with its obligations under the contract, it became liable for its
shortcomings. Petitioner was indubitably liable for proven damages.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; PROFESSIONAL REPORT SHOULD CARRY MORE WEIGHT
THAN TESTIMONY OF EMPLOYEE OF PARTY. Since the third party surveyor was neither petitioner's nor private respondent's
employee, his professional report should carry more weight than that of Melecio Hernandez, an employee of petitioner. TcSHaD

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF SALE; BUYER MUST COMPLY WITH OBLIGATION TO
UNDERTAKE SHIPPING REQUIREMENTS OF CARGO; CASE AT BAR. Petitioner, as the buyer, was obligated under the contract
to undertake the shipping requirements of the cargo from the private respondent's loadports to the petitioner's designated warehouse. It
was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary
loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another sea
worthy vessel.
3. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; PARTY WHO ASSERTS THAT CONTRACT OF SALE WAS
CHANGED OR MODIFIED HAS BURDEN OF PROVING THE SAME. Additionally, petitioner claims that private respondent's
employee, Gil Belen, had recommended to petitioner to fully utilize the vessel, hence petitioner's request for an additional order to
complete the vessel's 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts that a contract of
sale has been changed or modified has the burden of proving the change or modification by clear and convincing evidence. Repeated
requests and additional orders were contained in petitioner's letters to private respondent. In contrast, Belen's alleged action was only
verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could redound to petitioner's advantage,
not the other party's. If additional orders were at the instance of private respondent, the same must be properly proved together with its
relevance to the question of delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of written
agreements is inadmissible, under the parol evidence rule. Belen's purported recommendation could not be taken at face value and,
obviously, cannot excuse petitioner's default.
4. CIVIL LAW; OBLIGATIONS AND CONTRACTS OF SALE; WHEN BREACH THEREOF WAS COMMITTED BY BUYER, SELLER
HAS RIGHT OF ACTION FOR DAMAGES. Where there has been breach of contract by the buyer, the seller has a right of action for
damages. Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such
that buyer has to remove them. Article 1170 of Civil Code provides: "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."
5. ID.; ID.; ID.; NATURE AND EFFECTS OF OBLIGATIONS; WHEN DELAY OF PERFORMANCE OF OBLIGATION BEGINS.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. Art. 1169
states: "Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation." In order that the debtor may be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that
the creditor requires the performance judicially or extrajudicially.
6. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. Records reveal that a tanker ship had to pick up sulfuric acid in Basay, then proceed to get
the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel between Basay and Sangi.
Logically, the computation of damages arising from the shipping delay would then have to be from December 15, 1986, given said
reasonable period after the December 12th letter. More important, private respondent was forced to vacate Basay wharf only on
December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and regular business expenses for which the
petitioner should not be obliged to pay. AaIDHS
7. ID.; ID.; ID.; ID.; BUYER WHO INCURRED DELAY IN PERFORMANCE OF OBLIGATION SHALL ASSUME RISK BEFORE
DELIVERY OF GOODS; CASE AT BAR. The general rule that before delivery, the risk of loss is borne by the seller who is still the
owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil
Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has made or
not except that: . . . (2) Where actual delivery had been delayed through the fault of either the buyer or seller the goods are at the risk
of the party at fault.
8. ID.; ID.; ID.; ID.; PARTY GUILTY OF DELAY IS LIABLE FOR PROVEN DAMAGES. As pointed out earlier, petitioner is guilty of
delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is
indubitably liable for proven damages.
9. REMEDIAL LAW; CIVIL PROCEDURE; COUNTERCLAIM; ENCOURAGED BY LAW. It is worth noting that the adjustment and
allowance of private respondent's counterclaim or set-off in the present action, rather than by another independent action, is
encouraged by the law. Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted
consumption of the court's time. The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-

offs. The rules on counterclaims are designed to achieve the disposition of a whole controversy involving the conflicting claims of
interested parties at one time and in one action, provided all parties can be brought before the court and the matter decided without
prejudicing the right of any party. Set-off in this case is proper and reasonable.

DECISION

QUISUMBING, J p:
This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals, which set aside the judgment of the
Regional Trial Court of Pasig, Branch 151. The case stemmed from a complaint filed by the buyer (herein petitioner) against the seller
(private respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and
instead found petitioner guilty of delay and therefore liable for damages, as follows: cdrep
"WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the complaint
with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the plaintiff Aerospace
Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63
representing the balance of the maintenance cost and tank rental charges incurred by the defendant for the failure
of the plaintiff to haul the rest of the sulfuric acid on the designated date.
Costs against plaintiff-appellee." 2

As gleaned from the records, the following are the antecedents:

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from
private respondent Philippine Phosphate Fertilizer Corporation (Philphos). The contract 3 was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.
203 E. Fernandez St.
San Juan, Metro Manila
Attention: Mr. Melecio Hernandez
Manager
Subject: Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms and conditions:
prcd
A. Commodity : Sulfuric Acid in Bulk
B. Concentration : 98-99% H2SO4
C. Quantity : 500MT - 100 MT Ex-Basay

400 MT Ex-Sangi
D. Price : US$ 50.00/MT - FOB Cotcot, Basay,
Negros Or.
US$ 54.00/MT - FOB Sangi, Cebu
E. Payment : Cash in Philippine currency payable
to Philippine Phosphate Fertilizer Corp.
(MAKATI) at PCIB selling rate at the
time of payment at least five (5) days
prior to shipment date.
F. Shipping Conditions
1. Laycan : July
2. Loadport : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx xxx xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
AEROSPACE INDUSTRIES, INC.
Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value,
five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from
private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros
Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the sulfuric acid purchased at Basay because
private respondent had been incurring incremental expense of two thousand (P2,000.00) pesos for each day of delay in shipment. cdll
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty (P553,280.00) pesos for 500 MT of sulfuric
acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head Services. The vessel was assigned to
carry the agreed volumes of freight from designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from

Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter, the
vessel underwent repairs.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the remaining sulfuric acid in Basay
tanks so that said tanks could be emptied on or before December 15, 1986. Private respondent said that it would charge petitioner the
storage and consequential costs for the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed
to comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the
vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East
Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. cdrep
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT. 6 On January 26 and March 20, 1987,
Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to
replace its sunken purchases, which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx
"We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance
approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we are willing
to pay the additional order at the prevailing market price, provided the lifting of the total 500 MT be
centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu." 7
March 20, 1987
"This refers to the remaining balance of the above product quantity which were not loaded to the authorized cargo
vessel, M/T Sultan Kayumanggi at your loadport Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April 1987 and we are
arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT an additional product
quantity thereof of 227.51 MT." 8 cdasia
Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to private respondent for the delivery of
the 272.49 MT of sulfuric acid paid by his client, or the return of the purchase price of three hundred seven thousand five hundred thirty
(P307,530.00) pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric acid
from Basay, or pay maintenance and storage expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of 272.49 MT and an additional of
227.51 MT of sulfuric acid. According to petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that:
"With regard to our balance of sulfuric acid - product at your shore tank/plant for 272.49 metric ton that was left by
M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of 227.51 metric ton of sulfuric
acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule to lift the
high grade sulfuric acid product is contracted for her full capacity/load which is 500 metric tons more or less.

We are willing to pay the additional quantity - 227.51 metric tons high grade sulfuric acid in the prevailing price of
the said product." 12 prLL
xxx xxx xxx
By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get its additional order of 227.51 MT of sulfuric
acid at Isabel, Leyte. 13 Belen relayed the information to his associate, Herman Rustia, the Senior Manager for Imports and
International Sales of private respondent. In a letter dated July 22, 1988, Rustia replied:
"Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot accommodate your
request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed arrival of imported Sulfuric Acid from
Japan." 14
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for the delivery of the purchases remaining, or
suffer tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the Regional Trial Court of Pasig, Branch
151. Private respondent filed its answer with counterclaim, stating that it was the petitioner who was remiss in the performance of its
obligation in arranging the shipping requirements of its purchases and, as a consequence, should pay damages as computed below:
LibLex
Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00
Less Shipments
70.009 MT sulfuric acid P72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)

Balance P303,483.37
Less Charges
Basay Maintenance Expense
from Aug. 15 to Dec. 15, 1986
(P2,000.00/day x 122 days) P244,000.00
Sangi - Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)

Receivable/Counterclaim (P324,516.63)

==========
Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's favor, disposing as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the latter to pay the former the
following sums: dctai
1. P306,060.77 - representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff paid to
defendant;
2. P91,818.23 - representing unrealized profits, both items with 12% interest per annum from May 4, 1989, when
the complaint was filed until fully paid;
3. P30,000.00 - as exemplary damages; and
4. P30,000.00 - as attorney's fees and litigation expenses, both last items also with 12% interest per annum from
date hereof until fully paid.
Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant." 15
In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pick-up the remaining sulfuric acid
because its failure was due to force majeure. According to the trial court, it was private respondent who committed a breach of contract
when it failed to accommodate the additional order of the petitioner, to replace those that sank in the sea, thus:
"To begin with, even if we assume that it is incumbent upon the plaintiff to 'lift' the sulfuric acid it ordered from
defendant, the fact that force majeure intervened when the vessel which was previouly (sic) listing, but which the
parties, including a representative of the defendant, did not mind, sunk, has the effect of absolving plaintiff from
'lifting' the sulfuric acid at the designated load port. But even assuming the plaintiff cannot be held entirely
blameless, the allegation that plaintiff agreed to a payment of a 2,000-peso incremental expenses per day to
defendant for delayed 'lifting' has not been proven. . . .

Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional order after
the transaction in litigation? Why also, did defendant not send plaintiff statements of account until after 3 years?
prcd
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods which the
latter did not actually receive." 16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as follows:
"Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation to withdraw
the full amount of 500 MT of sulfuric acid from the defendant's loadport at Basay and Sangi on or before August 15,
1986. As early as August 6, 1986 it had been accordingly warned by the defendant that any delay in the hauling of
the commodity would mean expenses on the part of the defendant amounting to P2,000.00 a day. The plaintiff sent
its vessel, the 'M/T Sultan Kayumanggi', only on November 19, 1987. The vessel, however, was not capable of
loading the entire 500 MT and in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the 'M/T Sultan Kayumanggi' did not absolve the plaintiff
from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It was the plaintiff's duty to
charter another vessel for the purpose. It did contract for the services of a new vessel, the 'M/T Don Victor', but did

not want to lift the balance of 272.481 MT only but insisted that its additional order of 227.51 MT be also given by
the defendant to complete 500 MT, apparently so that the vessel may be availed of in its full capacity. cdtai
xxx xxx xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only for the cost of
the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as well as exemplary damages
and attorney's fees." 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of its obligation. It dismissed the
complaint of petitioner and ordered it to pay damages representing the counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution dated December 21, 1992, for lack
of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO HAVE
COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID IN FULL THE
VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE TO
DELIVER TO PETITIONER ONLY 227.51 M.T. LLpr
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR DAMAGES
TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED AGREEMENT TO HOLD
PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT FAILED TO
PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED FACTS THAT
PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY
QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO SUPPLY
PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF
THAT ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE SALE
INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND MAINTENANCE ARE
FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR PETITIONER
AFFIRMING THE DECISION OF THE TRIAL COURT. prLL
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:
1. Did the respondent court err in holding that the petitioner committed breach of contract, considering that:
a) the petitioner allegedly paid the full value of its purchases, yet received only a portion of said purchases?

b) petitioner and private respondent allegedly had also agreed for the purchase and supply of an
additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on
seller's account pursuant to Article 1504 of the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court and its conclusion that the petitioner was
guilty of delay in the performance of its obligation. According to petitioner, that conclusion is contrary to the factual evidence. It adds
that respondent court disregarded the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming
that respondent court's findings conflict with those of the trial court, petitioner prays that the trial court's findings be upheld over those of
the appellate court. cdphil
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal thereof, or on October 3, 1986,
hence, it had complied with the primary condition set in the sales contract. Petitioner claims its failure to pick-up the remaining
purchases on time was due to a storm, a force majeure, which sank the vessel. It thus claims exemption from liability to pay damages.
Petitioner also contends that it was actually the private respondent's shipping officer, who advised petitioner to buy the additional
227.51 MT of sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner insists that when its ship was ready to
pick-up the remaining balance of 272.49 MT of sulfuric acid, private respondent could not comply with the contract commitment due to
"pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of the trial court, 18 this Court may
review those findings, we find the appellate court's conclusion that petitioner violated the subject contract amply supported by
preponderant evidence. Petitioner's claim was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm
or force majeure caused the petitioner's delay and failure to lift the cargo of sulfuric acid at the designated loadports. In contrast, the
appellate court discounted Hernandez' assertions. For on record, the storm was not the proximate cause of petitioner's failure to
transport its purchases on time. The survey report submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel,
which was unstable, was incapable of carrying the full load of sulfuric acid. Note that there was a premature termination of loading in
Basay, Negros Oriental. The vessel had to undergo several repairs before continuing its voyage to pick-up the balance of cargo at
Sangi, Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one
side. Its unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS survey report, unstable and
unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros Oriental, elucidated this point: LLphil
"Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was temporarily
stopped by the vessel's master due to ships stability was heavily tilted to port side, ship's had tried to transfer the
loaded acid to stbdside but failed to do so, due to their auxiliary pump on board does not work out for acid.
xxx xxx xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel Declared
quantity loaded onboard based on data's provided by PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to assist the situation, at 1300Hrs
repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or welding was
suspended due to the explosion of tank no. 5. Explosion ripped about two feet of the double bottom tank.
November 27 up to date no progress of said vessel" 19
While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report therein noted:

"Declared quantity loaded on board was based on shore tank withdrawal due to ship's incomplete tank calibration
table. Barge displacement cannot be applied due to ship was listing to Stboard side which has been loaded with
rocks to control her stability." 20 prcd
These two vital pieces of information were totally ignored by trial court. The appellate court correctly took these into account,
significantly. As to the weather condition in Basay, the appellate court accepted surveyor Rabe's testimony, thus:
"Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the loading operation
of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir." 21
Since the third party surveyor was neither petitioner's nor private respondent's employee, his professional report should carry more
weight than that of Melecio Hernandez, an employee of petitioner. Petitioner, as the buyer, was obligated under the contract to
undertake the shipping requirements of the cargo from the private respondent's loadports to the petitioner's designated warehouse. It
was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary
loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another
seaworthy vessel. However, despite repeated demands, petitioner did not comply seasonably.

Additionally, petitioner claims that private respondent's employee, Gil Belen, had recommended to petitioner to fully utilize the vessel,
hence petitioner's request for an additional order to complete the vessel's 500 MT capacity. This claim has no probative pertinence nor
solid basis. A party who asserts that a contract of sale has been changed or modified has the burden of proving the change or
modification by clear and convincing evidence. 22 Repeated requests and additional orders were contained in petitioner's letters to
private respondent. In contrast, Belen's alleged action was only verbal; it was not substantiated at all during the trial. Note that, using
the vessel to full capacity could redound to petitioner's advantage, not the other party's. If additional orders were at the instance of
private respondent, the same must be properly proved together with its relevance to the question of delay. Settled is the principle in law
that proof of verbal agreements offered to vary the terms of written agreements is inadmissible, under the parol evidence rule. 23
Belen's purported recommendation could not be taken at face value and, obviously, cannot excuse petitioner's default. llcd
Respondent court found petitioner's default unjustified, and on this conclusion we agree:
"It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance of the
original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early as August 15,
1986. What the defendant could not sell to the plaintiff was the additional 227.51 MT which said plaintiff was
ordering, for the reason that the defendant was short of the supply needed. The defendant, however, had no
obligation to agree to this additional order and may not be faulted for its inability to meet the said additional
requirements of the plaintiff. And the defendant's incapacity to agree to the delivery of another 227.51 MT is not a
legal justification for the plaintiff's refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the 'M/T Don Victor' only if the defendant
would confirm that it was ready to deliver 500 MT. Because the defendant could not sell another 227.51 MT to the
plaintiff, the latter did not send a new vessel to pick up the balance of the 500 MT originally contracted for by the
parties. This, inspite the representations made by the defendant for the hauling thereof as scheduled and its
reminders that any expenses for the delay would be for the account of the plaintiff." 24
We are therefore constrained to declare that the respondent court did not err when it absolved private respondent from any breach of
contract. prLL
Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified delay in the performance of its
obligation under the contract. Where there has been breach of contract by the buyer, the seller has a right of action for damages.
Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer
has to remove them. 25 Article 1170 of the Civil Code provides:

"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."
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. 26 Art.
1169 states:
"ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation."
In order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed, otherwise petitioner would be
charged for the consequential damages owing to any delay. As stated in private respondent's letter to petitioner, dated December 12,
1986: prcd
Subject : M/T "KAYUMANGGI"
Gentlemen :
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986 regarding your
sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th December 1986 as
we are expecting the arrival of our chartered vessel purportedly to haul our equipments and all other remaining
assets in Basay. This includes our sulfuric acid tanks. We regret, therefore, that if these tanks are not emptied on
or before the 15th of December, we either have to charge you for the tanks waiting time at Basay and its
consequential costs (i.e. chartering of another vessel for its second pick-up at Basay, handling, etc.) as well as all
other incremental costs on account of the protracted loading delay." 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay begin? The above letter
constitutes private respondent's extrajudicial demand for the petitioner to fulfill its obligation, and its dateline is significant. Given its
date, however, we cannot sustain the finding of the respondent court that petitioner's delay started on August 6, 1986. The Court of
Appeals had relied on private respondent's earlier letter to petitioner of that date for computing the commencement of delay. But as
averred by petitioner, said letter of August 6th is not a categorical demand. What it showed was a mere statement of fact, that "[F]for
your information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00 per day." Noteworthy, private
respondent accepted the full payment by petitioner for purchases on October 3, 1986, without qualification, long after the August 6th
letter. In contrast to the August 6th letter, that of December 12th was a categorical demand. LibLex
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A
period of three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically, the computation of damages
arising from the shipping delay would then have to be from December 15, 1986, given said reasonable period after the December 12th
letter. More important, private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred
before December 15, 1986, were necessary and regular business expenses for which the petitioner should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August 31, 1987, solely for petitioner's
sulfuric acid. It stands to reason that petitioner should reimburse private respondent's rental expenses of P32,000 monthly,
commencing December 15, 1986, up to August 31, 1987, the period of the extended lease. Note further that there is nothing on record
refuting the amount of expenses abovecited. Private respondent presented in court two supporting documents: first, the lease
agreement pertaining to the equipment, and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to private
respondent representing the rental charges incurred. Private respondent is entitled to recover the payment for these charges. It should
be reimbursed the amount of two hundred seventy two thousand (P272,000.00) 29 pesos, corresponding to the total amount of rentals
from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank.

Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for
the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private
respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of
loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance
of its obligation. Article 1504 of the Civil Code clearly states:
"Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that: cdphil
xxx xxx xxx
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk
of the party at fault." (emphasis supplied)
On this score, we quote with approval the findings of the appellate court, thus:
". . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear
the said expenses for failure to lift the commodity for an unreasonable length of time.
But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it
liable for the damages sought by the defendant.
Article 1170 of the Civil Code provides:
'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..'
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its obligation to lift
the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-contract with the defendant." 30
LLpr
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial demand by requiring
petitioner to lift the cargo at its designated loadports. When petitioner failed to comply with its obligations under the contract it became
liable for its shortcomings. Petitioner is indubitably liable for proven damages.

Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the amount of three hundred three
thousand, four hundred eighty three pesos and thirty seven centavos (P303,483.37), it is proper to set-off this amount against the rental
expenses initially paid by private respondent. It is worth noting that the adjustment and allowance of private respondent's counterclaim
or set-off in the present action, rather than by another independent action, is encouraged by the law. Such practice serves to avoid
circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the court's time. 31 The trend of
judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 32 The rules on counterclaims are
designed to achieve the disposition of a whole controversy involving the conflicting claims of interested parties at one time and in one
action, provided all parties can be brought before the court and the matter decided without prejudicing the right of any party. 33 Set-off
in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will
leave the amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED,
with MODIFICATION that the amount of damages awarded in favor of private respondent is REDUCED to Two hundred seventy two
thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37) representing the price of the
272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand, four hundred eighty three
pesos and thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein petitioner. LibLex

Costs against the petitioner. SO ORDERED.

||| (Aerospace Chemical Industries, Inc. v. Court of Appeals, G.R. No. 108129, [September 23, 1999], 373 PHIL 710-733)

FIRST DIVISION
[G.R. No. 153004. November 5, 2004.]
SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and RIVERLAND,
INC., respondents.

DECISION

QUISUMBING, J p:
Subject of the present petition for review on certiorari is the Decision, 1 dated January 30, 2002, as well as the April 12, 2002,
Resolution 2 of the Court of Appeals in CA-G.R. CV No. 55122. The appellate court reversed the Decision, 3 dated October 4, 1996, of
the Regional Trial Court of Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in several civil
cases filed in different courts in the Philippines. On October 26, 1990, the parties executed a Compromise Agreement 4 which amicably
ended all their pending litigations. The pertinent portions of the Agreement read as follows:
1.Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:
a.P1.5 Million immediately upon the execution of this agreement;
b.The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of
the Foundation, within a period of not more than two (2) years from the execution of this
agreement; provided, however, that in the event that the Foundation does not pay the whole or
any part of such balance, the same shall be paid with the corresponding portion of the land or
real properties subject of the aforesaid cases and previously covered by the notices of lis
pendens, under such terms and conditions as to area, valuation, and location mutually
acceptable to both parties; but in no case shall the payment of such balance be later than two (2)
years from the date of this agreement; otherwise, payment of any unpaid portion shall only be in
the form of land aforesaid; SaETCI
2.Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall
cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and
voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R.
No. 24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the
real properties aforementioned (by signing herein attached corresponding documents, for such lifting);
provided, however, that in the event that defendant Foundation shall sell or dispose of any of the lands
previously subject of lis pendens, the proceeds of any such sale, or any part thereof as may be required,
shall be partially devoted to the payment of the Foundation's obligations under this agreement as may still
be subsisting and payable at the time of any such sale or sales;

xxx xxx xxx

5.Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement
shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement. [Emphasis supplied] 5
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also
caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real properties, which were previously
subjects of lis pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner demanding
the payment of the remaining P13 million, which was ignored by the latter. Meanwhile, on September 30, 1991, the Regional Trial
Court of Makati City, Branch 62, issued a Decision 6 approving the compromise agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There
was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, Branch 62, for
the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Thus, on March
10, 1993, the Sheriff levied on the real properties of petitioner, which were formerly subjects of the lis pendens. Petitioner, however,
filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment
even reached the Supreme Court. All these efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc.
was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale.
Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again,
Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one
year from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages 7 alleging that there was delay on
the part of petitioner in paying the balance of P13 million. They further alleged that under the Compromise Agreement, the obligation
became due on October 26, 1992, but payment of the remaining P12 million was effected only on November 22, 1994. Thus,
respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney's fees and costs of litigation.
Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal redemption.
In its Answer, 8 petitioner countered that respondents have no cause of action against it since it had fully paid its obligation to the latter.
It further claimed that the alleged delay in the payment of the balance was due to its valid exercise of its rights to protect its interests as
provided under the Rules. Petitioner counterclaimed for attorney's fees and exemplary damages. aSADIC
On October 4, 1996, the trial court rendered a Decision 9 dismissing herein respondents' complaint and ordering them to pay attorney's
fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals. The appellate court reversed the
ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is hereby
rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on the principal
amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the date
of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AWARDED
LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC.,

NOTWITHSTANDING THE FACT THAT NEITHER IN THE COMPROMISE AGREEMENT NOR IN THE
COMPROMISE JUDGMENT OF HON. JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE
RESPONDENT
II
WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL IN[T]EREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT THE
OBLIGATION OF THE PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN
CONVERTED TO AN OBLIGATION TO PAY IN KIND DELIVERY OF REAL PROPERTIES OWNED BY THE
PETITIONER WHICH HAD BEEN FULLY PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT OF INTEREST BY
REASON OF THE WAIVER PROVISION IN THE COMPROMISE AGREEMENT, WHICH BECAME THE LAW
AMONG THE PARTIES 10
The only issue to be resolved is whether the respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not provide for the payment of interest,
the legal interest by way of penalty on account of fault or delay shall not be due and payable, considering that the obligation or loan, on
which the payment of legal interest could be based, has been superseded by the compromise agreement. 11 Furthermore, the
petitioner argues that the respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly
approved compromise agreement. 12 Article 4 of the compromise agreement provides:
Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the defendant
Foundation arising from and in connection with the aforesaid civil cases, and defendant Foundation, on the other
hand, also waives and renounces any and all claims that it may have against plaintiff Santos in connection with
such cases. 13 [Emphasis supplied.] ETCcSa
Lastly, petitioner alleges that since the compromise agreement did not provide for a period within which the obligation will become due
and demandable, it is incumbent upon respondent Santos to ask for judicial intervention for purposes of fixing the period. It is only
when a fixed period exists that the legal interests can be computed.
Respondents profer that their right to damages is based on delay in the payment of the obligation provided in the Compromise
Agreement. The Compromise Agreement provides that payment must be made within the two-year period from its execution. This was
approved by the trial court and became the law governing their contract. Respondents posit that petitioner's failure to comply entitles
them to damages, by way of interest. 14

The petition lacks merit.

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already
commenced. 15 It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their
difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced
by the danger of losing. 16
The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely
stated therein, or which by implication from its terms should be deemed to have been included therein. 17 This holds true even if the
agreement has not been judicially approved. 18
In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. 19 It was judicially approved on
September 30, 1991. 20 Applying existing jurisprudence, the compromise agreement as a consensual contract became binding

between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes
the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate
controverted claims. 21
In accordance with the compromise agreement, the respondents asked for the dismissal of the pending civil cases. The petitioner, on
the other hand, paid the initial P1.5 million upon the execution of the agreement. This act of the petitioner showed that it acknowledges
that the agreement was immediately executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides:
xxx xxx xxx
b.The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2) years from the execution of this agreement. . . . 22 [Emphasis
supplied.]
xxx xxx xxx
The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the
judicial approval of the compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on
October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the
demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation. [Emphasis supplied]
Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment
of the obligation with respect to time. 23
In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.
24
In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the
contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the
petitioner, the obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows
precisely how much he is to pay and when he is to pay it. ADcSHC
The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle its outstanding balance only on
February 8, 1995, which is more than two years after the extra-judicial demand. Moreover, it filed several motions and elevated
adverse resolutions to the appellate court to hinder the execution of a final and executory judgment, and further delay the fulfillment of
its obligation.
Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extra-judicial demand contemplated by
law.
Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article 1170 25 of the
New Civil Code.
When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. 26 The
complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of
compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of
interest. 27 In the absence of agreement, the legal rate of interest shall prevail. 28 The legal interest for loan as forbearance of money

is 12% per annum 29 to be computed from default, i.e., from judicial or extra-judicial demand under and subject to the provisions of
Article 1169 of the Civil Code. 30
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and its April 12,
2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED.
||| (Santos Ventura Hocorma Foundation v. Santos, G.R. No. 153004, [November 5, 2004], 484 PHIL 447-459)

SECOND DIVISION
[G.R. No. 149734. November 19, 2004.]
DR. DANIEL VAZQUEZ and MA. LUISA M. VAZQUEZ, petitioners, vs. AYALA CORPORATION, respondent.

DECISION

TINGA, J p:
The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in Muntinlupa City, over a
period of six (6) years only, represents big money. The huge price difference lies at the heart of the present controversy. Petitioners
insist that the lots should be sold to them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be
the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez 1 filed this Petition for Review on Certiorari 2 dated October 11, 2001 assailing the
Decision 3 of the Court of Appeals dated September 6, 2001 which reversed the Decision 4 of the Regional Trial Court (RTC) and
dismissed their complaint for specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents: 5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into
a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the
Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main
asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by
Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village."
The development was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter,
GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area" consisting
of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez spouses. The area to be
developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the
"Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez spouses at the prevailing price at the
time of purchase. The relevant provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential
subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first
phase under its amended development plan within three (3) years from the date of this Agreement. . . ."
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the
"Retained Area" at the prevailing market price at the time of the purchase."

The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's development plan,
but Ayala's amended development plan which was still to be formulated as of the time of the MOA. While in the
Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in
the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx xxx xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:
xxx xxx xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
xxx xxx xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of
the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement shall be true and
correct at the time of Closing as though such representations and warranties were made at such time;
and
xxx xxx xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution
of this Agreement and at the Closing:
xxx xxx xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS,
threatened against or affecting the SELLERS with respect to the Shares or the Property; and ASHaDT
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance
with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall
own the "Remaining Property", free from all liens and encumbrances and that the Company shall have no
obligation to any party except for billings payable to GP Construction & Development Corporation and
advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Par. 2 of
this Agreement.

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of
Closing, and those disclosed to BUYER, the Company as of the date thereof, has no liabilities of any
nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due
or to become due and whether incurred in respect of or measured in respect of the Company's income
prior to Closing or arising out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against
the Company as at closing or any liability of any nature and in any amount not fully reflected or reserved
against such Audited Financial Statements referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not
engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal
action or other proceedings before any court or administrative body, nor do the SELLERS know or have
reasonable grounds to know of any basis for any such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement to which
the company is a party or by which it is bound, and no condition exists which, with notice or lapse of time
or both, will constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project.
Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala
that he was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction. . . .
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued
G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P.
Construction in turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from
undertaking the development of the property. The suit was terminated only on February 19, 1987, when it was
dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within 3 years from
the date of the MOA, the Vasquez spouses sent several "reminder" letters of the approaching so-called deadline.
However, no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On
the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they
expected "development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the
legal problems with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were
then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez
spouses who wanted to pay at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering
defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at
the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to
plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential
claims of GP Construction, Lancer and Del Rosario; Ayala's accountants should have opened the records of
Conduit to find out all claims; the warranty against suit is with respect to "the shares of the Property" and the
Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within 3 years; to say

that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not
develop because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who
should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration
as the option is incorporated in the MOA where the parties had prestations to each other. [Emphasis supplied]

Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the
MOA 6 dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located
within three (3) years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was
incorporated in the MOA and the consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala Corporation was
never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on
May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated their warranties under the
MOA when they failed to disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the
four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during the pendency of the case
filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to develop the first
phase of its own amended development plan and not Conduit's development plan. Nowhere does the MOA provide that Ayala
Corporation shall follow Conduit's development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of
the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala
Corporation to sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last
of which was dated prior to April 23, 1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that
petitioners in fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they
"expect that the development of Phase I will be completed by 19 February 1990, three years from the settlement of the legal problems
with the previous contractor." 7
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no
separate consideration therefor. Since petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of
P5,000.00 per square meter, they have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their warranties under the MOA; that
Ayala Corporation was not obliged to develop the "Remaining Property" within three (3) years from the execution of the MOA; that
Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court
should review the factual findings of the Court of Appeals as they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition 8 dated March 26, 2002, contending that the petition raises questions of fact and
seeks a review of evidence which is within the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract
between GP Construction, with whom Conduit contracted for the development of the property under a Construction Contract dated
October 10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability for Lancer's claim
included in the Audited Financial Statements submitted by petitioners after the signing of the MOA. These justify the conclusion that
petitioners breached their warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February
1989, the three (3)-year period within which Ayala Corporation committed to develop the property should only be counted thence. Thus,
when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding against them at the time of the execution of the MOA on
April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave rise to the Lancer claim were already extant then.
Petitioners warranted that their representations under the MOA shall be true and correct at the time of "Closing" which shall take place
within four (4) weeks from the signing of the MOA. 9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the
third week of May 1981. Hence, Lancer's claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among
the liabilities warranted against under paragraph 7.1.2 of the MOA.

Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not
reflected in the Audited Financial Statements. It cannot be faulted for relying on the express warranty that except for billings payable to
GP Construction and advances made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit
and should now assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the property within three
(3) years from the execution of the MOA. The provision refers to a mere declaration of intent to develop the first phase of its (Ayala
Corporation's) own development plan and not Conduit's. True to its intention, Ayala Corporation did complete the development of the
first phase (Phase II-A) of its amended development plan within three (3) years from the execution of the MOA. However, it is not
obliged to develop the third phase (Phase II-C) where the subject lots are located within the same time frame because there is no
contractual stipulation in the MOA therefor. It is free to decide on its own the period for the development of Phase II-C. If petitioners
wanted to impose the same three (3)-year timetable upon the third phase of the amended development plan, they should have filed a
suit to fix the time table in accordance with Article 1197 10 of the Civil Code. Having failed to do so, Ayala Corporation cannot be
declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation. The letter dated
October 4, 1983 sent when petitioners were already aware of the Lancer suit did not demand the delivery of the subject lots by April 23,
1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4,
1984 was merely an inquiry as to the date when the development of Phase 1 will be completed. More importantly, their letter dated
June 27, 1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract. DCTSEA
Petitioners filed their Reply 11 dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not
violate their warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8)
days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's claim before the "Closing"
date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not
consider the matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the execution of the MOA.
Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP Construction. Since Lancer's claim was actually a
claim against GP Construction being its subcontractor, it is Ayala Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is obliged under the
MOA to develop the entire area where the subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart from their reminder
letters dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical
demand for Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution 12 dated November 18, 2002. In compliance with
this directive, petitioners submitted their Memorandum 13 dated February 14, 2003 on even date, while Ayala Corporation filed its
Memorandum 14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under
Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of
general principle. However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate
court, particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the

evidence on record and resolve such factual issues as an exception to the general rule. 15 In any event, the submitted issue relating to
the categorization of the right to purchase granted to petitioners under the MOA is legal in character.

The next issue that presents itself is whether petitioners breached their warranties under the MOA when they failed to disclose the
Lancer claim. The trial court declared they did not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to disclose the Lancer
claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and for
advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other liabilities
whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not reflected or
reserved in the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any instrument or agreement
to which it is a party or by which it is bound. 16
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala Corporation of the Lancer
claim or the possibility thereof during the period of negotiations for the sale of Conduit.
In a letter 17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to
the completion of the sale of Conduit, Ayala Corporation asked for and was given information that GP Construction sub-contracted,
presumably to Lancer, a greater percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation
because the latter intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not deny this. In fact, Mr.
Duarte's letter 18 dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its acquisition
of Conduit. Ayala Corporation even admitted that it "tried to explore . . . legal basis to discontinue the contract of Conduit with GP" but
found this "not feasible when information surfaced about the tacit consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancer's letter 19 dated April
30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981,
well before the "Closing" 20 which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining to the liabilities of
Conduit were disclosed by petitioners to Ayala Corporation although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the
"Remaining Property", free from all liens and encumbrances and that the Company shall have no obligation to any
party except for billings payable to GP Construction & Development Corporation and advances made by Daniel
Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing,
and those disclosed to BUYER, the Company as of the date hereof, has no liabilities of any nature whether
accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and
whether incurred in respect of or measured in respect of the Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the
Company as at Closing of any liability of any nature and in any amount not fully reflected or reserved against such
Audited Financial Statements referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not
engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or
other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds
to know of any basis for any such action or proceeding or of any governmental investigation relative to the
Company. SaICcT
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by
the Company of any term, covenant or condition of any instrument or agreement to which the Company is a party
or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such
default or breach." 21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any legal action or proceeding is qualified by
Ayala Corporation's actual knowledge of the Lancer claim which was disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made by petitioner Daniel
Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for the
payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by
the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87." 22
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP Construction is liable. Proof of
this is Ayala Corporation's letter 23 to GP Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala
Corporation's receipt of the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the
contractual responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property. The pertinent excerpts
of the letter read:
xxx xxx xxx
In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario,
President of Lancer General Builders Corporation apprising us of the existence of subcontracts that they have with
your corporation. They have also furnished us with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is
necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the property of
Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other parties as well. . . . 24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief 25 dated July 9, 1992 a copy of the letter 26 dated May 28, 1981
of GP Construction's counsel addressed to Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP
Construction. Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of the
letter thereby disclosing to the latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow knowledge of the
claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit as an obstacle to its
development of the property, it never actually brought up nor sought redress for petitioners' alleged breach of warranty for failure to
disclose the Lancer claim until it filed its Answer 27 dated February 17, 1992.

We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment or a mere intent
on the part of Ayala Corporation to develop the property within three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential
subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under
its amended development plan within three (3) years from the date of this Agreement. . . . 28
Notably, while the first phrase of the paragraph uses the word "commits" in reference to the development of the "Remaining Property"
into a first class residential subdivision, the second phrase uses the word "intends" in relation to the development of the first phase of
the property within three (3) years from the date of the MOA. The variance in wording is significant. While "commit" 29 connotes a
pledge to do something, "intend" 30 merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point. SIDEaA
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative character of the period of
development because it will be noted that the sentence refers to and I quote "to complete the first phase
under its amended development plan within three (3) years from the date of this agreement, at the time of
the execution of this agreement, your Honor." That amended development plan was not yet in existence
because the buyer had manifested to the seller that the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of development and second, your Honor,
(interrupted) 31

It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporation's part to complete the first phase under
its amended development plan within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to
misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first phase of Ayala Corporation's amended
development plan as the subject of the three (3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted on
cross-examination that the paragraph refers not to Conduit's but to Ayala Corporation's development plan which was yet to be
formulated when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The Buyer hereby
commits that to develop the remaining property into a first class residential subdivision of the same class
as New Alabang Subdivision, and that they intend to complete the first phase under its amended
development plan within three years from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is the
amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?

A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the agreement, this amended development
plan was still to be formulated by Ayala?
A: Yes, sir. 32
As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners were in the first
phase of the Conduit development plan, they were in the third or last phase of the Ayala Corporation development plan. Hence, even
assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended
development plan within three (3) years from the execution of the MOA, there was no parallel commitment made as to the timeframe
for the development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of .Ayala Corporation to offer the subject lots for sale to petitioners
within three (3) years from the execution of the MOA. It is not that Ayala Corporation committed or intended to develop the first phase
of its amended development plan within three (3) years. Whether it did or did not is actually beside the point since the subject lots are
not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
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 fulfills his obligation, delay
by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. 33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be demandable only when that
day comes. However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3)
year period fixed by the MOA for the development of the first phase of the property since this is not the same period contemplated for
the development of the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should
have petitioned the court to fix the period in accordance with Article 1197 34 of the Civil Code. As no such action was filed by
petitioners, their complaint for specific performance was premature, the obligation not being demandable at that point. Accordingly,
Ayala Corporation cannot likewise be said to have delayed performance of the obligation.

Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3) years from date
thereof, Ayala Corporation could still not be held to have been in delay since no demand was made by petitioners for the performance
of its obligation.
As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable were all dated prior to April 23, 1984,
the date when the period was supposed to expire. In other words, the letters were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and not categorical demands to perform. More importantly, petitioners waived
the three (3)-year period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)year period should be counted from the termination of the case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to
complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to understand that you
were unable to accomplish this because of legal problems with the previous contractor. These legal problems were
resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be
completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor.
The reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct
their residence till the surrounding area (which is Phase I) is developed and occupied. They have been anxious to
build their residence for quite some time now, and would like to receive assurance from your goodselves regarding
this, in compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to
purchase the two lots on each side (a total of 4 lots) adjacent to their "Retained Area". They are concerned that
although over a year has elapsed since the settlement of the legal problems, you have not presented them with the
size, configuration, etc. of these lots. They would appreciate being provided with these at your earliest convenience.
35
Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the development of Phase I was due to the
legal problems with GP Construction, but also their acquiescence to the completion of the development of Phase I at the much later
date of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on
Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely articulates petitioners' desire to exercise their
option to purchase the subject lots and concern over the fact that they have not been provided with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23, 1984 36 and February 18, 1984 37 can also
not be considered categorical demands on Ayala Corporation to develop the first phase of the property within the three (3)-year period
much less to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we cannot develop it till you
have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per which you
committed to develop the roads to our property "as per the original plans of the company", and that cdtai
1. The back portion should have been developed before the front portion which has not been the case.
2. The whole project front and back portions be completed by 1984. 38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states
respectively: . . . 39
Even petitioner Daniel Vazquez' letter 40 dated March 5, 1984 does not make out a categorical demand for Ayala Corporation to offer
the subject lots for sale on or before April 23, 1984. The letter reads in part:

. . . and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date
as to when the road to our property and the development of Phase I will be completed. 41
At best, petitioners' letters can only be construed as mere reminders which cannot be considered demands for performance because it
must appear that the tolerance or benevolence of the creditor must have ended. 42
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option contract or a right
of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the "Retained
Area" at the prevailing market price at the time of the purchase. 43

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory contract in which
one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter
into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during
the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter
should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation
of the option. It must be supported by consideration. 44
In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent
not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price,
that are yet to be firmed up. 45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Although the paragraph
has a definite object, i.e., the sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the
price for which the subject lots will be sold are not specified. The phrase "at the prevailing market price at the time of the purchase"
connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise
their privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is
considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment
of a specified person or persons. 46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the price which Ayala
Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration. As
such it is not governed by Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.
Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the other party. 47
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing
market price for the property when the offer was made on June 18, 1990. 48 Insisting on paying for the lots at the prevailing market
price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter
but again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter. 49 Ayala
Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be compelled by an action for
specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs. aISO ORDERED.
||| (Spouses Vazquez v. Ayala Corp., G.R. No. 149734, [November 19, 2004], 485 PHIL 612-643)

SECOND DIVISION
[G.R. No. 32336. December 20, 1930.]
JULIO C. ABELLA, plaintiff-appellant, vs. GUILLERMO B. FRANCISCO, defendant-appellee.
Antonio T. Carrascoso jr., for appellant.
Camus & Delgado for Mooney.
SYLLABUS
1. CONTRACT OF SALE; PERIOD FOR PAYMENT OF SELLING PRICE; RESOLUTION OF CONTRACT. Having
agreed that the selling price (even supposing it was a contract of sale) would be paid not later than December, 1928, and in view
of the fact that the vendor executed said contract in order to pay off with the proceeds thereof certain obligations which fell due in
the same month of December, it is held that the time fixed for the payment of the selling price was essential in the transaction, and,
therefore, the vendor, under article 1124 of the Civil Code, is entitled to resolve the contract for failure to pay the price within the
time specified.

DECISION

AVANCEA, C. J p:
Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the Tala Estate in
Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of October, 1928, he signed the
following document:
"MANILA, October 31, 1928
"Received from Mr. Julio C. Abella the amount of five hundred pesos (500), payment on account of lots
Nos. 937, 938, 939, 940, 941, 942, 943, 944, and 945 of the Tala Estate, barrio of Novaliches, Caloocan, Rizal,
containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per hectare, the balance being
due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter. (Sgd.) G. B. FRANCISCO
P500 Phone 67125."
After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to George C. Sellner,
collecting P10,000 on account thereof on December 29, 1928.
Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another payment of
P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th of the same year, the defendant, being
in the Province of Cebu, wrote to Roman Mabanta of this City of Manila, attaching a power of attorney authorizing him to sign in
behalf of the defendant all the documents required by the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter
the defendant instructed Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform
him that the option would be considered cancelled, and to return to him the amount of P915.31 already delivered. On January 3,

1929, Mabanta notified the plaintiff that he had received the power of attorney to sign the deed of conveyance of the lots to him,
and that he was willing go execute the proper deed of sale upon payment of the balance due. The plaintiff asked for a few days'
time, but Mabanta, following the instructions he had received from the defendant, only gave him until the 5th of that month. The
plaintiff did not pay the rest of the price on the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however,
refused to accept it, and gave him to understand that he regarded the contract as rescinded. On the same day, Mabanta returned
by check the sum of P915.31 which the plaintiff had paid.
The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in question, upon receipt of
the balance of the price, and asks that he be judicially declared the owner of said lots and that the defendant be ordered to deliver
them to him.
The court below absolved the defendant from the complaint, and the plaintiff appealed.
In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of the lots within the
stipulated time; and that since the contract between plaintiff and defendant was an option for the purchase of the lots, time was an
essential element in it.
It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the date, extendible for
fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been admitted that the plaintiff did not offer to
complete the payment until January 9, 1929. He contends that Mabanta, as attorney-in-fact for the defendant in this transaction,
granted him an extension of time until the 9th of January. But Mabanta has stated that he only extended the time until the 5th of
that month. Mabanta's testimony on this point is corroborated by that of Paz Vicente and by the plaintiff's own admission to Narciso
Javier that his option to purchase those lots expired on January 5, 1929.
In holding that the period was an essential element of the transaction between plaintiff and defendant, the trial court
considered that the contract in question was an option for the purchase that the contract in question was an option for the
purchase of the lots, and that in an agreement of this nature the period is deemed essential. The opinion of the court is divided
upon the question of whether the agreement was an option or a sale, but even supposing it was a sale, the court holds that time
was an essential element in the transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain
obligation which fell due in the month of December, 1928. The time fixed for the payment of the price was therefore essential for
the defendant, and this view in borne out by his letter to his representative Mabanta instructing him to consider the contract
rescinded if the price was not completed in time. In accordance with article 1124 of the Civil Code, the defendant is entitled to
resolve the contract for failure to pay the price within the time specified.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
||| (Abella v. Francisco, G.R. No. 32336, [December 20, 1930], 55 PHIL 447-450)

FIRST DIVISION
[G.R. No. L-8024. November 29, 1955.]
EUSEBIO DE LA CRUZ, plaintiff-appellee, vs. APOLONIO LEGASPI and CONCORDIA SAMPEROY,
defendants-appellants.
Jose A. Fornier for appellants.
Ramor Maza for appellee.
SYLLABUS
1. SALES; CONSIDERATION; NON-PAYMENT OF PRICE DOES NOT CONVERT INTO "NUDUM PACTUM." In the
sale of real property, the subsequent non-payment of the price at the time agreed upon does not convert the contract into one
without cause or consideration: a nudum pactum. The situation is rather one in which there is failure to pay the consideration, with
its resultant consequences.

2. ID.; ID.; ID.; VENDOR'S REMEDY. The vendor's remedy in such a case is generally to demand legal interest for the
delay or to demand rescission in court.
3. ID.; ID.; ID.; AUTOMATIC RESCISSION; VENDEE MAY ENFORCE CONTRACT BEFORE DEMAND FOR
RESCISSION IS MADE UPON HIM. Even if the contract of sale expressly provides for "automatic rescission upon failure to pay
the price" the vendee may enforce the contract even after the expiration of the period but before demand for rescission has been
made upon him either by suit or by notarial act.

DECISION

BENGZON, J p:
In the Court of First Instance of Antique, in November, 1950, Eusebio de la Cruz sued Apolonio Legaspi and his wife to
compel delivery of the parcel of land they bad sold to him in December 1949. The complaint alleged the execution of the contract,
the terms thereof, the refusal of defendants to accept payment of the purchase price of P450 which he had tendered, and undue
retention of the realty.
The defendants, in their answer, admitted the sale and the price; but they alleged that before the document (of sale) "was
made, the plaintiff agreed to pay the defendants the amount of P450 right after the document is executed that very day December
5, 1949, but after the document was signed and ratified by the Notary Public and after the plaintiff has taken the original of the said
document, the said plaintiff refused to pay the sum of P450 which is the purchase price of the said land in question." They asserted
that for lack of consideration and for deceit, the document of sale should be annulled.
Plaintiff's next move was a petition for judgment on the pleadings, contending that the allegations of the answer gave the
defendants no excuse to retain the property, rejecting the price.
Joining the motion for judgment on the pleadings, the defendants maintained that the sale should be annulled pursuant to
their answer's allegations.
The Honorable F. Imperial Reyes, Judge, rendered judgment (a) ordering plaintiff to pay the price of P450 to defendants;
(b) ordering the latter to receive such price and immediately after such receipt, to deliver possession of the property to plaintiff.
Having failed in a motion to reconsider, defendants appealed in due time. The seven errors assigned in their printed brief,
assail the correctness of the judgment, maintaining two principal propositions, namely: (1) the trial judge erroneously disregarded
their allegations, in their answer, of non-payment of the price, as hereinbefore quoted; (2) such allegations which must be deemed
admitted by plaintiff when he moved for judgment on the pleadings established a good defense, because the contract was
without consideration, and was resolved by plaintiff's failure to pay the price "right after the document was executed."
As to the first proposition, the decision does not say so, but there is no reason to doubt that as requested in the plaintiff's
motion, His Honor considered the allegations made both in the complaint and in the answer. However, he found that defendants'
allegations constituted no defense. He read the law correctly, as we shall forthwith explain.
On the second proposition, appellants rightly say that the Civil Code not the New Civil Code regulates the
transaction, which occurred in 1949. Yet they err in the assertion that as plaintiff failed to pay the price after the execution of the
document of sale as agreed previously, the contract became null and void for lack of consideration. It cannot be denied that when
the document was signed the cause or consideration existed: P450. The document specifically said so; and such was undoubtedly
the agreement. Subsequent non- payment of the price at the time agreed upon did not convert the contract into one without cause
or consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil, 457.) The situation was rather one
in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the
contract, plaintiff failed to hand the money to defendants, as he previously promised, there was default on his part at most, and
defendants' right was to demand interest legal interest for the delay, pursuant to article 1501 (3) of the Civil Code (Villaruel vs.
Tan King, 43 Phil. 251), or to demand rescission in court. (Escueta vs. Pardo, 42 Off. Gaz. 2759; Cortes vs. Bibao, 41 Phil. 298.)
Such failure, however, did not ipso facto resolve the contract, no stipulation to that effect having been alleged. (Cf. Warner Barnes
& Co. vs. Inza, 43 Phil., 505.) Neither was there any agreement nor allegation that payment on time was essential. (Cf. Abella vs.
Francisco, 55 Phil., 447; Berg vs. Magdalena Estate, 92 Phil., 110.
Indeed, even if the contract of sale here in question had expressly provided for "automatic rescission upon failure to pay
the price," the trial judge could allow plaintiff to enforce the contract, as the judgment does, in effect because defendants had not
made a previous demand on him, by suit or notarial act.

"In the sale of real property, even though it may have been stipulated that in default of the price within the
time agreed upon, the resolution of the contract shall take place ipso facto, the vendee may pay even after the
expiration of the period, at any time before demand has been made upon him either by suit or by notarial act. After
such demand has been made the judge cannot grant him further time." (Art. 1504 Civil Code.)
By the way, this previous demand, Manresa explains, is a demand for rescission. (Manresa Civil Code, Vol. 10, p. 288, 2d
Ed.; Villaruel vs. Tan King, 43 Phil. 251.)
The appealed judgment will therefore be affirmed, with costs against appellants. So ordered.
||| (De la Cruz v. Legaspi, G.R. No. L-8024, [November 29, 1955], 98 PHIL 43-46)

EN BANC
[G.R. No. L-10394. December 13, 1958.]
CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees, vs. MANILA MOTOR CO., INC. and ARTURO
COLMENARES, defendants-appellants.
Hilado & Hilado for appellees.
Ozaeta, Gibbs & Ozaeta for appellant company.
Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares.
SYLLABUS
1. INTERNATIONAL LAW; SEQUESTRATION OF PRIVATE PROPERTY BY BELLIGERENT OCCUPANT
RECOGNIZED; LESSOR OF SEIZED PROPERTY LIABLE FOR DISTURBANCE. Under the generally accepted principles of
international law, which are made part of the law of the Philippines, a belligerent occupant (like the Japanese) may legitimately
billet or quarter its troops in privately owned land and buildings for the duration of its military operations, or as military necessity
should demand. Thus, when the Japanese forces evicted appellant lessee company from the leased buildings and occupied the
same as quarters for its troops, the Japanese authorities acted pursuant to a right recognized by international and domestic law.
Its act of dispossession, therefore, did not constitute a mere act of trespass (perturbacion de mero hecho) but a trespass under
color of title (perturbacion de derecho) chargeable to the lessors of the seized premises, since the belligerent occupant acted
pursuant to a right that the law recognizes.
2. ID.; ID.; ID.; LIABILITY OF LESSEE FOR RENTS DURING OCCUPATION OF PROPERTY. Such dispossession,
though not due to the fault of the lessors or lessee nevertheless deprived the lessee of the enjoyment of the thing leased.
Wherefore, the lessee's corresponding obligation to pay rentals ceased during such deprivation.
3. ID.; ID.; ID.; IMPORTER REFUSAL TO ACCEPT RENTS PLACES LESSORS IN DEFAULT; LIABILITY FOR
SUPERVENING RISK. Since the lessee was exempt from paying the rents for the period of its ouster, the insistence of the
lessors to collect the rentals corresponding to said period was unwarranted and their refusal to accept the currant rents tendered
by the lessee was unjustified. Such refusal places the lessors in default (mora) and they must shoulder the subsequent accidental
loss of the premises leased.
4. ID.; ID.; ID.; ID.; ID.; MORA OF LESSORS NOT CURED BY FAILURE OF LESSEE TO CONSIGN RENTS IN COURT.
The mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected payments, but the
lessee remained obligated to pay the amounts tendered and not consigned by it in court.
5. PLEADING AND PRACTICE; CHANGE IN THE RELIEF PRAYED DURING THE PENDENCY OF THE ACTION. A
change in the relief prayed, brought about by circumstances occurring during the pendency of the action, is not improper. This is
justified under Section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all matters
in the action in dispute between the parties may, as far as possible be completely determined in a single proceeding."

6. ID.; DISMISSAL WITHOUT PREJUDICE. The dismissal of plaintiffs' two causes of action in the case at bar was
premised on the existence of the "Debt Moratorium" which suspended the enforcement of the obligation up to a certain time. The
reference thereto by the court amounted to a dismissal "without prejudice", since in effect it ruled that the plaintiffs could not, at the
time they sought it, enforce their right of action against the defendants, but they must wait until the moratorium was lifted. In this
way, the court qualified its dismissal.

DECISION

REYES, J.B.L., J p:
Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the decision of the Court of First Instance of
Negros Occidental, in its Civil Case No. 648, ordering the defendant Manila Motor Co., Inc. to pay to the plaintiffs Villaruel the sum
of (a) P11,900 with legal interest from May 18, 1953, on which date, the court below declared invalid the continued operation of the
Debt Moratorium, under the first cause of action; (b) P38,395 with legal interest from the date of filing of the original complaint on
April 26, 1947, on the second cause of action; and against both the Manila Motor Co., Inc. and its co-defendant, Arturo
Colmenares, the sum of P30,000 to be paid, jointly and severally, with respect to the third cause of action.
On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract (Exhibit "A")
whereby, the former agreed to convey by way of lease to the latter the following described premises;
(a) Five hundred (500) square meters of floor space of a building of strong materials for automobile
showroom, offices, and store room for automobile spare parts;
(b) Another building of strong materials for automobile repair shop; and
(c) A 5-bedroom house of strong materials for residence of the Bacolod Branch Manager of the defendant
company.
The term of the lease was five (5) years, to commence from the time that the building were delivered and placed at the
disposal of the lessee company, ready for immediate occupancy. The contract was renewable for an additional period of five (5)
years. The Manila Motor Company, in consideration of the above covenants, agreed to pay to the lessors, or their duly authorized
representative, a monthly rental of Three Hundred (P300) pesos payable in advance before the fifth day of each month, and for the
residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos "payable separately by the Manager".
The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from which date, the
period of the lease started to run under their agreement.
This situation, the Manila Motor Co., Inc. and its branch manager enjoying the premises, and the lessors receiving the
corresponding rentals as stipulated, continued until the invasion of 1941; and shortly after the Japanese military occupation of the
Provincial Capital of Bacolod the enemy forces held and used the properties leased as part of their quarters from June 1, 1942 to
March 29, 1945, ousting the lessee therefrom. No payment of rentals were made at any time during the said period.
Immediately upon the liberation of the said city in 1945, the American Forces occupied the same buildings that were
vacated by the Japanese, including those leased by the plaintiffs, until October 31, 1945. Monthly rentals were paid by the said
occupants to the owners during the time that they were in possession, as the same rate that the defendant company used to pay.
Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor Co., Inc., through
their branch manager, Rafael B. Grey, decided to exercise their option to renew the contract for the additional period of five (5)
years, and the parties agreed that the seven months occupancy by the U. S. Army would not be counted as part of the new 5-year
term. Simultaneously with such renewal, the company sublet the same buildings, except that used for the residence of the branch
manager, to the other defendant, Arturo Colmenares.
However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who was entrusted with the same, consulted Atty.
Luis Hilado on whether they (the lessors) had the right to collect, from the defendant company, rentals corresponding to the time
during which the Japanese military forces had control over the leased premises. Upon being advised that they had such a right, Dr.
Villaruel demanded payment thereof, but the defendant company refused to pay. As a result, Dr. Villaruel gave notice seeking the
rescission of the contract of lease and the payment of rentals from June 1, 1942 to March 31, 1945 totalling P11,900. This was
also rejected by the defendant company in its letter to Villaruel, dated July 27, 1946.

Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350, for which, tenderer
requested a receipt that would state that it was in full payment for the said month. The latter expressed willingness to accept the
tendered amount provided, however, that his acceptance should be understood to be without prejudice to their demand for the
rescission of the contract, and for increased rentals until their buildings were returned to them. Later, Dr. Villaruel indicated his
willingness to limit the condition of his acceptance to be that "neither the lessee nor the lessors admit the contention of the other by
the mere fact of payment". As no accord could still be reached between the parties as to the context of the receipt, no payment
was thereafter tendered until the end of November, 1946. On December 4, 1946 (the day after the defendant company notified Dr.
Villaruel by telegram, that it cancelled the power of attorney given to Grey, and that it now authorized Arturo Colmenares, instead,
to pay the rent of P350 each month), the Manila Motor Co., Inc. remitted to Dr. Villaruel by letter, the sum of P350.90. For this
payment, the latter issued a receipt stating that it was "without prejudice" to their demand for rents in arrears and for the rescission
of the contract of lease.
After it had become evident that the parties could not settle their case amicably, the lessors commenced this action on
April 26, 1947 with the Court of First Instance of Negros Occidental against the appellants herein. During the pendency of the case,
a fire originating from the projection room of the City Theatre, into which Arturo Colmenares, (the sublessee) had converted the
former repair shop of the Manila Motor Co. Inc., completely razed the building, engulfing also the main building where Colmenares
had opened a soda fountain and refreshment parlor, and made partitions for store spaces which he rented to other persons.
Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but having been refused,
they filed a supplemental complaint to include as their third cause of action, the recovery of the value of the burned buildings.
Defendants filed their amended answer and also moved for the dismissal of the plaintiffs' first and second causes of
action invoking the Debt Moratorium that was then in force. The dismissal was granted by the trial court on February 5, 1951, but
hearing was set as regards the third cause of action.
On August 11, 1952, the defendant company filed a motion for summary judgment dismissing the plaintiffs, third cause of
action, to which plaintiffs registered objection coupled with a petition for reconsideration of the order of the court dismissing the first
and second causes of action. Pending the resolution of this incident, plaintiffs, on October 2, 1953, called the court's attention to
the decision in the case of Rutter vs. Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued effectivity of the
Moratorium Law (R. A. 342). On November 25, 1953, the trial court denied the defendant company's motion for summary judgment
and set aside its previous order dismissing the first and second causes of action. The case was accordingly heard and thereafter,
judgment was rendered in plaintiffs' favor in the terms set in the opening paragraph of this decision. Thereafter, the defendants
regularly appealed to this Court.
The defendants-appellants raise a number of procedural points. The first of these relates to their contention that the
supplemental complaint which included a third cause of action, should not have been admitted, as it brought about a change in the
original theory of the case and that it raised new issues not theretofore considered. This argument cannot be sustained under the
circumstances. This action was inceptionally instituted for the rescission of the contract of lease and for the recovery of unpaid
rentals before and after liberation. When the leased buildings were destroyed, the plaintiffs-lessors demanded from the
defendants-lessees, instead, the value of the burned premises, basing their right to do so on defendants' alleged default in the
payment of post-liberation rentals (which was also their basis in formerly seeking for rescission). This cannot be considered as
already altering the theory of the case which is merely a change in the relief prayed for, brought about by circumstances occurring
during the pendency of the action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d 746; Suburban Improvement
Company vs. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d 711). The filing of the supplemental complaint can well be justified also
under section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all matters in the
action in dispute between the parties may, as far as possible be completely determined in a single proceedings". It is to be noted
furthermore, that the admission or rejection of this kind of pleadings is within the sound discretion of the court that will not be
disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules of Court), especially so, as in this case, where no
substantial procedural prejudice is caused to the adverse party.
It is urged that the dismissal of the first and second causes of action on February 5, 1951 had the effect of a dismissal
"with prejudice" as the court did not make any qualification in its dismissal order. Appellants, apparently, lost sight of the fact that
the dismissal was premised on the existence of the "Debt Moratorium" which suspended the enforcement of the obligation up to a
certain time. The reference thereto by the lower court amounted to a dismissal "without prejudice", since in effect it ruled that the
plaintiffs could not, at the time they sought it, enforce their right of action against the defendants, but plaintiffs must wait until the
moratorium was lifted. In this way, the court qualified its dismissal.
Taking up the case on its merits, it is readily seen that the key to the entire dispute is the question whether the defendantappellant Manila Motor Co., Inc. should be held liable for the rentals of the premises leased corresponding to the lapse of time that

they were occupied as quarters or barracks by the invading Japanese army, and whether said appellant was placed in default by
its refusal to comply with the demand to pay such rents. For if the Motor Company was not so liable, then it never was in default
nor was it chargeable for the accidental lose of the buildings, nor for any damages except the rental at the contract rate from its
reoccupation of the premises leased until the same were accidentally destroyed by fire on March 2, 1948.
The appellees contended, and the court below has held, that the ouster of the lessee company by the Japanese
occupation forces from 1942 until liberation, while operating to deprive the lessee of the enjoyment of the thing leased, was,
nevertheless, a mere act of trespass ("perturbacion de mero hecho") that, under the Spanish Civil Code of 1889 (in force here until
1950), did not exempt the lessee from the duty to pay rent. We find that contention and ruling erroneous and untenable.
The pertinent articles of the Civil Code of Spain of 1889 provide:
"ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter of the contract;
2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for
the purpose for which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract."
"ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of
the leased property; but the lessee shall have a direct action against the trespasser.
If the third person, be it the Government or a private individual, has acted in reliance upon a right, such
action shall not be deemed a mere act of disturbance." (Italics supplied)
Under the first paragraph of article 1560 the lessor does not answer for a mere act of trespass (perturbacion de mero
hecho) as distinguished from trespass under color of title (perturbacion de derecho). As to what would constitute a mere act of
trespass, this Court in the case of Goldstein vs. Roces (34 Phil. 562), made this pronouncement:
"Si el hecho perturbador no va acompaado ni precedido de nada que revele una intencion propiamente
juridica en el que lo realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho material desnudo de
toda forma o motivacion de derecho, entendemos que se trata de una perturbacion de mero hecho."
Upon the basis of the distinction thus established between the perturbacion de hecho and the perturbacion de derecho, it
is demonstrable that the ouster of the appellant by the Japanese occupying forces belongs to the second class of disturbances, de
derecho. For under the generally accepted principles of international law (and it must be remembered that those principles are
made by our Constitution a part of the law of our nation 1 ) a belligerent occupant (like the Japanese in 1942-1945) may
legitimately billet or quarter its troops in privately owned land and buildings for the duration of its military operations, or as military
necessity should demand. The well known writer Oppenheim, discoursing on the laws of war on land, says upon this topic;
"Immovable private enemy property may under no circumstances or conditions be appropriated by an invading
belligerent. Should he confiscate and sell private land or buildings, the buyer would acquire no right whatever to
the property. Article 46 of the Hague Regulations expressly enacts that 'private property may not be confiscated.'
But confiscation differs from the temporary use of private land and building for all kinds of purposes demanded by
the necessities of war. What has been said above with regard to utilization of public buildings applies equally to
private buildings. If necessary, they may be converted into hospitals, barracks, and stables without compensation
for the proprietors, and they may also be converted into fortifications. A humane belligerent will not drive the
wretched inhabitants into the street if he can help it. But under the pressure of necessity he may be obliged to do
this, and he is certainly not prohibited from doing it. (Italics supplied) (Oppenheim & Lauterpach, International Law,
Vol. II, p. 312, 1944 Ed.)
The view thus expressed is concurred in by other writers. Hyde (International Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes
the U. S. War Department 1940 Rules of Land Warfare (Rule No. 324) to the effect that
"The measure of permissible devastation is found in the strict necessities of war. As an end in itself, as a
separate measure of war, devastation is not sanctioned by the law of war. There must be some reasonably close
connection between the destruction of property and the overcoming of the enemy's army. Thus the rule requiring
respect for private property is not violated through damage resulting from operations, movements, or combats of
the army; that is, real estate may be utilized for marches, camp sites, construction of trenches, etc. Building may
be used for shelter for troops, the sick and wounded, for animals, for reconnaisance, cover defense, etc. Fences,
woods, crops, buildings, etc., may be demolished, cut down, and removed to clear a field of fire, to construct
bridges, to furnish fuel if imperatively needed for the army." (Emphasis supplied)
Reference may also be made to Rule 336:

"What may be requisitioned. Practically everything may be requisitioned under this article (art. LII of the
regulations above quoted) that is necessary for the maintenance of the army and not of direct military use, such as
fuel, food, forage, clothing, tobacco, printing presses, type, leather, cloth, etc. Billeting of troops for quarters and
subsistence is also authorized." (Emphasis supplied)
And Forest and Tucker state:
"The belligerent occupant may destroy or appropriate public property which may have a hostile purpose,
as forts, arms, armories, etc. The occupying force may enjoy the income from the public sources. Strictly private
property should be inviolable, exce pt so for as the necessity of war requires contrary action." (Forest and Tucker,
International Law, 9th Ed., p. 277) (Emphasis supplied)
The distinction between confiscation and temporary sequestration of private property by a belligerent occupant was also
passed upon by this Court in Haw Pia vs. China Banking Corporation, 80 Phil. 604, wherein the right of Japan to sequester or take
temporary control over enemy private property in the interest of its military effort was expressly recognized.
We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased buildings and occupying
the same as quarters for troops, the Japanese authorities acted pursuant to a right recognized by international and domestic law.
Its act of dispossession, therefore, did not constitute perturbacion de hecho but a perturbacion de derecho for which the lessors
Villaruel (and not the appellants lessees) were liable (Art. 1560, su pra) and for the consequences of which said lessors must
respond, since the result of the disturbance was the deprivation of the lessee of the peaceful use and enjoyment of the property
leased. Wherefore, the latter's corresponding obligation to pay rentals ceased during such deprivation.
The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely declared the resolutory effect of the military
sequestration of properties under lease upon the lessee's obligation to pay rent (Jurisprudencia Civil, Segunda Serie, Tomo 8, pp.
583, 608):
"Considerando que para resolver acerca de la procedencia del presente recurso es preciso partir de las
bases de hecho sentadas en la sentencia recurrida, y no impugnadas al amparo del nmero 7. del articulo 1.692
de la Ley de Enjuiciamiento civil, es decir, de que hallandose vigente el contrato de arrendamiento celebrado entre
actor y demandada, en fecha que no se precisa, entre los dias del 18 al 31 de julio de 1936, los locales objeto de
dicho contrato de arrendamiento, y en los que no funcionaba de tiempo anterior la industria para cuyo ejercicio se
arrendaron, fueron requisados por el Ejercito Nacional, con motivo de la guerra civil, para que se instalara en los
mismos la Junta de Donativos al Ejercito del Sur, aun cundo en dicha incautacion, que se hizo a la propiedad de la
finca, no se observaron las formalidades legales, a causa de las circunstancias extraordinarias por que a la sazon
atravesaba Sevilla, hecho que no consta se hiciera saber por los arrendatarios demandados al actor, pero que fue
notorio en aquella capital, donde residia el actor, que de el debio tener concoimiento. Se estima igualmente por la
Sala que el hecho de que la industria no funcionara en el local no tuvo iufluencia alguna sobre su incautacion por
el Ejercito."
"Considerando que sobre tales bases de hecho es de desestimar el primer motivo del recurso: violacion
de los articulos 1.254, 1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la eficacia de los
contratos, puesto que en el presente caso de los que se trata en definitiva es de determinar si por virtud de fuerza
mayor, la requisa a que se hace referencia, ajena, por lo tanto, a culpa, asi del arrendatario como del arrendador,
se vio aqel privado del posible disfrute de la finca arrendada, y de si por virtud de esta circunstancia este o no
exento de la obligacion de abonar la renta pactada durante el tiempo que subsistio la incautacion; y es indudable
la afirmativa en cuanto al primer extremo, puesto que la sentencia recurrida establece que el hecho de que no
funcionase la industria y estuvieran los locales cerrados no actuo como causa de la requisa de estos por el
Ejercito."
"Considerando que la sentencia recurrida, en cuanto no da lugar al pago de las rentas correspondientes
al tiempo que duro la incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del Codigo civil, se ajusta
a la orientacion marcada en el mismo, puesto que este precepto legal dispone que el arrendatario tiene accion
contra el tercero perturbador de mero hecho en la posesion de la finca arrendada, pero no contra la
Administracion o contra los que obran en virtud de un derecho que les corresponde; y aqui la perturbacion que
experimento el arrendador en su posesion, como consecuencia de la requisa, no puede calificarse como de mero
hecho, conforme al citado articulo, puesto que la finca fue requisada por la autoridad militar para fines de guerra,
de donde se sigue que el arrendatario tenia que soportar la privacion de su tenencia material a traves del
arrendador, con quien ha de entenderse la requisa de la cosa arrendada."

In addition, the text of Art. 1560, in its first paragraph (jam quot.) assumes that in case of mere disturbance ( perturbacion
de mero hecho) "the lessee shall have a direct action against the trespasser." This assumption evidently does not contemplate the
case of dispossession of the lessee by a military occupant, as pointed out by Mr. Chief Justice Paras in his dissenting opinion in
Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason that the lessee could not have a direct action against the military
occupant. It would be most unrealistic to expect that the occupation courts, placed under the authority of the occupying belligerent,
should entertain at the time a suit for forcible entry against the Japanese army. The plaintiffs, their lawyers, and in all probability,
the Judge and court personnel, would face "severest penalties" for such defiance of the invader.
The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81 Phil., 601) in that the act of the Japanese
military involved in the latter case clearly went beyond the limits set by the Hague Conventions, in seizing the property and
delivering it to another private party; and from Reyes vs. Caltex (Phil.) Inc., 84 Phil. 654, in that the rights of the military occupant
under international law were not raised or put in issue in said case; and moreover, the lessee there, by failing to rescind the lease
upon seizure of the premises by the Japanese military, despite the stipulated power to do so, resumed business and decided to
hold unto the long term lease for the balance of its 20-year period, starting from December 23, 1940. In the case before us, the
occupation of the leased property by the Japanese army covered the major portion of the five-year contractual period, without any
option to rescind by the lessee.
The lessor's position is not improved by regarding the military seizure of the property under lease as a case of force
majeure or fortuitous event. Ordinarily, a party may not be held responsible therefor, despite the fact that it prevented compliance
of its obligations. But lease being a contract that calls for prestations that are both reciprocal and repetitive (tractum successivum),
the obligations of either party are not discharged at any given moment, but must be fulfilled all throughout the term of the contract.
As a result, any substantial failure by one party to fulfill its commitments at any time during the contract period gives rise to a
failure of consideration (causa) for the obligations of the other party and excuses the latter from the correlative performance,
because the causa in lease must exist not only at the perfection but throughout the term of the contract. No lessee would agree to
pay rent for premises he could not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan, Derecho Civil, 7th Edition, p. 264)

"Como la obligacion del arrendador es sucesiva y se renueva todos los dias, la subsistencia del
arrendamiento se hace imposible cuando, por cualquier razon, el arrendador no puede ya procurar al arrendatario
el disfrute de la cosa."
This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event; the only difference
being that in case of fault, the other party is entitled to rescind the contract in toto, and collect damages, while in casual nonperformance it becomes entitled only to a suspension pro tanto of its own commitments. This rule is recognized in par. 2 of Art.
1558, authorizing the lessee to demand reduction of the rent in case of repairs depriving him of the possession of part of the
property; and in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more than one-half of the fruits
are lost by extraordinary fortuitous event. Of course, where it becomes immediately apparent that the loss of possession or
enjoyment will be permanent, as in the case of accidental destruction of a leased building, the lease contract terminates.
Applying these principles, the Sentencia of December 1944, already adverted to, ruled as follows:
"Considerando que privado el arrendador, por tal hecho, del disfrute de esta, es menifiesta la
imposibilidad en que se vio de cumplir la tercera de las obligaciones que el impone el articulo 1.554 del Codigo
Civil, obligacion (la de mantener al arrendatario en el disfrute de la cosa arrendada) que ha de entenderse
reciproca de la de pago de renta pactada, que impone al arrendatario el nmero primero del art. 1.555 de dicho
Cuerpo legal, y por ello no puede ser exigida."
"Considerando que, aunque no sean estrictamente aplicables al caso los articulos 1.124, 1.556 y 1.568,
que se citan como infringidos por el recurrente, suponiendo que a ellos ha entendido referirse la Audiencia (lo que
impediria, en todo caso, la estimacion del recurso por este motivo, ya que dichos articulos no se citan en la
sentencia de instancia), es evidente que ellos proclaman la reciprocidad de las obligaciones entre arrendatario y
arrendador, y en este sentido, tratandose de un incumplimiento inculpable de contrato, pueden servir, como
tambien el 1.558, en cuanto preven la reduccion de rentas o posible restriccion del contrato cuando el arrendatario
se ve privado, por obras realizadas en la finca arrendada, del disfrute de este, de fundamento, con los demas
preceptos invocados, a una extencion de renta mientras subsiste la imposibilidad de utilizar la cosa arrendada,
sobre todo cuando los articulos 157 y 158 del Reglamento de Requisas de 13 de enero de 1921 estatuyen
claramente que les requisas de edificio se hacen a la propiedad, y es el propietario el que puede pedir
indemnizacion, uno de cuyos elementos es el precio del alquiler que le sea satisfecho por el inmueble incautado."

We are aware that the rule in the common law is otherwise, due to its regarding a lease as a conveyance to the lessee of
a temporary estate or title to the leased property so that loss of possession due to war or other fortuitous event leaves the tenant
liable for the rent in the absence of stipulation. The fundamental difference between the common law and the civil law concepts
has been outlined by the United States in Viterbo vs. Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise:
"But as to the nature and effect of a lease for years, at a certain rent which the lessee agrees to pay, and
containing no express covenant on the part of the lessor, the two systems differ materially. The common law
regards such a lease as the grant of an estate for years, which the lessee takes a title in, end is bound to pay the
stipulated rent for, notwithstanding any injury by flood, fire or external violence, at least unless the injury is such a
destruction of the lend as to amount to an eviction; end by that law the lessor is under no implied covenant to
repair, or even that the premises shall be fit for the purpose for which they are leased. Fowler vs. Bott, 6 Mass. 63;
3 Kent, Com. 465, 466; Broom, Legal Maxims, 3d ed. 213, 214; Doupe vs. Genin, 45 N. Y. 119; Kingbury vs.
Westfall, 61 N. Y. 356. Naumberg vs. Young, 15 Vroom, 331; Bowe vs. Hunking, 135 Mass. 380; Manchester
Warehouse Co. vs. Carr, L.R. 5 C.P.D. 507.
The civil law, on the other hand, regards a lease for years as a mere transfer of the use and enjoyment of
the property; and holds the landlord bound, without any express covenant, to keep it in repair and otherwise fit for
use and enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is caused
by an inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent abated. Dig.
19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2, 25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3, 18, 19: Gregorio
Lopes in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier,
Contract de Louage, nos. 3, 6, 11, 22, 53, 103, 106, 139-155.
It is accordingly laid down in the Pandects, on the authority of Julian, 'If anyone has let an estate, that,
even if anything happens by vis major, he must make it good, he must stand by his contract,' si quis fundum
locaverit, ut, etiamsi quid vi majore accidisset, hoc ei praestaretur, pacto standum esse; Dig. 19, 2, 9, 2; and on the
authority of Ulpian, that 'A lease does not change the ownership,' non solet locatio dominium mutare; Dig. 19, 2, 39;
and that the lessee has a right of action, if he cannot enjoy the thing which he has hired, si re quam conduxit frui
non liceat, whether because his possession, either of the whole or of part of the field, is not made good, or a house,
or stable or sheepfold, is not repaired; and the landlord ought to warrant the tenant, dominum colono praestare
debere, against every irresistible force, omnim vim cui resisti non potest, such as floods, flocks of birds, or any like
cause, or invasion of enemies; and if the whole crop should be destroyed by a heavy rainfall, or the olives should
be spoiled by blight, or by extraordinary heat of the sun, solis fervore non assueto, it would be the loss of the
landlord, damnum domini futurum; and so if the field falls in by an earthquake, for there must be made good to the
tenant a field that he can enjoy, o portere enim agrum praestari conductori, ut frui possit; but if any loss arises from
defects in the thing itself, si qua tamen vitia ex i psa re oriantur, as if wine turns sour, or standing corn is spoiled by
worms or weeds, or if nothing extraordinary happens, si vero nihil extra consuetudinem acciderit, it is the loss of
the tenant, damnum coloni asse. Dig. 19, 2; 15, 1, 2." (Emphasis supplied)
In short, the law applies to leases the rule enunciated by the Canonists and the Bartolist School of Post glossatorse, that
"contractus qui tractum successivum habent et de pendentiam de futuro, sub conditione rebus sic stantibus intelliguntur," they are
understood entered subject to the condition that things will remain as they are, without material change.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal of the contract of
lease for another five years (from June 1, 1946 to May 31 of 1951) without making any reservation regarding the alleged liability of
the lessee company for the rentals corresponding to the period of occupancy of the premises by the Japanese army, and without
insisting that the non-payment of such rental was a breach of the contract of lease. This passivity of the lessors strongly supports
the claim of the lessees that the rentals in question were verbally waived. The proffered explanation is that the lessors could not
refuse to renew the lease, because the privilege of renewal had been granted to the lessees in the original contract. Such excuse
is untenable: if the lessors deemed that the contract had been breached by the lessee's non-payment of the occupation rents how
could they admit the lessee's right to renew a contract that the lessee itself had violated?
But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It was only in July
1946 that they insisted upon collecting also the 1942-1945 rents, and refused to accept further payments tendered by the lessee
unless their right to collect the occupation rental was recognized or reserved. After refusing the rents from July to November 1946,
unless the lessee recognized their right to occupation rentals, the appellees (lessors) demanded rescission of the contract and a
rental of P1,740 monthly in lieu of the stipulated P350 per month. (Exhibit "C").
This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by the Japanese
army exempted the lessee from his obligation to pay rent for the period of its ouster; and second, because even if the lessee had
been liable for that rent, its collection in 1946 was barred by the moratorium order, Executive Order No. 32, that remained in force

until replaced by Rep. Act 342 in 1948. To apply the current rentals to the occupation obligations would amount to enforcing them
contrary to the moratorium decreed by the government.
Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was unwarranted in law. Hence,
their refusal to accept the current rentals without qualification placed them in default (mora creditoris or acci piendi) with the result
that thereafter, they had to bear all supervening risks of accidental injury or destruction of the leased premises. While not expressly
declared by the Code of 1889, this result is clearly inferable from the nature and effects of mora, and from Articles 1185, 1452 [par.
3] and 1589).
"ART. 1185. When the obligation to deliver a certain and determinate thing arises from the commission of
a crime or misdemeanor the obligor shall not be exempted from the payment of its value, whatever the cause of its
loss may have been, unless, having offered the thing to the person entitled 'to receive it, the latter should have
refused without reason to accept it."
"Art. 1452. . . .
If fungible things should be sold for a price fixed with relation to weight, number, or measure, they shall
not be at the purchaser's risk until they have been weighed, counted, or measured, unless the purchaser should be
in default."
"ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he shall
bear the loss in case of the destruction of the work before it is delivered, unless its acceptance has been delayed
by the default of the other party."
While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code of 1889, Art.
1563), it is noteworthy that the lessors have not invoked that presumption either here or in the court below. On the contrary, the
parties and the trial court have all proceeded and discussed the issues taking for granted that the destruction of the leased
buildings was purely fortuitous. We see no reason for departing from that assumption and further prolonging this litigation.
That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly rejected by the
lessors, did not render the debtor liable for default (mora solvendi) nor answerable for fortuitous events because, as explained by
the Supreme Court of Spain in its Sentencia of 5 June 1944
"Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no quiere decir que
necesariamente haya de practicarse, y no baste el ofrecimiento de pago que de aquella no fuere seguido, a
efectos de exclusion ds las consecuencias de la mora solvendi." (8 Manresa, Comentarios, 5th Ed., Vol. I, p. 136).
In other words, the only effect of the failure to consign the rentals in court was that the obligation to pay them subsisted (P.N.B. vs.
Relativo, 92 Phil., 203) and the lessee remained liable for the amount of the unpaid contract rent, corresponding to the period from
July to November, 1946; it being undisputed that, from December 1946 up to March 2, 1948, when the commercial buildings were
burned, the defendants-appellants have paid the contract rentals at the rate of P350 per month. But the failure to consign did not
eradicate the default (mora) of the lessors nor the risk of loss that lay upon them. (3 Castan, Der. Civ., 8th Ed., p. 145; 4 Puig Pea,
Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192-193).
In view of the foregoing, we hold:
(a) That the dispossession of the lessee from the premises by the Japanese army of occupation was not an act of mere
trespass ( perturbacion de mero hecho) but one de derecho chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the exemption of the
lessee from its obligation to pay rent during the period that it was deprived of the possession and enjoyment of the premises
leased;
(c) That the insistence of the lessors to collect such rentals was unwarranted;
(d) That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee should
recognize their right to the rents corresponding to the period that the lessee was not in possession;
(e) That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred in default (mora)
and they must shoulder the subsequent accidental loss of the premises leased;
(f) That the mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected
payments, but the lessee remained obligated to pay the amounts tendered and not consigned by it in court.

Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable value of the
occupation of the premises from July 1946, and the value of the destroyed buildings amounting to P30,000.
Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor Company should pay to
the appellees Villaruel only the rents for the leased premises corresponding to the period from July up to November 1946, at the
rate of P350 a month, or a total of P1,750. Costs against appellees in both instances. So ordered.
||| (Vda. de Villaruel v. Manila Motor Co., Inc., G.R. No. L-10394, [December 13, 1958], 104 PHIL 926-946)

SECOND DIVISION
[G.R. No. L-45710. October 3, 1985.]
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO,
respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.

DECISION

MAKASIAR, C.J p:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R
dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the
petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said
title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a
period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his
wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution
of the contract at semi-annual installments of P3,459.00 (p. 64, rec.), An advance interest for the P80,000.00 loan covering a 6-month
period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to
Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the
P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00
balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by
unanimous vote, decided as follows:

"1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans, provided that such
extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;
. . ." (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the
Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the
sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the
P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate
mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the
Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. Tolentino
and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding unmeritorious the petition of Sulpicio M.
Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00 plus legal interest and legal charges due thereon, and
lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by
affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither
foreclose the real estate mortgage nor collect the P17,000.00 loan (pp. 30-31, rec.). prcd
Hence, this instant petition by the Central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount?.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco
vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed or is ready and
willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay
(Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued.
Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary
Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan.

The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No.
265, which took effect on June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings Bank in complying
with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute
any defense to a decree of specific performance (Gutierrez Repide vs. Afzelins and Afzelins, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but instead it is taken as a breach of the contract by
him (Vol. 17A, 1974 ed., CJS p. 650). LexLib
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the
supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering
that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt.
Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently
of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the
exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously ruled that bank officials and employees are expected
to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is
the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must
investigate the existence and valuation of the properties being offered as a loan security. The recent rush of events where collaterals
for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by
bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent
non-performance of this responsibility. If ever, bank officials and employees totally rely on the representation of their customers as to
the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation
made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on
objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure
to raise the same in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island
Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00
loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover
it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to
Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations
under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right
to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a
promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan
because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they are both liable for damages. Cdpr

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of
the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in
offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he
should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs.
Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the
accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid,
voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no
debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of
consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage
(Bonnevie vs. C.A., 125 SCRA 122 [1983]). It may either be a prior or subsequent matter. But when the consideration is subsequent to
the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs.
Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p.
88, cited in 6th ed., Wiltsie on Mortgage, Vol. 1, p. 180). LLpr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the
debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage,
to the prejudice of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor
which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17,000.00,
PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED' FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNENFORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
||| (Central Bank of the Phils. v. Court of Appeals, G.R. No. L-45710, [October 3, 1985], 223 PHIL 266-279)

EN BANC
[G.R. No. L-4811. July 31, 1953.]
CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant.
Taada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
SYLLABUS
1. EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS. Plaintiff entered into a written agreement
with the defendant to the effect that they shall organize a partnership for the bottling and distribution of soft drinks, plaintiff to act as
industrial partner or manager, and the defendant a capitalist furnishing the capital necessary therefor. The defendant claims that
his consent to the agreement was secured by the representation of plaintiff that he was the owner, or was about to become owner,
of an exclusive bottling franchise, which representation was false. The fraud and false representation is sought to be proven by
means, among others, of the drafts of the agreement prior to the final one, which drafts are presumed to have already been
integrated into the final agreement. Are those prior drafts excluded from the prohibition of the parol evidence rule? Held: The
purpose of considering the drafts is not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and
the circumstances surrounding the execution of the contract. The issue of fact is, did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to
prove how he induced the defendant to enter into it - to prove the representations or inducements, or fraud, with which or by which
he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs.
Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber Co., vs. Export & Import Lumber Co., 26 Phil., 602; 3 Moran 221, 1952
rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by
the rules on integration. Where parties prohibited from proving said representations or inducements, on the ground that the
agreement had already been entered into, it would be impossible to prove misrepresentation or fraud. The parol evidence rule
expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (sec. 22-a of
Rule 123).
2. ID.; INTERPRETATION OF DOCUMENTS. AS plaintiff knew what defendant believed about his (plaintiff's exclusive
franchise, as he induced him to that belief, plaintiff may not be allowed to deny that defendant was induced by that belief (sec. 63
of Rule 123).
3. FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE AND DOLO INCIDENTE; IT IS THE FORMER THAT
VITIATES CONSENT. Fraud is manifested in illimitable number of degrees or gradations from the innocent praises of a
salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime.
In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud which may be a
ground for the annulment of a contract, and the incidental deceit which only renders the party who employs it liable for damages. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement
to the making of the contract (art. 1270, Span. Civ. Code; Hill vs. Veloso, 31 Phil., 160). In the case at bar, inasmuch as the
principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability
of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership, the false representation

made by the plaintiff was not the casual consideration, or the principal inducement, that led the defendant to enter into the
partnership agreement.
4. ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENTE; PARTNERSHIP. While the representation that plaintiff had the
exclusive franchise did not vitiate defendant' consent to the contract, it was used by plaintiff to get from defendant a share of 30
per cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined
in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an
incidental matter in the agreement. (8 Manresa, 602.)
5. CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO INCIDENTE; PARTNERSHIP;
AGREEMENT TO FORM PARTNERSHIP, CANNOT BE ENFORCED. Having arrived at the conclusion that the agreement to
organize a partnership may not be declared null and void, may the agreement be carried out or executed? Held: Under the
Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do
an act he has promised to do, or not to do it, as he pleases. This is a very personal act (acto personalisimo) of which courts may
not compel compliance, as it is considered as an act of violence to do so. (29 as it is considered as an act of violence to do so. (19
Scaevolla, 428, 431-432.)
6. FALSE REPRESENTATION; DAMAGES FOR DOLO INCIDENTE. Plaintiff is entitled under the terms of the
agreement to 30 per cent of the net profits of the business. Against this amount of damages, the damage the defendant suffered
by plaintiff's misrepresentation that he had the exclusive franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the
defendant learned, in Los Angeles, California, that plaintiff did not have the exclusive franchise which he pretended he had and
which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce the plaintiff's share from 30 per cent to
15 per cent only, to which reduction plaintiff appears to have readily given his assent. Held: By the misrepresentation of the plaintiff,
he obtained a very high percentage (30%) of share in the profits. Upon learning of the misrepresentation, defendant reduced
plaintiff's share to 15 per cent, to which defendant assented. The court can do no better than follow such appraisal of the damages
as the parties themselves had adopted.

DECISION

LABRADOR, J p:
On November 29, 1947, the plaintiff entered into a written agreement, Exhibit A, with the defendant, the most important
provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to
act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the
defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and
development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement
was arrived at after various conferences and consultations by and between them, with the assistance of their respective attorneys.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U. S. A.,
manufacturers of the bases and ingredients of the beverages bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a
limited time under the condition that it will finally be transferred to the corporation (Exhibit H). Pursuant to this request, plaintiff was
given "a thirty days' option on exclusive bottling and distribution rights for the Philippines" (Exhibit H). Formal negotiations between
plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or OO, but this was not satisfactory because a
partnership, instead of a corporation, was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This
last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without
the agreement being first signed. On that day plaintiff and defendant went to the United States, and on December 10, 1947, a
franchise agreement (Exhibit V) was entered into between the Mission Dry Corporation and Fortunato F. Halili and/or Charles F.
Woodhouse, granting defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mission beverages
in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948,
but operations were not begun until the first week of February, 1948. In January plaintiff was given as advance, on account of

profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was
withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be executed.
At first defendant excused himself, saying there was no hurry. Then he promised to do so after the sales of the products had been
increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give
further allowances to plaintiff, the latter caused his attorneys to take up the matter with defendant with a view to a possible
settlement. As none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share
thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was
about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did not secure the
franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, bus that it was plaintiff
who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also
presented a counterclaim for P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First
Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling and distribution business,
subject of the action, and to pay plaintiff 15 per cent thereof. It held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have
appealed.
The most important question of fact to be determined is whether defendant had falsely represented that he had an
exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement
to form the partnership. The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting
plaintiff the option; that defendant would not have gone to the United States without knowing what authority plaintiff had; that the
drafts of the contract prior to the final one can not be considered for the purpose of determining the issue, as they are presumed to
have been already integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the
agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive
franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore,
the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's
contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive
grantee of a franchise, thus:
"A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to
this matter. I notice from the first draft of the document which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . "(t.s.n., p. 518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on
November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states:
'Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the Philippines;
xxx xxx xxx
"3. That the manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines."
xxx xxx xxx
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is
inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the intent
of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff represent
to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and
relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter
the terms of the agreement, but to prove how he induced the defendant to enter into it to prove the representations or

inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded from the
parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber Co. vs. Export & Import
Lumber Co., 26 Phil., 602; III Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act,
not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered into, it would be impossible to prove misrepresentation
or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is
put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court), as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his
letter to Mission Dry Corporation, Exhibit H, he said:
". . . He told me to come back to him when I was able to speak with authority so that we could come to
terms as far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in
a poor bargaining position. . . .
"I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time,
during which I may consummate my plans. . . .. "
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option
for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal with
him, he must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure,
through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on
the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the
bottling business." (t.s.n., pp. 60-61). When after the elections of 1949 plaintiff went to see the defendant (and at the time he had
already the option), he must have exultantly told defendant that he had the authority already. It is improbable and incredible for him
to have disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only, and still more
improbable for him to have disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had
he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure
the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did
actually make the representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had not
actually obtained it for himself? Defendant would not have gone into the business unless the franchise was raised in his name, or
at least in the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by
defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing the franchise for the
defendant, plaintiff was to secure it for the partnership. To show that the insertion of the above provision does not eliminate the
probability of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:
". . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . . .
and in paragraph 11 it also expressly states:
"1. In the event of dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager."
These statements confirm the conclusion that defendant believed, or was made to believe, the plaintiff was the grantee of an
exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership,
and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive
franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could
not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud
improbable. Not necessarily, because the alleged representation took place before the conferences were had; in other words,
plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise
before the formal negotiations, and they were assisted by their lawyers only when said formal negotiations actually took place.
Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified
that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it. (t. s. n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant would
not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive
privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that
defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It
must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a
ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages.
This Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental
(dolo incidente), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The
record abounds with circumstances indicative of the fact that the principal consideration, the main cause that induced defendant to
enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for
the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated
himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made not as to the
said obligation but as to the grantee. In the corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract
in its final form retains the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the
exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto
(when the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership
agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff
gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the
draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
"3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager full paid non-assessable shares of
the said corporation . . . twenty-five per centum of the capital stock of the said corporation." (Par. 3, Exhibit II;
emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter
of fact, when the bottling plant was being built, all that he suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate
defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the
latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement.
"El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui,
el que concurriendo en el consentimiento, o precediendolo, no influyo para arrancar por si solo el consentimiento
ni en la totalidad de la obligacion, sino en algun extremo o accidente de esta, dando lugar tan solo a una accion
para reclamar indemnizacion de perjuicios." (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes
before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was
already a fiat accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. They expressly
agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the
Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that defendant comply with the

agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent
with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what
Spanish commentators call a very personal act (acto personalisimo), of which courts may not compel compliance, as it is
considered an act of violence to do so.
"Efectos de las obligaciones consistentes en hechos personalisimo. Tratamos de la ejecucion de las
obligaciones de hacer en el solo caso de su incumplimiento por parte del deudor, y sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas esta
regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.
"Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a
realizar el hecho y por que medios.
"Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el pricipio romano
nemo potest precise cogi ad factum. Los que perciben la posibilidad de la destruccion de este principio, aaden
que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y no es
la violencia modo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuando decia que obligar por la violencia seria infringir la libertad e imponer una especie de esclavitud."
xxx xxx xxx
"En efecto; las obligaciones contractuales no se acomodan bien con el empleo de la fuerza fisica, no ya
precisamente porque se constituya de este modo una especie de esclavitud, segun el dicho de Antonio Gomez,
sino porque se supone que el acreedor tuvo en cuenta el caracter personalisimo del hecho ofrecido, y calculo
sobre la posibilidad de que por alguna razon no se realizase. Repugna, ademas, a la conciencia social el empleo
de la fuerza publica, mediante coaccion sobre las pesonas, en las relaciones puramente particulares; porque la
evolucion de las ideas ha ido poniendo mas de relieve cada dia el respeto a la personalidad humana, y no se
admite bien la violencia sobre el indivicuo la cual tiene caracter visiblemente penal, sino por motivos que interesen
a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando se trata de las obligaciones que
hemos llamado ex lege, que afectan al orden social y a la entidad de Estado, y aparecen impuestas sin
consideracion a las conveniencias particulares, y sin que por este motivo puedan tampoco ser modificadas; pero
no debe serlo cuando la obligacion reviste un interes puramente particular, como sucede en las contractuales, y
cuando, por consecuencia, pareceria salirse el Estado de su esfera propia, entrado a dirimir, con apoyo de la
fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431- 432.)"
The last question for us to decide is that of damages, damages that plaintiff is entitled to receive because of defendant's
refusal to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the
actual loss suffered and the profits reasonably expected to be received, embraced in the terms dao emergente and lucro cesante.
Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of
damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had the exclusive franchise, by
which misrepresentation he obtained a very high percentage of share in the profits. We can do no better than follow the appraisal
that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and
which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share from 30 per cent to 15
per cent only, to which reduction defendant appears to have readily given his assent. It was under this understanding, which
amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the first
three months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to
reduce the same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate of the
damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil.
176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of
the reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains the
stipulation that upon the termination of the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A).
The judgment of the trial court does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph 11

of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.
||| (Woodhouse v. Halili, G.R. No. L-4811, [July 31, 1953], 93 PHIL 526-542)

SECOND DIVISION
[G.R. No. 108253. February 23, 1994.]
LYDIA L. GERALDEZ, petitioner, vs. HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION,
respondents.

DECISION

REGALADO, J p:
Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has become a matter of public interest
as to call for its promotion and regulation on a cabinet level. We have special laws and policies for visiting tourists, but such protective
concern has not been equally extended to Filipino tourists going abroad. Thus, with the limited judicial relief available within the ambit
of present laws, our tourists often prefer to forget their grievances against local tour operators who fail to deliver on their undertakings.
This case illustrates the recourse of one such tourist who refused to forget.
An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against private respondent Kenstar
Travel Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial Court of Quezon City, Branch 80. 1 After the parties
failed to arrive at an amicable settlement, trial on the merits ensued.
Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know about private respondent from
numerous advertisements in newspapers of general circulation regarding tours in Europe. She then contacted private respondent by
phone and the latter sent its representative, Alberto Vito Cruz, who gave her the brochure for the tour and later discussed its highlights.
The European tours offered were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a
22-day tour of Europe for $2,990.00. She paid the total equivalent amount of P190,000.00 charged by private respondent for her and
her sister, Dolores. prLL
Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that, contrary to what was stated in
the brochure, there was no European tour manager for their group of tourists, the hotels in which she and the group were billeted were
not first-class, the UGC Leather Factory which was specifically added as a highlight of the tour was not visited, and the Filipino lady
tour guide by private respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first time. 2
In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a writ of preliminary
attachment against private respondent on the ground that it committed fraud in contracting an obligation, as contemplated in Section 1
(d), Rule 57 of the Rules of Court, to which no opposition by the latter appears on the record. This was granted by the court a quo 3 but
the preliminary attachment was subsequently lifted upon the filing by private respondent of a counterbond amounting to P990,000.00. 4
During the pendency of said civil case for damages, petitioner also filed other complaints before the Department of Tourism in DOT
Case No. 90-121 and the Securities and Exchange Commission in PED Case No. 90-3738, 5 wherein, according to petitioner, herein
private respondent was meted out a fine of P10,000.00 by the Commission and P5,000.00 by the Department, 6 which facts are not
disputed by private respondent in its comment on the present petition.

On July 9, 1991, the court a quo rendered its decision 7 ordering private respondent to pay petitioner P500.000.00 as moral damages,
P200,000.00 as nominal damages, P300,000.00 as exemplary damages, P50,000.00 as and for attorney's fees, and the costs of the
suit. 8 On appeal, respondent court 9 deleted the award for moral and exemplary damages, and reduced the awards for nominal
damages and attorney's fees to P30,000.00 and P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades of contentions alternately thrust and parried in the exchanges of
the parties, the pivotal issue that emerges is whether or not private respondent acted in bad faith or with gross negligence in
discharging its obligations under the contract.
Both the respondent court and the court a quo agree that private respondent failed to comply faithfully with its commitments under the
Volare 3 tour program, more particularly in not providing the members of the tour group with a European tour manger whose duty, inter
alia, was to explain the points of interest of and familiarize the tour group with the places they would visit in Europe, and in assigning
instead a first timer Filipino tour guide, in the person of Rowena Zapanta, 11 to perform that role which definitely requires experience
and knowledge of such places. It is likewise undisputed that while the group was able to pay a visit to the site of the UGC Leather
Factory, they were brought there at a very late hour such that the factory was already closed and they were unable to make purchases
at supposedly discounted prices. 12 As to the first-class hotels, however, while the court a quo found that the hotels were not fist-class,
respondent court believed otherwise, or that, at least, there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under the aforementioned circumstances, respondent court,
contrary to the findings of the trial court, ruled that no malice or bad faith could be imputed to private respondent, hence there is no
justification for the award of moral and exemplary damages. Furthermore, it held that while petitioner is entitled to nominal damages,
the amount awarded by the trial court was unconscionable since petitioner did not suffer actual or substantial damage from the breach
of contract, 13 hence its reduction of such award as hereinbefore stated. LibLex
After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we are satisfactorily convinced, and
so hold, that private respondent did commit fraudulent misrepresentations amounting to bad faith, to the prejudice of petitioner and the
members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced and a first timer tour escort, private
respondent manifested its indifference to the convenience, satisfaction and peace of mind of its clients during the trip, despite its
express commitment to provide such facilities under the Volare 3 Tour Program which had the grandiose slogan "Let your heart sing."
14
Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15 cannot effectively acquaint the
tourists with the interesting areas in the cities and places included in the program, or to promptly render necessary assistance,
especially where the latter are complete strangers thereto, like witnesses Luz Sui Haw and her husband who went to Europe for their
honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and conscious choice on the part of
private respondent in order to afford her an on-the-job training and equip her with the proper opportunities so as to later qualify her as
an "experienced" tour guide and eventually be an asset of respondent corporation. 17 Unfortunately, this resulted in a virtual project
experimentation with petitioner and the members of the tour as the unwitting participants.
We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a qualified tour guide for the Volare
3 tour package. It brooks no argument that to be true to its undertakings, private respondent should have selected an experienced
European tour guide, or it could have allowed Zapanta to go merely as an understudy under the guidance, control and supervision of
an experienced and competent European or Filipino tour guide, 18 who could give her the desired training. LexLib
Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the latter ask for the assistance but at
the moment such need becomes apparent. In other words, the tour guide, especially by reason of her experience in previous tours,
must be able to anticipate the possible needs and problems of the tourists instead of waiting for them to bring it to her attention. While
this is stating the obvious, it is her duty to see to it that basic personal necessities such as soap, towels and other daily amenities are
provided by the hotels. It is also expected of her to see to it that the tourists are provided with sanitary surroundings and to actively
arrange for medical attention in case of accidents, as what befell petitioner's sister and wherein the siblings had to practically fend for
themselves since, after merely calling for an ambulance, Zapanta left with the other tour participants. 19

Zapanta fell far short of the performance expected by the tour group, her testimony in open court being revelatory of her inexperience
even on the basic function of a tour guide, to wit:
"Q Now, are you aware that there were times that the tourists under the 'Volare 3' were not provided with soap and
towels?
A They did not ell me that but I was able to ask them later on but then nobody is complaining." 20
The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of Zapanta in attentively following
the itinerary of the day. This incompetence must necessarily be traced to the lack of due diligence on the part of private respondent in
the selection of its employees. It is true that among the thirty-two destinations, which included twenty-three cities and special visits to
nine tourist spots, this was the only place that was not visited. 21 It must be noted, however, that the visit to the UGC Leather Factory
was one of the highlights 22 of the Volare 3 program which even had to be specifically inserted in the itinerary, hence it was incumbent
upon the organizers of the tour to take special efforts to ensure the same. Besides, Petitioner did expect much from the visit to that
factory since it was represented by private respondent that quality leather goods could be bought there at lower prices. 23

Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of prudence and diligence on the
latter's part as a tour guide. 24 It further claims that these calls were needed so that it could monitor the progress of the tour and
respond to any problem immediately. 25 We are not persuaded. The truth of the matter is that Zapanta, as an inexperienced traineeon-the-job, was required to make these calls to private respondent for the latter to gauge her ability in coping with her first assignment
and to provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of its specific assurance to the tour
group, resulting in agitation and anxiety on their part, and which deliberate omission is contrary to the elementary rules of good faith
and fair play. It is extremely doubtful if any group of Filipino tourists would knowingly agree to be used in effect as guinea pigs in an
employees' training program of a travel agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles
and languages. LexLib
On the matter of the European tour manager, private respondent's advertisement in its tour contract declares and represents as follows:
"FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He speaks your language, shares your culture and feels your
excitement.
He won't be alone because you will also be accompanied by a . . .
EUROPEAN TOUR MANAGER!
You get the best of both worlds. Having done so many tours in the past with people like you, he knows your
sentiments, too. So knowledgeable about Europe, there is hardly a question he can't answer." 27
Private respondent contends that the term "European Tour Manager" does not refer to an individual but to an organization, allegedly
the Kuoni Travel of Switzerland which supposedly prepared the itinerary for its "Volare Europe Tour," negotiated with all the hotels in
Europe, selected tourist spots and historical places to visit, and appointed experienced local tour guides for the tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily reveal the express representation that the contemplated European tour manager is
a natural person, and not a juridical one as private respondent asserts. A corporate entity could not possibly accompany the members
of the tour group to places in Europe; neither can it answer questions from the tourist during the tour. Of course, it is absurd that if a
tourist would want to know how he could possibly go to the nearest store or supermarket, he would still have to call Kuoni Travel of
Switzerland. LexLib

Furthermore, both lower courts observed, and we uphold their observations, that indeed private respondent had the obligation to
provide the tour group not only with a European tour manager, but also with local European tour guides. The latter, parenthetically,
were likewise never made available. 29 Zapanta claims that she was accompanied by a European local tour guide in most of the major
cities in Europe. We entertain serious doubts on, and accordingly reject, this pretension for she could not even remember the name of
said European tour guide. 30 If such a guide really existed, it is incredible why she could not even identify the former when she testified
a year later, despite the length of their sojourn and the duration of their association.
As to why the word "he" was used in the aforequoted advertisement, private respondent maintains that the pronoun "he" also includes
the word "it," as where it is used as a "nominative case form in general statements (as in statutes) to include females, fictitious persons
(as corporations)." 31 We are constrained to reject this submission as patently strained and untenable. As already demonstrated, it is
incredible that the word "he" was used by private respondent to denote an artificial or corporate being. From its advertisement, it is
beyond cavil that the import of the word "he" is a natural and not a juridical person. There is no need for further interpretation when the
wordings are clear. The meaning that will determine the legal effect of a contract is that which is arrived at by objective standards; one
is bound, not by what he subjectively intends, but by what he leads others reasonably to think he intends. 32
In an obvious but hopeless attempt to arrive at a possible justification, private respondent further contends that it explained the concept
of a European tour manager to its clients at the pre-departure briefing, which petitioner did not attend. 33 Significantly, however, private
respondent failed to present even one member of the tour group to substantiate its claim. It is a basic rule of evidence that a party must
prove his own affirmative allegations. 34 Besides, if it was really its intention to provide a juridical European tour manager, it could not
have kept on promising its tourists during the tour that a European tour manager would come, 35 supposedly to join and assist them.
LLjur
Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its responsibility as printed on the face of
its brochure on the Volare 3 program, to wit:
"RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT, THEIR
EMPLOYEES OR SUB-AGENTS SHALL BE RESPONSIBLE ONLY FOR BOOKING AND MAKING
ARRANGEMENTS AS YOUR AGENTS. Kenstar Travel Corporation, your Travel Agent, their employees or subagents assume no responsibility or liability arising out of or in connection with the services or lack of services, of
any train, vessel, other conveyance or station whatsoever in the performance of their duty to the passengers or
guests, neither will they be responsible for any act, error or omission, or of any damages, injury, loss, accident,
delay or irregularity which may be occasioned by reason (of) or any defect in . . . lodging place or any facilities. . . .
(Emphasis by private respondent.) 36
While, generally, the terms of a contract result from the mutual formulation thereof by the parties thereto, it is of common knowledge
that there are certain contracts almost all the provisions of which have been drafted by only one party, usually a corporation. Such
contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion"
thereto. 37 In situations like these, when a party imposes upon another a ready-made form of contract, 38 and the other is reduced to
the alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal
footing, a contract of adhesion results. While it is true that an adhesion contract is not necessarily void, it must nevertheless be
construed strictly against the one who drafted the same. 39 This is especially true where the stipulations are printed in fine letters and
are hardly legible, as is the case of the tour contract 40 involved in the present controversy.
Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private respondent still cannot be exculpated
for the reason that responsibility arising from fraudulent acts, as in the instant case, cannot be stipulated against by reason of public
policy. Consequently, for the foregoing reasons, private respondent cannot rely on its defense of "substantial compliance" with the
contract.
Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out of eighteen participants in the
Volare 3 Tour Program, actually complained. 41 We cannot accept this argument. Section 28, Rule 130 of the Rules of Court declares
that the rights of a party cannot be prejudiced by an act, declaration, or omission of another, a statutory adaptation of the first branch of
the hornbook rule of res inter alios acta 42 which we do not have to belabor here.
Besides, it is a commonly known fact that there are tourists who, although the tour was far from what the tour operator undertook under
the contract, choose to remain silent and forego recourse to a suit just to avoid the expenses, hassle and rancor of litigation, and not
because the tour was in accord with what was promised. One does not relish adding to the bitter memory of a misadventure the

unpleasantness of another extended confrontation. Furthermore, contrary to private respondent's assertion, not only petitioner but two
other members of the tour group. Luz Sui Haw and Ercilla Ampil, confirmed petitioner's complaints when they testified as witnesses for
her as plaintiff in the court below. 43
Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour package that the hotels it had
chosen would provide the tourists complete amenities and were conveniently located along the way for the daily itineraries. 44 It turned
out that some of the hotels were not sufficiently equipped with even the basic facilities and were at a distance from the cities covered
by the projected tour. Petitioner testified on her disgust with the conditions and locations of the hotels, thus: prcd
"Q And that these bathrooms ha(ve) bath tub(s) and hot and cold shower(s)?
A Not all, sir.
Q Did they also provide soap and towels?
A Not all, sir, some (had) no toilet paper. 45
Q Which one?
A The 2 stars, the 3 stars and some 4 stars (sic) hotels.
Q What I am saying . . .
A You are asking a question? I am answering you. 2 stars, 3 stars and some 4 stars (sic) hotels, no soap, toilet
paper and (the) bowl stinks. . . .
xxx xxx xxx
Q And that except for the fact that some of these four star hotels were outside the city they provided you with the
comfort?

A Not all, sir.

Q Can you mention some which did not provide you that comfort?
A For example, if Ramada Hotel Venezia is in Quezon City, our hotel is in Meycauayan. And if Florence or Ferenze
is in Manila, our hotel is in Muntinlupa. 46
xxx xxx xxx
A One more hotel, sir, in Barcelona, Hotel Saint Jacques is also outside the city. Suppose Barcelona is in Quezon
City, our hotel is in Marilao. We looked for this hotel inside the city of Barcelona for three (3) hours. We
wasted our time looking for almost all the hotels and places where to eat. That is the kind of tour that you
have." 47
Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon, shared the sentiments of petitioner and
testified as follows:
Q . . . Will you kindly tell us why the hotels where you stayed are not considered first class hotels? LLpr

A Because the hotels where we went, sir, (are) far from the City and the materials used are not first class and at
times there were no towels and soap. And the two (2) hotels in Nevers and Florence the conditions (are)
very worse (sic). 48
Q Considering that you are honeymooners together with your husband, what (were) your feelings when you found
out that the condition were not fulfilled by the defendant?
A I would like to be very honest. I got sick when I reached Florence and half of my body got itch (sic). I think for a
honeymooner I would like to emphasize that we should enjoy that day of our life and it seems my feet kept
on itching because of the condition of the hotel. And I was so dissatisfied because the European Tour
Manger was not around there (were) beautiful promises. They kept on telling us that a European Tour
Manager will come over; until our Paris tour was ended there was no European tour manager. 49
xxx xxx xxx
Q You will file an action against the defendant because there was a disruption of your happiness, in your
honeymoon, is that correct?
A That is one of my causes of (sic) coming up here. Secondly, I was very dissatisfied (with) the condition. Thirdly,
that Volare 89 it says it will let your heart sing. That is not true. There was no European tour (manager)
and the highlights of the tour (were) very poor. The hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .
A Not all but as stated in the brochure that it is first class hotel. The first class hotels state that all things are
beautiful and it is neat and clean with complete amenities and I encountered the Luxembourg hotel which
is quite very dilapidated because of the flooring when you step on the side 'kumikiring' and the cabinets
(are) antiques and as honeymooners we don't want to be disturbed or seen. 51
xxx xxx xxx
Q None of these are first class hotels?
A Yes, sir.
Q So, for example Ramada Hotel Venezia which according to Miss Geraldez is first class hotel is not first class
hotel?
A Yes, sir.
Q You share the opinion of Miss Geraldez?
A Yes, sir.
Q The same is true with Grand Hotel Palatino which is not a first class hotel?
A Yes, sir.
Q And Hotel Delta Florence is not first class hotel?
A That is how I got my itch, sir. Seven (7) days of itch.
Q How about Hotel Saint-Jacquez, Paris?

A It is far from the city. It is not first class hotel.

Q So with Hotel Le Prieure Du Coeur de Jesus neither a first class hotel?
A Yes, sir.
Q Hotel De Nevers is not a first class hotel?
A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither is not a first class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first class hotels?
A Yes, sir." 52
Private respondent cannot escape responsibility by seeking refuge under the listing of first-class hotels in publications like the "Official
Hotel and Resort Guide" and "Worldwide Hotel Guide." 53 Kuoni Travel, its tour operator, 54 which prepared the hotel listings, is a
European-based travel agency 55 and, as such, could have easily verified the matter of first-class accommodations. Nor can it logically
claim that the first-class hotels in Europe may not necessarily be the first-class hotels here in the Philippines. 56 It is reasonable for
petitioner to assume that the promised first-class hotels are equivalent to what are considered first-class hotels in Manila. Even
assuming arguendo that there is indeed a difference in classifications, it cannot be gainsaid that a first-class hotel could at the very
least provide basic necessities and sanitary accommodations. We are accordingly not at all impressed by private respondent's attempts
to trivialize the complaints thereon by petitioner and her companions. cdphil
In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely provided such "first class" hotels which
were commensurate to the tourists' budget, or which were, under the given circumstances, the "best for their money." It postulated that
it could not have offered better hostelry when the consideration paid for hotel accommodations by the tour participants was only so
much, 57 and the tour price of $2,990.00 covers a European tour for 22 days inclusive of lower room rates and meals. 58 This is
implausible, self-serving and borders on sophistry.
The fact that the tourists were to pay a supposedly lower amount, such that private respondent allegedly retained hardly enough as
reasonable profit, 59 does not justify a substandard form of service in return. It was private respondent, in the first place, which fixed
the charges for the package tour and determined the services that could be availed of corresponding to such price. Hence, it cannot
now be heard to complain that it only made a putative marginal profit out of the transaction. If it could not provide the tour participants
with first-class lodgings on the basis of the amount that they paid, it could and should have instead increased the price to enable it to
arrange for the promised first-class accommodations.
On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary damages. Moral damages may
be awarded in breaches of contract where the obligor acted fraudulently or in bad faith. 60 From the facts earlier narrated, private
respondent can be faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of the other.
llcd
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either be dolo causante or dolo
incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character

employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have
entered into the contract. 61 Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to
some particular or accident of the obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person employing it to pay damages. 64
In either case, whether private respondent has committed dolo causante or dolo incidente by making misrepresentations in its contracts
with petitioner and other members of the tour group, which deceptions became patent in the light of after-events when, contrary to its
representations, it employed an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise
of a European tour manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European tour manager would accompany them, with the concomitant reassuring
and comforting thought of having security and assistance readily at hand, petitioner was induced to join the Volare 3 tourists, instead of
travelling alone. 65 She likewise suffered serious anxiety and distress when the group was unable to visit the leather factory and when
she did not receive first-class accommodations in their lodgings which were misrepresented as first-class hotels. These, to our mind,
justify the award for moral damages, which are in the category of an award designed to compensate the claimant for that injury which
she had suffered, and not as a penalty on the wrongdoer, 66 we believe that an award of P100,000.00 is sufficient and reasonable.
cdphil
When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be decreed. Exemplary damages
are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages.
According to the Code Commission, exemplary damages are required by public policy, for wanton acts must be suppressed. 67 An
award, therefore, of P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with the
intention of realizing considerable profit at the expense of the public, without ensuring compliance with their express commitments.
While, under the present state of the law, extraordinary diligence is not required in travel or tour contracts, such as that in the case at
bar, the travel agency acting as tour operator must nevertheless be held to strict accounting for contracted services, considering the
public interest in tourism, whether in the local or in the international scene. Consequently, we have to likewise reject the theory of
private respondent that the promise it made in the tour brochure may be regarded only as "commendatory trade talk." 68

With regard to the honorarium for counsel as an item of damages, since we are awarding moral and exemplary damages, 69 and
considering the legal importance of the instant litigation and the efforts of counsel evident from the records of three levels of the judicial
hierarchy, we favorably consider the amount of P20,000.00 therefor.
WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and another one rendered,
ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral
damages, P50,000.00 as exemplary damages, and P20,000.00 as and for attorney's fees, with costs against private respondent. The
award for nominal damages is hereby deleted. llcSO ORDERED.
||| (Geraldez v. Court of Appeals, G.R. No. 108253, [February 23, 1994])

EN BANC
[G.R. No. 34840. September 23, 1931.]
NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L. D. Lockwood, for appellants Velasco and Cortez.

San Agustin & Roxas, for other appellants.

Ramon Diokno, for appellee.
SYLLABUS
1. DAMAGES; MASTER AND SERVANT; MOTOR VEHICLES; LIABILITY OF HEAD OF HOUSE FOR ACTS OF
DRIVER WHO IS HIS MINOR CHILD. The head of a house, the owner of an automobile, who maintains it for the general use of
his family, is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is
occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it.
2. ID.; ID.; ID.; ID.; CASE AT BAR. One G, a passenger in a truck, recovers damages in the amount of P5,000 from the
owner of a private automobile not in the car, the machine being operated by a son 18 years of age, with other members of the
family accommodated therein, and from the chauffeur and owner of the truck which collided with the private automobile on a bridge,
causing physical injuries to G as a result of the automobile accident.

DECISION

MALCOLM, J p:
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to recover
damages in the amount of P10,000, for physical injuries suffered as a result of an automobile accident. On judgment being
rendered as prayed for by the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each
other on the Talon bridge on the Manila South Road in the municipality of Las Pinas, Province of Rizal. The truck was driven by
the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez,
a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision,
the father was not in the car, but the mother, together with several other members of the Gutierrez family, seven in all, were
accommodated therein. A passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to
Manila. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which
required medical attendance for a considerable period of time, and which even at the date of the trial appears not to have healed
properly.
It is conceded that the collision was caused by negligence pure and simple. The difference between the parties is that,
while the plaintiff blames both sets of defendants, the owner of the passenger truck blames the automobile, and the owner of the
automobile, in turn, blames the truck. We have given close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on all controversial questions of fact find sufficient support
in the record, and so should be maintained. With this general statement set down, we turn to consider the respective legal
obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that the
youth Bonifacio was an incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so contributed by his negligence to the accident. The guaranty given by the father at the
time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor or the mother, would be liable
for the damages caused by the minor.
We are here dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the same
time, we believe that, as has been done in other cases, we can take cognizance of the common law rule on the same subject. In
the United States, it is uniformly held that the head of a house, the owner of an automobile, who maintains it for the general use of
his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is
occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it.
The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the

owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant. (Huddy On
Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Alt., 322.)
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint, not controverted,
and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on
the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur. While these facts are not as
clearly evidenced as are those which convict the other defendant, we nevertheless hesitate to disregard the points emphasized by
the trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with
neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff,
consisting principally of his keeping his foot outside the truck, which occasioned his injury. In this connection, it is sufficient to state
that, aside from the fact that the defense of contributory negligence was not pleaded, the evidence bearing out this theory of the
case is contradictory in the extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The appellee suggests that the amount could justly
be raised to P16,517, but naturally is not serious in asking for this sum, since no appeal was taken by him from the judgment. The
other parties unit in challenging the award of P10,000, as excessive. All facts considered, including actual expenditures and
damages for the injury to the leg of the plaintiff, which may cause him permanent lameness, in connection with other adjudications
of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in
approximating the damages by monetary compensation is well elucidated by the divergence of opinion among the members of the
court, three of whom have inclined to the view that P3,000 would be amply sufficient, while a fourth member has argued that
P7,500 would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have judgment
in his favor against the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum of
P5,000, and the costs of both instances.
Avancena, C.J., Johnson, Street, Villamor, Ostrand, Romualdez and Imperial, JJ., concur.
||| (Gutierrez v. Gutierrez, G.R. No. 34840, [September 23, 1931], 56 PHIL 177-181)

FIRST DIVISION
[G.R. No. 48930. February 23, 1944.]
ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent.
[G.R. No. 48931. February 23, 1944.]
FRANCISCO DE BORJA, petitioner, vs. ANTONIO VAZQUEZ, respondent.
SYLLABUS
1. CORPORATIONS; OFFICERS' PERSONAL LIABILITY ON CONTRACTS. It is well known that a corporation is an
artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its
officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to
act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by
them for and in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and necessity.
Without it no corporate entities may exist and no corporate business may be transacted. Such legal fiction may be disregarded
only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or
proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in
question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said

contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to
hold him liable on the contract either principally or subsidiarily.
2. ID.; ID.; NEGLIGENCE. The trial court found him guilty of negligence in the performance of the contract and held
him personally liable on that account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia,
sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser
responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court and the Court of
Appeals erred in law in so holding. They have manifestly failed to distinguish a contractual from an extracontractual obligation, or
an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in articles
1101-1104 of the Civil Code are those incidental to the fulfillment or nonfulfillment of a contractual obligation; while the fault or
negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law,
which gives rise to an obligation independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890;
Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation, acting thru Vazquez as its manager, was guilty of
negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since
it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation
and not its agent liable.
3. ID.; ID.; ID. On the other hand, independently of the contract Vazquez by his fault or negligence caused damage to
the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be
based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not
merely subsidiary, as the Court of Appeals has erroneously held.
4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA AQUILIANA" ALLEGED IN COMPLAINT OR LITIGATED IN
TRIAL COURT; NO JURISDICTION OVER THE ISSUE. No such cause of action was alleged in the complaint or tried by
express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue
and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.) Consequently it was error for the Court of Appeals to remand
the case to the trial court to try and decide such issue.

DECISION

OZAETA, J p:
This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and
Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon three alleged causes of action, to
wit: First, that in or about the month of January, 1932, the defendants jointly and severally obligated themselves to sell to the
plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of February, 1932, the said defendants having
subsequently received from the plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff
during the months of February, March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver
the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. Second, that because of defendants'
refusal to deliver to the plaintiff the said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages in
the sum of P1,000. And, third, that on account of the agreement above mentioned the plaintiff delivered to the defendants 4,000
empty sacks, of which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to
pay their value amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned in the first
cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando Busuego, and
alleging that the agreement for the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the
plaintiff with and to the Natividad-Vazquez Sabani Development Co., Inc., a corporation organized and existing under the laws of
the Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction took place. By way of
counterclaim, the said defendant alleged that he suffered damages in the sum of P1,000 on account of the filing of this action
against him by the plaintiff with full knowledge that the said defendant had nothing to do whatever with any and all of the
transactions mentioned in the complaint in his own individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20
plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the
corporation) from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of
Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs.

But by a subsequent resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and
ordered that the case be remanded to the court of origin for further proceedings. The defendant Vazquez, not being agreeable to
that result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the Court of Appeals; and
the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original judgment was set aside and
the case was ordered remanded to the court of origin for further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to
maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows:
"Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante 4,000 cavanes
de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio
para su envase 4,000 sacos vacios. Esta probado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando
en poder del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio
Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.0 de marzo de
1932 hasta su completeo pago y las costas, el Juzgado de Primera Instancia de Manila fallo el asunto condenando a Antonio
Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al
demandado Fernando Busuego de la demanda y al demandante de la reconvencion de los demandados, sin especial
pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntando como principal error
el de que el habia sido condenado personalmente, y no la corporacion por el representada.
"Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja de los
4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani
Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo
original lo habia perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto
que en los mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los
alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente
de la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio
del palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo
testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero
de la Natividad-Vazquez Sabani Development Co., Inc.
"Siendo esto asi, la principal responsable debe ser la Natividad- Vazquez Sabani Development Co., Inc., que quedo
insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez responsable del pago de la
cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha cantidad
existia en las bodegas de la corporacion.
"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo demandado
vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece
asentada despues de la primera. Segun esto, el apelante no solamente obro con negligencia, sino interviniendo culpa de su parte,
por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objeto de la demanda.
"En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante debe pagar al
apelado la suma de P2,975.70 como valor de los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de
P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus
intereses legales desde la interposicion de la demanda y las costas de ambas instancias."
"Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la misma que
cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano,
y no estando dicho extremo suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente."
"Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja
vs. Antonio Vazquez et al., praying, for the reasons therein given, that the resolution of December 22, 1942, be reconsidered:
Considering that said resolution remanding the case to the lower court is for the benefit of the plaintiff-appellee to afford him
opportunity to refute the contention of the defendant-appellant Antonio Vazquez, motion denied."
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the
defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The
Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of

Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation NatividadVazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be
determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to
determine whether the corporation had sufficient stock of palay at the time appellant sold 1,500 cavans of palay to Kwong Ah Phoy.
First, if that point was material to the issue, it should have been proven during the trial; and the statement of the court that it had
not been sufficiently discussed and proven was no justification for ordering a new trial, which, by the way, neither party had
solicited but against which, on the contrary, both parties now vehemently protest. Second, the point is, in any event, beside the
issue, and this we shall now discuss in connection with the original judgment of the Court of Appeals which the plaintiff crosspetitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the
contract is the Natividad-Vazquez Sabani Development Co., Inc., which is not a party herein, the complaint should have been
dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the preponderance of the evidence the trial
court and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president of the corporation
and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and which, thru Vazquez, had received the sum of
P8,400 from Borja, and altho that was true from the point of view of a legal fiction, "ello no impide que tambien sea verdad lo
alegado en la demanda de que la persona de Vazquez fue la que contrato con Borja y que la misma persona de Vazquez fue
quien recibio la suma de P8,400." But such argument is invalid and insufficient to show that the president of the corporation is
personally liable on the contract duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct
from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing
to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly
entered into, or for an act lawfully performed, by them for and in its behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity. Without it no corporate entities may exist and no corporate business may
be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or
fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that
Vazquez personally benefited by the contract of sale in question and that he is merely invoking the legal fiction to avoid personal
liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the
plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that
account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interviniendo culpa de su
parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago
de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law in so holding. They have
manifestly failed to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from an
obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those
incidental to the fulfillment or nonfulfillment of a contractual obligation; while the fault or negligence referred to in article 1902 is the
culpa aquiliana of the civil law, homologous but not identical to tort of the common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38
Phil., 768.) The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the
contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract,
its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable.
On the other hand, if independently of the contract Vazquez by his fault or negligence caused damage to the plaintiff, he
would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa
aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely
subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint or tried by express
or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could
not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case
to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain
his counterclaim for damages against the respondent Borja arising from the bringing of this action. The lower courts having
sustained plaintiff's action, they naturally could not have entertained defendant's counterclaim for damages on account of the
bringing of the action. The finding of the Court of Appeals that according to the preponderance of the evidence the defendant
Vazquez celebrated the contract not in his personal capacity but as acting president and manager of the corporation, does not
warrant his contention that the suit against him is malicious and tortious; and since we have to decide defendant's counterclaim

upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel
that as a matter of moral justice we ought to state here that the indignant attitude adopted by the defendant towards the plaintiff for
having brought this action against him is in our estimation not wholly right. Altho from the legal point of view he was not personally
liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting president and
manager, we think it was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation
represented by him fulfilled the contract by delivering the palay it had sold, the price of which it had already received. Recreant to
such duty as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances he not only has no
cause of action against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority opinion, the plaintiff is entitled to a judgment
against the defendant. The latter, as acting president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with
full knowledge of the then insolvent status of his company, agreed to sell to the plaintiff 4,000 cavans of palay. Notwithstanding the
receipt from the plaintiff of the full purchase price, the defendant delivered only 2,488 cavans and failed and refused to deliver the
remaining 1,512 cavans and a quantity of empty sacks, or their value. Such failure resulted, according to the Court of First
Instance of Manila and the Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is technically based on a contract between the plaintiff and
Natividad- Vazquez Sabani Development Co., Inc., which is not a party to this case. Nevertheless, inasmuch as it was proven at
the trial that the defendant was guilty of fault in that he prevented the performance of the plaintiff's contract and also of negligence
bordering on fraud which caused damage to the plaintiff, the error of procedure should not be a hindrance to the rendition of a
decision in accordance with the evidence actually introduced by the parties, especially when in such a situation we may order the
necessary amendment of the pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and manager was, at the time he made
the sale to the plaintiff, known to him to be insolvent. As a matter of fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have been inflicted by reason of the fault or negligence of the defendant. In
the interest of simple justice and to avoid multiplicity of suits I am therefore impelled to consider the present action as one based
on fault or negligence and to sentence the defendant accordingly. Otherwise, he would be allowed to profit by his own wrong under
the protective cover of the corporate existence of the company he represented. It cannot be pretended that any advantage under
the sale inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc., and not of the defendant personally, since the
latter undoubtedly owned a considerable part of its capital.
||| (Vazquez v. De Borja, G.R. No. 48930, 48931, [February 23, 1944], 74 PHIL 560-570)

FIRST DIVISION
[G.R. No. 14335. January 28, 1920.]
MANUEL DE GUIA, plaintiff-appellant, vs. THE MANILA ELECTIC RAILROAD & LIGHT COMPANY, defendantappellant.
Sumulong & Estrada, Crossfield & O'Brien and Francisco A. Delgado for plaintiff-appellant.
Lawrence & Ross for defendant-appellant.

SYLLABUS
1. CONTRACTS; NEGLIGENT PERFORMANCE; POWER OF COURT TO MODERATE LIABILITY. In determining the
extent of liability for losses or damages resulting from negligence in the fulfillment of a contractual obligation the courts have a
discretionary power to moderate liability according to the circumstances.
2. CARRIERS; CARRIAGE OF PASSENGERS FOR HIRE; CONTRACTUAL OBLIGATION OF CARRIER. The
obligation assumed by a street-railway company, engaged in the transportation of passengers for hire, towards a person who
embarks for conveyance in one of its coaches, is of a contractual nature; and the company is bound to convey its passengers
safely and securely with reference to the degree of care required by law and custom applicable to the case.
3. ID., ID.; ID.; LIABILITY OF CARRIER FOR NEGLIGENCE OF EMPLOYEE. Upon failure to comply with this
obligation the carrier incurs the liability commonly incident to the breach of contractual obligations; and where the delinquency is
due to the negligence if its employee, the carrier cannot avail itself of the defense that it had exercised due care in the selection
and instruction of such employee and that he was in fact an experienced and reliable servant.
4. ID.; ID.; ID.; EXTENT OF CARRIER S LIABILITY FOR LOSSES AND DAMAGES; GOOD FAITH. A street-railway
company which has exercised due care in the selection and instruction of the motorman upon one of its cars should be considered
a debtor in good faith as regards liability towards a passenger who is injured by the negligence of the motorman in directing the car;
and the liability of the carrier to the injured party extends to such losses and damages only as could be reasonably foreseen as a
probable consequence of the physical injuries inflicted upon the passenger and which are in fact a necessary result of those
injuries.
5. PHYSICAL INJURIES; DAMAGES; EXPENSES OF MEDICAL SERVICE. A person who is entitled to recover
expenses of cure as an item of damage in a civil action for physical injuries cannot recover doctor's bills for services gratuitously
rendered; and the claim must furthermore be limited to medical services reasonably suited to the case. Charges of professional
experts retained merely with a view to promote the success of the action for damages should not be allowed.

DECISION

STREET, J p:
This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of First Instance of the
City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest and costs, as damages incurred by him in
consequence of physical injuries sustained while riding on one of the defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-car line in
Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock p. m., of the date mentioned, the plaintiff
Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the line with the intention of coming to the city. At
about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle of
the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track, ran for a short distance along
the macadam filling, which was flush with the rails, and struck a concrete post at the left of the track. The post was shattered; and
as the car stopped the plaintiff was thrown against the door with some violence, receiving bruises and possibly certain internal
injuries, the extent of which is a subject of dispute.
The trial court found that the motorman of the derailed car was negligent in having maintained too rapid a speed. This
inference appears to be based chiefly upon the results of the shock, involving the shattering of the post and the bending of the
kingpost of the car. It is insisted for the defendant company that the derailment was due to the presence of a stone, somewhat
larger than a goose egg, which had become accidentally lodged between the rails at the juncture of the switch and which was
unobserved by the motorman. In this view the derailment of the car is supposed to be due to casus fortuitos and not chargeable to
the negligence of the motorman.
Even supposing that the derailment of the car was due to the accidental presence of such a stone as suggested, we do
not think that the existence of negligence is disproved. The motorman says that upon approaching the switch he reduced the
electrical energy to the point that the car barely entered the switch under its own momentum, and this operation was repeated as
he passed out. Upon getting again on the straight track he put the control successively at points one, two, three and lastly at point
four. At the moment when the control was placed at point four he perceived that the rear wheels were derailed and applied the

brake; but at the same instant the car struck the post, some 40 meters distant from the exit of the switch. One of the defendant's
witnesses stated in court that the rate of a car propelled by electricity with the control at point "four" should be about five or 6 miles
per hour. There was some other evidence to the effect that the car was behind schedule time and that it was being driven, after
leaving the switch, at a higher I ate than would ordinarily be indicated by the control at point four. This inference is rendered more
tenable by the circumstance that the car was practically empty. On the whole, we are of the opinion that the finding of negligence
in the operation of the car must be sustained, as not being clearly contrary to the evidence; not so much because of excessive
speed as because of the distance which the car was allowed to run with the front wheels of the rear truck derailed. It seems to us
that an experienced and attentive motorman should have discovered that something was wrong and would have stopped before
he had driven the car over the entire distance from the point where the wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving the car, it results that the
company is liable for the damage resulting to the plaintiff as a consequence of that negligence. The plaintiff had boarded the car as
a passenger for the city of Manila and the company undertook to convey him for hire. The relation between the parties was,
therefore, of a contractual nature, and the duty of the carrier is to be determined with reference to the principles of contract law,
that is, the company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care which,
under the circumstances, is required by law and custom applicable to the case (art. 1258, Civil Code). Upon failure to comply with
that obligation the company incurred the liability defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad
Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compaia Trasatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep.,
875.)
From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself of the last
paragraph of article 1903 of the Civil Code, since that provision has reference to liability incurred by negligence in the absence of
contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore irrelevant for the defendant company to prove, as
it did, that the company had exercised due care in the selection and instruction of the motorman who was in charge of its car and
that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the defendant must answer for the
consequences of the negligence of its employee, the court has the power to moderate liability according to the circumstances of
the case (art. 1103, Civ. Code) . Furthermore, we think it obvious that an employer who has in fact displayed due diligence in
choosing and instructing his servants is entitled to be considered a debtor in good faith, within the meaning of article 1107 of the
same Code. Construing these two provisions together, and applying them to the facts of this case, it results that the defendant's
liability is limited to such damages as might, at the time of the accident, have been reasonably foreseen as a probable
consequence of the physical injuries inflicted upon the plaintiff and which were in fact a necessary result of those injuries. There is
nothing novel in this proposition, since both the civil and the common law are agreed upon the point that the damages ordinarily
recoverable for the breach of a contractual obligation, against a person who has acted in good faith, are such as can reasonably
be foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP. Agustinos Recoletos (39 Phil., 687), we
said: "The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time
the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in
the light of the facts then known to the contracting parties."
This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this point the trial judge
found that, as a result of the physical and nervous derangement resulting from the accident, Dr. De Guia was unable properly to
attend to his professional labors for three months and suspended his practice for that period. It was also proved by the testimony
of the plaintiff that his customary income, as a physician, was about P300 per month. The trial judge accordingly allowed P900, as
damages for loss of professional earnings. This allowance is attacked upon appeal by the defendant as excessive both as to the
period and rate of allowance. Upon examining the evidence we fell disinclined to disturb this part of the judgment, though it must
be conceded that the estimate of the trial judge on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost by reason of his
inability to accept a position as district health officer in Occidental Negros. It appears in this connection that Mr. Alunan,
representative from Occidental Negros, had asked Dr. Montinola, who supposedly had the authority to make the appointment, to
nominate the plaintiff to such position. The job was supposed to be good for two years, with a salary of P1,600 per annum, and
possibility of outside practice worth P350. Accepting these suggestions as true, it is evident that the damages thus incurred are too
speculative to be the basis of recovery in a civil action. This element of damages must therefore be eliminated. It goes without
saying that damage of this character could not, at. the time of the accident, have been foreseen by the delinquent party as a
probable consequence of the injury inflicted a circumstance which makes applicable article 1107 of the Civil Code, as already
expounded.

The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which we momentarily
pass for discussion further on, since the controversy on this point can be more readily understood in connection with the question
raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in question ascend to the
amount of P40,000. Of this amount the sum of P10,000 is supposed to represent the cost of medical treatment and other
expenses incident to the plaintiff's cure, while the remainder (P30,000) represents the damage resulting from the character of his
injuries, which are supposedly such as to incapacitate him for the exercise of the medical profession in the future. In support of
these claims the plaintiff introduced evidence, consisting of his own testimony and that of numerous medical experts, tending to
show that as a result of the injuries in question he had developed infarct of the liver and traumatic neurosis, accompanied by
nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, it being claimed that these
manifestations of disorder rendered him liable to a host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia,
and pulmonary gangrene, and that restoration to health could only be accomplished, if at all, after long years of complete repose.
The trial judge did not take these pretensions very seriously, and, as already stated, limited the damages to the three items of
professional earnings, expenses of medical treatment, and the loss of the appointment as medical inspector in Occidental Negros.
As the appeal of the plaintiff opens the whole case upon the question of damages, it is desirable to present a somewhat fuller
statement than that already given with respect to extent and character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the rear platform,
grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left part of his chest struck against
the door causing him to fall. In falling, the plaintiff says, his head struck one of the seats and he became unconscious. He was
presently taken to his home which was only a short distance away, where he was seen at about 10 o'clock p. m., by a physician in
the employment of the defendant company. This physician says that the plaintiff was then walking about and apparently suffering
somewhat from bruises on his chest. He said nothing about his head being injured and refused to go to a hospital. Later, during
the same night Dr. Carmelo Basa was called in to see the plaintiff. This physician says that he found Doctor De Guia lying in bed
and complaining of a severe pain in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a
manifestation no doubt due to the effects of the bruises received in his side. The next day Doctor De Guia went into Manila to
consult another physician, Doctor Miciano, and during the course of a few weeks he called into consultation other doctors who
were introduced as witnesses in his behalf at the trial of this case. According to the testimony of these witnesses, as well as that of
the plaintiff himself, the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous degree.
Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's injuries, considered in
their physical effects, were trivial and that the attendant nervous derangement, with its complicated train of ailments, was merely
simulated.
Upon this question the opposing medical experts ventilated a considerable mass of professional learning with reference to
the nature and effects of the baffling disease known as traumatic neurosis, or traumatic hysteria a topic which has been the
occasion of much controversy in actions of this character in the tribunals of Europe and America. The subject is one of
considerable interest from a medico-legal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of
its voluminous literature. It is enough to say that in our opinion the plaintiff's case for large damages in respect to his supposed
incapacitation for future professional practice is not made out. Of course in this jurisdiction damages can not be assessed in favor
of the plaintiff as compensation for the physical or mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep.,
287); and the evidence relating to the injuries, both external and internal, received by him must be examined chiefly in its bearing
upon his material welfare, that is, in its results upon his earning capacity and the expenses incurred in restoration to the usual
condition of health.
The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing in the situation a
possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the aid of his own professional
knowledge, supplemented by suggestions obtained from his professional friends and associates, he enveloped himself more or
less unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true value the symptoms of
disorder which he developed. The trial court was in our opinion fully justified in rejecting the exaggerated estimate of damages thus
created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the expenses incurred for
medical service. In this connection Doctor Montes testified that he was first called to see the plaintiff upon September 14, 1915,
when he found him suffering from traumatic neurosis. Three months later he was called upon to treat the same patient for an acute
catarrhal condition, involving disturbance in the pulmonary region. The treatment for this malady was successful after two months,
but at the end of six months the same trouble recurred and required further treatment. In October of the year 1916, or more than a
year after the accident in question occurred, Doctor Montes was called in consultation with Doctor Guerrero to make an
examination of the plaintiff. Doctor Montes says that his charges altogether for services rendered to the plaintiff amount to P350, of

which the sum of P200 had been paid by the plaintiff upon bills rendered from time to time. This physician speaks in the most
general terms with respect to the times and extent of the services rendered; and it is by no means clear that those services which
were rendered many months, or year, after the accident had in fact any necessary or legitimate relation to the injuries received by
the plaintiff. In view of the vagueness and uncertainty of the testimony relating to Doctor Montes's services we are of the opinion
that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent of the plaintiff's obligation with
respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of the opinion that they
are not a proper subject of recovery in this action; and this for more than one reason. In the first place, it does not appear that said
physicians have in fact made charges for those services with the intention of imposing obligations on the plaintiff to pay for them.
On the contrary it would seem that said services were gratuitously rendered out of courtesy to the plaintiff as a member of the
medical profession. The suggestions made on the stand by these physicians to the effect that their services were worth the
amounts stated by them are not sufficient to prove that the plaintiff had incurred the obligation to pay those amounts. In the second
place, we are convinced that in employing so many physicians the plaintiff must have bad in view the successful promotion of the
issue of this lawsuit rather than the bona fide purpose of effecting the cure of his injuries. In order to constitute a proper element of
recovery in an action of this character, the medical service for which reimbursement is claimed should not only be such as to have
created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition. It can not be
permitted that a litigant should retain an unusual and unnecessary number of professional experts with a view to the successful
promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred. His claim for medical services
must be limited to such expenditures as were reasonably suited to the case.
The second error assigned in the brief of the defendant company presents a question of practice which, though not vital to
the solution of this case, is of sufficient general importance to merit notice. It appears that four of the physicians examined as
witnesses for the plaintiff had made written statements at various dates certifying the results of their respective examinations into
the condition of the plaintiff. When these witnesses were examined in court they identified their respective signatures to these
certificates and the trial judge, over the defendant's objection, admitted the documents as primary evidence in the case. This was
undoubtedly erroneous. A document of this character is not primary evidence in any sense, since it is fundamentally of a hearsay
nature; and the only legitimate use to which one of these certificates could be put, as evidence for the plaintiff, was to allow the
physician who issued it to refer thereto to refresh his memory upon details which he might have forgotten. In Zwangizer vs.
Newman (83 N. Y. Supp., 1071) which was also an action to recover damages for personal injury, it appeared that a physician,
who had been sent by one of the parties to examine the plaintiff had made at the time a written memorandum of the results of the
examination; and it was proposed to introduce this document in evidence at the trial. It was excluded by the trial judge, and it was
held upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the memory, and no impeachment of
the memorandum on cross- examination; and the document was clearly incompetent as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by reducing the amount of the recovery to
eleven hundred pesos (P1,100), with legal interest from November 8, 1916. As thus modified the judgment is affirmed, without any
special pronouncement as to costs of this instance. So ordered.
||| (De Guia v. Manila Electric Railroad and Light Co., G.R. No. 14335, [January 28, 1920], 40 PHIL 706-717)

FIRST DIVISION
[G.R. No. 7567. November 12, 1912.]
THE UNITED STATES, plaintiff-appellee, vs. SEGUNDO BARIAS, defendant-appellant.
Bruce, Lawrence, Ross & Block for appellant.
Solicitor-General Harvey for appellee.
SYLLABUS

1. NEGLIGENCE DEFINED. Negligence is "the failure to observe, for the protection of the interests of another person,
that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury."
2. ID.; ID. Silvela's observation that "if a moment's attention and reflexion would have shown a person that the act
which he was about to perform was liable to have the harmful consequences which it had, such person acted with temerity and
may be guilty of imprudencia temeraria," cited with approval.
3. ID.; ID. "The diligence with which the law requires the individual at all times to govern his conduct varies with the
nature of the situation in which he is placed and with the importance of the act which he is to perform." (U. S. vs. Reyes, 1 Phil.
Rep., 375, 377.)
4. ID.; STREET RAILWAYS; DUTIES AND RESPONSIBILITIES OF MOTORMEN. Held, that a motorman operating a
street car on a public street in a densely populated section of the city of Manila is bound to know and to recognize that any
negligence on his part in observing the track over which he is running his car may result in fatal accidents. He has no right, when
he starts from a standstill, to assume that the track before his car is clear. It is his duty to satisfy himself of that fact by keeping a
sharp lookout and doing everything in his power to avoid the danger which is necessarily incident to the operation of heavy street
cars on thoroughfares in populous sections of the city.
5. ID.; ID.; ID. In the absence of some regulation of his employers, a motorman who has brought his car to a standstill
is not bound to keep his eyes directly to the front while the car is stopped, but before setting it again in motion, it is his duty to
satisfy himself that the track is clear, and for that purpose to look and to see the track just in front of his car.
6. ID.; ID.; ID. The reasons of public policy which impose upon street car companies and their employees the duty of
exercising the utmost degree of diligence in securing the safety of passengers, apply with equal force to the duty of avoiding
infliction of injuries upon pedestrians and others upon the public streets and thoroughfares over which such companies are
authorized to run their cars.
7. ID.; ID.; ID. It is the manifest duty of a motorman operating an electric street car on a public thoroughfare in as
thickly settled district, to satisfy himself that the track is clear immediately in front of his car before setting it in motion from a
standstill and for that purpose to incline his body slightly forward, if that be necessary, in order to bring the track immediately in
front of his car within his line of vision.

DECISION

CARSON, J p:
This is an appeal from a sentence imposed by the Honorable A. S. Crossfield, judge of the Court of First Instance of
Manila, for homicide resulting from reckless negligence. The information charges:
"That on or about November 2, 1911, in the city of Manila, Philippine Islands, the said Segundo Barias
was a motorman on street car No. 9, run 7, of the Pasay-Cervantes lines of the Manila Electric Railroad and Light
Company, a corporation duly organized and doing business in the city of Manila, Philippine Islands; as such
motorman he was controlling and operating said street car along Rizal Avenue, formerly Calle Cervantes, of this
city, and as such motorman of said street car he was under obligation to run the same with due care and diligence
to avoid any accident that might occur to vehicles and pedestrians who were traveling on said Rizal Avenue; said
accused, at said time and place, did willfully, with reckless imprudenced and inexcusable negligence and in
violation of the regulations promulgated to that effect, control and operate said street car, without heeding the
pedestrians crossing Rizal Avenue from one side to the other, thus knocking down and causing by his
carelessness and imprudent negligence that said street car No. 9, operated and controlled by said accused, as
hereinbefore stated, should knock down and pass over the body and head of one Fermina Jose, a girl 2 years old,
who at said time and place was crossing the said Rizal Avenue, the body of said girl being dragged along the

street-car track on said Rizal Avenue for a long distance, thus crushing and destroying her head and causing her
sudden death as a result of the injury received; that if the acts executed by the accused had been done with malice,
he would be guilty of the serious crime of homicide."
The defendant was a motorman for the Manila Electric Railroad and Light Company. At about 6 o'clock on the morning of
November 2, 1911, he was driving his car along Rizal Avenue and stopped it near the intersection of that street with Calle
Requesen to take on some passengers. When the car stopped, the defendant looked backward, presumably to note whether all
the passengers were aboard, and then started his car. At that moment Ferminia Jose, a child about 3 years old, walked or ran in
front of the car. She was knocked down and dragged some little distance underneath the car, and was left dead upon the track.
The motorman proceeded with his car to the end of the track, some distance from the place of the accident, and apparently knew
nothing of it until his return, when he was informed of what had happened.
There is no substantial dispute as to the facts. It is true that one witness testified that the defendant started the car without
turning his head, and while he was still looking backwards and that this testimony was directly contradicted by that of another
witness. But we do not deem it necessary to make an express finding as to the precise direction in which the defendant's head was
turned at the moment when he started his car. It is sufficient for the purpose of our decision to hold, as we do, that the evidence
clearly discloses that he started his car from a standstill without looking over the track immediately in front of the car to satisfy
himself that it was clear. He did not see the child until after he had run his car over it, and after he had returned to the place where
it was found dead, and we think we are justified in saying that wherever he was looking at the moment when he started his car, he
was not looking at the track immediately in front of the car, and that he had not satisfied himself that this portion of the track was
clear immediately before putting the car in motion.
The trial court found the defendant guilty of imprudencia temeraria (reckless negligence) as charged in the information,
and sentenced him to one year and one month of imprisonment in Bilibid Prison, and to pay the costs of the action.
The sole question raised by this appeal is whether the evidence shows such carelessness or want of ordinary care on the
part of the defendant as to amount to reckless negligence (imprudencia temeraria).
Judge Cooley in his work on Torts (3d ed., 1324) defines negligence to be: "The failure to observe, for the protection of
the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby
such other person suffers injury."
In the case of U. S. vs. Nava, (1 Phi. Rep., 580), we held that: "Reckless negligence consists of the failure to take such
precautions or advance measures in the performance of an act as the most common prudence would suggest whereby injury is
caused to persons or to property."
Silvela says in his "Derecho Penal," in speaking of reckless imprudence (imprudencia temeraria):
"The word 'negligencia' used in the code, and the term 'imprudencia' with which this punishable act is defined,
express this idea in such a clear manner that it is not necessary to enlarge upon it. He who has done everything on
his part to prevent his actions from causing damage to another, although he has not succeeded in doing so,
notwithstanding his efforts, is the victim of an accident, and cannot be considered responsible for the same." (Vol.
2, p. 127 [153].)
"Temerario is, in our opinion, one who omits, with regard to his actions, which are liable to cause injury to another,
that care and diligence, that attention, which can be required of the least careful, attentive, or diligent. If a
moment's attention and reflection would have shown a person that the act which he was about to perform was
liable to have the harmful consequence which it had, such person acted with temerity and may be guilty of
'imprudencia temeraria." It may be that in practice this idea has been given a greater scope and acts of
imprudence which did not show carelessness as carried to such a high degree, might have been punished as
'imprudencia temeraria;' but in our opinion, the proper meaning of the word does not authorize another
interpretation." (Id., p 133 [161].)
Groizard, commenting upon "imprudencia temeraria," on page 389, volume 8, of his work on the Penal Code, says:
"Prudence is that cardinal virtue which teaches us to discern and distinguish the good from the bad, in
order to adopt or to flee from it. It also means good judgment, temperance, and moderation in one's action.
'Temerario' without reflection and without examining the same. Consequently, he who from lack of good judgment,
temperance, or moderation in his action, exposes himself without reflection and examination to the danger of
committing a crime, must be held responsible under the provision of law aforementioned."

Negligence is want of the care required by the circumstances. It is a relative or comparative, not an absolute, term and its
application depends upon the situation of the parties and the degree of care and vigilance which the circumstances reasonably
require. Where the danger is great, a high degree of care is necessary, and the failure to observe it is a want of ordinary care
under the circumstances. (Ahern vs. Oregon Telephone Co., 24 Oreg., 276, 294; 35 Pac., 549.)
Ordinary care, if the danger is great, may rise to the grade of a very exact and unchangeable attention. (Parry Mfg. Co. vs.
Eaton, 41 Ind. App., 81, 1908; 83 N. E., 510.)
In the case of U. S. vs. Reyes (1 Phil. Rep., 375-377), we held that: "The diligence with which the law requires the
individual at all times to govern his conduct varies with the nature of the situation in which he is placed and with the importance of
the act which he is to perform."
The question to be determined then, is whether, under all the circumstances, and having in mind the situation of the
defendant when he put his car in motion and ran it over the child, he was guilty of a failure to take such precautions or advance
measures as common prudence would suggest.
The evidence shows that the thoroughfare on which the incident occurred was a public street in a densely populated
section of the city. The hour was six in the morning, or about the time when the residents of such streets begin to move about.
Under such conditions a motorman of an electric street car was clearly charged with a high degree of diligence in the performance
of his duties. He was bound to know and to recognize that any negligence on his part in observing the track over which he was
running his car might result in fatal accidents. He had no right to assume that the track before his car was clear. It was his duty to
satisfy himself of that fact by keeping a sharp lookout, and to do everything in his power to avoid the danger which is necessarily
incident to the operation of heavy street cars on public thoroughfares in populous sections of the city.
Did he exercise the degree of diligence required of him? We think this question must be answered in the negative. We do
not go so far as to say that having brought his car to a standstill it was his bounden duty to keep his eyes directed to the front.
Indeed, in the absence of some regulation of his employers, we can well understand that, at times, it might be highly proper and
prudent for him to gland back before again setting his car in motion, to satisfy himself that he understood correctly a signal to go
forward or that all the passengers had safely alighted or gotten on board. But we do insist that before setting his car again in
motion, it was his duty to satisfy himself that the track was clear, and, for that purpose, to look and to see the track just in front of
his car. This the defendant did not do, and the result of his negligence was the death of the child.
In the case of Smith vs. St. Paul City Ry. Co., (32 Min., p. 1), the supreme court of Minnesota, in discussing the diligence
required of street railway companies in the conduct of their business observed that: "The defendant was a carrier of passengers for
hire, owning and controlling the tracks and cars operated thereon. It is therefore subject to the rules applicable to passenger
carriers. (Thompson's Carriers, 442; Barrett vs. Third Ave. R. Co., 1 Sweeny, 568; 8 Abb. Pr. (N. S.), 205.) As respects hazards
and dangers incident to the business or employment, the law enjoins upon such carrier the highest degree of care consistent with
its undertaking, and it is responsible for the slightest negligence. (Wilson vs. Northern Pacific R. Co., 26 minn., 278; Warren vs.
Fitchburg R. Co., 8 Allen, 233; 43 Am. Dec. 354, 356, notes and cases.) . . . The severe rule which enjoins upon the carrier such
extraordinary care and diligence, is intended, for reasons of public policy, to secure the safe carriage of passengers, in so far as
human skill and foresight can affect such result." The case just cited was a civil case, and the doctrine therein announced d
especial reference to the care which should be exercised in securing the safety of passengers. But we hold that the reasons of
public policy which imposed upon street car companies and their employees the duty of exercising the utmost degree of diligence
in securing the safety of passengers, apply with equal force to the duty of avoiding the infliction of injuries upon pedestrians and
others on the public streets and thoroughfares over which these companies are authorized to run their cars. And while, in a
criminal case, the courts will require proof of the guilt of the company or its employees beyond a reasonable doubt, nevertheless
the care or diligence required of the company and its employees is the same in both cases, and the only question to be determined
is whether the proof shows beyond a reasonable doubt that the failure to exercise such care or diligence was the cause of the
accident, and that the defendant was guilty thereof.
Counsel for the defendant insist that the accident might have happened despite the exercise of the utmost care by the
defendant, and they have introduced photographs into the record for the purpose of proving that while the motorman was standing
in his proper place on the front platform of the car, a child might have walked up immediately in front of the car, a child might have
walked up immediately in front of the car without coming within the line of his vision. Examining the photographs, we think that this
contention may have some foundation in fact; but only to this extent, that standing erect, at the position he would ordinarily assume
while the car is in motion, the eye of the average motorman might just miss seeing the top of the head of a child, about three years
old, standing or walking close up to the front of the car. But it is also very evident that by inclining the head and shoulders forward
very slightly, and glancing in front of the car, a person in the position of a motorman could not fail to see a child on the track
immediately in front of his car; and we hold that it is the manifest duty of a motorman, who is about to start his car on a public

thoroughfare in a thickly-settled district, to satisfy himself that the track is clear immediately in front of his car, a person in the
position of a motorman could not fail to see a child on the track immediately in front of his car; and we hold that it is the manifest
duty of a motorman, who is about to start his car on a public thoroughfare in a thickly-settled district, to satisfy himself that the track
is clear immediately in front of his car, and to incline his body slightly forward, if that be necessary, in order to bring the whole track
within his line of vision. Of course, this may not be, and usually is not necessary when the car is in motion, but we think that it is
required by the dictates of the most ordinary prudence in starting from a standstill.
We are not unmindful of our remarks in the case of U. S. vs. Bacho (10 Phil. Rep., 577), to which our attention is directed
by counsel for appellant. In that case we said that:
". . . In the general experience of mankind, accidents apparently unavoidable and often inexplicable are
unfortunately too frequent to permit us to conclude that some one must be criminally liable for negligence in every
case where an accident occurs. it is the duty of the prosecution in each case to prove by competent evidence not
only the existence of criminal negligence, but that the accused was guilty thereof."
Nor do we overlook the ruling in the case of U. S. vs. Barnes (12 Phil. Rep., 93), to which our attention is also invited,
wherein we held that the defendant was not guilty of reckless negligence, where it appeared that he killed another by the discharge
of his gun under such circumstances that he might have been held guilty of criminally reckless negligence had he had knowledge
at that moment that another person was in such position as to be in danger if the gun should be discharged. In this latter case the
defendant had no reason to anticipate that the person who was injured was in the line of fire, or that there was any probability that
he or anyone else would place himself in the line of fire. In the case at bar, however, it was, as we have seen, the manifest duty of
the motorman to take reasonable precautions in starting his car to see that in doing so he was not endangering the life of any
pedestrian, old or young; and to this end it was further his duty to guard against the reasonable possibility that some one might be
on the evidence showing, is it does, that the child was killed at the moment when the car was set in motion, we are justified in
holding that, had the motorman seen the child, he could have avoided the accident; the accident was not, therefore, "unavoidable
or inexplicable," and it appearing that the motorman, by the exercise of ordinary diligence, might have seen the child before he set
the car in motion, his failure to satisfy himself that the track was clear before doing so was reckless negligence, of which he was
properly convicted in the court below.
We think, however, that the penalty should be reduced to that of six months and one day of prision correccional. Modified
by substituting for so much thereof as imposes the penalty of one year and one month of imprisonment, the penalty of six months
and one day of prision correccional, the judgment of the lower court convicting and sentencing the appellant is affirmed, with the
costs of both instances against him. So ordered.
||| (United States v. Barias, G.R. No. 7567, [November 12, 1912], 23 PHIL 434-443)

THIRD DIVISION
[G.R. No. 141258. April 9, 2003.]
TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO and MARIA LOURDES SUN,
respondents.
Liberato G. Casilan, Jr. for petitioner.
Victor dela Serna for respondents.
SYNOPSIS
The controversy herein arose when a piece of diamond was broken by Zenon Santos, an employee at the jewelry shop, in the process
of dismounting it from an original setting. The diamond was claimed to be .33 carat and almost perfect in cut and clarity. As a result of
the incident, the petitioner herein was forced to replace the broken diamond to its owner in the amount of P30,000.00. The petitioner
filed a complaint for damages with the Metropolitan Trial Court in Cities (MTCC) and claimed that the dismounting of the diamond from
its original setting was part of the obligation assumed by the respondents under the contract of service, the respondent spouses being
the owner of the jewelry shop and the other respondent their employee. Thus, they should be held liable for the damages arising from

its breakage. The MTCC decided in favor of the petitioner herein. But on appeal, the Regional Trial Court (RTC) reversed the decision;
thus absolving the respondents of any responsibility arising from breach of contract. The Court of Appeals affirmed the judgment of the
RTC, hence, this petition for review.
According to the Supreme Court, preponderance of evidence supported the view that Marilou and Zenon Santos were employed at the
jewelry shop in order to perform activities, which were usually necessary or desirable in its business. The Court, therefore, held that an
obligation to pay actual damages arose in favor of the petitioner against the respondent spouses who admittedly owned and managed
the jewelry shop. It was proven that petitioner replaced the damaged jewelry in the amount of P30,000.00. The facts of the case also
justified the award of moral damages. The petition was granted and the assailed decision of the Court of Appeals was reversed and set
aside by the Supreme Court ordering the respondent spouses to pay petitioner actual damages of P30,000.00 and moral damages of
P10,000.00.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS; SHALL HAVE THE FORCE OF LAW BETWEEN PARTIES WHEN THE SAME AROSE FROM
CONTRACTS; EFFECT OF FAULT OR NEGLIGENCE IN THE PERFORMANCE THEREOF. Obligations arising from contracts
have the force of law between the contracting parties. Corollarily, 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. The fault or negligence of the
obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
2. ID.; DAMAGES; MORAL DAMAGES; GENERALLY NOT RECOVERABLE IN ACTIONS FOR BREACH OF CONTRACT;
EXCEPTION. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it
is not one of the items enumerated under Article 2219 of the Civil Code. Moral damages may be awarded in a breach of contract only
when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard
of his contractual obligation. TSacCH

DECISION

CORONA, J p:
This appeal by certiorari stems from the Decision 1 of respondent Court of Appeals promulgated on November 26, 1999 in CA-G.R. SP
No. 47431 declaring the private respondents not liable for damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find somebody to reset a
pair of diamond earrings into two gold rings. 2 Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingding's
Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido, 3 which accepted the job order for P400. 4
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. 5 After 3 days, Tita Payag delivered to the jewelry
shop one of Dra. Lao's diamond earrings which was earlier appraised as worth .33 carat and almost perfect in cut and clarity. 6
Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she asked their
goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the
process. 7
Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the petitioner was
forced to buy a replacement in the amount of P30,000. 8
Respondent Rose Cabrido, manager of Dingding's Jewelry Shop, denied having entered into any transaction with Tita Payag whom
she met only after the latter came to the jewelry shop to seek compensation from Santos for the broken piece of jewelry. 9 However, it
was possible that Payag may have availed of their services as she could not have known every customer who came to their shop.
Rose disclosed that she usually arrived at 11:00 a.m. When she was not around, her mother and sister tended the shop. 10

Marilou admitted knowing Payag who came to Dingding's Jewelry Shop to avail of their services regarding a certain piece of jewelry.
After a short conversation, Payag went inside the shop to see Santos. When the precious stone was broken by Santos, Payag
demanded P15,000 from him. As the latter had no money, she turned to Marilou for reimbursement apparently thinking that Marilou
was the owner of the shop. 11
For his part, Santos recalled that Payag requested him to dismount what appeared to him was a sapphire. While clipping the setting
with the use of a small pair of pliers, the stone accidentally broke. Santos denied being an employee of Dingding's Jewelry Shop. 12
Attempts to settle the controversy before the barangay lupon proved futile. 13 Consequently, petitioner filed a complaint for damages
on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a
decision 14 in favor of the petitioner, the dispositive portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against defendants
Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay jointly and severally the amount of Thirty
Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand Pesos (P3,000.00) as moral
damages; Five Thousand Pesos (P5,000.00) as attorney's fees; Two Thousand Pesos (P2,000.00) as litigation
expenses, with legal interest of 6% per annum from the date of this decision and 12% per annum from the date
when this decision becomes final until the amounts shall have been fully paid and to pay the costs.
This case as against defendant Maria Lourdes Sun as well as defendants' counterclaim are dismissed for lack of
merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the MTCC, thus absolving the
respondents of any responsibility arising from breach of contract. 15 Finding no reversible error, the Court of Appeals (CA) affirmed the
judgment of the RTC in its Decision promulgated on November 26, 1999. 16
Unable to accept the decision, the petitioner filed the instant petition for review with the following assigned errors:
I
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON SANTOS IS NOT AN
EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE
FOR HIS OWN ACTS OR OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL TRIAL COURT'S
PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER AND
RESPONDENTS THAT THE LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE
DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.
Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the obligation assumed by the
private respondents under the contract of service. Thus, they should be held liable for damages arising from its breakage. On the other
hand, the version of the private respondents, upheld by the RTC and the CA, is that their agreement with the petitioner was for crafting
two gold rings mounted with diamonds only and did not include the dismounting of the said diamonds from their original setting. 17
Consequently, the crux of the instant controversy is the scope of the obligation assumed by the private respondents under the verbal
contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction between Dingding's' Jewelry Shop and the
petitioner, through Tita Payag. Rose Cabrido, for instance, denied having ever met Payag before the latter came to seek
reimbursement for the value of the broken diamond. Likewise, while Marilou acknowledged acquaintance with Payag, she nevertheless
denied accepting any job order from her. Debunking their protestations, however, the MTCC of Tagbilaran City rendered its decision on
November 26, 1999 in favor of herein petitioner.

Apparently realizing the weakness and futility of their position, private respondents conceded, on appeal, the existence of an
agreement with the petitioner for crafting a pair of gold rings mounted with diamonds. This apparent concession by the private
respondents, however, was really nothing but an ingenious maneuver, designed to preclude, just the same, any recovery for damages
by the petitioner. Thus, while ostensibly admitting the existence of the said agreement, private respondents, nonetheless denied
assuming any obligation to dismount the diamonds from their original settings. 18
The inconsistent position of the private respondents impugns their credibility. They cannot be permitted to adopt a certain stance, only
to vacillate later to suit their interest. We are therefore inclined to agree with the MTCC in giving credence to the version of the
petitioner. The MTCC had the unique opportunity to actually observe the behavior and demeanor of the witnesses as they testified
during the trial. 19

At any rate, the contemporaneous and subsequent acts of the parties 20 support the version of the petitioner. Thus, when Tita Payag
asked Marilou of Dingding's Jewelry Shop to reset a pair of diamond earrings, she brought with her the said pieces of jewelry so that
the diamonds which were still mounted could be measured and the new ring settings crafted accordingly. On the said occasion, Marilou
expressed no reservation regarding the dismounting of the diamonds which, after all, was an integral part of petitioner's job order. She
should have instructed Payag to have them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but
she did not. Instead, petitioner was charged P400 for the job order which was readily accepted. Thus, a perfected contract to reset the
pair of diamond earrings arose between the petitioner, through Payag, and Dingding's Jewelry Shop, through Marilou.
Marilou's subsequent actuations were even more revealing as regards the scope of obligation assumed by the jewelry shop. After the
new settings were completed in 3 days, she called up the petitioner to bring the diamond earrings to be reset. 21 Having initially
examined one of them, Marilou went on to dismount the diamond from its original setting. Unsuccessful, she then delegated the task to
their goldsmith, Zenon Santos. Having acted the way she did, Marilou cannot now deny the shop's obligation to reset the pair of
earrings.
Obligations arising from contracts have the force of law between the contracting parties. 22 Corollarily, 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. 23 The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. 24
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be
the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their original settings. 25
However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the diamond. The jewelry shop
failed to perform its obligation with the ordinary diligence required by the circumstances. It should be pointed out that Marilou examined
the diamond before dismounting it from the original setting and found the same to be in order. Its subsequent breakage in the hands of
Santos could only have been caused by his negligence in using the wrong equipment. Res ipsa loquitur.
Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an independent worker. They also claim,
rather lamely, that Marilou simply happened to drop by at Dingding's Jewelry Shop when Payag arrived to place her job order. 26
We do not think so.
The facts show that Santos had been working at Dingding's Jewelry Shop as goldsmith for about 6 months accepting job orders
through referrals from private respondents. 27 On the other hand, Payag stated that she had transacted with Dingding's Jewelry Shop
on at least 10 previous occasions, always through Marilou. 28 The preponderance of evidence supports the view that Marilou and
Zenon Santos were employed at Dingding's Jewelry Shop in order to perform activities which were usually necessary or desirable in its
business. 29
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the respondents spouses who
admittedly owned and managed Dingding's Jewelry Shop. It was proven that petitioner replaced the damaged jewelry in the amount of
P30,000. 30

The facts of the case also justify the award of moral damages. As a general rule, moral damages are not recoverable in actions for
damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. 31 Moral
damages may be awarded in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross
negligence amounting to bad faith, or in wanton disregard of his contractual obligation. 32 Santos was a goldsmith for more than 40
years. 33 Given his long experience in the trade, he should have known that using a pair of pliers instead of a miniature wire saw in
dismounting a precious stone like a diamond would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence,
respondent spouses are liable for P10,000 as moral damages due to the gross negligence of their employee.
However, private respondent's refusal to pay the value of the damaged jewelry emanated from an honest belief that they were not
responsible therefor, hence, negating any basis for the award of attorney's fees. 34
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated November 26, 1999 is hereby
reversed and set aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the
amount of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner. TINo costs. SO ORDERED.
||| (Sarmiento v. Spouses Sun-Cabrido, G.R. No. 141258, [April 9, 2003], 449 PHIL 108-117)
FIRST DIVISION
[G.R. No. 138334. August 25, 2003.]
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL & TOURS
INTERNATIONAL, INC., respondents.
Bonifacio Law Office for petitioner.
Cabochan Reyes & Capones Law Offices for private respondent.
SYNOPSIS
Petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to facilitate her tour
known as "Jewels of Europe." On June 12, 1991, Meriam Menor, respondent's ticketing manager as well as petitioner's niece, delivered
petitioner's travel documents and plane tickets and informed her to be at the airport on June 15, 1991, two hours before departure. On
the stated date when the petitioner went to the airport, the flight that she was supposed to take had departed the previous day. She
complained to Menor, but the latter prevailed upon her to take another tour known as "British Pageant." Upon petitioner's return from
Europe, she demanded from respondent the reimbursement of P61,421.70 representing the difference between the sum she paid for
"Jewels of Europe" and the amount she owed respondent for the "British Pageant" tour, but despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-refundable. Thus, she filed a complaint against
respondent for breach of contract of carriage and damages. In its answer, respondent denied the responsibility and insisted that
petitioner was duly informed of the correct departure as legibly printed on the plane ticket two days ahead of the scheduled trip. After
trial, the lower court awarded damages to the petitioner on the basis that the respondent was negligent, but it deducted 10% from the
amount for the contributory negligence of petitioner. On appeal, the Court of Appeals found petitioner to be more negligent, hence, it
directed her to pay the balance of the price for the "British Pageant." Hence, this petition.
The Court did not agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and
resultantly caused damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented
was petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a
mere allegation cannot take the place of evidence. If the plaintiff, upon whom rests the burden of proving his cause of action, fails to
show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or
defense. Contrary to petitioner's claim, the evidence on record showed that respondent exercised due diligence in performing its
obligation under the contract and followed standard procedure in rendering its services to petitioner. Accordingly, petitioner was
ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the British Pageant Package tour.

SYLLABUS
1. CIVIL LAW; LEASE; COMMON CARRIERS; CONTRACT OF CARRIAGE; ELUCIDATED. By definition, a contract of carriage or
transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from
one place to another for a fixed price. Such person or association of persons are regarded as carriers and are classified as private or
special carriers and common or public carriers. A common carrier is defined under Article 1732 of the Civil Code as persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or
air, for compensation, offering their services to the public.
2. ID.; ID.; ID.; TRAVEL AGENCY IS NOT A COMMON CARRIER. It is obvious from the above definition that respondent is not an
entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make
travel arrangements in their behalf. Respondent's services as a travel agency include procuring tickets and facilitating travel permits or
visas as well as booking customers for tours. While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline,
with whom petitioner ultimately contracted for her carriage to Europe.
3. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT BETWEEN THE TRAVEL AGENCY AND ITS CLIENT IS ONE FOR
SERVICES AND NOT ONE OF CARRIAGE. Respondent's obligation to petitioner in this regard was simply to see to it that
petitioner was properly booked with the airline for the appointed date and time. Her transport to the place of destination, meanwhile,
pertained directly to the airline. The object of petitioner's contractual relation with respondent is the latter's service of arranging and
facilitating petitioner's booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the
transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for
services and not one of carriage. Petitioner's submission is premised on a wrong assumption.
4. ID.; ID.; TRAVEL AGENCY IS NOT BOUND TO OBSERVE EXTRAORDINARY DILIGENCE IN THE PERFORMANCE OF ITS
OBLIGATION. The nature of the contractual relation between petitioner and respondent is determinative of the degree of care
required in the performance of the latter's obligation under the contract. For reasons of public policy, a common carrier in a contract of
carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very
cautious persons and with due regard for all the circumstances. As earlier stated, however, respondent is not a common carrier but a
travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner
claims.
5. ID.; ID.; STANDARD OF CARE REQUIRED FOR THE TRAVEL AGENCY IS THAT OF A GOOD FATHER OF A FAMILY. Since
the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a
family under Article 1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily prudent person
would have observed when confronted with a similar situation. The test to determine whether negligence attended the performance of
an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty of negligence.
6. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF PRODUCED;
EXCEPTIONS. Respondent's failure to present Menor as witness to rebut petitioner's testimony could not give rise to an inference
unfavorable to the former. Menor was already working in France at the time of the filing of the complaint, thereby making it physically
impossible for respondent to present her as a witness. Then too, even if it were possible for respondent to secure Menor's testimony,
the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor's testimony
belonged to both parties, considering that Menor was not just respondent's employee, but also petitioner's niece. It was thus error for
the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could
have been obtained by both parties.
7. ID.; ID.; WEIGHT AND SUFFICIENCY; MERE ALLEGATION CANNOT TAKE THE PLACE OF EVIDENCE. In sum, we do not
agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented on this score was
petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere

allegation cannot take the place of evidence. If the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in
a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense.
8. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRAVEL AGENCY EXERCISED DUE DILIGENCE IN PERFORMING ITS
OBLIGATIONS UNDER THE CONTRACT; CASE AT BAR. Contrary to petitioner's claim the evidence on record shows that
respondent exercised due diligence in performing its obligations under the contract and followed standard procedure in rendering its
services to petitioner. As correctly observed by the lower court, the plane ticket issued to petitioner clearly reflected the departure date
and time, contrary to petitioner's contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were
likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the
necessary documents and procured the plane tickets. It arranged petitioner's hotel accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed undertaking. Therefore, it is clear that respondent performed its prestation under
the contract as well as everything else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were
delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at
least read the documents in order to assure herself of the important details regarding the trip.

9. ID.; ID.; NEGLIGENCE OF THE OBLIGOR IN THE PERFORMANCE OF THE OBLIGATION RENDERS HIM LIABLE FOR
DAMAGES FOR THE RESULTING LOSS SUFFERED BY THE OBLIGEE. The negligence of the obligor in the performance of the
obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his
failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands. There is no
fixed standard of diligence applicable to each and every contractual obligation and each case must be determined upon its particular
facts. The degree of diligence required depends on the circumstances of the specific obligation and whether one has been negligent is
a question of fact that is to be determined after taking into account the particulars of each case.
10. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF THE TRIAL COURT ARE GENERALLY
CONCLUSIVE UPON THE SUPREME COURT; EXCEPTIONS. The lower court declared that respondent's employee was negligent.
This factual finding, however, is not supported by the evidence on record. While factual findings below are generally conclusive upon
this court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or
circumstances of weight and substance which will affect the result of the case.

DECISION

YNARES-SANTIAGO, J p:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to
arrange and facilitate her booking, ticketing and accommodation in a tour dubbed "Jewels of Europe." The package tour included the
countries of England, Holland, Germany, Austria, Liechtenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was
given a 5% discount on the amount, which included airfare, and the booking fee was also waived because petitioner's niece, Meriam
Menor, was respondent company's ticketing manager.
Pursuant to said contract, Menor went to her aunt's residence on June 12, 1991 a Wednesday to deliver petitioner's travel
documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the package tour. Menor then told her to be at the
Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the first leg of her
journey from Manila to Hongkong. To petitioner's dismay, she discovered that the flight she was supposed to take had already departed
the previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to
complain.

Subsequently, Menor prevailed upon petitioner to take another tour the "British Pageant" which included England, Scotland and
Wales in its itinerary. For this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing
exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioner's return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the difference
between the sum she paid for "Jewels of Europe" and the amount she owed respondent for the "British Pageant" tour. Despite several
demands, respondent company refused to reimburse the amount, contending that the same was non-refundable. 1 Petitioner was thus
constrained to file a complaint against respondent for breach of contract of carriage and damages, which was docketed as Civil Case
No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint, 2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondent's fault since it did not clearly
indicate the departure date on the plane ticket. Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the "British Pageant" was merely a substitute for the "Jewels of Europe" tour, such that the cost of
the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied responsibility for petitioner's failure to
join the first tour. Chipeco insisted that petitioner was informed of the correct departure date, which was clearly and legibly printed on
the plane ticket. The travel documents were given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to
blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe," considering that the same had already
been remitted to its principal in Singapore, Lotus Travel Ltd., which had already billed the same even if petitioner did not join the tour.
Lotus' European tour organizer, Insight International Tours Ltd., determines the cost of a package tour based on a minimum number of
projected participants. For this reason, it is accepted industry practice to disallow refund for individuals who failed to take a booked tour.
3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a mistake in missing her flight for "Jewels of Europe." Petitioner was
allowed to make a partial payment of only US$300.00 for the second tour because her niece was then an employee of the travel
agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the "British Pageant"
package tour.
After due proceedings, the trial court rendered a decision, 4 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred
Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve
percent (12%) per annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for
reasonable attorney's fees;
3. Dismissing the defendant's counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED. 5
The trial court held that respondent was negligent in erroneously advising petitioner of her departure date through its employee, Menor,
who was not presented as witness to rebut petitioner's testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menor's verbal representation. The trial court thus declared that
petitioner was guilty of contributory negligence and accordingly, deducted 10% from the amount being claimed as refund.

Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However, the appellate court held that
petitioner is more negligent than respondent because as a lawyer and well-traveled person, she should have known better than to
simply rely on what was told to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited her right to the
"Jewels of Europe" tour and must therefore pay respondent the balance of the price for the "British Pageant" tour. The dispositive
portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed from
the time the counterclaim was filed until the finality of this decision. After this decision becomes final and executory,
the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total obligation until
payment thereof is satisfied. The award of attorney's fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED. 6
Upon denial of her motion for reconsideration, 7 petitioner filed the instant petition under Rule 45 on the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and
setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of
unavailed "Jewels of Europe" tour she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence which is
higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner and private
respondent were both negligent, the petitioner cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioner's negligence is only contributory while the private respondent [is guilty] of
gross negligence making the principle of pari delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not indivisible and the
amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of
breach of contract of carriage. 8
Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed her wrongly of
the flight schedule. She could not be deemed more negligent than respondent since the latter is required by law to exercise
extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the
proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its
employee's gross negligence.

Petitioner's contention has no merit.

By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to
transport persons, things, or news from one place to another for a fixed price. 9 Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. 10 A common carrier is defined under Article
1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water or air, for compensation, offering their services to the public.

It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or
goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to
another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondent's services as a travel
agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean that the latter ipso
facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom petitioner ultimately contracted for
her carriage to Europe. Respondent's obligation to petitioner in this regard was simply to see to it that petitioner was properly booked
with the airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline.
The object of petitioner's contractual relation with respondent is the latter's service of arranging and facilitating petitioner's booking,
ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage.
Petitioner's submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required in the
performance of the latter's obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is
bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances. 11 As earlier stated, however, respondent is not a common carrier but a travel agency. It
is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good
father of a family under Article 1173 of the Civil Code. 12 This connotes reasonable care consistent with that which an ordinarily
prudent person would have observed when confronted with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. 13
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the wrong day of departure.
Petitioner's testimony was accepted as indubitable evidence of Menor's alleged negligent act since respondent did not call Menor to the
witness stand to refute the allegation. The lower court applied the presumption under Rule 131, Section 3 (e) 14 of the Rules of Court
that evidence willfully suppressed would be adverse if produced and thus considered petitioner's uncontradicted testimony to be
sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that petitioner's assertion is belied by
the evidence on record. The date and time of departure was legibly written on the plane ticket and the travel papers were delivered two
days in advance precisely so that petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join the tour
and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondent's failure to present Menor as witness to rebut petitioner's testimony could not give rise to an inference unfavorable to the
former. Menor was already working in France at the time of the filing of the complaint, 15 thereby making it physically impossible for
respondent to present her as a witness. Then too, even if it were possible for respondent to secure Menor's testimony, the presumption
under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor's testimony belonged to both
parties, considering that Menor was not just respondent's employee, but also petitioner's niece. It was thus error for the lower court to
invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically
be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could have been obtained by both
parties. 16
In sum, we do not agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and
resultantly caused damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented
on this score was petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of
proving it and a mere allegation cannot take the place of evidence. 17 If the plaintiff, upon whom rests the burden of proving his cause
of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his
exception or defense. 18

Contrary to petitioner's claim, the evidence on record shows that respondent exercised due diligence in performing its obligations under
the contract and followed standard procedure in rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket 19 issued to petitioner clearly reflected the departure date and time, contrary to petitioner's contention. The travel documents,
consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent
also properly booked petitioner for the tour, prepared the necessary documents and procured the plane tickets. It arranged petitioner's
hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything else that was essential to book
petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no reason for her to
miss the flight. Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care
of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details
regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the
obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation
as the nature of the obligation so demands. 20 There is no fixed standard of diligence applicable to each and every contractual
obligation and each case must be determined upon its particular facts. The degree of diligence required depends on the circumstances
of the specific obligation and whether one has been negligent is a question of fact that is to be determined after taking into account the
particulars of each case. 21
The lower court declared that respondent's employee was negligent. This factual finding, however, is not supported by the evidence on
record. While factual findings below are generally conclusive upon this court, the rule is subject to certain exceptions, as when the trial
court overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance which will affect the result of the
case. 22
In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not commit any
contractual breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the
British Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the time the counterclaim
was filed until the finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed
until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a forbearance of credit. 23 SO
ORDERED.
||| (Crisostomo v. Court of Appeals, G.R. No. 138334, [August 25, 2003], 456 PHIL 845-860)
EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO GONZALES, defendant-appellee.
Chaves, Elio, Chaves & Associates for plaintiff-appellant.
Sulpicio E. Platon for defendant-appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the time for compliance had expired and there was breach of

contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES. Where the defendant
virtually admitted non-performance of the contract by returning the typewriter that he was obliged to repair in a non-working condition,
with essential parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in shambles,'' he is liable for the cost of the labor or service expended
in the repair of the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it. In addition, he is
likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY'S FEES NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT
CASE. Claims for damages and attorney's fees must be pleaded, and the existence of the actual basis thereof must be proved. As
no findings of fact were made on the claims for damages and attorney's fees, there is no factual basis upon which to make an award
therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE. Where the appellant directly appeals from the decision of the trial court to the Supreme Court on questions of law, he
is bound by the judgment of the court a quo on its findings of fact.

DECISION

REYES, J.B.L., J p:
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but was unsatisfied with
the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of
his total claim of P690 00 for actual, temperate and moral damages and attorney's fees.
The appealed judgment, which is brief, is hereunder quoted in full:
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the
same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts,
which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of
the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the
typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined
the typewriter returned to him by the defendant and found out that the same was in shambles, with the interior
cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day,
the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job
cost him a total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages,
P500.00 for moral damages, and P500.00 as attorney's fees.

"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts
narrated above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain
Julio Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the
plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however,
be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total
value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and
the costs of suit.
"SO ORDERED."
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of the missing
parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the machine, as provided for in
Article 1167 of the Civil Code, reading as follows:
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone."
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for the sum of
P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first filed a petition
for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant appellee was to comply with the contract
before said defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as found by the
trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine cleaning and servicing";
that the defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff"; that the "defendant
merely gave assurances, but failed to comply with the same"; and that "after getting exasperated with the delay of the repair of the
typewriter", the plaintiff went to the house of the defendant and asked for its return, which was done. The inferences derivable from
these findings of fact are that the appellant and the appellee had a perfected contract for cleaning and servicing a typewriter; that they
intended that the defendant was to finish it at some future time although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant returned the typewriter cannibalized and unrepaired, which in itself is a
breach of his obligation, without demanding that he should be given more time to finish the job, or compensation for the work he had
already done. The time for compliance having evidently expired, and there being a breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in
this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter
that he was obliged to repair in a non-working condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. et al. V. Manila Railroad Co. 98 Phil. 181).
It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the typewriter but
returned it "in shambles", according to the appealed decision. For such contravention, as appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper manner. The cost of the execution of the obligation
in this case should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75.
because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when
he received it.

Appellant's claims for moral and temperate damages and attorney's fees were, however, correctly rejected by the trial court, for these
were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney's fees must be pleaded, and the
existence of the actual basis thereof must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the
fraud or malice charged to the appellee. As no findings of fact were made on the claims for damages and attorney's fees, there is no
factual basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having
resorted directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee to pay, as
he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint.
Costs in all instances against appellee Fructuoso Gonzales.
||| (Chaves v. Gonzales, G.R. No. L-27454, [April 30, 1970], 143 PHIL 317-322)
SECOND DIVISION
[G.R. No. 73867. February 29, 1988.]
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner, vs. IGNACIO CASTRO, SR., SOFIA
C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO,
CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO
AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT, respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; PARTY WHO FAILED TO TRANSMIT TELEGRAM LIABLE THEREON. In the case at bar, petitioner and
private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondent's
message overseas by telegram. This, petitioner did not do, despite performance by said private respondent of her obligation by paying
the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for
damages under Articles 1170 and 2196 of the Civil Code.
2. ID.; MORAL DAMAGES; PARTY WHO SUFFERED EMOTIONAL SUFFERING ENTITLED THERETO. We find Art. 2217 of the
Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission." Here,
petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents had to
undergo.
3. ID.; COMPENSATORY DAMAGES; AWARDED TO A PARTY WHO INCURRED TRAVEL EXPENSES TO TESTIFY IN A COURT
CASE. We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the
expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been
remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony.
4. ID.; EXEMPLARY DAMAGES; AWARDED TO A PARTY AS A WARNING TO ALL TELEGRAM COMPANIES. The award of
exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers.

DECISION

PADILLA, J p:

Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986, in AC-G.R. No. CV70245, entitled "Ignacio Castro, Sr., et. al., Plaintiffs-Appellees, versus Telefast Communications/Philippine Wireless, Inc., DefendantAppellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr. and mother of the other plaintiffs, passed away in
Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The
telegram was accepted by the defendant in its Dagupan office, for transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in attendance. Neither the husband
nor any of the other children of the deceased, then all residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send, had not been received.
She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract. The case was filed in
the Court of First Instance of Pangasinan and docketed therein as Civil Case No. 15356. The only defense of the defendant was that it
was unable to transmit the telegram because of "technical and atmospheric factors beyond its control." 1 No evidence appears on
record that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the plaintiffs (now private
respondents) damages, as follows, with interest at 6% per annum:
"1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to each of the plaintiffs
and costs." 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16,000.00 as
compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the private respondents as exemplary damages.
The award of P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced
to P10,000.00 for each. 3

Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages should be eliminated as
defendant's negligent act was not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P31.92, the fee or charges paid by Sofia C. Crouch for the
telegram that was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "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." Art. 2176 also provides that "whoever by act or
omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to
send said private respondent's message overseas by telegram. This, petitioner did not do, despite performance by said private
respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard would result in an
inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable
of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or
omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents
had to undergo.
As the appellate court properly observed:
"[Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas children must have
suffered upon learning of the death of their mother after she had already been interred, without being given the
opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the
justification for the award of moral damages." 4
We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she
incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in
performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of
the private respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their
customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is held liable to private respondents in
the following amounts:
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;
(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED
|| (Telefast Communications/Philippine Wireless, Inc. v. Castro, Sr., G.R. No. 73867, [February 29, 1988], 242 PHIL 173-179)
EN BANC
[G.R. No. L-15645. January 31, 1964.]
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN
CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee & Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY FOR NON-PERFORMANCE; FAILURE TO PUT UP LETTER OF CREDIT WITHIN
AGREED PERIOD. One who assumes a contractual obligation and fails to perform the same on account of his inability to meet
certain bank requirements, which inability he knew and was aware of when he entered into the contract, should be held liable in
damages for breach of contract.
2. OBLIGATIONS AND CONTRACTS; LIABILITY OF NON-PERFORMANCE. Under Article 1170 of the Civil Code, not only debtors
guilty of fraud, negligence or default but also every debtor, in general, who fails in the performance of his obligations is bound to
indemnify for the losses and damages caused thereby.
3. ID.; ID.; MEANING OF PHRASE "IN ANY MANNER CONTRAVENE THE TENOR" OF THE OBLIGATION IN ART. 1170, CIVIL
CODE. The phrase "in any manner contravene the tenor" of the obligation in Art. 1170, Civil Code, includes any illicit task which
impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance.
4. ID.; ID.; WAIVER OF BREACH OF CONTRACT NOT PRESUMED. Waivers are not presumed, but must be clearly and
convincingly shown, either by express stipulation or acts admitting of no other reasonable explanation.
5. ID.; PAYMENT OF AWARD; PHILIPPINE CURRENCY. In view of Republic Act 529 which specifically requires the discharge of
obligations only "in any coin or currency which at the time of payment is legal tender for public and private debt", the award of damages
in U.S. dollars made by the lower court in the case at bar is modified by converting it into Philippine pesos at the rate of exchange
prevailing at the time the obligation was incurred or when the contract in question was executed.

DECISION

REGALA, J p:
This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20, 1958, awarding
to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and dismissing the counterclaim and third
party complaint of the defendant-appellant NARIC.

In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration (NARIC) is hereby abolished and
all its assets, liabilities, functions, powers which are not inconsistent with the provisions of this Act, and all personnel are transferred" to
the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned
law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric tons of
Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for the same. Accordingly, on July 1,
1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which
the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn,
the defendant Corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of
credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately."
Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable Letter of Credit," however, it was
only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its general manager, took
the first step to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter of Credit. The
application was accompanied by a transmittal letter, the relevant paragraphs of which read:
"In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount
required to be deposited as a condition for the opening of letters of credit, we will appreciate it if this application
could be considered a special case.
"We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4, 1952, and in
order to comply therewith, it is imperative that the L/C be opened prior to that date. We would therefore request
your full cooperation on this matter."
On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme necessity for the
immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma "equivalent to 5% of
the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required
letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a letter of credit for
$3,614,000.00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that 50% marginal cash deposit
be paid and that drafts are to be paid upon presentment" (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits) Furthermore, the Bank
represented that it "will hold your application in abeyance pending compliance with the above stated requirement."
As it turned out, however, the appellant corporation was not in any financial position to meet the condition. As a matter of fact, in a
letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection, please be advised that our
application for the opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first
deposit 50% of the value of the letter amounting to approximately $3,614,000.00 which we are not in a position to meet." (Emphasis
supplied. Exh. 9-Def.; Exh. 1-Pl., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma,
and/or assignee for $3,614,000.00," (which is more than two months from the execution of the contract) the party named by the
appellee as beneficiary of the letter of credit.
As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000
kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although the Burmese authorities
had set August 4, 1952 as the deadline for the remittance of the required letter of credit, the cancellation of the allocation and the
confiscation of the 5% deposit were not effected until August 20, 1952, or, a full half month after the expiration of the deadline. And yet,
even with that 15-day grace, appellant corporation was unable to make good its commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating the same became
apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at the same time that the offer was "a

solution which should be beneficial to the NARIC and to us at the same time." (Exh. Y-Pl.; Exh. 25Def., p. 38, Folder of Exhibits) This
offer for substitution, however, was rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of
$286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected, she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance Company was brought to the suit as a
third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellees.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in
Rangoon, Burma was the failure of the letter of credit to be opened within the contemplated period. This failure must, therefore, be
taken as the immediate cause for the consequent damage which resulted. As it is then, the disposition of this case depends on a
determination of who was responsible for such failure. Stated differently, the issue is whether appellant's failure to open immediately
the letter of credit in dispute amounted to a breach of the contract of July 1, 1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the contrary, it insists that the fault
lies with the appellee. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee
failed to seasonably furnish data necessary and required for opening the same, namely, "(1) the amount of the letter of credit, (2) the
person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated." Appellant
would have this Court believe, therefore, that had these information been forthwith furnished it, there would have been no delay in
securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an area of the proceedings into which
We are not at liberty to encroach. The explanation refers to a question of fact. Nothing in the record suggests any arbitrary or abusive
conduct on the part of the trial judge in the formulation of the ruling. His conclusion on the matter is sufficiently borne out by the
evidence presented. We are denied, therefore, the prerogative to disturb that finding, consonant to the time honored tradition of this
Tribunal to hold trial judges better situated to make conclusions on questions of fact. For the record, We quote hereunder the lower
court's ruling on the point:

"The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff to name the
supplier, the amount and the bank is not tenable. Plaintiff stated in Court that these facts were known to defendant
even before the contract was executed because these facts were necessarily revealed to the defendant before she
could qualify as a bidder. She stated too that she had given the necessary data immediately after the execution of
Exh. "A" (the contract of July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally
and in writing and that she also pressed for the opening of the letter of credit on these occasions. These
statements have not been controverted and defendant NARIC, notwithstanding its previous intention to do so,
failed to present Mr. Belmonte to testify or refute this. . . ."
Secondly, from the correspondence and communications which form part of the record of this case, it is clear that what singularly
delayed the opening of the stipulated letter of credit and which, in turn, caused the cancellation of the allocation in Burma, was the
inability of the appellant corporation to meet the condition imposed by the Bank for granting the same.
We do not think the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded
by the bank, then the letter of credit would have been approved, opened and released as early as August 4, 1952. The letter of the
Philippine National Bank to the NARIC was plain and explicit that as of the said date, appellant's "application for a letter of credit . . .
has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid
upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the bank. Its culpability
arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to
undertake the presentation. We base this judgment upon the letter which accompanied the application filed by the appellant with the

bank, a part of which letter was quoted earlier in this decision. In the said accompanying correspondence, appellant admitted and
owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be deposited as
a condition for the opening of letters of credit. . . ."
A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant knew the bank requirements
for opening letters of credit; second, that appellant also knew it could not meet those requirements. When, therefore, despite this
awareness that it was financially incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of the contract to
pay immediately "by means of an irrevocable, confirmed and assignable letter of credit," it must be similarly be held to have bound itself
too answer far all and every consequences that would result from the representation. As aptly observed by the trial court:
". . . Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have
ascertained its ability and capacity to comply with the inevitable requirements in cash to pay for such importation.
Having announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to
finance the importation within the required period, especially since it had imposed on the supplier the 90-day period
within which the shipment of the rice must be brought into the Philippines. Having entered into the contract, it
should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired
into the possibility of its issuance."
In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 1170 of the Civil Code which
provides:
"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 in damages."
Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations are decreed liable: in
general, every debtor who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby
(De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982;
Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters
Supply, 63 Phil. 657.) The phrase "in any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict
and faithful fulfillment of the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of the Philippines, citing
authorities, p. 103)
The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese
rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. We disagree.
Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting no other
reasonable explanation. (Ramirez v. Court of Appeals, 98 Phil., 225; 52 O. G. 779). In the case at bar, no such intent to waive has
been established.
We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court
based its award. Under the contract, the NARIC bound itself to buy 20,000 metric tons of Burmese rice at "$203.00 U. S. Dollars per
metric ton, all net shipped weight, and all in U. S. currency, C.I.F. Manila. . . ." On the other hand, documentary and other evidence
establish with equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price of $180.70 per
metric ton from her supplier in Burma. Considering freights, insurance and charges incident to its shipment here and the forfeiture of
the 5% deposit, the award granted by the lower court is fair and equitable. For a clearer view of the equity of the damages awarded,
We reproduce below the testimony of the appellee, adequately supported by the evidence and record:
"Q. Will you please tell the court, how much is the damage you suffered?
"A Because the selling price of my rice is $203.00 per metric ton, and the cost price of my rice is $180.00. We had
to pay also $6.25 for shipping and about $164 for insurance. So adding the cost of the rice, the freight, the
insurance, the total would be about $187.99 that would be $15.01 gross profit per metric ton, multiply by
20,000 equals $300,200, that is my supposed profit if I went through with the contract."

The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. A precise and more
exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant,
hereunder quoted so far as germane:
"It is equally of record of now that as shown in her request, dated July 29, 1959, and other communications
subsequent thereto for the opening by your corporation of the required letter of credit, Mrs. Arrieta was supposed
to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S.
Currency, per ton plus Eight Dollars ($8.00) in the same currency per ton for shipping and other handling expenses,
so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S. Currency, per ton
or a total of Two Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid
transaction. . . ."
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized profit, damages in the total sum
of $406,000 from the failure of the projected contract to materialize. This counterclaim was supported by a cost study made and
submitted by the appellant itself and wherein it was illustrated how indeed, had the importation pushed thru, NARIC would have
realized in profit the amount asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable by the appellant
despite a number of expenses which the appellee, under the contract, did not have to incur. Thus, under the cost study submitted by
the appellant, banking and unloading charges were to be shouldered by it, including an Import License Fee of 2% and superintendence
fee of $0.25 per metric ton. If the NARIC stood to profit over P400,000.00 from the disputed transaction in spite of the above extra
expenditures from which the herein appellee was exempt, We are convinced of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the dispositive portion of the decision appealed from insofar as it
expresses the amount of damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically requires the discharge of
obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts." In view of that law,
therefore, the award should be converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the conversion here decreed. Should it be at the time of the
breach, at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages for breach of contract, even if
the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be
allowed should be expressed in Philippine currency at the rate of exchange at the time of the judgment rather than at the rate of
exchange prevailing on the date of defendant's breach. This ruling, however, can either be applied nor extended to the case at bar for
the same was laid down when there was no law against stipulating foreign currencies in Philippine contracts. But now we have
Republic Act No. 529 which expressly declares such stipulations as contrary to public policy, void and of no effect. And, as We already
pronounced in the case of Eastboard Navigation, Ltd., v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is
any agreement to pay an obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public
policy (Republic Act 529), and the most that could be demanded is to pay said obligation in Philippine currency "to be measured in the
prevailing rate of exchange at the time the obligation was incurred (Sec. 1, Idem.)"
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award should be
converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the
contract was executed. The appellee insurance company, in the light of this judgment, is relieved of any liability under this suit. No
pronouncement as to costs.
||| (Arrieta v. National Rice & Corn Corp., G.R. No. L-15645, [January 31, 1964], 119 PHIL 339-350)
SECOND DIVISION
[G.R. No. L-37120. April 20, 1983.]
VICTORINO D. MAGAT, petitioner, vs. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents.

Sinesio S. Vergara for petitioner.

Eladio B. Samson for respondents.
SYLLABUS
1. REMEDIAL LAW; ACTION; CAUSE OF ACTION; SUFFICIENCY THEREOF DETERMINED ON BASIS OF FACTS ALLEGED IN
THE COMPLAINT; REQUISITES; CASE AT BAR. Both parties are in accord with the view that when a motion to dismiss is based
on the ground of lack of cause of action, the sufficiency of the cause of action can only be determined on the basis of the facts alleged
in the complaint; that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom; and
that, admitting the facts as alleged, whether or not the court can render a valid judgment against the defendant upon said facts in
accordance with the prayer in the complaint. After a thorough examination of the complaint at bar, the Supreme Court finds the test of
legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the
circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his
part of the bargain (paragraph 8 of the Complaint), private respondent failed to comply with his correlative obligation by refusing to
open a letter of credit to cover payment of the goods ordered by him (paragraphs 11 & 12 of the Complainant), and that consequently,
petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the
essential elements of a cause of action are present, to wit: (1) the existence of a legal right of 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 fine, the Supreme Court holds that on the
basis of the facts alleged in the complaint, the Court could render a valid judgment in accordance with the prayer thereof.
2. CIVIL LAW; DAMAGES; BREACH OF CONTRACT; LOSS SUFFERED BY VIRTUE THEREOF BECOMES REAL, FIXED AND
VESTED AT THE VERY MOMENT OF BREACH. Indisputably, the parties, both businessman, entered into the aforesaid contract
with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily
suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested''
and therefore, recoverable under the law.
3. ID.; ID.; ARTICLE 11700 of N.C.C.; PROVIDES FOR RECOVERY OF DAMAGES; PHRASE "IN ANY MANNER CONTRAVENE
THE TENOR" CONSTRUED. Article 1170 of the Civil Code provides: "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 phrase "in any
manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the
obligation and every kind of defective performance.
4. ID.; ID.; EXTENT OF DAMAGES RECOVERABLE DEPENDS ON THE PRESENCE OR ABSENCE OF BAD FAITH ATTENDANT
IN THE BREACH. 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.
5. ID.; ID.; MORAL AND EXEMPLARY DAMAGES; RECOVERABLE IN CASES OF BAD FAITH. The same is true with respect to
moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the
award of such damages in breaches of contract where the defendant acted in bad faith. The Supreme Court finds that the complaint
sufficiently alleges bad faith on the part of the defendant.

DECISION

ESCOLIN, J p:
Put to test in this petition for review on certiorari is the sufficiency of the averments contained in the complaint for alleged breach of
contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in Civil Case No. 17827 of the Court of First

Instance of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, which complaint was dismissed
for failure to state a cause of action. cdrep
The pertinent allegations in the complaint, subject of inquiry, are as follows: 1
"3. That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic
Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter
and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the
Naval Base at Subic Bay, Philippines;
"4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on how
best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay,
Philippines, and because of the experience of the plaintiff in connection with his various contracts with the U.S.
Navy, Subic Bay, Philippines, and his goodwill already established with the Naval personnel of Subic Bay,
Philippines, especially in providing the U.S. Navy with needed materials or goods on time as specified by the U.S.
Navy, be they of local origin or imported either from the United States or from Japan, the said Isidro Q. Aligada
approached the plaintiff herein in behalf of the defendant and proposed to import from Japan thru the plaintiff
herein or thru plaintiff's Japanese business associates, all taximeters and radio transceivers needed by the
defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;
"5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with the
assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs
in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines, the plaintiff's
assistance in this matter having been given to the defendant gratis et amore;
"6. That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein to
the effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio transceivers and
to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, a copy of which is hereto
attached marked as Annex 'A' and made an integral part of this complaint, wherein the plaintiff quoted in his offer a
total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by the plaintiff
to the defendant to be delivered sixty to ninety [60-90] days after receipt of advice from the defendant of the radio
frequency assigned to the defendant by the proper authorities;
"7. That the plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant
the items specified in Annex 'A', as well as the terms and conditions of said offer, as shown by the signed
conformity of the defendant appearing on Annex 'A' which was duly delivered by the defendant's agent to the
plaintiff herein, whereupon all that the plaintiff had to do in the meantime was to await advice from the defendant as
to the radio frequency to be assigned by the proper authorities to the defendant;
"8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his
signed conformity appearing in Annex 'A' hereof as well as the letter dated October 4, 1972, of his agent
aforementioned which is attached hereto and marked as Annex 'B' and made an integral part of this complaint, and
in order that plaintiff's promised delivery would not be delayed, the plaintiff herein took steps to advise the
Japanese entity entrusted with the manufacture of the items listed in Annex 'A' to the effect that the contract
between the defendant herein and the plaintiff has been perfected and that advice with regards to radio frequency
would follow as soon as same is received by the plaintiff from the defendant;
"9. That in his letter dated October 6, 1972, a copy of which is hereto attached marked as Annex 'C', the defendant
advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio frequency of 34.2
MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed with the plaintiff herein,
which fact was duly communicated to the plaintiff by the defendant's aforementioned agent;
"10. That by his letter dated October 7, 1972, addressed to the plaintiff by the defendant's agent, a copy of which is
hereto attached and marked as Annex 'D', defendant's agent qualified defendant's instructions contained in his
letter of October 6, 1972 [Annex 'C'] in the sense that plaintiff herein should proceed to fulfill defendant's order only
upon receipt by the plaintiff of the defendant's letter of credit;

"11. That it being normal business practice in case of foreign importation that the buyer opens a letter of credit in
favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a
letter of credit by the defendant;

"12. That the defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial
capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter
of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a
letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter
of credit to cover payment of the goods ordered by him;
"13. That it has come to the knowledge of the plaintiff herein that the defendant has been operating his taxicabs
without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were
pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on
his taxicabs, he impliedly laid the blame for the delay upon the plaintiff herein, thus destroying the reputation of the
plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts
business;
"14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, copy attached marked as Annex 'E', to
ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff
herein or whether he desired to have the contract between them definitely cancelled, but defendant did not even
have the courtesy to answer plaintiff's demand;
"15. That the defendant herein entered into a contract with the plaintiff herein as set forth in Annex 'A' without the
least intention of faithfully complying with his obligations thereunder, but he did so only in order to obtain the
concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S.
Naval Base to hi financial benefit and at the expense and prejudice of third parties such as the plaintiff herein;
"16. That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff
will suffer the following damages:.
[a] As the radio transceivers ordered by the defendant are now in the hands of the plaintiff's Japanese representative, the plaintiff will
have to pay for them, thus he will have to suffer as total loss to him the amount of P523,938.98 (converting the amount of $77,620.59
to pesos at the rate of P6.75 to the dollar) as said radio transceivers were purposely made or manufactured solely for the use of the
defendant herein and cannot possibly be marketed by the plaintiff herein to the general public;
[b] The amount of P52,393.89 or 10% of the purchase price by way of loss of expected profits from the transaction or contract between
plaintiff and the defendant;
[c] Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business dealings with Japanese
firms, thereby resulting also in loss of possible profits in the future which plaintiff assess at no less than P200,000.00;
[d] That in view of the defendant's bad faith in inducing plaintiff to enter into the contract with him as set forth hereinabove, defendant
should be assessed by this Honorable Court in favor of the plaintiff the sum of P200,000.00 as moral and exemplary damages;
[e] That in view of the defendant's fault and to protect his interests, plaintiff herein is constrained to retain the services of counsel with
whom he agreed to pay by way of attorney's fees the sum of P50,000.00".
Respondent Guerrero filed a motion to dismiss said complaint for lack of cause of action, which ground is propounded by respondent's
counsel thus: 2
". . . it is clear that plaintiff was merely anticipating his loss or damage which might result from the alleged failure of
defendant to comply with the terms of the alleged contract. Hence, plaintiff's right of recovery under his cause of

action is premised not on any loss or damage which he is expecting to incur in the near future. Plaintiff's right
therefore under his cause of action is not yet fixed or vested.
"Inasmuch as there is no other allegation in the present Complaint wherein the same could be maintained against
defendant, the present Complaint should be dismissed for its failure to state a cause of action against defendant".
The respondent judge, over petitioner's opposition, issued a minute order dismissing the complaint as follow: 3
"Acting upon the 'Motion to Dismiss' filed by the defendant, through counsel, date June 7, 1973, as well as the
opposition thereto filed by the plaintiff, through counsel, dated June 14, 1973, for the reasons therein alleged, this
Court hereby grants said motion and, as prayed for, the complaint in the above-entitled case is dismissed.
"SO ORDERED".
Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency
of the case of action can only be determined on the basis of the facts alleged in the complaint 4 ; that the facts alleged are deemed
hypothetically admitted, including those which are fairly deducible therefrom 5 ; and that, admitting the facts as alleged, whether or not
the Court can render a valid judgment against the defendant upon said facts in accordance with the prayer in the complaint 6
After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action adequately satisfied. In
a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the
parties. It further avers that while petitioner had fulfilled his part of the bargain [paragraph 8 of the Complaint], private respondent failed
to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him [paragraphs
11 & 12 of the Complaint], and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary
damages as well. From these allegations, the essential elements of a cause of action are present, to wit: [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.
7
Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits
therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss
comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law. LibLex
Article 1170 of the Civil Code provides:
"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 phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance. 8
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] 9 . 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 nonperformance of the obligation 10
The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232
of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. To Our mind, the
complaint sufficiently alleges bad faith on the part of the defendant.
In fine, We hold that on the basis of the facts alleged in the complaint, the court could render a valid judgment in accordance with the
prayer thereof. LLphil

ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case ordered remanded to the court of origin for further
proceedings. No costs. SO ORDERED.
||| (Magat v. Medialdea, G.R. No. L-37120, [April 20, 1983], 206 PHIL 341-349)