SPOUSES LUIGI GUANIO AND ANNA GUANIO V. MAKATI SHANGRI-LA HOTEL AND demands the performance of the obligation.
performance of the obligation. In this case,although there were late
RESORT, CONCEPT OF BREACH
FACTS: Petitioners booked at the Shangri-la Hotel Makati for their wedding reception. Prior to
the event, there was an initial food tasting at the hotel. At the scheduled food tasting,
however, respondent prepared for only six. Three days before the event, a final food tasting
took place. The parties eventually agreed on a final price P1,150 per person.
Petitioners claimed that during the reception, their guests complained at the delay in the
service of the dinner; certain items listed in the published menu were unavailable; and the
hotel waiters were rude and unapologetic when confronted about the delay. Petitioners filed a
complaint for breach of contract and damages before the RTC of Makati City. Respondent
however avers that while there was a delay in the service of the meals, the same was
occasioned by the sudden increase of guests to 470 from the guaranteed expected minimum
number of guests of 350 to a maximum of 380. The Court of Appeals held that the proximate
cause of petitioners' injury was an unexpected increase in their guests.
ISSUE: WON the doctrine of proximate cause applies to actions involving breach of contract.
RULING: No. The Court finds that since petitioners complaint arose from a contract, the
doctrine of proximate cause, which is relevant only in actions for quasi-delicts, finds no
application to it. What applies in the present case is Article 1170 of the Civil Code which
reads: [T]hose 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.
Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to perform any promise which
forms the whole or part of the contract. As for petitioners claim that respondent departed
from its verbal agreement with petitioners, the same fails, given that the written contract
which the parties entered into the day before the event, being the law between them. The
Court deems it just to award the amount of Php50,000.00 by way of nominal damages to
petitioners, for the discomfiture that they were subjected to during the event. The Court
recognizes that every person is entitled to respect of his dignity, personality, privacy and
peace of mind. Respondent's lack of prudence is an affront to this right.
SOCIAL SECURITY SYSTEM, petitioner, vs. MOONWALK DEVELOPMENT & HOUSING
DELAY (MORA)
FACTS:Defendant Moonwalk applied for a loan at Plaintiff SSS. Plaintiff SSS approved the
application of Defendant Moonwalk fora loan of P30,000,000 for the purpose of developing
and constructing a housing project. Out of P30, 000,000 approved loan, the sum of P9,
595,000was released to defendant Moonwalk.A third Amendment Deed of Mortgage was
executed for thepayment of the amount of P9, 595,000.Moonwalk made a total payment of
P23, 657,901.84 to SSS for theloan principal of P12, 254,700.
After settlement of the account, SSS issued to Moonwalk therelease of Mortgage for
Moonwalks Mortgaged properties.In letter to Moonwalk, SSS alleged that it committed an
honestmistake in releasing defendant. They averred that Moonwalk has still 12% penalty for
failure to pay on time the amortization which is in the penal clause of the contract. Moonwalk
through its counsel told SSS that it had completely paid its obligation to SSS and therefore
there is no recovery of any penalty.
ISSUE: WON the penal clause is demandable even after the extinguishment of the principal
obligation?
RULING:No. There has been a waiver of the penal clause as it was not demanded before the
full obligation was fully paid and extinguished.Default begins from the moment the creditor
amortizations there was no demand made by SSS for the payment of the penalty. Hence,
Moonwalk is not in delay in the payment of the penalty.No delay occurred and there was no
occasion when the penalty became demandable and enforceable.
Since there was no default in the performance of the main obligation-payment of the loan-
SSS was never entitled to recover any penalty.If the demand for the payment of the penalty
was made prior to the extinguishment of the obligation because then the obligation of
Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the principal
obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in
mora and therefore liable for the penalty.
When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially
or extrajudicially demands from the obligor the performance of the obligation. (ART. 1169)
SANTOS VENTURA HOCORMA FOUNDATION, INC.,petitioner, vs.ERNESTO V. SANTOS
andRIVERLAND, INC.,respondents.
Art 1169 Demand and Delay
G.R. No. 153004 November 5, 2004
FACTS:Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were plaintiff
and defendant,respectively, in several civil cases. On October 26, 1990, the parties executed
a Compromise Agreement wherein Foundation shall pay Santos P14.5 Million in the following
manner:a. P1.5 Million immediately upon the execution of this agreement; andb. The balance
of P13 Million shall be paid, whether in lump sum or in instalments, at thediscretion of the
Foundation, within a period of not more than two (2) years from the execution of
thisagreement.In compliance, Santos moved for the dismissal of the cases, while SVHFI paid
the initial P1.5 million. Two years thereafter, respondent made several demands, SVHFI failed
to pay the balance of P13 million, prompting Santos to apply for the issuance of a writ of
execution of the compromise judgment of the RTC dated September 30, 1991.Twice, SVHFIs
properties were auctioned and sold to Riverland, Inc.
On June 2, 1995, Santos and RiverlandInc. filed a Complaint for Declaratory Relief and
Damages alleging delay on the part of SVHFI in paying thebalance. They further alleged that
under the Compromise Agreement, the obligation became due on October26, 1992, but
payment of the remaining balance was effected only on November 22, 1994. Thus,
respondentsprayed that petitioner be ordered to pay legal interest on the obligation, penalty,
attorney's fees and costs of litigation.SVHFI alleged that the legal interest on account of fault
or delay was not due and payable, considering thatthe obligation had been superseded by the
compromise agreement. Moreover, SVHFI argued that absent astipulation, Santos must ask
for judicial intervention for purposes of fixing the period.
ISSUE:WON the respondents are entitled to legal interest.
RULING:Yes. SVHFI is liable for legal interest as penalty on account of delay.The Compromise
Agreement was entered into on October 26, 1990.It was judicially approved on September30,
1991. Applying existing jurisprudence, the compromise agreement as a consensual contract
becamebinding between the parties upon its execution and not upon its court approval.
Hence, the two-year periodshould have begun on October 26, 1990.In this case, there was
non-fulfilment of the obligation with respect to time.
The requisites of mora were allmet:(1)that the obligation be demandable and already
liquidatedthe two-year period already lapsed andthe amount of payment was already
determined;(2)that the debtor delays performanceSVHFI paid the balance beyond the two-
year period; andfinally,(3)that the creditor made a demand performance judicially or extra-
judicially.
When the debtor knows the amount and period when he is to pay, interest as damages is
generally allowed asa matter of right. The legal interest for loan as forbearance ofmoney is
12% per annum to be computed fromthe time the demand was made under the provisions of
Article 1169 of the Civil Code. The petition is DENIED for lack of merit.
PANTALEON VS AMEX
DELAY (MORA)
FACTS:
After the Amsterdam incident that happened involving the delay of American Express Card to
approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon
commenced a complaint for moral and exemplary damages before the RTC against American
Express. He said that he and his family experienced inconvenience and humiliation due to the
delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached its obligations
to Pantaleon, as the purchase at Coster deviated from Pantaleon's established charge
purchase pattern.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are approved within seconds, there
really is no strict, legally determinative point of demarcation on how long must it take for a
credit card company to approve or disapprove a customers purchase, much less one
specifically contracted upon by the parties. One hour appears to be patently unreasonable
length of time to approve or disapprove a credit card purchase.
The culpable failure of AmEx herein is not the failure to timely approve petitioners purchase,
but the more elemental failure to timely act on the same, whether favorably or unfavorably.
Even assuming that AmExs credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why it could not have promptly informed Pantaleon the reason for
the delay, and duly advised him that resolving the same could take some time.
2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred
delay, but because the delay, for which culpability lies under Article 1170, led to the particular
injuries under Article 2217 of the Civil Code for which moral damages are remunerative. The
somewhat unusual attending circumstances to the purchase at Coster that there was a
deadline for the completion of that purchase by petitioner before any delay would redound to
the injury of his several traveling companions gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by Pantaleon, as concluded
by the RTC.
SOLAR HARVEST, INC.VS.DAVAO CORRUGATED CARTON CORPORATION[G.R. No.
176868 : July 26, 2010]
FACTS: The petitioner (Solar Harvest, Inc., Solar for brevity) entered into an agreement with
respondent, Davao Corrugated Carton Corporation (DCCC for brevity), for the purchase of
corrugated carton boxes, specifically designed for petitioners business of exporting fresh
bananas. The agreement was not into writing. To start the production, Solar deposited in
DCCCs US Dollar Savings Account with Westmont bank, as full payment for the ordered
boxes.Despite such payment, Solar did not receive any boxes from DCCC.Solar wrote a
demand letter for reimbursement of the amount paid.DCCC replied that the boxes had been
completed as early as April 3, 1998 and that Solar failed to pick them up from the formers
warehouse 30 days from completion, as agreed upon. It was also mentioned that Solar placed
an additional order, out of which, half had been manufactured without any advanced payment
from Solar. (Solar alleges that the agreement was for DCCC to deliver within 30 days from
payment the said cartons to Tagum Agricultural Development Corporation (TADECO) which the
latter failed to manufacture and deliver within such time.)DCCC then demanded Solar to
remove the boxes from the factory and to pay the balance for the additional boxes.
ISSUE:WON the respondent (Davao Corrugated Carton Corporation) is in default.
RULING:No. It was unthinkable that, over a period of more than two years, Solar did not even
demand for the delivery of the boxes. Even assuming that the agreement was for DCCC to
deliver the boxes, the latter would not be liable for breach of contract as Solar had not yet
demanded from it the delivery of the boxes.
In reciprocal obligations, as in contract of sale, the general rule is that the fulfillment of the
parties respective obligation should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not fulfill his,
the latter automatically incurs delay. But when different dates for performance of the
obligation are fixed, the default for each obligation must be determined, that is, the other
party would incur in delay only from the moment the other party demands fulfillment of the
formers obligation. Thus, even in reciprocal obligations, if the period for the
fulfillment of the formers obligation is fixed, demand upon the obliged is still
necessary before the obligor can be considered in default and before a cause of
action for rescission will accrue.
Solar alleges that they made a follow-up upon respondent. The former also testified that they
made a follow-up of the boxes, but not a demand.
Even assuming that a demand had been previously made before filling the present case
Solars claim for reimbursement would still fail, as the circumstances would show that DCCC
was not guilty of breach of contract.
ALEJANDRO V. TANKEH V. DEVELOPMENT BANK OF THE PHILIPPINES, STERLING
SHIPPING LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, AND ASSET
PRIVATIZATION TRUST G.R. NO. 171428, NOVEMBER 11, 2013
Facts: Private respondent Ruperto V. Tankeh was the president of Sterling Shipping Lines,
which was incorporated way back in 1979. In 1980, petitioner Dr. Alejandro V. Tankeh, the
older brother of Ruperto Tankeh, alleged that the latter approached him wherein the former
informed the latter that he was operating a new shipping line business and offered petitioner
one thousand (1,000) shares worth P1,000,000.00 to be a director of the business. Petitioner
accepted his brother's offer and he became a member of the corporation's board. In 1981,
petitioner signed the Assignment of Shares of Stock with Voting Rights and promissory note
where he bound himself solidarily liable with the other corporate officers as regards the loan
obtained by Ruperto for the purchase of a vessel in order to commence their business.
However, the corporation failed to meet their obligations. Sometime in 1987, the DBP sold the
vessel to a Singaporean enterprise. DBP then informed petitioner that it would still pursue its
claim over the unpaid liabilities of the corporation. Hence, petitioner filed a Complaint for the
annulment of the contracts he signed in 1981 on the ground that he was fraudulently
deceived by Ruperto, the other corporate officers and DBP into signing the said contracts.
Issue: WON the fraud perpetrated by respondents is serious enough to warrant annulment of
the contract.
Held: No. Only incidental fraud exists in this case. Therefore it is not sufficient to warrant the
annulment of the contracts petitioner entered into but respondent Ruperto is liable to pay him
damages. The distinction between fraud as a ground for rendering a contract voidable or as
basis for an award of damages is provided in Article 1344: In order that fraud may make a
contract voidable, it should be serious and should not have been employed by both
contracting parties. There are two types of fraud contemplated in the performance of
contracts: dolo incidente or incidental fraud and dolo causante or fraud serious enough to
render a contract voidable. If there is fraud in the performance of the contract, then this fraud
will give rise to damages. If the fraud did not compel the imputing party to give his or her
consent, it may not serve as the basis to annul the contract, which exhibits dolo causante.
Jurisprudence has shown that in order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions. First, the fraud must be dolo causante or it must be
fraud in obtaining the consent of the party. Second, this fraud must be proven by clear and
convincing evidence. In this case, it cannot be said that fraud was serious enough to warrant
the annulment of the contract because petitioner knew of the contents of the contracts that
he signed. The required standard of proof -- clear and convincing evidence was not met.
However, in refusing to allow petitioner to participate in the management of the business,
respondent Ruperto V. Tankeh was liable for the commission of incidental fraud. The Court, in
a previous case, defined incidental fraud as "those which are not serious in character and
without which the other party would still have entered into the contract." Although there was
no fraud that had been undertaken to obtain petitioner's consent, there was fraud in the
performance of the contract. The records showed that petitioner had been unjustly excluded
from participating in the management of the affairs of the corporation. This exclusion from the
management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to the
performance of the obligation. This would include an undertaking in good faith by respondent
Ruperto V. Tankeh to be transparent with his brother that he would not automatically be made
part of the company's administration.
An award of moral damages would require certain conditions to be met, to wit: (1) first, there
must be an injury, whether physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be culpable act or omission factually established; (3) third,
the wrongful act or omission of the defendant is the proximate cause of the injury sustained
by the claimant; and (4) fourth, the award of damages is predicated on any of the cases
stated in Article 2219 of the Civil Code.
GUTIERREZ VS GUTIERREZ G.R. NO. 34840 SEPTEMBER 23, 1931
FACTS: Abelardo Velasco collided with Bonifacio Gutierrez while attempting to pass each
other on the Talon bridge on the Manila South Road resulting in the injuries (fractured right
leg) of one Narciso 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 members in all,
were in the car. It is conceded that the collision was caused by negligence, neither of the
drivers willing to slow down as they approached the said bridge.
ISSUE: WON Defendants are guilty of negligence
RULING: Yes. Defendants are guilty. Defendants Manuel Gutierrez, Abelardo Velasco, and
Saturnino Cortez,are ordered to pay Plaintiff jointly and severally, for the sum of P5,000, and
the costs of bothinstances.
In this case, it may be explained that the youth Bonifacio was in incompetent chauffeur, that
hewas driving at an excessive rate of speed, and that, on approaching the bridge and the
truck, helost his head and so contributed by his negligence to the accident. The guaranty
given by thefather at the time the son was granted a license to operate motor vehicles made
the fatherresponsible for the acts of his son. Based on these facts, pursuant to the provisions
of article 1903of the Civil Code, the father alone and not the minor or the mother, would be
liable for thedamages caused by the minor.- The liability of Saturnino Cortez, the owner of the
bus, and of his chauffeur Abelardo Velascorests on a different basis, namely, that of contract
whichhas been sufficientlydemonstrated by the allegations of the complaint, not controverted,
and the evidence. The reasonfor this conclusion reaches to the findings of the trial court
concerning the position of the bus of the bridge, the speed in operating the machine, and the
lack of care employed by the chauffeur.
VASQUEZ vs. BORJA
Case Topic: Negligence (CULPA)
In January 1932, Francisco De Borja entered into a contract of sale with the NVSD (Natividad-
Vasquez Sabani Development Co., Inc.). The subject of the sale was 4,000 cavans of rice
valued at Php2.10 per cavan. On behalf of the company, the contract was executed by
Antonio Vasquez as the companys acting president. NVSD. only delivered 2,488 cavans and
failed and refused despite demand to deliver the rest hence De Borja incurred damages
(apparently, NVSD was insolvent). He then sue Vasquez for payment of damages.
ISSUE: Whether or not Vasquez is liable for damages.
HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja contracted with.
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 an in its behalf.
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 corporations contract, its non-fulfillment, whether due to
negligence or fault or to any other cause, made the corporation and not its agent liable.
RCPI Vs. Verchez et.al
Case Topic: Negligence (CULPA)
FACTS:
A social condolence telegram sent through the facilities of the RADIO COMMUNICATIONS OF
THE PHILIPPINES, INC (RCPI). The condolence telegram was correctly transmitted as far as the
written text was concerned. However, the condolence message as communicated and
delivered to the addressees was typewritten on a Happy Birthday card and placed inside a
Christmasgram envelope. The RCPIs defense is that it ran out of social forms and envelope
for condolence telegrams.
ISSUE: WON RCPI is liable for breach of contract and negligence
HELD: YES.
The SC fully agrees with the appellate courts endorsement of the trial courts conclusion that
RCPI, a corporation dealing in telecommunications and offering its services to the public, is
engaged in a business affected with public interest. As such, it is bound to exercise that
degree of diligence expected of it in the performance of its obligation.
In the present case, it is self-evident that a telegram of condolence is intended and meant to
convey a message of sorrow and sympathy. It seems out of this world, therefore, to place that
message of condolence in a birthday card and deliver the same in a Christmas envelope for
such acts of carelessness and incompetence not only render violence to good taste and
common sense, they depict a bizarre presentation of the senders feelings. Gross negligence
or carelessness can be attributed to defendant-appellant in not supplying its various stations
with such sufficient and adequate social condolence forms when it held out to the public
the availability of such social condolence forms and accepted for a fee the transmission of
messages on said forms. Knowing that there are no such forms as testified to by its Material
Control Manager and entering into a contract for the transmission of messages in such forms,
defendant-appellant committed acts of bad faith, fraud or malice.
Francisco vs. CBCI
Case Topic: Standard Care Required
Francisco bought diesel fuel from a certain Bacsa who allegedly was the agent of Chemical
Bulk Carriers. Deliveries were then made. Later on, Chemical Bulk Carrierswrote a demand
letter to Francisco demanding the latter payment for the dieselfuels it delivered. Francisco
refused to pay alleging that it already paid to Bacsa asevidenced by the invoice issued by
CBCI and a receipt with no letter headwhatsoever issued by Bacsa to him.
ISSUE: Whether or not Francisco exercised the required diligence of a blind person to conduct
the business
Francisco failed to exercise the standard of conduct expected of a reasonable person who is
blind. First, Francisco merely relied on the identification card of Bacsa to determine if he was
authorized by CBCI. Francisco did not do any other background check on the identity and
authority of Bacsa. Second, Francisco already expressed his misgivings about the diesel fuel,
fearing that they might be stolen property,29 yet he did not verify with CBCI the authority of
Bacsa to sell the diesel fuel. Third, Francisco relied on the receipts issued by Bacsa which were
typewritten on a half sheet of plain bond paper. If Francisco exercised reasonable diligence, he
should have asked for an official receipt issued by CBCI. Fourth, the delivery to Francisco, as
indicated in Petrons invoice, does not show that CBCI authorized Bacsa to sell the diesel fuel
to Francisco. Clearly, Francisco failed to exercise the standard of conduct expected of a
reasonable person who is blind.
One who is physically disabled is required to use the same degree of care that a reasonably
careful person who has the same physical disability would use. Physical handicaps and
infirmities, such as blindness or deafness, are treated as part of the circumstances under
which a reasonable person must act. Thus, the standard of conduct for a blind person
becomes that of a reasonable person who is blind.
Loadmasters Customs Services Inc. Vs. Glodel Brokerage Corp
Case Topic: Standard Care Required
FACTS
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
On August 28, 2001, the cargoes were shipped on board the vessel Richard Rey from
Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date. Columbia
engaged the services of Glodel for the release and withdrawal of the cargoes from the pier
and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of
Loadmasters for the use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City. The goods were loaded on board twelve
(12) trucks owned by Loadmasters, driven by its employed drivers and accompanied by its
employed truck helpers. Six (6) truckloads of copper cathodes were to be delivered to
Balagtas, Bulacan, while the other six (6) truck loads were destined for Lawang Bato,
Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered in
Columbias warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however,
only five (5) reached the destination. One (1) truck, loaded with 11bundles or 232 pieces of
copper cathodes, failed to deliver its cargo. Later on, the said truck, an Isuzu with Plate No.
NSD-117, was recovered but without the copper cathodes. Because of this incident, Columbia
filed with R&B Insurance a claim for insurance indemnity in the amount of P1,903,335.39.
After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of
P1,896,789.62 as insurance indemnity. R&B Insurance, thereafter, filed a complaint for
damages against both Loadmasters and Glodel before the Regional Trial Court. It sought
reimbursement of the amount it had paid to Columbia for the loss of the subject cargo. It
claimed that it had been subrogated to the right of the consignee to recover from the
party/parties who may be held legally liable for the loss. On November 19, 2003, the RTC
rendered a decision holding Glodel liable for damages for the loss of the subject cargo and
dismissing Loadmasters counterclaim for damages and attorneys fees against R&B
Insurance. Upon appeal by both R&B Insurance and Glodel, the Court of Appeals held the
Loadmasters to be liable to Glodel in the amount of P1,896,789.62representing the insurance
indemnity which R&B Insurance Corporation (R&B Insurance )paid to the insured-consignee,
Columbia Wire and Cable Corporation(Columbia).
Hence, the present petition for review on certiorari filed by the Loadmasters.
ISSUES:
Whether or not Loadmasters Customs Services, Inc. exercised the diligence required for a
transport and whether or not respondent Glodel Brokerage Corporation jointly and severally
liable for the lost of goods;
HELD:
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the circumstances of such case,
as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary
diligence, it is that extreme measure of care and caution which persons of unusual prudence
and circumspection observe for securing and preserving their own property or rights. This
exacting standard imposed on common carriers in a contract of carriage of goods is intended
to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the
goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier
is presumed to have been at fault or to have acted negligently. This presumption of fault or
negligence, however, may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that
the exercise of extraordinary diligence lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has
a right to receive them.
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and
severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the
New Civil Code, the responsibility of two or more persons who are liable for a quasi-delict is
solidary.

Crisostomo Vs. CA
Case Topic: Standard Care Required
FACTS
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. A 5% discount on the total cost of P74,322.70 which
included the airfare was given to the petitioner. The booking fee was also waived because
petitioners niece, Meriam Menor, was respondents ticketing manager.
On June 12, 1991, Menor went to her aunts residence to deliver petitioners travel
documents and plane tickets. In return, petitioner gave the full payment for the package tour.
Menor then told her to be at the NAIA on Saturday, June 15, 1991, two hours before her flight
on board British Airways. Without checking her travel documents, petitioner went to NAIA and
to her 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 called up Menor to complain and Menor suggested upon petitioner to take another
tour British Pageant. Petitioner was asked anew to pay US$785.00. Petitioner gave
respondentUS$300 as partial payment and commenced the trip.
ISSUE:
Whether or not respondent Caravan did not observe the standard of care required of a
common carrier when it informed the petitioner wrongly of the flight schedule
HELD:
The petition was denied for lack of merit. The decision of the Court of Appeals was affirmed. 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, affecting 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.
Respondents services as a travel agency include procuring tickets and facilitating travel
permits or visas as well as booking customers for tours. 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.
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. 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 petitioners, 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.
Sarmiento vs. Sps. Cabrido
Case Topic: Standard Care Required
FACTS:
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.
Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingdings Jewelry
Shop, owned and managed by respondent spouses Luis and Rose Cabrido, which accepted the
job order for P400.
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. After 3
days, Tita Payag delivered to the jewelry shop one of Dra. Laos diamond earrings which was
earlier appraised as worth .33 carat and almost perfect in cut and clarity. 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.
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.
Petitioner filed a complaint for damages on June 28, 1994. Private respondents vigorously
denied any transaction between Dingdings Jewelry Shop and the petitioner, through Tita
Payag.
ISSUE:
Whether respondents are liable.
HELD:
YES.
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.
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.
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.
MMTC VS. CA
Standard Diligence Required
Facts:
The case arose from Nenita who incurred injuries from being thrown out of the windshield of
the jeepney that she was riding that collided with a bus operated by MMTC (petitioner). Nenita
led for damages for neither the operator of the jeepney nor the MMTC would pay for the
damages sustained by Nenita. The RTC ruled that MMTC is abstained from liability for it has
proven that it has shown diligence of a good father of a family in employing and supervising
its employees. MMTC stated that it goes through a process of screening! Interviewing and
seminar attending before they hire their employees. The C" reversed the decision of the RTC
holding that the MMTC was not able to further prove that its employees complied with its
requirements.
Issue:
Whether or not diligence of a good father has been observed by MMTC.
Ruling:
The SC ruled that MMTC being sued as employer of the bus driver Leonardo under Art. 2180*
or vicarious liability! was not able to prove that it had exercised due diligence of a good father
of a family in the selection and supervision of its employees as it has not proven that it
exercised due diligence in supervising its employees for mere imposition of hiring procedures
and supervisory policies without anything more is not sufficient to overcome the presumption
of negligence imposed upon them by the law. The basis of the employer-s vicarious liability is
that the responsibility imposed by the article arises by reason of a presumption of negligence
on the part of the persons made responsible under the article from their failure to exercise
due care and diligence over the acts of subordinates to prevent them from causing damage.
Negligence is imputed to them by law! unless they prove the contrary by showing that they
exercised diligence of a good father of a family to prevent damage. It is clear that
it is the non-performance of certain duties of precaution and prudence imposed
upon them that is why they are made answerable for damages caused by their
employee.
For the doctrine to apply, it must first be shown that there is employer0employee relationship
and that the plainti1 must show that the tort complained of was committed in the scope of his
assigned tas2 and that is when the employer may and it necessary to interpose a defense of
due diligence of a good father of a family. The diligence of a good father of a family required
to be observed by the employer to prevent damages under Art. 2180 refers to due diligence in
the selection and supervision the employees to protect the public
SPS TEODORO VS. PERENA
Standard Care Required
In June 1996, Nicolas and Teresita Zarate contracted Teodoro and Nanette Perea to transport
their (Zarates) son, Aaron Zarate, to and from school. The Pereas were owners of a van
being used for private school transport.
At about 6:45am of August 22, 1996, the driver of the said private van, Clemente Alfaro, while
the children were on board including Aaron, decided to take a short cut in order to avoid
traffic. The usual short cut was a railroad crossing of the Philippine National Railway (PNR).
Alfaro saw that the barandilla (the pole used to block vehicles crossing the railway) was up
which means it was okay to cross. He then tried to overtake a bus. However, there was in fact
an oncoming train but Alfaro no longer saw the train as his view was already blocked by the
bus he was trying to overtake. The bus was able to cross unscathed but the vans rear end
was hit. During the collision, Aaron, was thrown off the van. His body hit the railroad tracks
and his head was severed. He was only 15 years old.
It turns out that Alfaro was not able to hear the train honking from 50 meters away before the
collision because the vans stereo was playing loudly.
The Zarates sued PNR and the Pereas (Alfaro became at-large). Their cause of action against
PNR was based on quasi-delict. Their cause of action against the Pereas was based on breach
of contract of common carriage.
In their defense, the Pereas invoked that as private carriers they were not negligent in
selecting Alfaro as their driver as they made sure that he had a drivers license and that he
was not involved in any accident prior to his being hired. In short, they observed the diligence
of a good father in selecting their employee.
PNR also disclaimed liability as they insist that the railroad crossing they placed there was not
meant for railroad crossing (really, thats their defense!).
The RTC ruled in favor of the Zarates. The Court of Appeals affirmed the RTC. In the decision of
the RTC and the CA, they awarded damages in favor of the Zarates for the loss of earning
capacity of their dead son.
The Pereas appealed. They argued that the award was improper as Aaron was merely a high
school student, hence, the award of such damages was merely speculative. They cited the
case of People vs Teehankee where the Supreme Court did not award damages for the loss of
earning capacity despite the fact that the victim there was enrolled in a pilot school.
ISSUES: Whether or not the defense of due diligence of a good father by the Pereas is
untenable. Whether or not the award of damages for loss of income is proper.
HELD: Yes, in both issues.
Defense of Due Diligence of a Good Father
This defense is not tenable in this case. The Pereas are common carriers. They are not
merely private carriers. (Prior to this case, the status of private transport for school services or
school buses is not well settled as to whether or not they are private or common carriers but
they were generally regarded as private carriers). Private transport for schools are common
carriers. The Pereas, as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual occupation; (b)
undertaking to carry passengers over established roads by the method by which the business
was conducted; and (c) transporting students for a fee. Despite catering to a limited clientle,
the Pereas operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living within or near
where they operated the service and for a fee.
Being a common carrier, what is required of the Pereas is not mere diligence of a good
father. What is specifically required from them by law is extraordinary diligence a fact which
they failed to prove in court. Verily, their obligation as common carriers did not cease upon
their exercise of diligently choosing Alfaro as their employee.
Reyes Vs. Puyat-Reyes
Standard Care Required
 DOCTRINE: With these established facts, we now determine the degree of diligence that
banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v.
Court of Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence
required of banks, is more than that of a good father of a family where the fiduciary nature of
their relationship with their depositors is concerned. In other words banks are duty bound to
treat the deposit accounts of their depositors with the highest degree of care. But the said
ruling applies only to cases where banks act under their fiduciary capacity, that is, as
depositary of the deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not involve their fiduciary
relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the
diligence of a good father of a family in regard to the sale and issuance of the subject foreign
exchange demand draft. The case at bar does not involve the handling of petitioners' deposit,
if any, with the respondent bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the subject foreign exchange
demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference
Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.
Chaves vs. Gonzales
Contravention of Tenor
Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and servicing of the said typewriter but the latter was
not able to finish the job. During October 1963, the plaintiff gave the amount of P6.00 to the
defendant which the latter asked from the plaintiff for the purchase of spare parts, because of
the delay of the repair the plaintiff decided to recover the typewriter to the defendant which
he wrapped it like a package. When the plaintiff reached their home he opened it and
examined that some parts and screws was lost. That on October 29, 1963 the plaintiff sent a
letter to the defendant for 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. The plaintiff brought his typewriter to Freixas
Business Machines and the repair cost the amount of P89.85. He commenced this action on
August 23, 1965 in 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 attorneys fees. The defendant made no denials of the facts
narrated above, except the claim of the plaintiff that the cost of the repair made by Freixas
Business Machines be fully chargeable against him.
Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?
Ruling: No, he is not liable for the total cost of the repair made by Freixas Business Machines
instead he is only liable for the cost of the missing parts and screws. The defendant
contravened the tenor of his obligation in repairing the typewriter of the plaintiff that he fails
to repair it and returned it with the missing parts, he is liable under 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.
Juan Nakpil and Sons v. CA Digest
Delay (Mora)
Facts of the Case:
The private respondent (Philippine Bar Association) hired the services of the petitioner to
make the plans and specifications for the construction of their office building. The building
was completed by the contractor but subsequently, an earthquake struck causing its partial
collapse and damage.
Issue: Is the petitioner liable for damages in this case?
HELD: Yes. The petitioner made substantial deviations from the plans and specifications and
failed to observe requisite workmanship standards in the construction of the building while
their architect drew plans that contain defects and other inadequacies. Both the contractor
and the architect cannot escape liability for damages when the building collapsed due to an
earthquake. Other buildings in the area withstood the tremor. The lower court also found that
the spirals in one of the columns in the ground floor has been cut. One who creates a
dangerous condition cannot escape liability even if an act of God may have intervened as in
this case. As such, the liability of the contractor (herein petitioner) and the architect for the
collapse of the building is solidary.
NATIONAL POWER CORPORATION V CA
DELAY (MORA)/Fortuitous Event
FACTS
ECI executed a contract with NAWASA on Aug. 4, 1964, to construct the 2nd Ipo-
Bicti Tunnel in Norzagaray, Bulacan, complete it within 800 calendar days from the
date the Contractor receives the formal notice to proceed and to furnish all tools,
labor, equipment, and materials needed. The construction of the tunnel covered an
area that included the Ipo river where the Ipo Dam (Angat Hydro-electric Project
and Dam) of defendant NPC is located.
-On Nov. 4, 1967, typhoon Welming struck the project area and bringing with it
heavy rains and causing water in the reservoir of Angat Dam to rapidly rise,
reaching the danger level of 212 m above sea level. Thus to prevent overflow, NPC
caused the opening of the spillway gates. The opening of the gates caused an
extraordinary large volume of water to rush out, hitting the installations and
construction works of ECI. Effectively washing away, damaging or destroying its
stockpile of materials and supplies, camp facilities, permanent structures and
accessories.
- The Court of Appeals sustained the findings of the trial court that the maintainers
of the dam opened the gates when the typhoon was already at its height, when
they knew full well that it was far safer to open them gradually. The court also
found that NPC had known of the coming of the typhoon 4 days prior to it actually
hitting the area. Thus, the trial court and the appellate court found NPC negligent
and held liable for the damages. Petitioner NPC contends that this CA decision is
erroneous on the ground that the destruction and loss of ECIs equipment and
facilities were due to force majeure, that the heavy rains brought about by the
typhoon was an extraordinary occurrence that they could not have foreseen.
- On the other hand, ECI assails the CAs reduction of the consequential damages
awarded by the trial court from P 333,200 to P 19K on the grounds that the
appellate court had no basis in concluding that ECI acquired a new Crawler-type
crane and therefore, it only can claim rentals for the temporary use of the leased
crane for a period of one month; and that the award of P 4K a day or P 120K a
month bonus is justified since the period limitation on ECI's contract with NAWASA
had dual effects, i.e., bonus for earlier completion and liquidated damages for
delayed performance; and in either case at the rate of P 4K daily. Thus, since NPC's
negligence compelled work stoppage for a period of one month, the said award of P
120K is justified.
ISSUES
1. WON respondent CA erred in holding NPC liable for damages
HELD
1. No. Even though the typhoon was an act of God or force majeure, NPC cannot
escape liability because its negligence was the proximate cause of the loss and
damage.
Ratio As held in Juan Nakpil & Sons v. CA, the act of God doctrine requires that the
act must be occasioned exclusively by the violence of nature and human agencies
had no part therein. When the effect is found to be in part the result of the
participation of man, whether it be active intervention, neglect or failure to act, the
whole occurrence is humanized and therefore removed from the rules applicable to
the acts of God.
- Furthermore, this is question of fact which properly falls within the jurisdiction of
the CA and will not be disturbed by this Court unless it is clearly unfounded.
Ratio Findings of fact of the CA are generally final and conclusive upon the SC. It is
settled that the SC is not a trier of facts. It is not supposed to weigh evidence and
will generally not disturb findings of fact when supported by substantial evidence.
REPUBLIC V. LUZON STEVEDORING CORP.
TOPIC: Fortuitous Events
Facts:
Luzon Stevedoring is the owner of the barge being towed down the Pasig River by tug
boats. Said barge, while there was a heavy downpour on Manila, rammed against the
Nagtahan Bailey bridge, which caused the said bridge to list. The Republic of the Philippines,
then sued Luzon Stevedoring for damages.
For its defense, Luzon Stevedoring claimed that it has exercised the due diligence and
that the damages to the bridge were caused by force majeure. In fact, at the time of the event
it assigned 2 of its most powerful tugboats; assigned the more competent and experience
among its patrons; had the towlines, engines and equipment double-checked and inspected;
that it instructed its patrons to take extra precautions.
Issue: Whether Luzon Stevedorings claim of force majeure or fortuitous even is valid.
Ruling: No. Article 1174 defines caso fortuito or force majeure as extraordinary events not
foreseeable or avoidable, or "events that could not be foreseen, or which, though foreseen,
were inevitable. In this case, the very defense of Luzon Stevedoring as to the
precautions/measures it has taken on the day its barge rammed against the bridge,
contradicts its claim of force majeure. It showed that the possibility of danger was not only
foreseeable, but actually foreseen. Luzon Stevedoing, thus knowingly and voluntarily entered
into a situation involving obvious danger; it therefore assumed the risk, and cannot shed
responsibility merely because the precautions it adopted turned out to be insufficient.
Doctrine:
It is not enough that the event should not have been foreseen or anticipated but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same.
PHILCOMSAT v. GLOBETELECOM
Topic: Fortuitous Events
Facts:
Globe was contracted by the US Defense Communications Agency (USDCA) for the
exclusively use of communication facilities for the military bases of US in Clark Air Base and
Subic Naval Base.
Globe, on the other hand, contracted with PHILCOMSAT for the provisions of the
communication facilities. Through Globe and PHILCOMSATs Agreement (entered into on May
7, 1991), the latter to establish, operate and provide IBS Standard B earth station for the
exclusive use of USDCA and the former to pay PHILCOMSAT for monthly rentals. The term of
the contract was for 5 years.
On Dec. 31, 1991, the Philippine Government notified the US Government of its
termination of the RP-US Military Bases Agreement and the gave notice that all US military
forces from the Subic Naval Base shall be withdrawn by December 31, 1992. In view of this,
Globe wrote a letter notifying PHILCOMSAT of its intention to discontinue the use of the latters
earth station effective on November 8 1992. Globe invoked as basis for the letter of
termination Section 8 of the Agreement, which provides that any law, order, regulation,
direction or request of the Philippine Government shall be deemed to be an events
constituting force majeure.
 On November 24, 1993, PHILCOMSAT sent a letter to Globe demanding payment of its
outstanding balance under the Agreement. However, Globe refused to heed Philcomsats
demand.
Issue: Whether the termination of the RP-US Military Bases Agreement constitute force
majeure which would exempt Globe from complying with its obligation to pay rentals under
the Agreement.
Ruling: Yes. Art. 1174 exempts an obligor from liability on account of fortuitous event or force
majeure, which refers not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable. As agreed by PHILCOSAT and Globe, in Section 8 of the
Agreement, law, order, regulation, direction or request of the Philippine Government shall be
deemed to be an events constituting force majeure. Said stipulation not being contrary to law,
morals, good customs, public order, or public policy, and freely agreed upon by the parties
has the forceof law between them. Hence, the termination of the RP-US Military Bases
Agreement constitutes force majeure and Globe is not liable to comply with the payment of
rentals under the Agreement.
YOBIDO V. COURT OF APPEALS
Topic Fortuitous Event
Facts:
Alberta Yobido is the owner of the bus being driven by Cresencio Yobido. They were
sued through a complaint for breach of contract of carriage. According to its passengers,
during the incident, the bus was taking a wet and rough road with crushed rocks due to the
rain at the speed of 50-60kph. Along the trip, the left front tire of the bus exploded and the
bus fell into ravine around 3ft fom the road which caused the death or injuries to some of its
passengers.
Issue: Whether tire blowout was a caso fortuito as to exempt Yobidos from liability.
Held: No. Art. 1174 provides that no persons shall be esponsible foot a fortuitous
event which could not be foreseen, or which, though foreseen, was inevitable. In this
case, the explosion of the new tire may not be considered a fortuitous event. There are human
factors involved in the situation; the fact that the tire was new did not imply that it
was entirely free from manufacturing defects or that it was properly mounted on the vehicle.
Furthermore, this case involves a contract of common carrier. Hence, the tire blowout is not a
caso fortuito that will exempt Yobidos from liability.
Doctrine: It is settled that an accident caused either by defects in the automobile or through
the negligence of its driver is not a caso fortuito that would exempt the carrier from liability
for damages
BACOLOD-MURCIA MILLING CORP. (BMMC) v. COURT OF APPEALS
Topic: Fortuitous Event
Facts:
BMMC constructed a railroad track system to transport sugar cane from
the plantation to the milling station for period of 45 years (1920-1921) though a contract with
Hacienda Helvetia. However by the year 1964-1965, the railroad tracks were closed due to the
expiration of the milling contract which was not renewed by the parties. Consequently, BMMC
was unable to transport the sugar canes of some of its clients.
One of its clients requested for BMMCs transportation facilities. Due to BMMCs failure
to comply, it was sued for breach of contract and asked for its rescission. Said client then
hired private trucks to transport his sugar canes.
Issue:
Whether or not the inability of BMMC to comply with milling contract due to the
closure of the railroad track way is force majeure.
Held:
No. The closure of the railroad track way is due to the expiration of a contract entered
into by BMMCs.
According to the Civil Code, the requisites of force majeure:
(a) breach is independent of the will of obligor;
(b) Event is unforeseeable or unavoidable;
(c) and the event renders the fulfillment of obligation impossible.
In this case, BMMC, being a party of the said contract should have anticipated the
closure of the railroad track upon the termination of it. It was due to the contract termination,
which BMMC has knowledge, which caused the Breach of Contract with the other plantations.
Hence, the closure of the rail road track is a not a case of fortuitous event.
AUSTRIA v. CA
Topic: Fortuitous Event
Facts:
Austria entrusted to Abad a pendant with diamonds valued at P4,500,00, to be sold by
the latter on commission basis or to be returned on demand. However, Abad, while walking
home in Mandaluyong Rizal, was said to be accosted by two men who allegedly snatched the
purse containing jewelries and cash. Among the pieces of jewelry allegedly taken by the
robbers was the consigned pendant. Consequently, a criminal case for robbery was filed.
While the criminal case is still pending, Austria filed an action for recovery of the
pendant or its value, and damages.
Sps. Abad claims that the robbery extinguished their obligation. On the other hand,
Austria claims that there shall be prior finding of guilt on the criminal case before the robber
be considered as a fortuitous event.
Issue: Whether in a contract of agency (consignment of goods for sale) it is necessary that
there be prior conviction for robbery before the loss of the article shall exempt the consignee
from liability for such loss by reason of fortuitous event.
Ruling: No. It is recognized in jurisdiction that to constitute a caso fortuito that would exempt
a person from responsibility, it is necessary that:(1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor
must be free of participation in or aggravation of the injury to the creditor.
In this case, the robbery did take place without any concurrent fault on the debtor's
part. Furthermore, no negligence could have been attributed to Abad, in view of the fact that
at the time of the commission of robbery in 1961, the level of the criminality in the area is not
as rampant as it is when this case was decided on 1971. Hence, prior conviction in the
criminal case is not necessary for the robbery be considered as a fortuitous event. It is
sufficient that, through preponderance of evidence, it is shown that the event (robbery, as in
this case) did take place without any concurrent fault on the debtor's part.
KHE HONG CHENG v. CA
Topic: Accion Pauliana
Facts:
Khe Hong Cheng (petitioner) is the owner of the owner of the vessel in which 3,400
bags of copra for shipment owned by Philippine Agricultural Trading Corp(consignee) is
boarded. Said shipment was insured by PhilAm.
The ship sank amounting to the total loss of the shipments. Consequently, PhilAm paid
the damages to the consignee and instituted a civil case to recover the money it has paid
from the petitioner. While the case was pending, petitioner executed deeds of donations of
parcels of land to his children.
On February 25, 1997, respondent Philam filed a complaint for the rescission of the
said decision on the ground that said donation was entered into with fraud of petitioner of his
creditors.
On the other hand, petitioner claim that the registration of the deeds of donation on
December 27, 1989 constituted constructive notice and since the complaint a quo was filed
only on February 25, 1997, or more than four (4) years after said registration, the action was
already barred by prescription.
Issue:
Whether the action to rescind the donations has already prescribed.
Ruling:
No. The court settled that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have been
proven futile. In other words, accion pauliana accrues only when the creditor discovers that he
has no other legal remedy for the satisfaction of his claim against the debtor other than
an accion pauliana.
In this case, it was contended by petitioner that the action for rescission has already
prescribed, since the 4-year prescriptive period counted from December 27, 1989 (date of
donation) already lapsed.
On the contrary, although said deed is considered as constructive notice on the part
of PhilAm, the latter could not have initiated the present action for rescission (accion
pauliana) at that time. To reiterate, it shall be shown by the creditor that it has already
exhausted all other possible remedies before an accion pauliana accrue.
Hence, PhilAm could not have filed an accion pauliana in view of the fact that it is still
beyond PhilAms knowledge that the trial court will issue a favorable decision as regards to
PhilAms complaint for recovery of money against petitioner. Furthermore, PhilAm could not
have known that petitioner had no more property other than those covered by the subject
deeds to satisfy a favorable judgment by the trial court.
Thus, PhilAms present action for rescission (accion pauliana) has not yet prescribed.
SIGUAN V LIM
REMEDIES OF PARTIES
FACTS
-On 25 and 26 August 1990 LIM issued two Metrobank checks in the sums of P300K
and P241,668, respectively, payable to cash. Upon presentment by petitioner with
the drawee bank, the checks were dishonored for the reason that the account was
already closed. Demands to make good the checks proved futile.
- A criminal case for violation of Batas Pambansa Blg. 22 was filed against LIM. On
29 December 1992 the RTC of Cebu City a quo convicted LIM as charged.
- LIM was also convicted of estafa by the RTC of Quezon City filed Victoria Suarez.
This was affirmed by CA. However the Supreme Court acquitted LIM but found her
civilly liable in the amount of P169K.
- On 2 July 1991 a Deed of Donation conveying parcels of land and purportedly
executed by LIM on 10 August 1989 in favor of her children, was registered with the
Register of Deeds of Cebu. New transfer certificates of title were thereafter issued
in the names of the donees.
- On 31 December 1994, trial court ordered the rescission of the
questioned deed of donation; 2) declared null and void the transfer certificates
of title issued in the name of LIMs children; 3) ordered Registered of Deeds of Cebu
to cancel said titles and to reinstate the previous titles in the name of LIM; 4)
directed the LIMs to pay the petitioner jointly and severally, the sum of P10K moral
damages, P10K attorneys fees, P5K as expenses of litigation.
- 20 February 1998 CA reversed RTCs decision and dismissed petitioners accion
pauliana, because two requisites for said action was absent:
1. there must be a credit existing prior to the celebration of the contract;
2. there must be a fraud, or the intent to commit the fraud.
Petitioners Claim
- On 23 June 1993 petitioner filed an accion pauliana against LIM and her children.
Petitioner claimed therein that sometime in July 1991 LIM, through a Deed of
Donation, fraudulently transferred all her real property to her children in bad faith
and in fraud of creditor, including her; that LIM conspired and confederated with her
children in antedating the questioned Deed.
accion pauliana action to rescind contracts in fraud of creditors.
Respondents Comment
- LIM denied any liability to petitioner. She claimed that her convictions in criminal
cases 22127-28 were erroneous, which was the reason she appealed to the CA.
- As regards the questioned Deed of Donation, she asserted that it was not
antedated but was made in good faith at a time when she had sufficient property.
The Deed was registered only 2 July 1991 because she was seriously ill.
ISSUE
WON the Deed of Donation executed by respondent Rosa LIM in favor of her
children was made in fraud of Petitioner and, therefore, rescissible
HELD
Ratio No, the Deed of Donation made by LIM in favor of her children was notexecuted in fraud,
and is therefore not rescissible.
Reasoning The facts of the RTC and the CA regarding the execution of the Deed
are conflicting, therefore the Court has jurisdiction to review errors of fact of the
case.
- For accion pauliana to prosper, the following must be present:
plaintiff asking for rescission has a credit prior to the alienation;
debtor has made a subsequent contract conveying a patrimonial benefit to
a 3rd party;
creditor has no other legal remedy to satisfy his claim;
act impugned is fraudulent;
the 3rd person who received the property conveyed (if by onerous title),
has been an accomplice in the fraud.
GENERAL RULE: rescission requires existence of creditors at the time of the
alleged fraud, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. W/O any prior existing debt, there can
neither be no injury nor fraud.
- The Deed of Donation executed is a public document, having been acknowledged
before a notary public. It is evidence of the fact which gave rise to its execution and
of its date (Sec. 23, Rule 132, Rules of Court) Court is not convinced that it was
antedated.
SEC. 23. Public documents as evidence. xxx All other public documents are
evidence, even against a third person, of the fact which gave rise to their execution
and of the date of the latter. This includes Documents acknowledged before a
notary public except last wills and testaments
- Contracts entered in fraud may be rescinded only when the creditors
cannot in any manner collect the claims due them. Action for rescission is a
subsidiary remedy only. The petitioner was not able to prove that she had
exhausted other legal means to obtain reparation for the same.
Subsidiary remedy the exhaustion of all remedies by the prejudiced creditor to
collect claims due him before rescission is resorted to.
- Fourth requisite for accion pauliana not present either. Art. 759 of Civil Code
states that donation is always presumed to be in fraud of creditors when the donor
did not reserve sufficient property to pay his debts prior to donation. Petitioners
alleged credit existed only a year after the deed of donation was executed. She
cannot be said to have been prejudiced or defrauded by such alienation. In addition,
when the Deed was executed, LIM had properties such as farming lands, a house
and lot, residential lots which were sufficient to cover the debts.
- In an attempt to support the case for rescission, petitioner brought up the criminal
case involving Victoria Suarez. However, Suarez, albeit a creditor prior to the
alienation, is not a party to the accion pauliana. Only the creditor who brought the
action for rescission can benefit from the rescission (Art. 1384, Civil Code). The
revocation is only to the extent of the plaintiff creditors unsatisfied credit; as to the
excess, alienation is maintained.
- As for the awards of moral damages, etc., the trial court made these awards
without stating any justification in their ratio decidendi.
EASTERN SHIPPING LINES V CA
USURIOUS TRANSACTIONS
FACTS
- On Dec. 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan
for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping
Lines under Bill of Lading No. YMA-8. The shipment was insured under plaintiff's
Marine Insurance Policy No. 81/01177 for P36,382,466.38. On Dec. 12, 1981, upon
arrival of shipment, it was discharged unto the custody of defendant Metro Port
Service, Inc. (The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.) On Jan 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant Metro Port Service, Inc., one
drum opened and without seal. On Jan. 8 and 14, 1982 defendant Allied Brokerage
Corporation made deliveries of the shipment to the consignee's warehouse. The
latter excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake.
- Plaintiff argues: [a] due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. (Claims were presented against defendants who failed and refused to
pay the same) [b] As a consequence of the losses sustained, plaintiff was compelled
to pay the consignee P19,032.95 under the aforestated marine insurance policy, so
that it became subrogated to all the rights of action of said consignee against
defendants
- Defendant/s argue/s: [a] As for defendant Eastern Shipping (carrier) it alleged that
the shipment was discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability;
[b] Metroport (arrastre operator) averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order; [c] Allied
Brokerage (broker)alleged that plaintiff has no cause of action against it, not having
negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care
and diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
- Trial Court ruling: [a] Defendants to pay plaintiff, jointly and severally: 1) The
amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of defendant Metro Port Service,
Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract); 2) P3,000.00 as attorney's fees, and 3) Costs. [b] Dismissed
the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
- CA affirmed the decision of the Trial Court in toto.
ISSUES
1. WON a claim for damage sustained on a shipment of goods can be a solidary, or
joint and several, liability of the common carrier, the arrastre operator and the
customs broker
HELD
1. The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed
in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals,
161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
- When the goods shipped are either lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service vs. Court of Appeals, 131 SCRA 365).
- There are, of course, exceptional cases when such presumption of fault is not
observed but these cases, enumerated in Article 1734 of the Civil Code, are
exclusive, not one of which can be applied to this case.
- The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been passed
upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA
455)
- Since it is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged
with the obligation to deliver the goods in good condition to the
consignee.
- We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule.
- The instant petition has been brought solely by Eastern Shipping Lines, which,
being the carrier and not having been able to rebut the presumption of fault, is, in
any event, to be held liable in this particular case. A factual finding of both the court
a quo and the appellate court, we take note, is that "there is sufficient evidence
that the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them).
- Accordingly, the liability imposed on Eastern Shipping Lines, Inc., sole petitioner in
this case, is inevitable regardless of whether there are others solidarily liable with it.
2, The date of the decision of the court a quo. Notice the Disposition portion of this
case which says: The legal interest to be paid is 6% on the amount due computed
from the decision, dated 03 February 1988, of the court a quo. A 12% interest, in
lieu of 6%, shall be imposed on such amount upon finality of this decision until the
payment thereof.
3. Art. 2209 CC: If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum. (This was upheld in a
number of cases. Kindly check original text)
- The ostensible discord is not difficult to explain. The factual circumstances may
have called for different applications, guided by the rule that the courts are vested
with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance:
A. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages
B. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
i. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
ii. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
iii. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
NACAR VS. GALLERY FRAMES
USURIOUS TRANSACTIONS
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence
the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation
pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as
he alleged that his backwages should be computed from the time of his illegal dismissal b. If unliquidated, no interest
(January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA
denied the motion as he ruled that the reckoning point of the computation should only be Except: When later on established with certainty. Interest shall still be 6% per annum
from the time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA demandable from the date of judgment because such on such date, it is already deemed that
(October 15, 1998). The LA reasoned that the said date should be the reckoning point because the amount of damages is already ascertained.
Nacar did not appeal hence as to him, that decision became final and executory.
3. Compounded Interest
ISSUE: Whether or not the Labor Arbiter is correct.
This is applicable to both monetary and non-monetary obligations
HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring
to cases where the dismissed employee wins, or loses but wins on appeal). The first part is the 6% per annum computed against award of damages (interest) granted by the court. To be
ruling that the employee was illegally dismissed. This is immediately final even if the computed from the date when the courts decision becomes final and executory until the
employer appeals but will be reversed if employer wins on appeal. The second part is the award is fully satisfied by the losing party.
ruling on the award of backwages and/or separation pay. For backwages, it will be computed
from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the 4. The 6% per annum rate of legal interest shall be applied prospectively:
employer appeals, then the end date shall be extended until the day when the appellate
courts decision shall become final. Hence, as a consequence, the liability of the employer, if Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12%
he loses on appeal, will increase this is just but a risk that the employer cannot avoid when it rate;
continued to seek recourses against the Labor Arbiters decision. This is also in accordance
with Article 279 of the Labor Code. Final and executory judgments awarding damages on or after July 1, 2013 shall apply the
12% rate for unpaid obligations until June 30, 2013; unpaid obligations with respect to said
Anent the issue of award of interest in the form of actual or compensatory damages, the judgments on or after July 1, 2013 shall still incur the 6% rate.
Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by
the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which
lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now
as follows: SPS ANDAL VS PNB
ADVOCATES FOR TRUTH VS BSP
1. Monetary Obligations ex. Loans:

a. If stipulated in writing:

a.1. shall run from date of judicial demand (filing of the case)

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon
judicial demand whichever is appropriate and subject to the provisions of Article 1169 of the
Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of
judicial or extra-judicial demand (Art. 1169, Civil Code)
SECRETARY VS. SPOUSES TECSON
USURIOUS TRANSACTION
Facts:
Spouses Heracleo are the co-owners of a land which is among the private properties
traversed by MacArthur Highway in Bulacan, a government project undertaken sometime in
1940. The taking was taken without the requisite expropriation proceedings and without their
consent. In 1994, Heracleo demanded the payment of the fair market value of the property.
The DPWH offered to pay 0.70 centavos per sqm., as recommended by the appraiser
committee of Bulacan. Unsatisfied, Heracleo filed a complaint for recovery of possession with
damages. Favorable decisions were rendered by the RTC and the CA, with valuation of P 1,500
per sqm and 6% interest per annum from the time of filing of the until full payment. The SC
Division reversed the CA ruling and held that computation should be based at the time the
property was taken in 1940, which is 0.70 per sqm. But because of the contrasting opinions of
the members of the Division and transcendental importance of the issue, the case was
referred to the En Banc for resolution.
Issue 1: W/N the taking of private property without due process should be nullified
No. The governments failure to initiate the necessary expropriation proceedings prior to
actual taking cannot simply invalidate the States exercise of its eminent domain power, given
that the property subject of expropriation is indubitably devoted for public use, and public
policy imposes upon the public utility the obligation to continue its services to the public. To
hastily nullify said expropriation in the guise of lack of due process would certainly diminish or
weaken one of the States inherent powers, the ultimate objective of which is to serve the
greater good.
Thus, the non-filing of the case for expropriation will not necessarily lead to the return of the
property to the landowner. What is left to the landowner is the right of compensation.
Issue 2: W/N compensation is based on the market value of the property at the
time of taking
Yes. While it may appear inequitable to the private owners to receive an outdated valuation,
the long-established rule is that the fair equivalent of a property should be computed not at
the time of payment, but at the time of taking. This is because the purpose of just
compensation is not to reward the owner for the property taken but to compensate him for
the loss thereof. The owner should be compensated only for what he actually loses, and what
he loses is the actual value of the property at the time it is taken.
Issue 3: W/N the principle of equity should be applied in this case
No. The Court must adhere to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being called for only when
such literal application is impossible. To entertain other formula for computing just
compensation, contrary to those established by law and jurisprudence, would open varying
interpretation of economic policies a matter which this Court has no competence to take
cognizance of. Equity and equitable principles only come into full play when a gap exists in
the law and jurisprudence.
GAITE V FONACIER
Conditional Obligations
Doctrine:
Conditional Obligations- what characterizes a conditional obligation is the fact that its efficacy
or obligatory force is subordinated to the happening of a future and uncertain event; so that if
the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed.
Contingent character of obligation must clearly appear- although the obligation of one party
can be lawfully subordinated to an uncertain event, so that the other understands that he
assumes the rick of receiving nothing for what he gives, it is not in the usual course of
business to do so; hence, the contingent character of the obligation must clearly appear.
GONZALES v HEIRS OF THOMAS AND PAULA CRUZ
Conditional Obligations
Doctrine:
Condition has been defined as every future and uncertain event upon which an obligation or
provision is made to depend. It is a future and uncertain even upon which the acquisition or
resolution of rights is made to depend by those who execute the juridical act. Without it, the
sale of the property under the contract cannot be perfected, and petitioner cannot be obliged
to purchase the property. When the consent of the party to a contract is given subject to the
fulfillment of a suspensive condition, the contract is not perfected unless the condition is first
complied with.
When the obligation assumed by a party to a contract is expressly subjected to a condition,
the obligation cannot be enforced against him unless the condition is complied with.
Furthermore the obligatory force of a conditional obligation is subordinated to a happening of
a future and uncertain event, so that if that event does not take place, the parties would stand
as if the conditional obligation had never existed.
There can be no rescission of an obligation as yet non-existent, because the suspensive
condition has not happened.
CORONEL V CA
Conditional Obligations
Doctrine:
Contract to sell- the full payment of purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising, and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer.
A contract to sell may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the first element of consentis
present, although it is conditioned upon the happening of a contingent event which may or
may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale
is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment
of the purchase price, ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the
sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there
had been previous delivery of the subject property , the sellers ownership or title pf the
property is automatically transferred to the buyer, such that the seller will no longer have any
title to transfer to any third person.

CIR VS PETRON
CONDITIONAL OBLIGATIONS
Facts:
For the taxable years of 1995-1998, Petron Corp paid its tax liabilities with the Tax Credit
Certificates (TCC) it received from different BOI-registered companies as consideration for the
delivery of petroleum products to these companies. Petrons acceptance and use of the TCCs
has been continuously approved by the Department of Finance as well as the BIR Collection
Program Division through its surrender and subsequent issuance of Tax Debit Memos (TDMs).
In a post-audit conducted by the DOF, it was found out that the TCCs issued to the TCC
transferors were fraudulently obtained and fraudulently transferred to Petron. Thus, the TCCs
and TDMs issued to Petron were cancelled by the DOF.
Now, the CIR issued an assessment against Petron for deficiency excise taxes for the taxable
years 1995-1998, inclusive of surcharges and interests, on the ground that the TCCs which
Petron used to pay its taxes were cancelled and therefore has the effect of nonpayment of
taxes. The CIR also alleged that Petron has the intent to evade its taxes, thus making the
returns it filed fraudulent.
In the stipulation of facts between the parties, one of the judicial admissions was that Petron
never participated in the procurement and issuance of the TCCs to its transferors. Also, before
the CTA En Banc, it was held that Petron was an innocent purchaser in good faith and for
value.
Issue: W/N the post-audit report has the effect of a suspensive condition that would
determine the validity of the TCCs
No. It is a well-settled rule in jurisprudence that TCCs are valid and effective from their
issuance and are not subject to a post-audit as a suspensive condition for their validity. Thus,
Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it.
In finally determining their effectivity in the settlement of Petrons excise tax liabilities, the
validity of those TCCs should not depend on the results of the DOFs post-audit findings.
As an exception, the transferee/assignee may be held liable if proven to have been a party to
the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. But here,
the parties entered into a joint stipulation of facts stating that Petron did not participate in the
procurement or issuance of those TCCs. Thus, the exception to the rule is not applicable as
Petron was an innocent transferee for value of the TCCs.
Issue 2: W/N the doctrine of non-applicability of estoppel to the government apply in this
case
No. As a general rule, the principle of estoppel does not apply to the government, especially
on matters of taxation. Taxes are the nations lifeblood through which government agencies
continue to operate and with which the State discharges its functions for the welfare of its
constituents. The exception however is that this rule cannot be applied it if it would work
injustice against an innocent party.
Petron has not been proven to have had any participation in or knowledge of the CIRs
allegation of fraudulent transfer and utilization of the TCCs. Petrons status as an innocent
purchaser for value has been established and even stipulated upon by the CIR. Petron was
thereby amply protected from the adverse findings subsequently made by the DOF agency
CENTRAL PHILIPPINE UNIVERSITY V CA
Resolutory Obligation
Doctrine:
Under article 1181 of the civil code, on conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive condition but a resolutory one.
When the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in article 1197 of the civil code
applies, which provides that the courts may fix the duration thereof because the fulfillment of
the obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived.
Moreover, under article 1191, of the civil code, when one of the obligors cannot comply what
is incumbent upon him, the obligee may seek rescission and the court shall decree the same
unless there is just cause authorizing the fixing of a period. In the absence of any just cause
for the court to determine the period of the compliance, there is no more obstacle for the
court to decree the rescission claimed.
Although it is admitted that the fulfillment of the condition/obligations of the present donation
may be dependent on the will of the donee as to when it will comply therewith, this did not
arise out of a condition which the donee itself imposed. It is believed that the donee was not
meant to and does not have absolute control over the time within which it will perform its
obligations. It must still do within a reasonable time. What that reasonable time is, under the
circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as
to when the conditions of the donation are to be fulfilled does not ipso facto mean that the
statute of limitations will not apply anymore and the action to revoke the donation becomes
imprescriptible.
QUIJADA V CA
Resolutory Obligation
Doctrine:
When the municipalitys acceptance of the donation was made known to the donor, the
former became the new owner of the donated property- donation being the mode of acquiring
and transmitting ownership notwithstanding the condition imposed by the donee. The
donation is perfected once the acceptance by the donee is made known to the donor.
Accordingly, ownership is immediately transferred to the latter and that ownership will only
revert to the donor if the resolutory condition is not fulfilled.
In this case, the resolutory condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the latter would build upon the
land a school, the condition imposed is not a condition precedent or a suspensive condition,
but a resolutory one. So long as the resolutory condition subsists and is capable of fulfillment,
the donation remains effective and the donee continues to be the owner subject only to the
rights of the donor or his successor-in-interest under the deed of donation.
FRANCISCO LAO LIM VS COURT OF APPEALS
Potestative, Casual, Mixed
FACTS: Francisco Lim, entered into a contract of lease with Benito Dy for a period of 3 years,
from 1976 to 1979. After the stipulated term expired the respondent refused to leave the
premises, so Francisco Lim filed an ejectment suit against Benito Dy. This case was then taken
over by a judicially approved compromise agreement which provides an automatic increase in
rent of 20% every 3 years. On 1985 Dy, informed Lim of his intention to renew the lease up to
1988, Lim did not agree to the renewal. In 1987 another ejectment suit was filed by Lim after
the failure of Dy to vacate the premises. It was dismissed by the RTC and later affirmed by the
CA for the following reasons:
(1) the stipulation in the compromise agreement which allows the lessee (Benito Dy) to stay
on the premises as long as he needs it and can pay rents is valid, being a resolutory condition,
and therefore beyond the ambit of art 1308 of the NCC; and
(2) the compromise agreement has the effect of res judicata.
DOCTRINE: Article 1182 provides that when the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. In this case, the disputed
stipulation "for as long as the defendant needed the premises and can meet and pay said
increases" is a purely potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive
condition because the renewal of the lease, which gives rise to a new lease, depends upon
said condition. It should be noted that a renewal constitutes a new contract of lease although
with the same terms and conditions as those in the expired lease. It should also not be
overlooked that said condition is not resolutory in nature because it is not a condition that
terminates the lease contract. The lease contract is for a definite period of three (3) years
upon the expiration of which the lease automatically terminates. Therefore, the agreement is
void.
RUSTAN PULP VS. INTERMEDIATE APPELLATE COURT
Potestative, Casual, Mixed
Facts: When Rustan Pulp & Paper Mills started operations Romeo Lluch offered to supply raw
materials. Rustan Pulp proposed a non-exclusive contract to buy wood pulp from Lluch.
However, a condition in the contract gave Rustan Pulp the right to stop accepting deliveries
when the supply became sufficient until such time the raw materials are needed. During the
test run of the pulp mill, major defects on the machinery were discovered prompting the
Japanese supplier of the machinery to recommend the stoppage of the deliveries. The
suppliers were informed to stop deliveries, but were not informed as to the reasons for the
stoppage. Lluch sought to clarify the tenor of the notice as to whether stoppage of delivery or
termination of the contract of sale was intended, but Rustan Pulp failed to reply. This alleged
ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after a series of
talks between Lluch and Romeo Vergara, the manager of Rustan Pulp. Later, Lluch filed a
complaint for breach of contract. The case was dismissed, but at the same time, the court
enjoined Rustan Pulp to honor the contract. On appeal, the court ruled that Rustan Pulp's
suspension of deliveries was not in the lawful exercise of its rights under the contract of sale.
DOCTRINE: It is a truism in legal jurisprudence that a condition which is both potestative (or
facultative) and resolutory may be valid, even though the saving clause is left to the will of
the obligor. A purely potestative imposition of this character must be obliterated from the face
of the contract without affecting the rest of the stipulations considering that the condition
relates to the fulfillment of an already existing obligation and not to its inception.
VIRGILIO R. ROMERO vs. HON. COURT OF APPEALS
Potestative, Casual, Mixed
FACTS: Romero, a civil engineer, was engaged in the business of production, manufacture
and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988,
he decided to put up a central warehouse in Metro Manila. Flores and his wife offered a parcel
of land measuring 1,952 square meters. The lot was covered in a TCT in the name of private
respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for
the presence of squatters in the area, he found the place suitable for a central warehouse.
Flores called on petitioner with a proposal that should he advance the amount of P50,000.00
which could be used in taking up an ejectment case against the squatters, private respondent
would agree to sell the property for only P800/square meter. Romero agreed. Later, a "Deed of
Conditional Sale" was executed between Flores and Ongsiong. Purchase price: P1,561,600.00;
Down payment: P50K; Balance to be paid 45 days after the removal of all the squatters; upon
full payment, Ongsiong shall execute deed of absolute sale in favor of Romero. Ongsiong
sought to return the P50,000.00 she received from petitioner since, she said, she could not
"get rid of the squatters" on the lot. She opted to rescind the sale in view of her failure to get
rid of the squatters. RTC ruled that the private respondent had no right to rescind the
contract since it was she who "violated her obligation to eject the squatters from the subject
property" and that petitioner, being the injured party, was the party who could, under Article
1191 of the Civil Code, rescind the agreement. CA reversed RTC. It opined that the contract
entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the
squatters from the land, the non-occurrence of which resulted in the failure of the object of
the contract; that private respondent substantially complied with her obligation to evict the
squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his
part of the contract, and that the provision requiring a mandatory return/reimbursement of
the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day
period was not a penal clause. Thus, it concluded.
DOCTRINE: We share the opinion of the appellate court that the undertaking required of
private respondent does not constitute a "potestative condition dependent solely on his will"
that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a "mixed"
condition "dependent not on the will of the vendor alone but also of third persons like the
squatters and government agencies and personnel concerned. We must hasten to add,
however, that where the so-called "potestative condition" is imposed not on the birth of the
obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the
obligation itself.
M. D. TAYLOR VS. UY TIENG PIAO AND TAN
Potestative, Casual, Mixed
Constructive Fulfillment
FACTS: Taylor contracted his services to Tan Liuan & Co as superintendent of an oil factory
which the latter contemplated establishing. The contract extended over 2 years and the salary
was P600/month during the first year and P700/month during the second with electric, light
and water for domestic consumption or in lieu thereof, P60/month. At this time, the machinery
for contemplated factory had not been acquired, though ten expellers had been ordered from
the US. It was understood that should the machinery to be installed fail, for any reason, to
arrive in Manila within the period of 6 months, the contract may be cancelled by the party of
the second part at its option, such cancellation not to occur before the expiration of such 6
months. The machinery did not arrive in Manila within the 6 months; the reason does not
appear, but a preponderance of evidence show that the defendants seeing that oil business
no longer promised large returns, either cancelled the order for machinery from choice or
were unable to supply the capital necessary to finance the project. Defendants communicated
to Taylor that they had decided to rescind the contract. Taylor instituted this action to recover
damages in the amount of P13k, covering salary and perks due and to become due.
DOCTRINE: Article 1182 of Civil Code provides that when the fulfillment of the condition
depends upon the sole will of the debtor, the conditional obligation shall be void. It is no doubt
correct but it must be remembered that it is applicable only for suspensive condition. Hence,
resolutory potestative conditions are perfectly valid even if made to depend upon the debtor
since the obligation is already in force. In other words, a condition at once facultative and
resolutory may be valid even though the condition is made to depend upon the will of the
obligor.
PLDT VS JETURIAN
Constructive Fulfillment
Remedy of Creditor before fulfillment of conditions
FACTS: PLDT adopted in 1923 a Plan for Employees Pension. Condition of pension is that if
they reach the age of 60 and served for 20 years. In 1945 the BOD adopted a resolution
discontinuing the pension plan. Some retirees did not get the pension because they did not
satisfy the conditions. PLDT argued that employees cannot compel them to continue program
when it was based on expectancy.
ISSUE: Whether the pre-war employees are entitled to the pension.
HELD: Yes, but with the exception of those who died or left before the outbreak of the war.
The pension plan was not a gratuity but an inducement for employees to continue indefinitely
in service. The plan ripened into a binding contract upon its implied acceptance of the
employees. Acceptance is inferred from their entering the employ of the company and staying
after the plan was made known. PLDT argues that it can only be held liable under the
conditions expressly set in the pension plan. But the Court held that the Company that
violated the contract with its employees, by discontinuing the plan without their consent, is
not in the position to insist upon the terms of the very contract they have breached
PLDT v YLAGAN
Remedy of Creditor before fulfillment of conditions
FACTS:
Responded was an employee of PLDT, hired as an accounting clerk. On May 1996,
PLDT refused to renew employment and argued that respondent was hired as a project
employee.
Petitioner claimed that her regular employment expired.
ISSUE:
Whether or not respondent is entitled of the privileges due to her as a regular
employee.
RULING:
It cannot be said that her employment as an accounting clerk is not necessary to
its operations. Court of Appeals was reminded that the character of employment is
determined not by stipulations in the contrast, but by the nature of the work performed
and that an employee is regular because of the nature of the work and the length of
services, not because of the mode or even the reason for hiring them.
BOYSAW V. INTERPHIL
Rescission
FACTS:
Solomon Boysaw and Manager Ketchum, signed with Interphil Promotions, Inc. as
contract to engage Gabriel Flash Elorde in a boxing contest for the junior.
Subsequently, the manager had been changed twice without prior permission from
Interphil. Later, respondent asked for postponement of the fight to the new manage, Yulo,
but the latter refused which rendered the contract nugatory.
ISSUE:
Whether or not there is a violation or breach of contract.
RULING:
Yes. Our law on contract recognizes the principle that actionable injury inheres in
every contractual breach. Art 1191, power to rescind reciprocal obligation is applicable.
DEIPARINE V. CA
Effect of Rescission
FACTS:
Spouses Carungay filed complaint for rescission of the construction contract and for
damages against petitioner.
ISSUE:
W/N rescission was proper
RULING:
Yes. The construction fails squarely under the coverage of Art. 1191 because it
impulses upon petitioner the obligation to build the structure of upon the Carungays, the
obligation to pay for the project upon its completion.
Art 1191, unlike 1385, is not predicated on economic prejudice to one of the
parties but on breach of faith by one of them. The violation of reciprocity bet. Deiparine
and the spouses is the breach caused by Deiparines failure to follow the stipulated plans
and specifications has given the carungay spouses the right to rescind or cancel the
contract.
EDS v. Healthcheck International Inc.
Effect of Rescission
FACTS:
Healthcheck - Health maintenance org that provides prepaid health
and medical insurance coverage to clients.
 De La Salle University Medical Center - one of Healthchecks accredited
hospitals.
EDS Manufacturing - Obtained med insurance from healthcheck EDS
access to DLSUMC was suspended due to non- payment of healthcheck.
Another suspension was made which prompted EDS to rescind its contract
with Healthcheck. However, employees of EDS continued to use their
cards which cause charges to healthcheck.
ISSUE:
W/N the rescission made by EDS is valid.
RULING:
No. Rescission was made because of slight breach only Art 1191 applies. A judicial
or notarial act is necessary before a valid rescission can take place.
HEIRS OF SOFIA QUIRONG v. DPB
Effect of Rescission
FACTS:
The case is about prescriptive period of an action for rescission of contract of sale
where the buyer is evicted from the thing sold by a subsequent judicial order in favor of a
third party.
ISSUE:
W/N heirs of Quirong were entitled to the rescission of the DPB's sale of the subject
lot to the late Sofia Quirong as a consequence of her heirs having been evicted from it.
RULING:
An action for rescission which is based in a subsequent economic loss suffered by
the buyer, was precisely the act on that Quirong heirs took against DPB. Consequently, it
prescribed asArt 1389 provide 4 years from the time the action accrued.
UP v. ANGELES
Effect of Rescission
FACTS:
UP & ALUMCO entered into a logging agreement where the latter was granted
authority by the former to cut, collect and remove timber from the Land Grant owned by
UP, in payment of royalties, forest fees, etc. However, ALUMCO incurred unpaid amounts
and despite or repeated demands made by UP, obligation of ALUMCO was not fulfilled.
ISSUE:
W/N UP can treat its contract w/ ALUMCO rescinded.
RULING:
There is nothing in the law that prohibits the parties from entering into agreement
that violation of the terms of the contract would cause cancellation thereof, even without
court intervention. In other words, it is not always necessary for the injured party to resort
to.court for rescission of the contract. However the party that may consider such
rescinded, act accordingly, without previous court action, but it proceeds at its own risk.
GR L42283 ANGELES V CALANSAZ
Effect of Rescission
FACTS:
Buenaventura Angeles et. Al (plaintiffs-appellees) and (defendants-appellants) Torres Calasanz
et Al. entered to contract to sell (CTS) a piece of land in Cainta Rizal for P3,920 + 7% per
annum interest.
10% down payment paid by the plaintiff upon entering the contract, monthly payments of
P41.20 were then made until JUL 1966 (total P4,533.38).
DEC 1966 - defendants wrote a letter to the plaintiff requesting for the remittance of past due
accounts JAN 1967 - defendants cancelled the contract to sell because of the failure of plaintiff
to meet the subsequent payment.
Aggrieved, plaintiffs filed a case to the CFI of Rizal to compel defendant to execute a final
deed of sale (DOS) in their favor. Defendant's raised a defense that there was no cause of
action as there was a breach of contract specifically in its terms which states:
XXXXXX 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. XXXXXX
CFI decided to rule in favor of the plaintiffs, ordering defendants to issue the DOS and pay
P500 attorneys fees. Motion for reconsideration was denied hence, Defendants raised the
case to the SC.
ISSUE:
Whether the contract to sell has been automatically and validly cancelled due to a breach of
its conditions?
HELD:
No, 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)
In this case the court found the breach of the contract to be slight and casual considering the
principal obligation was only P 3,920.00 excluding the 7% interests, the plaintiffs- appellees
had already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the
defendants will work injustice to the plaintiffs- appellees, as it would unjustly enrich the
defendants. Further Art 1234 of the civil code 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 fulfilment, less damages suffered by the obligee.
Additional Doctrine:
Contract of adhesion - 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.
GR 129107 - IRINGAN V COURT OF APPEALS
Effect of Rescission
FACTS
Respondent Palao sold an undivided portion of his lot in Tuguegarao to Petitioner Iringan, their
stipulating the following payment conditions.
1st payment - P10,0000 due upon execution the contract
2nd payment -P140,000 due on or before Apr 30, 1985
3rd payment - P145,000 due on or before Dec 31, 1985
Petitioner failed to fulfill his obligation to pay the 2nd payment in full, only P40,00 was paid.
July 18, 1985 - respondent notified petitioner that he considered the contract rescinded due to
the failure to pay the 2nd payment in full.
Aug 20, 1985 - petitioner replied they were not opposing the revocation of the Deed of Sale
but requested to reimburse the amount they have paid along with interests and attorneys
fees.
July 1, 1991, - respondent filed to the RTC a Complaint for Judicial confirmation of Rescission of
contract and damages against petitioner. RTC decided in favor of the respondent, affirming
the mutual rescission of the contract of sale under the provision of Article 1191 of the Civil
Code.
RTC ordered the petitioner to vacate the premises and indemnify the respondent P100,000
compensation for use of property minus 50% of the amount paid by them, payment of
P50,000 as moral damages, and P50,000 for attorneys fees.
On appeal, CA affirmed the RTCs decision hence petitioner escalated case to SC. Petitioner
contends that no rescission was effected by virtue of the letter sent by the respondent when
respondent considered the contract rescinded. Petitioner further claims that a judicial or
notarial act is necessary before one party can unilaterally effect a rescission per Art 1592.
Respondent defends that the right to rescind is vested by law on him the obligee and since
petitioner did not oppose the intent to rescind the contract it had legal effect of a mutually
agreed rescission.
ISSUE
Whether there was a valid legal rescission of the contract of sale when the letter sent by the
respondent to petitioner was mutually agreed upon by both parties?
HELD
No, the respondents letter to the petitioner dated August 20, 1985 wherein they both
mutually agreed to was not a valid act of rescission.
The court held that in obligations where subject-matter of the sale is real property, it does not
come strictly within the provisions of Art 1191 of the Civil Code, but is subject to the
stipulations agreed upon by the contracting parties and to the provisions of Art 1592 of the
Civil Code, which refers to a demand that the vendor makes upon the vendee for the latter to
agree to the resolution of the obligation and to create no obstacles to this contractual mode of
extinguishing obligations.
In this case, it is necessary that a judicial or notarial act is necessary before a valid rescission
can take place, whether automatic rescission has been stipulated. the letter of the respondent
declaring his intention to rescind did not have legal effect as it did not manifest it had the
judicial or notarial notice neither did their mutual agreement on the rescission was judicially
invoked.
Therefore, the respondents letter to rescind the deed of sale dated August 20, 1985 was not a
valid act of rescission.
****IMPORTANT: The SC decided that the complaint filed through the courts on July 1, 1991
was a valid compliance to the law for Judicial decree of rescission. The court further iterated in
its previous ruling Luzon Brokerage Co Inc v Maritime Building that even a crossclaim found in
the answer (court decision) could constitute a judicial demand for rescission that satisfies the
requirement of the law.
The petitioner assails this crossclaim contending that the said case filed by the respondent
has already prescribed under Art 1389 of the Civil Code where it provides that the action to
claim rescission must be commenced within four years.
The court held that rescission in Article 1381 is NOT the same to the rescission in Article
1191 and 1592.
In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or
cancellation of the contract.
In Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as
enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and 1592, is in Article
1144, which provides that action upon a written contract should be brought within ten years
from the time the right of action accrues. In this case, the suit was brought July 1991, or six
years after the default. It was filed within the period for rescission. Therefore, the contract of
sale between can still be, validly rescinded.
ADDITIONAL DOCTRINE
In Escueta v. Pando - Article 1191 of the Civil Code, the right to resolve reciprocal obligations,
is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon
him. But that right must be invoked judicially.
Consequently, even if the right to rescind is made available to the injured party, the obligation
is not ipso facto erased by the failure of the other party to comply with what is incumbent
upon him. The party entitled to rescind should apply to the court for a decree of rescission.
The right cannot be exercised solely on a partys own judgment that the other committed a
breach of the obligation.
The operative act which produces the resolution of the contract is the decree of the court and
NOT the mere act of the vendor.

GR 108346 VELARDE v COURT OF APPEALS
Effect of Rescission
FACTS
David Raymundo (Respondent) and Spouses Avelina and Mariano Velarde (Petitioners) entered
into a contract to sell wherein the latter would purchase the formers mortgaged parcel of land
and house (house and lot) in Makati through a Deed of Sale with Assumption of Mortgage.
Terms of the sale are as follows:
1) The Petitioners would pay respondent P800k and assume to pay the mortgage
obligations of the property in the amount of P1.8M in favor of the mortgagee bank
BPI.
2) That while their application for the assumption of the mortgage obligations is not
yet approved by the mortgagee bank, Petitioners will continue to pay the
mortgage obligations on the property with the bank under the Respondents
name.
3) That in the event Petitioners violate any of the terms and conditions of the said
mortgage under the respondents name, they agree that the down payment of
P800k, plus all the payments made with the BPI on the mortgage loan, shall be
forfeited in favor of Respondent, as and by way of liquidated damages, without
necessity of notice or any judicial declaration to that effect, and Respondent shall
resume total and complete ownership and possession of the property, and the
same shall be deemed automatically cancelled.
Petitioners paid the mortgage for only three months, as their application for the assumption of
mortgage was not approved by the bank.
Respondent, through counsel, sent Petitioners a letter informing them of their non-payment of
the mortgage constituted non-performance of their obligation and the cancellation and
rescission of the contract to sell.
Petitioner replied stating they are willing to pay if the following conditions are met by the
Respondent:
1) Deliver (to the petitioners) the actual possession of the property not later than Jan
15, 1987
2) Cause the release of the title and mortgage from BPI and make the title available
and free from any liens and encumbrances
3) Execute a deed of absolute sale in favor of the petitioner free from any liens and
encumbrances not later than Jan 21, 1987
Respondent then sent petitioners a notarial notice of cancellation/rescission of the intended
sale of the subject property due to the latters failure to comply to the terms and conditions of
the Deed of Sale of Assumption of Mortgage.
Petitioner, filed a civil case through the RTC against respondent for specific performance,
nullity of cancellation, writ of possession and damages. RTC dismissed the case however on
motion for reconsideration, the complaint was granted thereby ordering the petitioner to pay
the P1.8M to respondents and respondent to issue a deed of absolute sale and surrender the
property to petitioners.
Respondent appeals the case to CA, to which the CA overturned the ruling of the RTC
upholding the validity of the rescission of Respondent. Aggrieved Petitioners raise the case to
the SC through Certiorari
ISSUE:
1) Whether non-payment of the petitioners of the mortgage obligation resulted in a
breach of the contract of sale?
2) Whether there was substantial breach of contract committed by the petitioner thereby
justifying the rescission of contract done by the respondent?
HELD:
1) Yes, there was a breach of contract when petitioner ceased paying the mortgage
obligation after their request to assume the obligation was disapproved by the
mortgagee bank.
The court held that in a contract of sale, the seller obligates itself to
transfer the ownership of and delivery of a determinate thing and the buyer
to pay a price certain in money or its equivalent.
In this case, the 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. Petitioners, on the other hand, did not
perform their correlative obligation of paying the contract price in the manner agreed
upon. Therefore, the non-payment of the mortgage obligation by the petitioner
constitutes a breach of the contract of sale.
2) Yes, the breach committed by the petitioners was substantial thereby the rescission
by the respondent was valid and justified.
The court held that the right of rescission of a party to an obligation under Art 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
obligors 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.
In this case, the respondent validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their existing 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.
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.
Additional Doctrines:
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.
 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.
*** Case ending:
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.
GR 188986 MAGLASANG V NORTHWESTERN
Effect of Rescission
FACTS:
Respondent, Northwestern University, engaged the services of petitioner Galileo Maglasang
(GL Enterprises) towards the installation of an integrated bridge system (IBS) and Maritime
Simulation room equipment. Common to both contracts are the following provisions:
(1) the IBS and its components must be compliant with the IMO and CHED standard
and with manuals for simulators/major equipment; (2) the contracts may be
terminated if one party commits a substantial breach of its undertaking; and (3) any
dispute under the agreement shall first be settled mutually between the parties, and if
settlement is not obtained, resort shall be sought in the courts of law.
Northwestern paid P1 Million as down payment to GL Enterprises, 2 months after the
execution of the contracts, Northwestern halted the operations of GL Enterprise as they allege
that the materials GL enterprises brought in (1) were old; (2) did not have instruction manuals
andwarranty certificates; (3) contained indications of being reconditionedmachines; and (4)
did not meet the IMO and CHED standards. Northwestern demanded GL enterprise to comply
with the terms of the contract and to meet with their representative to iron out the situation.
GL Enterprise instead filed a complaint to the RTC for breach of contract on grounds that the
stoppage ordered by Northwestern prevented the installation of the materials for the IBS. GL
enterprises sought the remaining 1.97Million it would have earned for the IBS project and
exemplary and moral damages and attorneys fees.
RTC, held that there was mutual fault between parties, it ruled Northwestern unduly halted the
operations, even if the contracts called for a completed project to be evaluated by the CHED.
In turn, the committed by GL Enterprises was the delivery of substandard equipment as
required by the agreement. RTC ordered mutual restitution.
Both parties appealed to the CA, it then ruled that GL enterprises substantially breached
the contract when it delivered substandard equipment. The CA declared the rescission
of the contracts (Art 1191) and affirmed the mutual restitution order of the RTC and granting
the P50,000 attorneys fees award to Northwestern. Aggrieved, GL Enterprise escalates the
case to the Supreme Court through certiorari.
ISSUE:
Whether there was substantial breach on the part of GL Enterprise?
HELD:
Yes, the delivery of substandard materials by GL Enterprise constituted a breach of contract.
The court held that by way of negative definition, a breachis considered casual if it does not
fundamentally defeat the object of the parties in entering into an agreement. For
there to be a breach there must be a "failure, without legal excuse, to perform any
promise which forms the whole or part of the contract."
In this case, both parties explicitly agreed that the materials to be delivered must be
compliant with the CHED and IMO standards and must be complete with manuals .
The intent of the parties was to replacethe old IBS in order to obtain CHED accreditation for
Northwesternsmaritime-related courses. The allegation on Northwesterns stoppage of the
installation being a breach of contract, was justified legally as Northwestern exercised
ordinary prudence to avert a possible wastage oftime, effort, resources. The substandard
materials delivered by GL Enterprise on the other hand, shows their failure to meet the
obligation without any legal excuse.
Therefore, there was substantial breach on the part of GL enterprise.
The Supreme Court affirmed the CAs decision and attorneys fees award to
Northwestern.
ADDITIONAL DOCTRINES:
Attorneys Fees - Article 2208 of the Civil Code allowsthe grant thereof when the court deems
it just and equitable that attorney'sfees should be recovered. An award of attorney's fees is
proper if one wasforced to litigate and incur expenses to protect one's rights and interest
byreason of an unjustified act or omission on the part of the party from whomthe award is
sought.
LACHICA V ARANETA 47 OG 115699 AUG 1949
WHEN COURT MAY FIX PERIOD
FACTS
- Early part of July 1943 defendant Araneta Inc. offered for sale a parcel of land
with improvements thereon (TCT No. 14841, Land Records of Manila)
- First week of July 1943 RICs fieldman Navarro informed Sadang of the offer to
sell the property by the defendant
- Rizal Investment Corp (RIC; where plaintiff Sadang was at that time the Sales
Manager) acted as defendants agent in the sale of such property
- July 12, 1943 (morning) Sadang submitted to Jose Araneta (president of
defendant corp) a letter of the same date addressed by RIC to the defendant,
containing a proposal of the buyer:
PROPOSAL I: (Exhibit E; this was rejected by Araneta)
1) to purchase property for P 18,000
2) with a downpayment of P 7,500
3) the balance to be paid anytime bet now and within 90 days after
the peace of treaty bet warring nations
- July 12, 1943 (afternoon) Sadang submitted another proposalto Jose Araneta
addressed by RIC to the defendant, ctg a proposal of the buyer:
PROPOSAL II (Exhibit F; Araneta told Sadang to return after 2 days he wanted to
consider other offers and to select amongst them, that with a bigger dp and w the
fastest mode of settlement)
1) purchase price: P20k
2) dp: P7.5k
3) the balance to be paid anytime bet now and w/in 90 days
after the peace of treaty bet warring nations
- July 14, 1943- after further negotiations a letter addressed to RIC, signed by
Araneta in behalf of the defendant corp (delivered to Sadang, accompanied by
Flores, RIC president and mgr)
RIC letter (Exhibit A; product of negotiations)
1) Purchase price: P20k
2) P8k of purchase price to be paid in cash
3) 12k of purchase price to be paid in installments:
4) 1k on or before Dec. 31, 1943
5) 1k on or before Dec. 31, 1944
6) 10k (balance) on or before Dec. 31, 1945
7) this same property will be mortgaged to us to guarantee the
unpaid balance;
8) And the same will bear an interest of 8% per annum;
9) Said interest to be paid in advance
- July 15, 1943 pursuant ot par 7 of the provisions of the RIC letter, plaintiffs
deposited with defendant corp a sum of P1k as good faith money
- July 16, 1943 (noon):
DEED OF SALE with MORTGAGE (Exhibit C)
1) parties:
a) VENDEEMORTGAGOR: plaintiff Lachica with
concurrence of husband Sadang
b) VENDOR MORTGAGEE: Gregorio Araneta, Inc
2) conditions:
a) form and manner of the payment of the P12k
balance (as stated in RIC letter, Exhibit A);
b) P12k balance shall bear interest of 8% per annum;
c) Interest payable in advance within the first 5 days of
each month;
d) Interest, while not paid, shall be paid liquidated and
accumulated monthly and added to the capital until the vendee has
brought payments up-to-date (periods of payment agreed for the benefit
of both vendor and vendee)
e) Shoud the vendee be in default in payment of any
amount due, either for capital or interest, the whole balance shall
automatically become due and payable and the vendor shall have the
right to foreclose the mortgage in its entrirety
- Payments by plaintiff to defendant:
P1k July 15, 1943 (deposit)
P7k upon execution of deed of sale with mortgage
P80 Aug 16 (interest)
P80 Sep 16 (interest)
P80 Oct 18 (interest)
P80 Nov 15 (interest)
P80 Dec 16 (interest)
P1k Jan 15, 1944 (on account of principal)
P73.33 Jan 15 (interest)
P73.33 Feb 19 (interest)
P73.33 Mar 15 (interest)
P5k Apr 10 (on account of principal)
P73.33 Apr 13 (interest)
P146.66 Jun 17 (interest)
P219.99 Aug 31 (interest)
- Anent the P5k (April 10, 1944) payment, Pres. Araneta wrote to Lachica, returning
the check covering the payment because it is not in accord with what was stated in
the contract.
- Lachica returned said check to defendant (april 12, 1944) stating that she
acknowledges her being forced to assume an oblication which I could now very
well pay
- April 12, 1944 Araneta wrote back to Lachica stating that besides the interest
you have to pay us for the balance of P6k at the rate of 8% per annum, we will also
charge you the interest in accordance with the terms of the contract, which
interest
represents P317.80 on P5k (March 16 Dec 30, 1944) and P320 on P4k (Dec 31,
1944 Dec 31, 1945).
- April 1944 Lachica wrote Araneta another letter asking for the computations to
be made for the period April 15, 1944 Dec 31, 1945 (enclosing PNB check No.
37255-K for P73.33 to cover the payment of interests on P11k for March 16 April
15, 1944)
- Defendant corp thereafter applied the P5k sum to the payment of indebtedness of
the plaintiff, and received payments on interest charges, so theat as of Sept 15,
1944, plaintiffs account with the defendant under the mortgage contract was P6k
unpaid balance of the principal
- Sept 5, 1944 plaintiff Sadang went to Araneta to pay the entire balance
(including interest) and to ask the cancellation of the mortgage but Araneta
refused
to accept the tender of the payment then made
- Sept 5, 1944 afternoon Sadang said Atty Salazar to intervene in the case but
Araneta persisted in his denial
- Sept 6, 1944 Atty Quisumbing, in behalf of the plaintiffs, tendered to Araneta
the
sum of P7,060.03 in satisfaction of the balance of the mortgage indebtedness
(including interests not yet due, which the defendant would have earned were the
payments made on Dec 31, 1945) but Araneta reasoned that his non-acceptance
was due to the payments in accordance with the terns of the deed of sale with
mortgage.
- Atty Salazar gave notice of plaintiffs intention to consign the sum of P7,060.03 as
he did in effect deposit the sum of P7,061 on Sept 6, 1944 with the Manila CFI by
way of consignation, and at the same time presented the complaint
- Sept 11, 1944 counsel for plaintiffs notified the defendant in writing of the fact
of
consignation
ISSUES
1. WON TC erred in holding that the plaintiffs had a right to pay the remaining
principal of P6k (balance of theor obligation) before Dec 31, 1945 (date of
maturity)
NO
2. WON TC erred in holding that the plaintiffs made a valid tender of payment to
defendant NO
3. WON TC erred in dismissing defendants counterclaim NO
HELD
1. Plaintiffs did not appeal form the TC findings that the Deed of Sale with
Mortgage
is the contract that defines the duties and obligations of the parties.
- Proposal I (Exhibit E), Proposal II (Exhibit F), verbal negotiations, and RIC Letter
(Exhibit A) were merely among the steps taken in the transactions leading to the
formulation of the Deed of Sale with Mortgage
- While the RIC letter may be a skeleton of the contract, it should be reduced into a
public document sufficient in form, so that it may be recorded in the corresponding
office of the register of deeds, for the purposes of transfer under the Torrens
system
- Theory of Integration of Jural Acts-a written contract merges all prior and
contemporaneous negotiations in connection with the same subject, and all
agreements verbal or written, made at, or before the time of the execution of that
contract are to be considered as merged and integrated in the same written
instrument.
-was the RIC letter novated by the formal deed of sale with mortgage?-yes
but this is immaterial.
- While diligence and erudiation were displayed by plaintiffs counsel in their
dissertation on the question of novation, the materiality of this cannot be seen in
the present issues
- All that may be conceded for the RIC letter is that it may explain the intention of
the parties in having entered into the contract of the deed of sale with mortgage
-did Sadang and Lachica sign the deed of sale with mortgage without reading
the contents thereof?-no.
- We believe that the plaintiffs had read the deed of sale with mortgage before
signing it, considering that Sadang was a USAFFE captain and that he was a
licensed real estate man and manager of RIC.
- The testimony of the defendants attorney also attested to the fact that plaintiffs
first read the said document before it was signed.
- It is by legal presumption that a person takes ordinary care and precaution of his
business.
- It is however reasonable to conclude that although they read the contents of the
Deed of Sale with Mortgage (Ex C) due to the mistaken belief that the RIC letter (Ex
A) was reproduced in toto in the Deed of Sale with Mortgage, for in fact, all of the
terms of both exhibits are the same except:-the omission of the word or before
in
the Deed of Sale with Mortgage for the time of the payment; insertion of the
equally
technical clause these periods of payment have been agreed for the benefit of
both vendor and vendee
- Plaintiffs might not have noticed the change, or if they had, they might not have
attached much importance to it
- If to trained legalists, such terms had caused a great divergence of opinions, how
much more to an ordinary layman, unassisted by a lawyer in the execution of a
contract who had not been apprised of such clause by the attorney who had
prepared the Deed of Sale with Mortgage
- In the realm of reality, how many persons stamp their signatures on documents
because of the representations of people who command great respect, faith and
truth in their fellow beings
- There is a case where plaintiffs construed the contract according to the way they
understood it contrary to the construction made by defendant because it did not
make its position clear to the other party
on or before December 31, 1943/December 31, 1944/December 31,
1945
- This proposition was accepted by the plaintiffs as shown by the fact that they had
deposited the sum of 1k with the defendant corporation as good faith money
- The plaintiffs (as revealed by records) understood these terms as conveying the
simple meaning which they plainly express that these installments might be paid
on
or before the due dates
- As in the RIC letter (Ex A), the plaintiffs did not have intervention in the
preparation of the Deed of Sale with Mortgage, and the attorney who prepared it
did
not explain or call the attention of the plaintiffs to the changes made and effect of
such changes
- The construction by plaintiffs as to the terms of the agreement should prevail
(When the terms of an agreement have been intended in a different sense by the
different parties to it, that sense to prevail against either party in which he
supposed the other understood it.)
Such payment may be made on or before the date specified.
- Defendant alleges that the payment must be made on the date specified and
not before
- Contract does not prohibit if payment is done before due dates
- A term is foxed and it is presumed to have been established for the benefit of
the creditor as well as that of the debtor, unless from its tenor or other
circumstances it should appear that the term was established for the benefit of
one or the other. (Art 1127, CC)
- Deed of Sale with Mortgage: these periods of payment have been agreed for
the benefit of the vendor and vendee
- Mutual benefit has been interpreted to consist of the time granted a debtor to
find means to comply with his obligation, and the fruits of such interest
accruing to the creditor
- The only impediment to a debtor making payment before the term is fixed, is
the denial of the creditor of the benefits, such as the interests, accruing to the
latter by reason of the fixed term (inferred from the SC decision on Villasenor v.
Javellana)
- To uphold defendants claim would be virtually compelling an obligor to
assume an obligation later when he offers to, and could very well, discharge it
earlier
- The law should not be so interpreted as to compel a debtor to remain so,
when he is in a position to release himself
- The parties could not have contemplated payments of the last installments on
Dec. 31, 1945, in good Philippine currency
- Because at the execution of the contract, they did not expect such
depreciation of currency as would render the interest on a loan barely sufficient
to cover the depreciation of the military notes
- If such depreciation occurred and the performance of the obligation had
become more burdensome in its operation than was anticipated, then the
parties should not complain
- The rights of the parties must be measured by the contract which they
themselves made, and the courts can not alter them because they work a
hardship
- The fact that the Americans were already in the Islands on December 31,
1945 and the placing of that date as the maturity date of the last installment of
10k constitutes a mere coincidence
- The contentions of the appellant (Araneta et al) are not well-taken
- The rule is to the effect that the benefit which would be derived by the
creditor from the fixing of a term for the performance of an obligation to pay
money is the stipulated interest for the prescribed term, is true under normal
circumstances;
- But Deed of Sale with Mortgage, executed during the Japanese occupation,
the benefit which it was to derive consisted of the receipt of the last installment
of 10k in good Philippine money and not in Japanese military notes
- The real benefit thereto was foreseen and contemplated by the parties -
Conditions when Deed was executed (July 16, 1943, when Japanese invaders
were lords of the pacific) were comparatively normal (Ballantine schedule: 1
war peso = P.1.40 Japanese military notes) and at the time, few would
prophesy in whose favor the world war would end, and when it would end
- It would be presumptuous to say that on Dec. 31, 1945 (stipulated date), the
American liberation would be here, and the parties fixed purposely this
particular date for the payment of the last installment of 10k.
- When MacArthur promised return, he did not day when
- When Americans landed in Leyte on October 1944, many remarked that it was
sooner than expected
- Were it not for the great naval battle at the Sibuyan Sea, the wr would have
been prolonged for another year more or at least beyond Dec. 31, 1945
- Benefit which defendant (Araneta) wanted to reap by the insertion of the disputed
clause, was the payment of the interest, more than anything else in the letter of
April 12, 1944
- the defendant meant that besides the interest that would have to be paid for
the balance of 6k at the rate of 8% per annum, the defendant shall also charge
the interest in accordance with the terms of the contract which interest
represents:
P317.80 on P5k (March 16-Dec, 30, 1944)
P320 on P4k (Dec. 31, 1944-Dec. 1945)
- Defendant credited the plaintiffs with the sum of 5k notwithstanding that: 1)
the acceptance of the payment was made under protest; and 2) payment was
made under protest
- The refusal of the defendant to follow this construction on Sept. 5, 1944 (the
balance of 6k and the interests of the unexpired period was tendered to it) was
because the Japanese notes had been greatly depreciated
- While the acceleration clause is a standard one contained in most mortgage
deeds, we cannot escape the conclusion derived from the clause itself that the
payments may be made by the vendee before the dates stated in the contract
- The mortgage loan is payable in several installments
- Deed of Sale with Mortgage Acceleration Clause: in the event of defaults in
the payment of any amount due, either for capital or interest, the whole
balance shall automatically become due and payable, and the vendor shall
have the right the foreclosure the mortgage in its entirety
- Even if it were true that the appellees could not be sure of their ability to pay
during the Japanese occupation, they, as any businessman of ordinary foresight,
would not have agreed to a stipulation which would prohibit them from paying,
even
if they had the money with which to pay the same
- Contentions of appellant were not tenable
- With the Deed containing an acceleration clause, it could practically be sure
that the plaintiffs would pay the installments on time, since failure to do so
would have made the balance due and payable
- This was one contingency which said plaintiffs would have naturally desired to
avoid, since it appears that their income was only P2,500 a month which was
not big enough, considering its purchase power during the Japanese occupation
- Appellees were precisely looking for investments and not for obligations
plaintiff Sadang was then engaged in real estate business
Sadangs wife was engaged in jewelry business
- It could not have been probable that plaintiffs would agree to prohibition of
payment
- It does not necessarily imply with appellees expectation to receive his back
pay as a USAFFE after the liberation of the Philippines that he would have
agreed to a prohibition of payment before due dates
- expected back pay was merely in the nature of a guaranty or
inducement that even if the worst should happen, he would still be able
to pay the obligation
- the appellees offers to buy (Proposals I and II) provides for the
settlement of the balance: at any time between now and within 90 days
after the signing of the peace treaty between the warring nations
- this indicates the spirit guiding the parties then was the desire to
permit the plaintiffs to pay within a specific period, on a specific date
2. Appellant did not refuse payment by check as tendered, for insufficiency of funds
in the bank, or on account of the medium in which the payment was made, but
because it believed that it could not be forced to accept the payment prior to the
date specified in the contract.
- General rule: an objection to tender must, to be available to the creditor, be made
in good time and that the grounds for objection must be specified, and that an
objection to a tender on one ground is waiver of all other objections which could
have been made at that time.
- To afford the debtor an opportunity to secure the specific money which the law
prescribes shall be accepted in payment of debts
- Non-observance of this duty would mislead the debtor and might inflict a loss
which could be avoided if the creditor had objected to the form and character of
the
tender
- By the mere fact of the drawing of the check, the plaintiffs engaged that on die
presentment, they would honor it, or if dishonored, they would pay the amount
thereof to the holder
- Presumption that they have the sufficient funds in bank to cover the amount of
said check, was not rebutted by the appellant upon which the burden of proving
that ther were no funds in the bank fails
- Where the great bilk of business is transacted through the medium of checks,
drafts, and negotiable instruments, it would be a dangerous rule, which could be
easily turned into an engine of oppression that a tender of payment especially
where it involves the maturing of obligations not then due (as in this case), could
not be made by check where no question was raised as to the value of the check
tendered
- It is ordinarily required of one to whom payment is offered in the form of check
that he make his objection at the time, to the offer of a check, instead of an offer of
payment
- Payment by check has been generally so recognized as acceptable in business
transactions that it has been held that omissions to make objection to a check as
tender of payment is regarded as waiver of right to demand payment in money
- Allegation, that apellees did not introduce to show that the president of the
appellant corp to whom the alleged tender was made was not shown so as to have
given him the opportunity to object, runs counter to the facts of the case as found
by the TC
- If the president had not seen the check, he could not have refused the tender of
Payment - And as stated, the president reasoned tat his non-acceptance was due to
his
opinion that such payment was not in accordance with the terms of the deed of
sale.
3) In view of the positive resolution of the second issue, dismissal of counterclaim
was fully justified
Moreover, as state by the appellant, this assignment of error is made as a mere
formality.
Disposition The judgment appealed from is affirmed, with costs against the
defendant-appellant.
GR L3316 DE LEON V SANTIAGO SYJUCO INC.
When Court may fix a period
FACTS
In July 1944, Appellant Ponce De Leon availed two loans from Appellee Santiago Syjuco Inc
amounting to P200,00 and P16,000 respectively. Both were payable within 1 year from May 5,
1948 and was secured by the mortgage of the parcels of land that Appellant bought from PNB.
The agreement in the said two mortgage stipulated that if either party should attempt to
annul or alter any of the stipulations of this deed or of the note which it secures, or do
anything which has for its purpose or effect an alteration or annulment of any of said
stipulations, he binds himself to indemnify the other for the losses and damages, which the
parties hereby liquidate and fix at the amount of P200,000.
Sometime Oct 1944, Appellant posits that Santiago Syjuco Inc. declined to receive his
advance payment of his obligations to the amount of P254,800. Ponces reason for paying in
advance is his fear that he might get killed because he was being hunted by the Japanese for
being a member of the guerilla forces. He then consigned his payment for the loans to the
Court of First instance of Manila.
Nov 1944, De Leon filed a complaint consigning the amount deposited to Syjuco. The Lower
court absolved Syjuco and ordered De leon to pay Syjuco P23,130 with interest at the legal
rate from May 6, 1949 until fully paid.
ISSUE
Whether the consignation made was valid?
HELD
No, the consignation was NOT valid as Ponce de Leon failed to meet the terms of the loan he
entered with Syjuco which was to 1) provide previous notice to the person interested in the
performance of the obligation and 2) the obligation was not yet due and demandable when
the money was consigned.
The Court held that the failure of these requirements is enough ground to render the
consignation ineffective because in monetary obligations contracted with a period, the
presumption is deemed constituted in favor of both the creditor and the debtor unless from its
tenor or from the circumstances it appears that the period has been established for the
benefit of either one of them (Art 1127) in this case the terms were set in favor of Syjuco,
hence Ponce De Leons excuse in accelerating the payment of the obligation has no merit.
Therefore, the consignation made by Ponce De Leon is not valid. SC upheld the courts
decision.
GR 136913 BUCE V COURT OF APPEALS
When Court may fix a period
FACTS:
Petitioner Buce leased a land at Quirino Avenue, Pandacan, Manila. The lease was for a period
of 15 years starting June 1, 1979 and subject to renewal for another 10 years under the same
terms and conditions.
Respondent Jose Tiongco, demanded a gradual increase in the rent for Php 1,000 starting in
the year 1991. On December 1991, respondent wrote to petitioner informing the increase of
rent pursuant to the Rent Control Law effective Jan 1992.
However, petitioner tendered checks dated October 1991 to January 1993 for only Php 400
payable to respondent as administrator; to which this was refused to be accepted by the
respondent. Petitioner filed a complaint for specific performance which the trial court ruled in
favor of petitioner. On appeal the CA court reversed the decision. Aggrieved, petitioner brings
the case to the Supreme court
ISSUE:
Whether the clause subject to renewal for another ten years is an automatic renewal or just
an option to renew the contract?
HELD:
The court held that nothing in the contract expresses automatic renewal. Allowance on
improvements and constructions are not indicative of extension of contract. It was not, in fact,
indicated who may exercise the option to renew. Thus, a period of lease should be set for the
benefit of both parties upon mutual agreement. Since respondents were not amenable of the
renewal, they cannot be compelled to execute new. It is their prerogative to terminate lease at
its expiration.
ADDITIONAL DOCTRINES
Contract Stipulations - The literal meaning of the stipulations shall control if the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties. However,
if the terms of the agreement are ambiguous resort is made to contract interpretation which is
the determination of the meaning attached to written or spoken words that make the contract.
Also, to ascertain the true intention of the parties, their actions, subsequent or
contemporaneous, must be principally considered
Fernandez v. Court of Appeals - In a reciprocal contract like a lease, the period must be
deemed to have been agreed upon for the benefit of both parties, absent language
showing that the term was deliberately set for the benefit of the lessee or lessor alone. e
are not aware of any presumption in law that the term was deliberately set for the benefit
of the lessee alone. Koh and Cruz in effect rested upon such a presumption. But that
presumption cannot reasonably be indulged in casually in an era.
Gregorio Araneta, Inc. vs. Phil. Sugar Estates Devt. Co., Ltd.
Depends on the will of the debtor (potestative term)
Facts:
J.M. Tuason & Co., Inc. is the owner of a tract of land in Quezon City. On July 28, 1950,
through herein petitioner Gregorio Araneta, Inc. (Araneta), it sold a portion thereof to
Philippine Sugar Estates Devt. Co., Ltd. ((Phil Sugar). The parties stipulated, among others, in
the contract of purchase and sale with mortgagae, that the buyer will build on the said parcel
of land the Sto. Domingo Church and Convent, while the seller for its part will construct
streets on the NE and NW and SW sides of the land herein sold so that the latter will be a
block surrounded by streets on all four sides; and the street on the NE side shall be named
Sto. Domingo Ave..
Phil Sugar finished the construction of the church, but Araneta which began constructing
the streets, in unable to finish the construction of the street in the NE side because a certain
third party who has been physically occupying a middle part thereof, refused to vacate the
same. This prompted the respondent to file a complaint seeking to compel the petitioner to
comply with their obligation or to pay damages in the event they failed or refused to perform
said obligation.
Araneta, in its answer, partcularly set up the defense that the action was premature since
its obligation was without a definite period which needs to be fixed first by the court in a
proper court before an action for specific performance shall prosper. The RTC dismissed the
complaint. Phil Sugar moved to reconsider and modify the decision, praying that a period be
fixed. Araneta opposed said motion, maintaining that the formers complaint did not expressly
or impliedly allege and pray for the fixing of the period. The RTC modified its decision giving
Araneta two years to comply with its obligation. The CA affirmed, hence, this petition for
certiorari.
Issue:
Whether the RTC and the CA erred in fixing a period for the compliance of Aranetas
obligation.
Ruling:
Yes, the RTC and the CA erred in fixing a period.
Art. 1197 of the Civil Code provides that if the obligation does not fix a period, but from
its nature and circumstances it can be inferred that a period was intended, the courts may fix
a duration thereof. Thus, it is predicated on the absence on any period fixed by the parties.
In this case, the fixing of a period by the courts is sought to be justified on the basis that
Araneta placed the absence of a period in issue by pleading in its answer that the contract
with Phil Sugar gave the former reasonable time within which to comply with its obligation to
construct and complete the streets. Neither of the courts below seems to have noticed that,
on the hypothesis stated, what the answer put in issue was not whether the court should fix
the time of performance, but whether or not the parties agreed that the petitioner should
have reasonable time to perform its part of the bargain. If the contract do provided, then there
was a period fixed, reasonable time, and all that the courts should have done was to
determine if that reasonable time had already elapsed when suit was filed.
Granting, however, that the that it lay within the Courts power to fix the period, still the
decision is defective in that no basis is stated to support the setting of the two-year period.
The last paragraph of Art 1197 is clear that the period cannot be set arbitrarily. The courts
shall determine such period as may under the circumstance have been probably
contemplated by the parties. The conclusion is thus forced that the parties must have
intended to defer the performance of the obligations under the contract until the squatters
were duly evicted, as contended by herein petitioner.
Hence, the decision of the CA is reversed. The time for the performance of the obligations
is hereby fixed at the date all the squatters on affected areas are finally evicted therefrom.
Central Philippine University vs. Court of Appeals
Depends on the will of the debtor (potestative term)
Facts:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with
the following conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of medical
college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that land
shall be put in the fund to be known as Ramon Lopez Campus Fund.
However, on May 31, 1989, the heirs of Don Ramon filed an action for annulment of
donation, reconveyance & damages against CPU for not complying with the conditions. The
heirs also argued that CPU had negotiated with the NHA to exchange the donated property
with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.
Issue:
1) Whether petitioner failed to comply the resolutely conditions annotated at the back of
petitioners certificate of title without a fixed period when to comply with such conditions?
2) Whether there is a need to fix the period for compliance of the condition?
Ruling:
1) Under Art. 1181, on conditional obligations, the acquisition of rights as well the
extinguishment or loss of those already acquired shall depend upon the happening of the
event which constitutes the condition. Thus, when a person donates land to another on
the condition that the latter would build upon the land a school is such a resolutory
one. The donation had to be valid before the fulfillment of the condition. If there was no
fulfillment with the condition such as what obtains in the instant case, the donation may be
revoked & all rights which the donee may have acquired shall be deemed lost & extinguished.
More than a reasonable period of fifty (50) years has already been allowed for petitioner
to avail of the opportunity to comply with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no
more need to fix the duration of a term of the obligation when such procedure would be a
mere technicality and formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits.
Records are clear and facts are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action, petitioner has failed to comply with its
obligation as donee. Petitioner has slept on its obligation for an unreasonable length
of time. Hence, it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor, private respondents herein, by
means of reconveyance.
2) Under Art. 1197, when the obligation does not fix a period but from its nature &
circumstance it can be inferred that the period was intended, the court may fix the duration
thereof because the fulfillment of the obligation itself cannot be demanded until after the
court has fixed the period for compliance therewith & such period has arrived. However, this
general rule cannot be applied in this case considering the different set of
circumstances existing more than a reasonable period of 50yrs has already been
allowed to petitioner to avail of the opportunity to comply but unfortunately, it failed
to do so. Hence, there is no need to fix a period when such procedure would be a mere
technicality & formality & would serve no purpose than to delay or load to unnecessary and
expensive multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon
him, the obligee may seek rescission before the court unless there is just cause authorizing
the fixing of a period. In the absence of any just cause for the court to determine the period of
compliance there is no more obstacle for the court to decree rescission. Hence, the donation
is revoked.
Inchausti & Co. vs. Yulo
Solidary Obligations
Facts:
This suit is brought for the recovery of a certain sum of money, the balance of a current
account opened by the firm of Inchausti & Company with Teodor Yulo and after his death
continued by Gregorio Yulo as principal representative of his children. On Aug.12, 1909,
Gregorio Yulo, in representation of his 3 siblings, executed a notarial instrument, ratifying all
the contents of the prior document of Jan.26, 1908, severally and joint acknowledged their
indebtedness for P253,445.42, 10 % per annum, 5 installments. Plaintiff brought an action
against Gregorio for the payment of the said balance due. But on May 12, 1911, 3 siblings
executed another instrument in recognition of the debt, reduced to P225,000, interest reduced
to 6% per annum, installments increased to 8.
Issue:
 Whether the contract with the 3 obligors constitute a novation (substitution) of Aug 12
1909 affidavit, entered into the 6 debtors who assumed the payment.
Held:
No, the contract of May 12, 1911 does not constitute a novation of the former one of
Aug.12, 1909, with respect to the other debtors who executed this contract. First, in order
that an obligation may be extinguished by another which substitutes it, it is necessary that it
should be so expressly declared or that the old and the new be incompatible in all points(art.
1292). It is always necessary to state that it is the intention of the contracting parties to
extinguish the former obligation by the new one. The obligation to pay a sum of money is not
novated in a new instrument wherein the old is ratified, by changing only the term of payment
and adding other obligations not incompatible with the old one.
The obligation being solidary, the remission of any part of the debt made by a creditor in
favor of one or more of the solidary debtors necessarily benefits the others, and therefore
there can be no doubt that, in accordance with the provision of Art. 1215, 1222, the defendant
has the right to enjoy the benefits of the partial remission. At present judgment can be
rendered only as to P112,500.
LAFARGE CEMENT PHILIPPINES VS CCC
SOLIDARY OBLIGATIONS
FACTS:
1. 11 August 1998 parties executed an LOI whereby Lafarge Cement Philippines, Inc.
(Lafarge), on behalf of its affiliates and other qualified entities, including Petitioner Luzon
Continental Land Corporation (LCLC), agreed to purchase the cement business of Respondent
Continental Cement Corporation (CCC).
2. 21 October 1998 Lafarge & CCC entered into a Sale and Purchase Agreement (SPA).
a. At the time of the foregoing transactions, petitioners were well aware that CCC had a
case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled
Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.
b. In anticipation of the liability that the High Tribunal might adjudge against CCC, the
parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a
portion of the contract price in the amount of P117,020,846.84 the equivalent of
US$2,799,140. This amount was to be deposited in an interest-bearing account in the First
National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712.
3. Lafarge allegedly refused to apply the sum to the payment to APT, despite the
subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated
instructions of Respondent CCC.
4. Fearful that nonpayment to APT would result in the foreclosure, not just of its
properties covered by the SPA with Lafarge but of several other properties as well, CCC filed
before the Regional Trial Court of Quezon City on June 20, 2000, a Complaint with Application
for Preliminary Attachment against petitioners.
5. Lafarge moved to dismiss the Complaint on the ground that it violated the prohibition
on forum-shopping.
a. CCC had allegedly made the same claim it was raising in another action, which
involved the same parties and which was filed earlier before the International Chamber of
Commerce.
b. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order,
petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688.
6. To avoid being in default and without prejudice to the outcome of their appeal, Lafarge
filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil
Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint.
ISSUE: Whether or not defendants in a civil case implead in their counterclaims persons
who were not parties to the original complaint?
HELD:
1. Joint & Solidary character of their counterclaim against CCC, Lim & Mariano.
a. The solidary character of Lim & Mariano alleged liability is precisely why credence
cannot be given to petitioners assertion. According to such assertion, Respondent CCC
cannot move to dismiss the counterclaims on grounds that pertain solely to its individual
co-debtors.
b. In cases filed by the creditor, a solidary debtor may invoke defenses arising from
the nature of the obligation, from circumstances personal to it, or even from those
personal to its co-debtors. Article 1222 of the Civil Code provides:
A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are
derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for which the latter are
responsible.
c. The ambiguity in petitioners counterclaims notwithstanding, respondents liability,
if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint, except when otherwise
expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have
assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,[30] in
which we held:
d. x x x The difficulty in the contention of the appellants is that they fail to recognize
that the basis of the present action is tort. They fail to recognize the universal doctrine
that each joint tort feasor is not only individually liable for the tort in which he participates,
but is also jointly liable with his tort feasors. x x x
e. It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet
the commission of a tort, or who approve of it after it is done, if done for their benefit.
They are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves. x x x
f. The act of Respondent CCC as a solidary debtor that of filing a motion to dismiss
the counterclaim on grounds that pertain only to its individual co-debtors is therefore
allowed.
g. In a joint obligation, each obligor answers only for a part of the whole liability; in a
solidary or joint and several obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the fulfillment
of the whole obligation.[31] The fact that the liability sought against the CCC is for specific
performance and tort, while that sought against the individual respondents is based solely
on tort does not negate the solidary nature of their liability for tortuous acts alleged in the
counterclaims. Article 1211 of the Civil Code is explicit on this point:
 h. Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions.
Inciong vs Court of Appeals
SOLIDARY OBLIGATIONS
DEFENSES AVAILABLE TO SOLIDARY DEBTOR
Facts:
Petitioners liability stemmed from the promissory note in the amount of PhP50,000 which
he signed with Rene C. Naybe and Gregorio D. Pantanosas, holding themselves jointly and
severally liable to private respondent PB Com. Said due date expired without the promissors
having paid their obligation. Since obligors did not respond to demands made, PB Com filed a
complaint for the collection of the debt against the three obligors. The RTC dismissed the case
against Pantanosas as prayed for by PB Com whereas the summon for Naybe was served
because he had already gone to Saudi Arabia. One of the contentions of herein petitioner is
that the dismissal of the complaint against Naybe, the principal debtor, and against
Pantanosas, his co-maker, constituted a release of his obligation especially because the
dismissal of the case against Pantanosas was upon the motion of private respondent itself.
Issue:
Whether the dismissal of complaint against a solidary co-maker implies the dismissal of
the complaints against the other solidary co-maker/s.
Ruling:
No, the contention is untenable.
According to the law, a solidary or joint and several obligation is one in which each debtor
is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.
In this case, the peitioner signed the promissory note as a solidary co-make and not as a
guarantor. This is patent from the first sentence of the said note. Because it is expressly
stated that the three signatories therein are jointly and severally liable, any one, some, or all
of them may be proceeded against for the entire obligation. The choice is left to the solidary
creditor to determine against whom he will enforce the collection.
Hence, the dismissal of the case against Pantanosas may not be deemed as having
discharged the petitioner from liability as well. He may only have recourse against his co-
makers, as provided by law. The petition is denied.
RFC vs. CA
DEFENSES AVAILABLE TO SOLIDARY DEBTOR
FACTS
- On October 31, 1951, Jesus Anduiza and Quintana Cano executed a promissory
note binding themselves to jointly and severally pay the Agricultural and
Industrial Bank P13800, with an interest rate of 6%. Payments are to be paid in
10 years in annual installments.
- Anduiza and Cano failed to pay the yearly amortizations that fall due on October
1942 and 1943. When Estelito Madrid, who temporarily lived in Anduizas house
during the Japanese occupation, learned this, he offered to pay for Anduizas
indebtedness. He paid P10000 on Oct 23, 1944.
- Alleging that Anduiza failed to pay, the Agricultural and Industrial Bank (now RFC)
refused to cancel his mortgage. Madrid then instituted an action with the CFI to
declare that Anduizas indebtedness of P16,425.17 has been paid, to release
the properties mortgaged to RFC, and condemning Anduiza to pay him P16,
425.17.
- RFC replied that the loan was not due and demandable in Oct 1944. They also
claim that they only held Madrids payment as deposit pending proof of
approval by Anduiza and that if Anduiza refused to approve, the deposit will be
annulled.
- Anduiza claims that the payment made by Madrid was without his knowledge or
consent and that RFC did not accept such payment.
- The trial court rendered in favor of RFC, but the CA reversed.
ISSUE
WON Madrids payment should be accepted
HELD
YES.
- Art 1158 of the Spanish CC states that payment can be made by any person,
whether approved by the debtor or not. One who makes the payment may
recover from the debtor, unless it was made against his express will. In the
latter case, he can recover only in so far as the payment was beneficial to him.
- Madrid then is entitled to pay the obligation irrespective of Anduizas will or the
bank.
- The payments were not made against the objection of either Anduiza or Madrid.
Although Anduiza later on questioned such payments, he impliedly acquiesced
therin, for he joined Madrid in his appeal from the decision of the CFI.
Quiombing vs. Court of Appeals
DEFENSES AVAILABLE TO SOLIDARY DEBTOR
Facts:
This case stemmed from a construction and service agreement whereby herein petitioner
Quiombing and Dante Biscocho jointly and severally bound themselves to construct a house
for Spouses Francisco and Manuelita Saligo. The parties entered into a second written
agreement under which the latter acknowledged the completion of the house and undertook
to pay the balance of the contract price on or before October 10, 1984. On November 19,
1984, Manuelita signed a promissory note representing the amount still due payable on or
before December 31, 1984. On October 1986, Quiombing filed a complaint for the recovery of
the balance still due plus charges and interests because despite repeated demands, the
spouses failed to settle.
The spouses moved for the dismissal of the case contending that Biscocho was an
indispensable party and therefore should have been included as co-plaintiff. The RTC
dismissed the complaint and the CA sustained the decision.
Issue:
 Whether one of the two solidary creditors sue by himself alone for the recovery of
amounts due to both of them without joining the other creditor as co-plaintiff.
Ruling:
Yes, the second solidary creditor is not an indispensable party in the filing of complaint.
According to the Civil Code, a solidary obligation is one in which each debtor is liable for
the entire obligation, and each creditor is entitled to demand the whole obligation. Hence,
each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in
full. Further, the essence of active solidarity consists in the authority of each creditor to claim
and enforce the rights of all, with the resulting obligation of paying every one what belongs to
him; there is no merger, much less a renunciation of rights, but only mutual
representation.
In this case, it does not matter who as between Quiombing and Biscocho filed the
complaint because spouses Saligo are liable to either of the two as a solidary creditor for the
full amount of the debt. Biscocho, on the other hand, may later claim his share thereof, but
that decision is for him alone to make. Further, as enunciated by Justice Jose Y. Feria, where
the obligation of the parties is solidary, either one of the parties is indispensable, and the
other is not even necessary because complete relief may be obtained from either.
Hence, the participation of Biscocho is not at all necessary. Petition is granted.
JAPRL DEVELOPMENT CORP., ET AL VS. SBC 6 JUNE 2011
DEFENSES AVAILABLE TO SOLIDARY DEBTOR
Facts:
JAPRL Development Corporation applied for a credit facility in the amount of
P50,000,000 with Security Bank Corporation. On November 5, 2001, petitioners Peter Rafael
C. Limson and Jose Uy Arollado, JAPRL Chairman and President, respectively, executed a
Continuing Suretyship Agreement in favor of SBC. In 2002, SBC extended the period of
settlement of his obligations. In 2003, JAPRLs financial adviser, MRM Management
Incorporated, convened JAPRLs creditors, SBC included, for the purpose of restructuring
JAPRLs existing loan obligations. SBC soon discovered material inconsistencies in the financial
statements given by MRM and those submitted by JAPRL when it applied for a credit facility,
drawing SBC to conclude that JAPRL committed misrepresentation. SBC sent a formal letter of
demand to petitioners JAPRL, Limson and Arollado for the immediate payment of
P43,926,021.41 for they violated paragraph 10 (c) of the CSA. Petitioners failed to comply with
SBCs demand, hence, SBC filed complaint for sum of money with application for issuance of
writ of preliminary attachment before the RTC of Makati City against petitioners.
During the hearing, respondents counsel received a copy of a Stay Order issued by
the RTC of Quezon City, wherein JAPRLs petition for rehabilitation was lodged. The Makati RTC
ordered the dismissal of SBCs complaint without prejudice. SBC argued that the suspension of
the proceedings should only be with respect to JAPRL but not with respect to Limson and
Arollado. SBC filed a motion for reconsideration to which Limson and Arollado separately filed
an Opposition. Meanwhile, the proposed rehabilitation plan before the Quezon City RTC was
disapproved. The Makati RTC thus reinstated SBCs complaint to its docket. Petitioners later
filed before the Makati RTC a Manifestation informing that a Stay Order was issued, this time
by the Calamba RTC in a new petition for rehabilitation filed by RAPID Forming Corporation,
JAPRLs subsidary. SBC moved for the reconsideration averring that its complaint should not
have been archived with respect to sureties Limson and Arollado but the same was denied.
Upon appeal, the appellate court held that Limson and Arollado voluntarily submitted
themselves to the jurisdiction of the Makati RTC and that SBCs claim against Limson and
Arollado in their capacity as sureties could proceed independently of JAPRLs petition for
rehabilitation.
Issue:
Whether or not SBC can proceed its claim against Limson and Arollado in their
capacity as sureties.
Ruling:
The petition fails. On a trial courts suspension of proceedings against a surety of a
corporation in the process of rehabilitation, Banco de Oro-EPCI, Inc. v. JAPRL Development
Corporation holds that a creditor can demand payment from the surety solidarily liable with
the corporation seeking rehabilitation, it being not included in the list of stayed claims:
Indeed, Section 6(b) of the Interim Rules of Procedure of Corporate Rehabilitation which the
appellate court cited in the earlier-quoted portion of its decision, provides that a stay order
does not apply to sureties who are solidarily liable with the debtor. Limson and Arollado, as
sureties, whose liability is solidary cannot, therefore, claim protection from the rehabilitation
court, they not being the financially-distressed corporation that may be restored, not to
mention that the rehabilitation ourt has no jurisdiction over them. Article 1216 of the Civil
Code provides the creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against any one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the debt
has not been fully collected. IN FINE, SBC can pursue its claim against Limson and Arollado
despite the pendency of JAPRLs petition for rehabilitation. For, by the CSA in favor of SBC, it is
the obligation of the sureties, who are therein stated to be solidary with JAPRL, to see to it that
JAPRLs debt is fully paid. WHEREFORE, the petition is DENIED.
Ynchausti & Co. vs. Yulo
Defenses Available to solidary debtors
FACTS
- Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his
numerous haciendas in the province of Negros Occidental, had been borrowing
money from the firm of Inchausti & Company under specific conditions.
- On April 9, 1903, Teodoro Yulo died testate and for the execution of the provisions
of his will he had appointed as administrators his widow and five of his sons,
Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who
died on October 22d of the following year, 1904, there remaining of the marriage
the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio,
Mariano, Carmen, Concepcin, and Jose Yulo y Regalado. Of these children
Concepcion and Jose were minors, while Teodoro was mentally incompetent. His
widow and children held the conjugal property in common and at the death of
Gregoria, these children preserved the same relations under the name of Hijos de T.
Yulo continuing their current account with Inchausti & Company until said balance
amounted to P200,000 upon which the creditor firm tried to obtain security for the
payment of the money.
- Gregorio Yulo, for himself and in representation of his brothers Pedro, Francisco,
Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document
whereby all admitted their indebtedness to Inchausti & Company in the sum of
P203,221.27 and, in order to secure the same with interest thereon at 10% per
annum, they especially mortgaged an undivided six-ninth of their 38 rural
properties, their remaining urban properties, lorchas, and family credits which were
listed, obligating themselves to make a formal inventory and to describe in due
form all the said properties, as well as to cure all the defects which might prevent
the inscription of the said instrument in the registry of property and finally to
extend by the necessary formalities the mortgage over the remaining three-ninths
part of all the property and rights belonging to their other brothers, the incompetent
Teodoro, and the minors Concepcion and Jose.
- On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered
a letter of the firm of Inchausti & Company in these terms: "With your favor of the
2d inst. we have received an abstract of our current account with your important
firm, closed on the 31st of last December, with which we desire to express our
entire conformity as also with the balance in your favor of P271,863.12." On July 17,
1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said
balance to P253,445.42, with which balance Hijos de T. Yulo expressed its
conformity by means of a letter of the 19th of the same month and year. Regarding
this conformity a new document evidencing the mortgage credit was formalized.
- On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother
Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and
Concepcion Yulo, the latter being of age at the time, ratified all the contents of the
prior document of June 26, 1908, severally and jointly acknowledged and admitted
their indebtedness to Inchausti & Company for the net amount of P253,445.42
which they obligated themselves to pay, with interest at 10% per annum, in five
installments at the rate of P50,000, except the last, this being P53,445.42,
beginning June 30, 1910, continuing successively on the 30th of each June until the
last payment on June 30, 1914.
- Among other clauses, they expressly stipulated the following:
- The default in payment of any of the installments or the noncompliance of any
of the other obligations will result in the maturity of all the said installments,
and Inchausti & Co. may exercise at once all the rights and actions in order to
obtain the immediate and total payment of our debt.
- All the obligations will be understood as having been contracted in solidum by
all the Yulos, brothers and sisters.
- The instrument shall be confirmed and ratified in all its parts, within the present
week, by their brother Mariano Yulo y Regalado who resides in Bacolod, otherwise
it will not be binding on Inchausti & Co. who can make use of their rights to
demand and obtain the immediate payment of their credit without any further
extension or delay.
- This instrument was neither ratified nor confirmed by Mariano Yulo.
- The Yulos did not pay the first installment of the obligation.
- On March 27, 1911, Inchausti & Co. brought an ordinary action in the CFI of Iloilo,
against Gregorio Yulo for the payment of the balance of P253,445.42 with interest
at 10% per annum, on that date aggregating to P42,944.76.
- On May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in
favor of Inchausti & Co. another notarial instrument in recognition of the debt and
the obligation of payment in the following terms: "First, the debt is reduced for
them to P225,000; second, the interest is likewise reduced for them to 6% per
annum, from March 15, 1911; third, the installments are increased to 8, the first of
P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same
date of each successive year until the total obligation shall be finally and
satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the
partial payments specified in the foregoing clause be not paid at its maturity, the
amount of the said partial payment together with its interest shall bear interest at
the rate of 15% per annum from the date of said maturity, without the necessity of
demand until its complete payment;" that "if during two consecutive years the
partial payments agreed upon be not made, they shall lose the right to make use of
the period granted to them for the payment of the debt or the part thereof which
remains unpaid, and that Messrs. Inchausti & Co. may consider the total obligation
due and demandable, and proceed to collect the same together with the interest for
the delay above stipulated through all legal means."
- Stipulated in addition: Inchausti & Co. should include in their suit brought in the
CFI of Iloilo against Gregorio Yulo, his brother and joint co-obligee, Pedro Yulo, and
they will procure by all legal means and in the least time possible a judgment in
their favor against Gregorio and Pedro, sentencing the latter to pay the total
amount of the obligation acknowledged by them in the instrument of August 12,
1909; with the understanding that if they should deem it convenient for their
interests, Francisco, Manuel, and Carmen Yulo may appoint an attorney to
cooperate with the lawyers of Inchausti & Co. in the proceedings of the said case.
[Traitors!]
- On July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses:
first, that an accumulation of interest had taken place and that compound interest
was asked for in Philippine currency at par with Mexican; second, that in the
instrument of August 12, 1909, two conditions were agreed one of which ought to
be approved by the CFI, and the other ratified and confirmed by the other brother
Mariano Yulo, neither of which was complied with; third, that with regard to the
same debt claims were presented before the commissioners in the special
proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though
later they were dismissed, pending the present suit; fourth and finally, that the
instrument of August 12, 1909, was novated by that of May 12, 1911, executed by
Manuel, Francisco and Carmen Yulo.
- The CFI of Iloilo decided the case "in favor of the defendant without prejudice to
the plaintiff's bringing within the proper time another suit for his proportional part of
the joint debt, and that the plaintiff pay the costs."
ISSUES
1. WON the plaintiff can sue Gregorio Yulo alone, there being other obligors
2. WON plaintiff lost this right by the fact of its having agreed with the other
obligors in the reduction of the debt, the proroguing of the obligation and the
extension of the time for payment, in accordance with the instrument of May 12,
1911
3. WON the contract with the three obligors constitutes a novation of that of August
12, 1999, entered into with the six debtors who assumed the payment of
P253,445.42
4. If in the negative, WON it has any effect in the action brought and in this present
suit
HELD
1. Yes.
Ratio The debtors having obligated themselves in solidum, the creditor can bring
its action in toto against any one of them.
Reasoning This was surely the purpose in demanding that the obligation
contracted should be solidary having in mind the principle of law that, "when the
obligation is constituted as a conjoint and solidary obligation each one of the
debtors is bound to perform in full the undertaking which is the subject matter of
such obligation."
2. No.
Ratio Solidarity may exist even though the debtors are not bound in the same manner and for
the same periods and under the same conditions.
Reasoning Even though the creditor may have stipulated with some of the solidary
debtors diverse installments and conditions, as in this case, Inchausti & Co. did with
its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12,
1911, this does not lead to the conclusion that the solidarity stipulated in the
instrument of August 12, 1909 is broken.
3. No.
Ratio An obligation to pay a sum of money is not novated in a new instrument
wherein the old is ratified, by changing only the term of payment and adding other
obligations not incompatible with the old one.
Reasoning The contract of May 12, 1911, does not constitute a novation of the
former one of August 12, 1909, with respect to the other debtors who executed this
contract, or more concretely, with respect to the defendant Gregorio Yulo: First,
because in order that an obligation may be extinguished by another which
substitutes it, it is necessary that it should be so expressly declared or that the old
and the new be incompatible in all points; and the instrument of May 12, 1911, far
from expressly declaring that the obligation of the three who executed it substitutes
the former signed by Gregorio Yulo and the other debtors, expressly and clearly
stated that the said obligation of Gregorio Yulo to pay the P253,445.42 sued for
exists, stipulating that the suit must continue its course and, if necessary, these
three parties would cooperate in order that the action against Gregorio Yulo might
prosper. It is always necessary to state that it is the intention of the contracting
parties to extinguish the former obligation by the new one. There exist no
incompatibility between the old and the new obligation.
4. Yes. [Total amount and amount due and demandable, respectively.]
Ratio The obligation being solidary, the remission of any part of the debt made by
a creditor in favor of one or more of the solidary debtors necessarily benefits the
others.
Reasoning Although the contract of May 12, 1911, has not novated that of August
12, 1909, it has affected that contract and the outcome of the suit brought against
Gregorio Yulo alone for the sum of P253,445.42; and in consequence, the amount
stated in the contract of August 12, 1909, cannot be recovered but only that stated
in the contract of May 12, 1911, by virtue of the remission granted to the three of
the solidary debtors in this instrument. He cannot be ordered to pay the
P253,445.42 claimed from him in the suit here, because he has been benefited by
the remission made by the plaintiff to three of his co-debtors. Consequently, the
debt is reduced to 225,000 pesos.
5.
Ratio Before the performance of the condition, or before the execution of a term
which affects one debtor alone, proceedings may be had against him or against any
of the others for the remainder which may be already demandable but the
conditional obligation or that which has not yet matured cannot be demanded from
any one of them.
Reasoning If the efficacy of the later instrument over the former touching the
amount of the debt had been recognized, should such efficacy not likewise be
recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen
had been included in the suit, they could have alleged the defense of the nonmaturity
of the installments since the first installment did not mature until June 30,
1912, and without doubt the defense would have prospered. Cannot this defense of
the pre-maturity of the action, which is implied in the last special defense set up in
the answer of the defendant Gregorio Yulo be made available to him in this
proceeding? Gregorio Yulo cannot allege as a defense to the action that it is
premature. When the suit was brought on March 27, 1911, the first installment of
the obligation had already matured as of June 30, 1910, and not having been paid,
the whole debt had become mature, according to the express agreement of the
parties, independently of the resolutory condition which gave the creditor the right
to demand the immediate payment of the whole debt upon the expiration of the
stipulated term of one week allowed to secure from Mariano Yulo the ratification
and confirmation of the contract of August 12, 1909. Neither could he invoke a like
exception for the shares of his solidary co-debtors Pedro and Concepcion Yulo, they
being in identical condition as he. But as regards Francisco, Manuel, and Carmen
Yulo, none of the installments payable under their obligation, contracted later, had
as yet matured. The first payment, as already stated, was to mature on June 30,
1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo
"as to that part of the debt for which they were responsible" can be set up by
Gregorio Yulo as a partial defense to the action. The part of the debt for which these
three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo
may claim that, even acknowledging that the debt for which he is liable is P225,000,
nevertheless not all of it can now be demanded of him, for that part of it which
pertained to his co-debtors is not yet due, a state of affairs which not only prevents
any action against the persons who were granted the term which has not yet
matured, but also against the other solidary debtors who being ordered to pay
could not now sue for a contribution, and for this reason the action will be only as to
the P112,500. Against the propriety and legality of a judgment against Gregorio
Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject
matter of the suit, we do not think that there was any reason or argument offered
which sustains an opinion that for the present it is not proper to order him to pay all or part of
the debt, the object of the action.
ALIPIO VS COURT OF APPEALS
Defenses Available to solidary debtors
Facts
Respondent Romeo Jaringwas the lessee of a 14.5 hectare fishpond for a period of five years.
On June 19, 1987, he subleased the fishpond to the spouses Placido and PuritaAlipio and the
spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00,
payable in two installments of P300,000.00 and P185,600.00, with the second installment
falling due on June 30, 1989. Each of the four sublessees signed the contract. The first
installment was duly paid, but of the second installment, the sublessees only satisfied a
portion thereof, leaving an unpaid balance of P50,600.00. The sublessees failed to comply
with their obligation despite the demand. Private respondent sued the Alipio and Manuel
spouses for the collection of the said amount Petitioner PuritaAlipio moved to dismiss the case
on the ground that her husband, PlacidoAlipio, had passed away. The trial court denied
petitioner's motion on the ground that since petitioner was herself a party to the sublease
contract, she could be independently impleaded in the suit together with the Manuel spouses
and that the death of her husband merely resulted in his exclusion from the case.The lower
court ordered petitioner and the Manuel spouses to pay private respondent the unpaid
balance of P50,600.00 plus attorney's fees in the amount of P10,000.00 and the costs of the
suit without specifying whether the amount is to be paid by them jointly or solidarily.
Petitioner appealed to the Court of Appeals but the appellate court dismissed her appeal.
Issue
Whether or not the liability of the petitioner and the Manuel Spouses is joint or solidary
Ruling
The Court held that liability ofsublessees is merely joint. Art. 1207 of the Civil Code provides
that the concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one
of the latter is bound to render, entire compliance with the prestations. There is a solidary
liability only when the obligation expressly so estates, or when the law or the nature of the
obligation requires solidarity.
Indeed, if from the law or the nature or the wording of the obligation the contrary does not
appear, an obligation is presumed to be only joint, i.e., the debt is divided into as many equal
shares as there are debtors, each debt being considered distinct from one another Private
respondent does not cite any provision of law which provides that when there are two or more
lessees, or in this case, sublessees, the latter's obligation to pay the rent is
solidary. WHEREFORE, the petition is granted. he unpaid balance of P50,600.00 should be
divided into two so that each couple is liable to pay the amount of P25,300.00.
MAKATI DEVELOPMENT CORPORATION V. EMPIRE INSURANCE COMPANY
OBLIGATION WITH PENAL CLAUSE
Facts:
On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot. A so-
called "special condition" contained in the deed of sale provides that the VENDEE/S shall
commence the construction and complete at least 50% of the residence on the property
within two years and failure to do will be forfeit the bond delivered by the VENDEE in favor of
the VENDOR. To insure faithful compliance with this condition,Andal gave a surety bond on
wherein he, as principal, and the Empire Insurance Company, as surety.Andal sold the lot to
Juan Carlos and neither Andal nor Juan Carlos built a house on the lot within the stipulated
period. The petitioner, three days after the lapse of the two-year period, sent a notice of claim
to the Empire Insurance Co. for failure of Andal to comply with his undertaking. Demand for
the payment of P12,000 was refused, whereupon the Makati Development Corporation filed a
complaint against the Empire Insurance Co. to recover on the bond in the full amount, plus
attorney's fees. In due time, the Empire Insurance Co. filed its answer with a third-party
complaint against Andal. In his answer, Andal admitted the execution of the bond but averred
that, at any rate, Juan Carlos had started construction of a house on the lot. The lower court
rendered judgment, sentencing the Empire Insurance Co. to pay the Makati Development
Corporation the amount of P1,500, with interest of 12% from the filing of the complaint until
full payment, and to pay P500 for attorneys fees. The court likewise directed that Andal to pay
the Empire Insurance. The Makati Development Corporation appealed directly to this Court.
Issue:
Whether or not the trial court is correct in reducing the liability of Andal for breach despite the
special condition provided in the contract
Ruling
In reducing Andal's liability for breach of his undertaking from P12,000, as stipulated in the
bond to P1,500, the Court held that while it is true that in obligations with a penal sanction
the penalty takes the place of "damages and the payment of interest in case of non-
compliance"2 and that the obligee is entitled to recover upon the breach of the obligation
without the need of proving damages,3 it is nonetheless true that in certain instances a
mitigation of the obligor's liability is allowed. Thus article 1229 of the Civil Code states that
the judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable. Considering that a
house had been built shortly after the period stipulated, the substantial, if tardy, performance
of the obligation, having in view the purpose of the penal clause, fully justified the trial court
in reducing the penalty.
TAN vs. Court of Appeals, 367 SCRA 571, G.R. No. 116285. October 19, 2001
OBLIGATION WITH PENAL CLAUSE
Facts:
Petitioner Antonio Tan obtained 2 loans each in the principal amount P2,000,000.00, or in
the total principal amount of P4,000,000.00 from respondent Cultural Center of the Philippines
promissory notes. Petitioner defaulted but after a few partial payments he had the loans
restructured by respondent CCP, and petitioner accordingly executed a promissory note in the
amount of P3,411,421.32 payable in 5 installments. Petitioner Tan failed to pay any
installment on the said restructured loan of P3,411,421.32. In a letter dated January 26, 1982,
petitioner requested and proposed to respondent CCP a mode of paying the restructured loan.
However, CCP, through counsel, wrote a letter to the petitioner demanding full payment,
within 10 days from receipt of said letter, of the petitioners restructured loan which amounted
to P6,088,735.03. On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint
for collection of a sum of money against the petitioner after the latter failed to settle his said
restructured loan obligation. The petitioner interposed the defense that he merely
accommodated Wilson Lucmen, who allegedly asked for his help to obtain a loan from
respondent CCP. Petitioner filed a Manifestation wherein he proposed to settle his
indebtedness to respondent CCP by proposing to make a down payment of P140,000.00 and
to issue 12 checks every beginning of the year until the balance is fully paid. However,
respondent CCP did not agree to the petitioners proposals and so the trial of the case ensued.
The trial court judgment is rendered in favor of plaintiff ordering defendant to pay plaintiff, the
amount of P7,996,314.67 with the corresponding stipulated interest and charges until fully
paid, plus attorneys fees in an amount equivalent to 25% of said outstanding account, plus
P50,000.00, as exemplary damages, plus costs.
The petitioner appealed the decision of the trial court to the Court of Appeals and asked
for the reduction of the penalties and charges on his loan obligation. In affirming the decision
of the trial court imposing surcharges and interest, the appellate court is unable to accept
appellants claim for modification on the basis of alleged partial or irregular performance, there
being none. However, the appellate court modified the decision of the trial court by deleting
the award for exemplary damages and reducing the amount of awarded attorneys fees to five
percent (5%), by ratiocinating as follows:
Issue:
Whether there are contractual and legal bases for the imposition of the penalty, interest
on the penalty and attorneys fees.
Ruling:
Petitioner also claims that there is no basis in law for the charging of interest on the
surcharges for the reason that the New Civil Code is devoid of any provision allowing the
imposition of interest on surcharges. The Court finds no merit in the petitioners
contention. Article 1226 of the New Civil Code provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of interests in
case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall
be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation. The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code. In the case at bar, the promissory note (Exhibit A) expressly provides
for the imposition of both interest and penalties in case of default on the part of the
petitioner in the payment of the subject restructured loan. However, the Court held that There
appears to be a justification for a reduction of the penalty charge but not necessarily to
ten percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as
petitioner has made partial payments which showed his good faith, a reduction of the penalty
charge from two percent (2%) per month on the total amount due, compounded monthly, until
paid can indeed be justified under the said provision of Article 1229 of the New Civil Code.
Article 1229 of the New Civil Code provides that The judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly complied with by the debtor. Even
if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. The Court finds it fair and equitable to reduce the penalty
charge to a straight twelve percent (12%) per annum on the total amount due starting August
28, 1986
COUNTRY BANKERS INSURANCE CORP VS CA
OBLIGATION WITH A PENAL CLAUSE
FACTS
- The CA affirmed the RTCs decision, to wit:
WHEREFORE, THE COMPLAINT OF THE PLAINTIFF Enrique F. Sy is dismissed,
and on the counterclaim of the defendant O. Ventanilla Enterprises Corporation,
judgment is hereby rendered:
1. Declaring as lawful, the cancellation and termination of the Lease
Agreement (Exh. A) and the defendants re-entry and repossession of the Avenue,
Broadway and Capitol theaters under lease on February 11, 1980;
2. Declaring as lawful, the forfeiture clause under paragraph 12 of the said
Lease Agreement, and confirming the forfeiture of the plaintiffs remaining cash
deposit of P290,000.00 in favor of the defendant thereunder, as of February 11, petitioner Enrique F. Sy, as lessee entered into a lease agreement over the Avenue,

1980; Broadway and Capitol Theaters and the land on which they are situated in

3. Ordering the plaintiff to pay the defendant the sum of P289,534.78, Cabanatuan City. The term of the lease was for six years from June 13, 1977 to June

representing arrears in rentals, unremitted amounts for amusement tax 12, 1983. After more than two years of operation of the theaters, the lessor OVEC

delinquency and accrued interest thereon, with further interest on said amounts at

the rate of 12% per annum (per lease agreement) from December 1, 1980 until the made demands for the repossession of the said leased properties in view of Sys

same is fully paid; arrears in monthly rentals and non-payment of amusement taxes. On August 8,

4. Ordering the plaintiff to pay the defendant the amount of P100,000.00, 1979, OVEC and Sy had a conference and by reason of Sys request for

representing the P10,000 portion of the monthly lease rental which were not reconsideration, he was allowed to continue operating the leased premises upon his

deducted from the cash deposit of the plaintiff from February to November, 1980, conformity to certain conditions imposed by the latter in a supplemental agreement

with interest thereon at the rate of 12% per annum on each of the said monthly dated August 13, 1979.

amounts of P10,000.00 from the time the same became due until it is paid; - In pursuance to their latter agreement, Sy reduced his arrears in rental. However,

5. Ordering the plaintiff to pay the defendant through the injunction bond, the the accrued amusement liability tax had accumulated to 84,000.00 despite the fact

sum of P100,000.00, representing the P10,000.00 monthly increase in rentals which that Sy had been deducting amounts from his monthly rental with the obligation to

the defendant failed to realize from February to November 1980 resulting from the remit said deductions to the city government. Hence, letters of demand dated

injunction, with legal interest thereon from the finality of this decision until fully January 7, 1980 and February 3, 1980 were sent to Sy demanding payment of the

paid; arrears in rentals and amusement tax delinquency. The latter demand was with the

6. Ordering the plaintiff to pay the defendant the sum equivalent to ten per warning that OVEC will repossess the theaters on February 11, 1980 in pursuance

centum (10%) of the above-mentioned amounts of P289,534.78, P100,000.00 and with their lease contract and their supplemental letter-agreement. But

P100,000.00, as and for attorneys fees; and notwithstanding the said demands and warnings Sy failed to pay the abovementioned

7. Ordering the plaintiff to pay the costs. amounts in full. Consequently, OVEC took possession thereof in the

-Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the morning of February 11, 1990.
- Sy filed the present action for reformation of the lease agreement, damages and enter and possess the theaters as well as to terminate said agreement so the

injunction. And by virtue of a restraining order dated February 12, 1980 followed by balance of deposits given by Sy had thus become forfeited.

an order to issue a writ of preliminary injunction, Sy regained possession of the - OVEC would be losing P50,000.00 for every month that the possession and

theaters. operation of the theaters remain with Sy.

Petitioners' Claim - OVEC incurred P500,000.00 for attorneys fees.

- Sy alleged that the amount of depositP600,00.00 as agreed upon, P300,000.00 ISSUE

of which was to be paid on June 13, 1977 and the balance on December 13, 1977 WON respondent is unjustly enriched at the expense of petitioners

was too big; and OVEC assured him that said forfeiture will not come to pass. HELD

- Sy sought to recover from OVEC the sums of P100,000.00 for repairs in the NO.

Broadway theater; P48,000.00 for electrical cost of OVECs illegal connection in Ratio As a general rule, in obligations with a penal clause, the penalty shall

the Capitol theater; and P31,000.00 for electrical cost of OVECs illegal connection substitute the indemnity for damages and the payment of interests in case of noncompliance.

in the Broadway theater and for damages suffered by SY as a result of each However, there are exceptions:

connection. 1) when there is a stipulation to the contrary

- It is also alleged that on February 11, 1980, OVEC had the three theaters 2) when the obligor is sued fro refusal to pay the agreed penalty

padlocked with the use of force, and as aresult, Sy suffered damages at the rate of 3) when the obligor is guilty of fraud

P5,000 a day because of his failure to go thru the contracts with movie and booking Reasoning The forfeiture clause in the lease agreement would not unjustly enrich

companies for the showing of movies. OVEC at expense of Sy and CBISCOcontrary to law, morals, good customs, public

- Finally, Sy prayed for the issuance of a restraining order/ preliminary injunction to order or policy. A penal clause is an accessory obligation which the parties attach to

enjoin OVEC from entering and taking possession of the theaters upon Sys filing of a principal obligation for the purpose of insuring the performance thereof by

a P500,000.00 bond supplied by Country Bankers Insurance Corporation (CBISCO). imposing on the debtor a special prestation (generally consisting in the payment of

Respondents' Counterclaim a sum of money) in case the obligation is not fulfilled or is irregularly or

- By reason of Sys violation of the lease agreement, OVRC became authorized to inadequately fulfilled.
In the case at bar, the penalty cannot substitute for the P100,000.00 supposed

damage suffered by OVEC from opportunity cost. It represents the P10,000 per

month in additional rental during the ten months of injunction period. Thus, it must

be applied against the injunction bond.