Art.

1157
MAKATI STOCK EXCHANGE, INC. VS MIGUEL CAMPOS
G.R. NO. 138814, APRIL 26, 2009

Facts: Miguel V. Campos filed with the Securities, Investigation and Clearing Department (SICD) of the
Securities and Exchange Commission (SEC), a Petition against herein petitioners Makati Stock Exchange,
Inc. (MKSE) seeking the: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of
Directors, which allegedly deprived him of his right to participate equally in the allocation of Initial Public
Offerings (IPO) of corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly
deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1
million as exemplary damages, and P500,000.00 as attorneys fees and litigation expenses.

The SICD issued an Order granting respondents prayer for the issuance of a Temporary Restraining
Order to enjoin petitioners from implementing or enforcing the Resolution of the MKSE Board of
Directors. On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition contending,
among others, that the petition failed to state a cause of action. The SICD denied petitioners Motion to
Dismiss. Petitioners again challenged Order of SICD before the SEC en banc, which nullified the Order of
SICD granting a Writ of Preliminary Injunction in favour of respondent. Hence this petition.

Issue: whether or not the petition failed to state a cause of action.

Held: Yes. A cause of action is the act or omission by which a party violates a right of another. A
complaint states a cause of action where it contains three essential elements of a cause of action, namely:
(1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these elements are absent, the complaint
becomes vulnerable to dismissal on the ground of failure to state a cause of action.

The terms right and obligation are not magic words that would automatically lead to the conclusion that
such Petition sufficiently states a cause of action. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything whatsoever that is enforceable by law while
an obligation is defined in the Civil Code as a juridical necessity to give, to do or not to do, which arises
from: (1) law, (2) contracts, (3) quasi-contracts, (4) acts or omissions punished by law, and (5) quasi-
delicts.
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Art. 1159
UNIWIDE SALES INC. VS. MIRAFUENTE AND NG
G.R. No. 172454, August 17, 2007

Facts: On December 13, 1993, Uniwide Sales Inc. and Mirafuente and Ng Inc. forged a design services
architectural agreement wherein the petitioner engaged the respondent to plan and design the proposed
uniwide sales mall in Paranaque. The agreement of the parties did not contain any provision on how the
respondent would accomplish its services. It only provided that: (1) respondent would be paid Php. 2.5M
for its Architectural Design Services; (2) it would only be paid for services actually rendered; and that (3)
in case of changes and additions during construction, he is to be paid for additional services.

On August 22, 1995, several days after the respondent had submitted the master plans with the complete
package of all architectural plans to the petitioner, the latter terminated the respondents services. Having
not received its demand of payment of a total of Php. 837,500, respondent filed a complaint with the RTC,
which was granted by it and affirmed by the Court of Appeals. In his defense, petitioner contended that
respondent failed to fulfil its obligations as the latter submitted the assailed plans beyond the six months,
which as allegedly verbally ordered by petitioner.

Issue: WON petitioner is correct in stating that the respondent failed to perform it obligations.

Held: No. Even assuming that there was indeed a verbal agreement, petitioner is estopped from enforcing
the same, it having continued to deal with respondent on the project even after the expiration of the said
six months, by recommending changes of the design, paying respondents services for the first two phases
of the project schedule, and starting the mall project with the use of the respondents design. Thus, it can
be inferred that the RTC and CA are correct in stating the the said termination was merely a ploy of the
petitioner to avoid its obligations.

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Art. 1159
LIGA vs. ALLEGRO RESOURCES
575 SCRA 310

Facts: Ortigas & Company, entered into a lease agreement with La Paz Investment & Realty Corporation
wherein the former leased to the latter its parcel of land located in San Juan. La Paz constructed the
Greenhills Shopping Arcade and divided it into several stalls and subleased them to other people. One of
the sub-lessees was Edsel Liga (Liga), who obtained the leasehold right to Unit No. 26, Level A of the GSA.

As the lease expired, the stallholders made several attempts to have their leasehold rights extended.
Allegro Resources became the new lessee. As the new lessee, Allegro offered to sublease Unit No. 26, Level
A to Liga. They entered into a lease agreement dubbed Rental Information in which Liga agreed to pay
rental of P40K monthly. She also agreed to pay the back rentals due Ortigas. Liga also gave P40K as one
month advance rental and another P40K as one month security deposit as provided in the agreement.

Liga failed to pay the subsequent due rent. Despite repeated demands from Allegro, Liga had failed to pay
her rentals for the subleased property, as well as the back rentals from January to August 2001 due
Ortigas.

Issues:
1. WON Liga should pay to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001?

2. WON Liga should pay to Allegro back rentals in the amount of P40K a month starting from 1
September 2001 until such time as she vacates the leased property?

Held:
1. No. (1) Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no relief can
be extended in a judgment to a stranger or one who is not a party to a case. (2) Allegro cannot justify the
award as a legal representative by virtue of a provision in its lease agreement with Ortigas. Allegro did not
aver in its complaint that it was acting as Ortigas's legal representative and seeking the back rentals due
Ortigas. (3) There is no allegation or prayer in the complaint that Allegro was seeking the collection of the
back rentals due Ortigas.

2. Yes. It is fundamental that a contract is the law between the parties. Obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good faith. It is a
general principle of law that no one may be permitted to change his mind or disavow and go back upon his
own acts, or to proceed contrary thereto, to the prejudice of the other party. Likewise, it is settled that if
the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the
stipulations would be controlling.

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Art. 1159
SOLIDBANK CORPORATION VS. PERMANENT HOMES, INCORPORATED
G.R. No. 171925, July 23, 2010

Facts: The records disclose that PERMANENT HOMES is a real estate development company, and to
finance its housing project known as the Buena Vida Townhome located within Merville Subdivision,
Paraaque City, it applied and was subsequently granted by SOLIDBANK with an Omnibus Line credit
facility in the total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as time
loan for a term of up to three hundred sixty (360) days, with interest thereon at prevailing market rates,
and subject to monthly repricing. The remaining ONE MILLION was available for domestic bills
purchase.

To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three(3) townhouse units within
the Buena Vida project in Paraaque. At the time, however, the instant complaint was filed against
SOLIDBANK, a total of thirty six (36) townhouse units were mortgaged with said bank. Of the 60 million
available to PERMANENT HOMES, it availed of a total of 41.5 million pesos covered by three(3)
promissory notes. There was a standing agreement by the parties that any increase or decrease in interest
rates shall be subject to the mutual agreement of the parties.

For the three loan availments that PERMANENT HOMES obtained, the herein respondent argued that
SOLIDBANK unilaterally and arbitrarily accelerated the interest rates without any declared basis of such
increases, of which PERMANENT HOMES had not agreed to, or at the very least, been informed of.

On July 5, 2002, the trial court promulgated its Decision in favor of Solidbank. Permanent then filed an
appeal before the appellate court which was granted, in which reversed and set aside the assailed decision
dated July 5, 2002. Hence, the present petition.

Issues:

(1) WON the Honorable Court of Appeals was correct in ruling that the increases in the interest rates on
Permanents loans are void for having been unilaterally imposed without basis.

(2) WON the Honorable Court of Appeals was correct in ordering the parties to enter into an express
agreement regarding the applicable interest rates on Permanents loan availments subsequent to the
initial thirty-day (30) period.
Held:

(1) Yes. Although interest rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The lender and the borrower should agree on the
imposed rate, and such imposed rate should be in writing of which was not provided by petitioner.

(2) Yes. In order that obligations arising from contracts may have the force of law between the parties,
there must be mutuality between the parties based on their essential quality. A contract containing a
condition which makes its fulfilment dependent exclusively upon the uncontrolled will of one of the
contracting parties is void. There was no showing that either Solidbank or Permanent coerced each other
to enter into the loan agreements. The terms of the Omnibus Line Agreement and the promissory notes
were mutually and freely agreed upon by the parties.

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Art. 1159
PRIVATIZATION AND MANAGEMENT OFFICE VS. STRATEGIC ALLIANCE
DEVELOPMENT CORPORATION GR. No. 200402 June 13, 2013

Facts: The indebtedness of the PNCC to various governmental institutions was transferred to the National
Government through the Committee on Privatization (COP)/ Asset Privatization Trust (APT) by virtue of
Administrative Order 397. In July 2000, APT announced the holding of a public bidding on October 30,
2000 involving the as is, where is basis package sale of stocks, receivables, and securities owned by the
National Government in the PNCC.

Dong-A Consortium, which was formed by respondent and Dong-A Pharmaceuticals, signified its
intention to bid. It received the accompanying bid documents given by APT and signed the ASSET
SPECIFIC BIDDING RULES (ASBR). ASBR inter alia provides that the Indicative Price for the Shares,
Receivables and the Securities shall be announced on the day of the bidding, The winning bidder shall be
the bidder who submits the highest total bid offer for both the shares and receivables, who complies with
all terms and conditions contained in this ASBR, APT reserves the right to reject any or all bids, including
the highest bid, or to waive any defect or required formality therein.

The bidding pushed through. Dong-A and two others were declared as qualified bidders. Thereafter, APT,
announced that the indicative price of the PNCC properties was 7 BILLION PESOS. Relying on their own
due diligence examinations, they protested that the indicative price was too high. Notwithstanding the
protest, APT continued with the bidding, DONG-As offered the highest bid (1.2 Billion PHP), despite this,
its bid offer was rejected because it was way below the Indicative Price of 7 BILLION PESOS . STRADEC
filed a complaint for DECLARATION of RIGHT to A NOTICE Of AWARD and/or Damages.

Issue: WON STRADEC (DONG-A) is entitled to a notice of award.

Held: No. The submission of the highest bid and the conduct of due diligence do not justify the award to
Dong-A consortium. Obligations arising from agreements have the force of law between the contracting
parties and should be complied with in good faith. Here, the ASBR sets forth the terms and conditions
under which an award will be given. During the pretrial, both parties agreed that a bidder wins only after
satisfying and complying with all the terms and conditions of the ASBR, including matching the indicative
price. Since Dong-A Consortium failed to match the indicative price, it could not have been considered a
winner, and, is not entitled to a Notice of Award.

Article 1326 of the Civil Code, which specifically tackles offer and acceptance of bids, provides that
advertisements for bidders are simply invitations to make proposals, and that an advertiser is not bound
to accept the highest bidder unless the contrary appears. APT has a legal right to reject the offer of DongA
Consortium, notwithstanding that it submitted the highest bid.
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Art. 1169
SANTOS VENTURA HOCORMA FOUNDATION, INC. VS. SANTOS and RIVERLAND, INC.

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: (1) P1.5 Million
immediately upon the execution of this agreement; and (2) The balance of P13 Million shall be paid,
whether in lump sum or in installments, at the discretion of the Foundation, within a period of not more
than two (2) years from the execution of this agreement.
In compliance, Santos moved for the dismissal of the cases, while SVHFI paid the initial P1.5 million.
After 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
Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging delay on the part of SVHFI
in paying the balance. They further alleged that under the Compromise Agreement, the obligation became
due on October 26, 1992, but payment of the remaining balance was effected only on November 22, 1994.
Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty,
attorney's fees and costs of litigation.

SVHFI alleged that the legal interest on account of fault or delay was not due and payable, considering
that the obligation had been superseded by the compromise agreement. Moreover, SVHFI argued that
absent a stipulation, Santos must ask for judicial intervention for purposes of fixing the period.

Issue: Whether or not SVHFI incurred in delay based on the compromise agreement and thereby liable for
legal interest

Held: Yes. The Compromise Agreement was entered into on October 26, 1990. It was judicially approved
on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual
contract became binding between the parties upon its execution and not upon its court approval. Hence,
the two-year period should have begun on October 26, 1990.

In this case, there was non-fulfillment of the obligation with respect to time. The requisites of delay
(mora) were all met: (1) that the obligation be demandable and already liquidatedthe two-year period
already lapsed and the amount of payment was already determined; (2) that the debtor delays
performanceSVHFI paid the balance beyond the two-year period; and finally, (3) that the creditor
requires the performance judicially or extra-judiciallya demand letter was sent in accordance with the
extra-judicial demand as contemplated by law.

When the debtor knows the amount and period when he is to pay, interest as damages is generally
allowed as a matter of right. The legal interest for loan as forbearance of money is 12% per annum to be
computed from the time the demand was made under the provisions of Article 1169 of the Civil Code.

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Art. 1169-70
BARZAGA VS. COURT OF APPEALS
G.R. No. 115129, February 12, 1997

Facts: Ignacio Barzagas wife succumbed to a debilitating ailment and died on December 19, 1990.
Forewarned, she expressed her wish to be buried before Christmas. After her death on December 21, 1990
3pm, Ignacio Barzaga (Petitioner) went to the hardware store of Angelito Alviar (Respondent) to inquire
about the availability of certain materials to be used in building his wifes niche. Also asking if materials
could be delivered at once, the Respondents employee replied that if the store had pending deliveries that
afternoon then all subsequent purchases made would be delivered the following day.

Petitioner left that day and returned the following day on December 22, 1990, 7am. Petitioner came to
follow up his purchase of construction materials, stressing to the employees of the hardware store that he
would need the materials to be delivered to the cemetery (only a kilometer away from the hardware store)
by 8 am as he would have hired workers who would start working at the site. Respondents employee
agreed to deliver at the specified time, date and place and with such assurance Barzaga purchased the
materials and paid in full P 2,100.00.

However, the materials were not delivered on time. The petitioner went to the store several times to ask
for the delivery. Eventually, the Petitioner was forced to dismiss his hired workers since his materials did
not arrive. Petitioner determined to fulfill his wifes request, purchased materials from other stores. After
his wife was buried, Petitioner sued the Respondent for damages of delay. Respondent claims that delay
happened because of a fortuitous event since the truck tires were flat.

Issue: Was there a delay in the performance of the Respondents obligation.

Held: Yes. The Respondent was negligent and incurred delay in performing his obligations. The
Petitioner suffered as a consequence of the delay or contractual breach. There was a specific time, date
and place agreed upon the delivery of the materials. The said condition was agreed upon by both the
Petitioner and the Respondent.

There is a non-performance of a reciprocal obligation since according to Article 1169, the moment one of
the parties fulfill his obligation, delay by the other begins. In this contract of purchase and sale, the
Petitioner had already accomplished his part which is the payment of the price. It falls onto the
Respondent now to immediately fulfill his obligation to deliver the goods otherwise delay would attach.
An award of moral damages is incumbent in this case as the Petitioner has suffered gravely.
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Art. 1169-70
Malayan Insurance Co, Inc. V CA (1986)
G.R. No. L-59919 November 26, 1986

Facts: Aurelio Lacson is an owner of a Toyota NP Land Cruiser, Model 1972, bearing Plate No. NY-362
and with engine Number F-374325 insured with Malayan Insurance Co. On Dec. 1, 1975, Aurelio brought
it to the shop of Carlos Jamelo for repair. On Dec. 2, 1975, Rogelio Mahinay, together with Johnny
Mahinay, Rogelio Macapagong and Rogelio Francisco took and drove the Toyota Land Cruiser and it met
an accident with Bo. Carlos reported the incident to the police and instituted a criminal case for Qualified
Theft against his employees. Rogelio Mahinay pleaded guilty and was convicted of theft. Aurelio was not
allowed to claim on the ground that the claim is not covered by the policy inasmuch as the driver of the
insured vehicle at the time of the accident was not a duly licensed driver. The Trial Court ruled in favor of
Aurelio, which the CA affirmed.

Issue: WON the CA erred in holding petitioner liable for actual damage of the vehicle.

Held: No. Lacson has sufficiently established his demand for the award of damages plus interest as
sanctioned under Articles 1169, 1170, and 2209 of the Civil Code. Thus, a debtor who is in delay (default)
is liable for damages (Art. 1170) generally from extrajudicial or judicial demand (Art. 1169) in the form of
interest (Art. 2209).

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Art. 1170
GERALDEZ VS. CA

G.R. No. 108253. February 23, 1994

Facts: An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez
against private respondent Kenstar Travel Corporation. Sometime in October 1989, Petitioner came to
know about private respondent from numerous advertisements in newspapers of general circulation
regarding tours in Europe. She then contacted private respondent by phone and the latter sent its
representative, who gave her the brochure for the tour and later discussed its highlights. The European
tours offered were classified into four, and petitioner chose the classification denominated as "VOLARE 3"
covering a 22-day tour of Europe for S2,990.00. She paid the total equivalent amount of P190,000.00
charged by private respondent for her and her sister, Dolores. Petitioner claimed that, during the tour, she
was very uneasy and disappointed when it turned out that, contrary to what was stated in the brochure,
there was no European tour manager for their group of tourists, the hotels in which she and the group
stayed were not first-class, the UGC Leather Factory which was specifically added as a highlight of the
tour was not visited, and the Filipino lady tour guide by private respondent was a first timer, that is, she
was performing her duties and responsibilities as such for the first time.

Issue: Whether or not the respondent company committed fraud in order for the petitioner to enter into
the contract.

Held: This fraud or dolo, which is present or employed at the time of birth or perfection of a contract, may
either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those
deceptions or misrepresentations of a serious character employed by one party and without which the
other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred
to in Article 1344, are those, which are not serious in character and without which the other party would
still have entered into the contract. Dolo causante determines or is the essential cause of the consent,
while dolo incidente refers only to some particular or accident of the obligations. The effects of dolo
causante are the nullity of the contract and the indemnification of damages, and dolo incidente also
obliges the person employing it to pay damages.

In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a
European tour manager and the visit to the leather factory, it is indubitably liable for damages to
petitioner.
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Art. 1174
ROBERTO C. SICAM VS. SPOUSES JORGE
G.R. No. 159617, August 8, 2007

Facts: On different dates, Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located
in Paraaque to secure a loan. On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. On the same date, Sicam sent Lulu a
letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Respondent
Lulu then wroteback expressing disbelief, then requested Sicam to prepare the pawned jewelry for
withdrawal on November 6, but Sicam failed to return the jewelry. Lulu, joined by her husband Cesar,
filed a complaint against Sicam with the RTC of Makati seeking indemnification for the loss of pawned
jewelry and payment of AD, MD and ED as well as AF. Petitioners insist that they are not liable since
robbery is a fortuitous event and they are not negligent at all. The RTC rendered its Decision dismissing
respondents complaint as well as petitioners counterclaim. Respondents appealed the RTC Decision to
the CA which reversed the RTC, ordering the appellees to pay appellants the actual value of the lost
jewelry and AF. Petitioners MR denied, hence the instant petition for review on Certiorari.

Issue: WON the petitioners are liable for the loss of the pawned articles in their possession.

Held: Yes. Article 1174 of the Civil Code provides that: except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen or which, though
foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly believed 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.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the
debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the injury or loss.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In this connection, Article 1173 of the Civil Code may be
applied. We expounded in Cruz v. Gangan that negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do; or the doing of something which a prudent and reasonable man would not do. It is want of care
required by the circumstances.

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Art. 1174
METRO CONCAST STEAL CORP. VS. ALLIED BANK
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______Art. 1174
ASSET PRIVATIZATION TRUST VS. T.J. ENTERPRISE
G.R. No. 167195 May 8, 2009

Facts: Petitioner was a government entity created for the purpose to conserve, to provisionally manage
and to dispose assets of government institutions. It had acquired assets consisting of machinery and
refrigeration equipment stored at the Golden City compound which was leased to and in the physical
possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-where-is
basis.

Petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration
equipment wherein respondent paid the full amount as evidenced by petitioners receipt. After two (2)
days, respondent demanded the delivery of the machinery it had purchased. Petitioner issued a Gate Pass
to respondent to enable them to pull out from the compound the properties designated ; however, during
the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by
respondent. Respondent filed a complaint for specific performance and damages against petitioner and
Creative Lines. Upon inspection of the remaining items, they found the machinery and equipment
damaged and had missing parts. Petitioner claimed that there was already a constructive delivery of the
machinery and equipment upon the execution of the deed of sale it had complied with its obligation to
deliver the object of the sale since there was no stipulation to the contrary and it was the duty of
respondent to take possession of the property.

The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages
suffered by respondent. It found that at the time of the sale, petitioner did not have control over the
machinery and equipment and, thus, could not have transferred ownership by constructive delivery. The
Court of Appeals affirmed the judgment; hence, this petition.

Issue: Whether or not the petitioner had complied with its obligations to make delivery of the properties
and that his failure to make actual delivery of the properties was beyond its control.

Held: No. There was no constructive delivery of the machinery and equipment upon the execution of the
deed of absolute sale or upon the issuance of the gate pass since it was not the petitioner but Creative
Lines which had actual possession of the property. The presumption of constructive delivery is not
applicable as it has to yield to the reality that the purchaser was not placed in possession and control of
the property.

Regarding petitioners contention that it had no control over the actual delivery of the properties, the
Supreme Court ruled otherwise.

The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in
cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of
the obligation requires assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which though foreseen, were inevitable. A fortuitous event may either be an act of God, or
natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars. However,
when the loss is found to be partly the result of a persons participation whether by active intervention,
neglect or failure to act, the whole occurrence is humanized and removed from the rules applicable to a
fortuitous event. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should
be liable for the damages that may arise from the delay.

Art. 1169
GILAT VS. UCBP
G.R. No. 189563, April 7, 2014

Facts: One Virtual placed with Gilat Satellite Network (Gilat) a purchase order for various
telecommunications equipment, promising to pay portions of the price according to a payment schedule.
To ensure the prompt payment, it obtained a surety bond from defendant UCPB General Insurance Co.,
Inc. (UCPB) in favor of Gilat.

One Virtual failed to pay Gilat twice, prompting Gilat to write the surety UCPB two demand letters for
payment. However, UCPB failed to settle the amount. Gilat filed a complaint against UCPB. The RTC,
ruling in favor of Gilat, found that Gilat has already complied with its end of the obligation, i.e. delivery
and installation of the purchased equipments. Demand notwithstanding, One Virtual and UCPB, as
surety, failed to settle the obligation. The lower court reasoned that UCPB, as surety, bound itself to pay in
accordance with the Payment Milestones. This obligation was not made dependent on any condition
outside the terms and conditions of the Surety Bond and Payment Milestones.

However, the RTC denied Gilats claim for interest on the premise that the interest shall only accrue when
the delay or refusal to pay the principal obligation is without any justifiable cause. Here, UCPB failed to
pay its surety obligation because of the advice of its principal (One Virtual) not to pay. The RTC then
obligated UCPB to pay Gilat the principal debt (US $1.2 Million) under the Surety Bond, with legal
interest at the rate of 12% per annum computed from the time the judgment becomes final and executory,
plus attorneys fees and litigation expenses.
The Court of Appeals (CA) dismissed the appeal of UCPB based on lack of jurisdiction. It ruled that in
"enforcing a surety contract, the complementary-contracts-construed-together doctrine finds
application." In this case, the CA considered the arbitration clause contained in the Purchase Agreement
(principal contract) between Gilat and One Virtual as applicable and binding on the parties to the
suretyship agreement (accessory contract). Hence, the trial courts Decision was vacated. Gilat and One
Virtual were ordered to proceed to arbitration.

Issue: WON the RTC erred in not granting petitioners claim for legal interests.
Held: Yes. Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of
money, and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation, and the latter fails to comply. Delay, as used in Article 1169, is synonymous
with default or mora, which means delay in the fulfilment of obligations. It is the nonfulfillment of an
obligation with respect to time. In order for the debtor (in this case, the surety) to be in default, it is
necessary that the following requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance
judicially or extrajudicially.

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The increased liability is not because of
the contract, but because of the default and the necessity of judicial collection. However, for delay to merit
interest, it must be inexcusable in nature.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the
time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the
provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra-
judicial demand before an action for performance was filed, interest on the amount due begins to run, not
from the date of the filing of the complaint, but from the date of that extra-judicial demand.

________________________________________________________________________
_

Art. 1169
THE INSULAR LIFE ASSURANCE COMPANY, LTD. VS. TOYOTA BEL-AIR, INC.
G.R. No. 137884, March 28, 2008

Facts: Toyota Bel-Air, Inc. (Toyota) entered into a Contract of Lease 3 over a 3,700-square meter lot and
building owned by Insular Life Assurance Company, Ltd. (Insular Life) in Pasong Tamo Street, Makati
City, for a 5 year period, from April 16, 1992 to April 15, 1997. Upon expiration of the lease, Toyota
remained in possession of the property. Despite repeated demands, Toyota refused to vacate the property.
Thus, Insular Life filed a Complaint for unlawful detainer against Toyota in the MeTC. MeTC rendered a
decision in favor of [Insular Life] and against [Toyota], ordering the latter and all persons claiming
possession of the premises through [Toyota], to: (1) vacate the leased properties and return possession
thereof to [Insular Life]; (2) to pay reasonable compensation at the rate of P585,640.00 a month until
possession of the subject premises is surrendered to the [Insular Life]; (3) to pay attorney's
fees in the sum of P50,000.00; (4) to pay expenses of litigation in the amount of P20,000.00; and (5) to
pay the costs of the suit.
Granting the subsequent motion for execution filed by Insular Life, MeTC issued a Writ of Execution,
which includes an order for pay the plaintiff the sum of P585, 640.00 a month from April 15, 1997
until possession of the subject premises is reverted back to him.

Toyota filed a petition in the RTC, charging the MeTC with grave abuse of discretion in issuing the Writ of
Execution with an amended dispositive portion of the decision, giving retroactive effect to the payment of
reasonable compensation of P585,640.00 by the inclusion of the phrase "from April 15, 1997. The RTC
ruled in favour of Toyota, leading Insular Life to file a Petition for Review on Certiorari with the SC.

On May 7, 1999 Toyota and Insular Life entered into a compromise agreement, whereby Toyota was
obligated to pay Insular Life P8 million under the following terms and conditions: (a) the delivery of 3
Toyota vehicles worth P1.5 million; (b) the issuance of 12 postdated corporate checks to answer for the
balance of P6.5 million in 12 monthly installments; and (c) the posting of a surety bond which shall
guarantee payment of installments.

Toyota insists that the Compromise Agreement dated May 7, 1999 should be given effect considering that
the preconditions contained in the Compromise Agreement were complied with, or at the very least
substantially complied with; and prayed that the case should be remanded to the lower court for the
purpose of approving the Compromise Agreement dated May 7, 1999.

Issue: WON the said Compromise Agreement should be complied with.

Held: No. when a contract is subject to a suspensive condition, its birth or effectivity can take place only if
and when the event which constitutes the condition happens or is fulfilled, and if the suspensive condition
does not take place, the parties would stand as if the conditional obligation has never existed. Thus, the
issuance of 12 postdated checks and the posting of a surety bond are positive suspensive conditions of the
Compromise Agreement, the non-compliance with which was not a breach, casual or serious, but a
situation that prevented the obligation under the Compromise Agreement from acquiring obligatory force.
For its non-ful?llment, there was no contract or agreement to speak of, Toyota having failed to comply or
perform the suspensive conditions which enforce a juridical relation.

Since Toyota was unable to comply with the last two conditions of the agreement, which were suspensive
conditions, Insular Life cannot be compelled to comply with its obligation to end the present litigation. No
right in favor of Toyota arose and no obligation on the part of Insular Life was created.

________________________________________________________________________
____

Art. 1186 and Mixed Obligations

INTERNATIONAL HOTEL CORPORATION VS.FRANCISCO B. JOAQUIN, JR. AND RAFAEL

SUAREZ
G.R. No. 158361, April 10, 2013

Facts: On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of
Directors of the International Hotel Corporation (IHC) for him to render technical assistance in securing a
foreign loan for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines
(DBP).
after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the
amount of P500,000.00 for the services that he had provided and would be providing to IHC in relation
to the hotel project that were outside the scope of the technical proposal. Joaquin intimated his
amenability to receive shares of stock instead of cash in view of IHCs financial situation. His request was
granted.

He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He
recommended that the Board of Directors consider Materials Handling Corporation based on the more
beneficial terms it had offered. His recommendation was accepted.

Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International
(Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the
Executive Director of IHC, met with another financier, the Weston International Corporation (Weston), to
explore possible financing.11When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for DBPs consideration. As a result, DBP cancelled its previous guaranty through a
letter dated December 6, 1971.

On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development
to DBP on June 26, 1972. However, DBP denied the application for guaranty for failure to comply with the
conditions contained in its November 12, 1971 letter.

Due to Joaquins failure to secure the needed loan, IHC, through its President Bautista, canceled the
17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The latter
requested a reconsideration of the cancellation, but their request was rejected.

IHC argues that Article 1186 and Article 1234 of the Civil Code cannot be the source of IHCs obligation to
pay respondents because: (a) it was Joaquin who had recommended Barnes; and (b) IHCs negotiation
with Barnes had been neither intentional nor willfully intended to prevent Joaquin from complying with
his obligations.

Issue: WON Art. 1186 can be the source of IHCs obligaton.

Held: No. Article 1186 of the Civil Code reads: the condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment. This article refers to the constructive fulfillment of a suspensive
condition, whose application calls for two requisites, namely: (a) the intent of the obligor to prevent the
fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor
to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without
actually preventing the fulfillment, is insufficient. Likewise, the actual prevention without the intent to
prevent, is also not sufficient.

In this case, Evidently, IHC only relied on the opinion of its consultant in deciding to transact with
Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful
or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence of any
intention negated the basis for the CAs reliance on Article 1186 of the Civil Code.

Issue: WON IHC is still liable pay under the rule of constructive fulfillment of a mixed obligation.
Held: Yes. To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will
of the respondents because it required the action and discretion of third persons an able and willing
foreign financial institution to provide the needed funds, and the DBP Board of Governors to guarantee
the loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is
no question that when the fulfillment of a condition is dependent partly on the will of one of the
contracting parties, or of the obligor, and partly on chance, hazard or the will of a third person, the
obligation is mixed. The existing rule in a mixed conditional obligation is that when the condition was not
fulfilled but the obligor did all in his power to comply with the obligation, the condition should be deemed
satisfied.

Considering that the respondents were able to secure an agreement with Weston, and subsequently tried
to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled
their obligation.

________________________________________________________________________
____

Art. 1191
GALILEO A. MAGLASANG VS. NORTHWESTERNUNIVERSITY, INC.
G.R. No. 188986, March 20, 2013

Facts: In June 10, 2004, Northwestern, an educational Institution offering maritime related courses,
engaged the services of GL Enterprises, a Quezon City based firm, to install an Integrated Bridge System
in Laoag City which satisfies the IMO and CHED standards. Under one of the two contracts signed by the
two parties, they agreed that: (1) the IBS and its implements must be compliant with the IMO and CHED
standards, and complete with manuals; (2) the contracts may be terminated if one party commits a
substantial breach of its undertaking; and (3) that any dispute under the agreement shall first be settled
mutually between both parties, and would only be brought to the court if there was no mutual agreement.
Furthermore, it was also agreed upon, that the IBSs quality would be checked after its instalment as to
assure that it meets the said standards.

As down payment, Northwestern paid GL Enterprises Php. 1M, leaving an outstanding balance of Php.
1.97M. To fulfil its part of the obligation, GL Enterprises delivered various materials to the project site and
prepared for its installation. However, when the firm was about to start the instalment, they were stopped
by Northwestern on the group that the materials and equipment brought by the former were allegedly
sub-standard.

Subsequently, GL Enterprises filed a complaint against Northwestern for breach of contract. In its
defense, Northwestern justified its actions stating that the equipment delivered by GL Enterprises were
not in accordance with the qualifications agreed by the parties. The RTC ruled that both parties were at
fault, and should then bear its own losses. On appeal, the CA ruled the GL Enterprises substantially
breached the contract and that Northwestern only exercised ordinary prudence to prevent inevitable
rejection of the IBS. Hence, this appeal.

Issue: WON GL Enterprises committed a substantial breach of its contract with Northwestern when it
delivered substandard equipment.
Held: Yes. Substantial breach of contract, unlike that of slight or casual breaches, by one party, provides
the other party an implied power to rescind or choose fulfilment of the obligation as stated in Art. 1991.

Substantial breach is a fundamental breach that defeat the object of the parties in entering into an
agreement. In this case, GL Enterprises committed a substantial breach of contract when it delivered
substandard materials and equipment as said action defeats the purpose of the agreement which is to
install a modern and high quality IBS. Thus, the stoppage of the installation by Northwestern is justified
under Art. 1991.

________________________________________________________________________
____

Art. 1191

CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY VS. EMILIO OROLA, ET

AL.,
G.R. No. 169790, April 30, 2008

Facts: Sometime in April 1999, [petitioner] Religious of the Virgin Mary (RVM for brevity), acting through
its local unit and specifically through Sr. Fe Enhenco, local Superior of the St. Mary's Academy of Capiz
and [respondents] met to discuss the sale of the latter's property adjacent to St. Mary's Academy. Orola
met with the Mother Superior General of the RVM, Ma. Clarita Balleque [VRM Balleque] regarding the
sale of the property subject of this instant case.

A contract to sell dated June 2, 1999 made out in the names of herein [petitioner] and [respondents] as
parties to the agreement was presented in evidence pegging the total consideration of the property at
P5,555,000.00 with 10% of the total consideration payable upon the execution of the contract, and which
was already signed by all the [respondents] and Sr. Ma. Fe Enhenco, R.V.M. [Sr. Enhenco] as witness.

On June 7, 1999, [respondents] Josephine Orola and Antonio Orola acknowledged receipt of RCBC Check
No. 0005188 dated June 7, 1999 bearing the amount of P555,500.00 as 10% down payment from the
RVM Congregation.Thereafter, respondents, armed with an undated Deed of Absolute Sale which they
had signed, forthwith scheduled a meeting with VRM Balleque at the RVM Headquarters in Quezon City
to finalize the sale, specifically, to obtain payment of the remaining balance of the purchase price in the
amount of P4,999,500.00. However, VRM Balleque did not meet with respondents.

Succeeding attempts by respondents to schedule an appointment with VRM Balleque in order to conclude
the sale were likewise rebuffed. In an exchange of correspondence between the parties' respective
counsels, RVM denied respondents' demand for payment because: (1) the purported Contract to Sell was
merely signed by Sr. Enhenco as witness, and not by VRM Balleque, head of the corporation sole; and (2)
as discussed by counsels in their phone conversations, RVM will only be in a financial position to pay the
balance of the purchase price in two year time. Thus, respondents filed with the RTC a complaint with
alternative causes of action of specific performance or rescission. Ruling that there was indeed a perfected
contract of sale, the RTC allowed Orola to rescind the obligation. On the other hand, CA set aside RTCs
ruling, granting for specific performance of the obligation.

Issue: whether or not there is a perfected contract of sale in the case.

Held: Yes. As uniformly found by the lower courts, we likewise find that there was a perfected contract of
sale between the parties. A contract of sale carries the correlative duty of the seller to deliver the property
and the obligation of the buyer to pay the agreed price. As there was already a binding contract of sale
between the parties, RVM had the corresponding obligation to pay the remaining balance of the purchase
price upon the issuance of the title in the name of respondents. The supposed 2-year period within which
to pay the balance did not affect the nature of the agreement as a perfected contract of sale. In fact, we
note that this 2-year period is neither reflected in any of the drafts to the contract, nor in the
acknowledgment receipt of the downpayment executed by respondents Josephine and Antonio with the
conformity of Sr. Enhenco.

However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case because
respondents' cause of action against RVM is predicated on Article 1191 of the same code for breach of the
reciprocal obligation. It is evident from the allegations in respondents' Complaint 14 that the instant case
does not fall within the enumerated instances in Article 1381 of the Civil Code. Certainly, the Complaint
did not pray for rescission of the contract based on economic prejudice.

Article 1191, as presently worded, speaks of the remedy of rescission in reciprocal obligations within the
context of Article 1124 of the Old Civil Code which uses the term "resolution". The remedy of resolution
applies only to reciprocal obligations 8 such that a party's breach thereof partakes of a tacit resolutory
condition which entitles the injured party to rescission. The present article, as in the Old Civil Code,
contemplates alternative remedies for the injured party who is granted the option to pursue, as principal
actions, either a rescission or specific performance of the obligation, with payment of damages in each
case. On the other hand, rescission under Article 1381 of the Civil Code, taken from Article 1291 of the Old
Civil Code, is a subsidiary action, and is not based on a party's breach of obligation.

________________________________________________________________________
__

Art. 1191

HEIRS OF RAMON C. GAITE, ET AL. VS. THE PLAZA, INC. AND FGU INSURANCE
CORPORATION
G.R. No. 177685, January 26, 2011

Facts: : On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into a contract with Rhogen Builders (Rhogen), represented
by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for
the price of P7,600,000. On July 28, 1980, The Plaza paid P1,155,000 down payment to Gaite and soon
after Rhogen commenced construction of the restaurant building.

2 Months later, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati,
ordered Gaite to cease and desist from continuing with the construction of the building for violation of
The National Building Code.

The Plazas Project Manager Architect Roberto evaluated the Progress Billing and Tayzon stated that
actual jobsite assessment showed that the finished works fall short of Rhogens claimed percentage of
accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by
Rhogen. On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes
and the Project Manager cooperate to resolve the issue he had raised to address the problem.
Gaite informed The Plaza that he is terminating their contract based on the Contractors Right to Stop
Work or Terminate Contracts as provided for in the General Conditions of the Contract and demanded
the payment of P63,058.50 representing the work that has already been completed by Rhogen. Reyes also
informed Gaite that The Plaza will continue the completion of the structure utilizing the services of a
competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the
Contract

The Plaza filed a civil case for breach of contract, sum of money and damages against Gaite and FGU in
the Court of First Instance (CFI) of Rizal. The RTC Makati rendered its decision granting in favor of the
Plaza against Gaite. The Court of Appeals affirmed such decision with modification.

Issue: Whether or not the Rhogen had factual or legal basis to terminate the General Construction
Contract.

Held: No. The construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latters obligation to pay the contract price or progress billing is conditioned on the formers
specified performance. Pursuant to its contractual obligation, The Plaza furnished materials and paid the
agreed down payment.

Rhogen, having breached the contractual obligation it had expressly assumed specifically to comply with
all laws was already at fault. Respondent The Plaza, on the other hand, was justified in withholding
payment on Rhogens first progress billing.

Upon the facts duly established, Rhogen committed a serious breach of its contract with The Plaza, which
justified the latter in terminating the contract.

The Plaza predicated its action on Article 1191 34 of the Civil Code, which provides for the remedy of
"rescission" or more properly resolution, a principal action based on breach of faith by the other party
who violates the reciprocity between them. The breach contemplated in the provision is the obligor's
failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party.
The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform
his obligation, which is in this case, is the Plaza.

________________________________________________________________________
____

Art. 1191

LINA CALILAP-ASMERON VS.DEVELOPMENT BANK OF THE PHILIPPINES, PABLO

CRUZ, ET AL.
G.R. No. 157330, November23, 2011

Facts: On March 17, 1975, the petitioner and her brother Celedonio Calilap constituted a real estate
mortgage over two parcels of land covered by Transfer Certificate of Title (TCT) No. T-164117 and TCT
No.T-160929, both of the Registry of Deeds of Bulacan, to secure the performance of their loan obligation
with respondent Development Bank of the Philippines (DBP). With the principal obligation being
ultimately unpaid, DBP foreclosed the mortgage. The mortgaged parcels of land were then sold to DBP as
the highest bidder. The one-year redemption period expired on September 1, 1981. As to what thereafter
transpired, the petitioner and DBP tendered conflicting versions. The thrust of the petitioners suit is that
DBP accorded to her a preferential right to repurchase the property covered by TCT No. 164117. On the
other hand, DBP insisted that the petitioners real intention had been to repurchase the two lots on
installment basis, as proved by a letter written by the petitioner, and her subsequent payment of 40k
amortization fees, leaving her with an unpaid balance of 120k. According to DBP, petitioner failed to pay
the remaining balance even after it had demanded such payment several times, convincing the respondent
to sell the property. In her defense, the petitioner argued that despite the right to rescind due to
nonpayment being stipulated in the deed of conditional sale, DBP could not exercise its right because her
nonpayment of an obligation constituted only a slight or casual breach that did not warrant rescission.
Moreover, she posited that Article 1191 of the Civil Code empowers the court to fix the period within
which the obligor may comply with the obligation.

Issue: WON DBP validly exercised its right to rescind.

Held: Yes. Firstly, a contract is the law between the parties. Absent any allegation and proof that the
contract is contrary to law, morals, good customs, public order or public policy, it should be complied with
in good faith. As such, the petitioner, being one of the parties in the deed of conditional sale, could not be
allowed to conveniently renounce the stipulations that she had knowingly and freely agreed to.

Secondly, the issue of whether or not DBP validly exercised the right to rescind is a factual one that the
RTC and the CA already passed upon and determined. The Court, which is not a trier of facts, adopts their
findings, and sustains the exercise by DBP of its right to rescind following the petitioners failure to pay
her six monthly amortizations, and after her being given due notice of the notarial rescission. As a
consequence of the valid rescission, DBP had the legal right to thereafter sell the property to a person
other than the petitioner, like Cruz. In turn, Cruz could validly sell the property to Cabantog and Trinidad,
which he did.

And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering into an agreement
whereby a violation of the terms of the contract would result to its cancellation. In Pangilinan v. Court of
Appeals, the Court upheld the vendors right in a contract to sell to extrajudicially cancel the contract
upon failure of the vendee to pay the installments and even to retain the sums already paid.