SSS VS MOONWALK DEVELOPMENT

(penal clause – an accessory obligation attached to the principal obligation, to insure the
fulfillment of the obligation in case the principal obligation is inadequately fulfilled)

 A principal obligation may exist without an accessory obligation but an accessory

obligation cannot exist without a principal obligation.
 A penalty is demandable in case of non performance or late performance of the main
obligation. In other words in order that the penalty may arise there must be a breach of
the obligation either by total or partial non fulfillment or there is non fulfillment in
point of time which is called mora or delay.
FACTS:

February 20, 1980, SSS filed a complaint against Moonwalk Devt and Housing Corp that the
former failed to compute 12% interest due on delayed payments on the loan of Moonwalk,
resulting in chain of errors in the application of payment by Moonwalk, and unpaid balance on
principal loan P7, 053 and also for delayed payments P7, 517, 178.21.

Moonwalk answered that SSS had all the opportunity to ascertain the truth but failed to do so.

Court issued an order with ff stipulation of facts:

(1) Plaintiff approved application of defendant Moonwalk for interim loan in the amount of
P30 million pesos for developing and constructing a housing project; (2) P9, 595, 000
was released to defendant Moonwalk as of Nov 28 1973; (3) third amended deed of first
mortgage executed on Dec 18, 1973 P9, 595, 000; (4) after considering additional
releases in the amount of P2.659 million, defendant Moonwalk delivered a promissory
note of P12, 254, 700
(2) Moonwalk made a total payment of 23 million to SSS for loan principal of P12M. last
payment made by Moonwalk was P15M
(3) IN a letter dated December 21, 1979, defendant’s counsel told plaintiff that it had
completely paid its obligation to SSS.

October 6, 1990, trial court issued an order dismissing the complaint on the ground that the
obligation was already extinguished by the payment by Moonwalk of its indebtedness.

Appealed to the IAC, that whether Moonwalk Devt, Rosita Alberto, and others are still liable for
the unpaid penalties?

SSS CONTENTION: no evidence in the case at bar to show that SSS made a clear and
unequivocal positive waiver of the penalties made with full knowledge of the circumstances;
misconstrued the ruling that SSS are trust funds, and SSS being mere trustee, cannot perform
acts affecting the same, including condonation of penalties; that 12% penalty is not inequitable.

Is the penalty demandable even after the extinguishment of the principal obligation?
RULING:
IAC Justice Caguioa: what is sought to be recovered is not 12% interest on loan, but penalty for
failure to pay on time the amortization. What is sought to be enforced is the penal clause of the
contract entered into by the parties.
Penal Clause - "an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special presentation
(generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or
is irregularly or inadequately fulfilled"

Now an accessory obligation has been defined as that attached to a principal obligation in order
to complete the same or take its place in the case of breach.

In the present case, the principal obligation is the loan between the parties. The accessory
obligation of a penal clause is to enforce the main obligation of payment of the loan. If
therefore the principal obligation does not exist the penalty being accessory cannot exist.

Penalty is demandable in case of non performance or late performance of the main obligation;
when there is breach of obligation either by total or partial non fulfillment.

In the case at hand, plaintiff issued its statement of accounts showing total obligation of
Moonwalk P15M. Moonwalk made several payment on Sept 29, Oct 9 and 19 totaling P15M.
because of this payment the obligation of Moonwalk was considered extinguished. Principal
obligation of the defendant was deemed extinguished as well as the accessory obligation of real
estate mortgage.

In the present case, there has been as yet no demand for payment of the penalty at the time of
the extinguishment of the obligation, hence there was likewise an extinguishment of the
penalty.

When does delay arise? Under the Civil Code, delay begins from the time the oblige judicially or
extrajudicially demands from the obligor the performance of the obligation.

There are only three instances when demand is not necessary to render the obligor in default.
These are the following: "(1) When the obligation or the law expressly so declares; (2) When
from the nature and the circumstances of the obligation it appears that rendered was a
controlling motive for the establishment of the contract; or (3) When the demand would be
useless, as when the obligor has rendered it beyond his power to perform."

In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially. Default generally begins from the moment the creditor demands the
performance of the obligation

Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its
monthly amortizations. Neither did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the
complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing them real estate mortgages executed by Moonwalk in favor of SSS.

No delay was occurred and there was, no occasion when the penalty became demandable and
enforceable; hence SSS was never entitled to recover any penalty, not at the time it made the
SOA and certainly not after the extinguishment of the principal obligation.
RIZAL COMMERCIAL BANKING CORPORATION VS COURT OF APPEALS
(Toyota Corolla, 24 monthly installments)
 Article 1170 of the Civil Code states that those who in the performance of their
obligations are guilty of delay are liable for damages. The delay in the performance of
the obligation, however, must be either malicious or negligent. Thus, assuming that
private respondent was guilty of delay in the payment of the value of the unsigned
check, private respondent cannot be held liable for damages.

**** important provision: any of the postdated checks is dishonoring, all the remaining
amount will become due and demandable.

FACTS:
PR Atty Felipe Lustre purchased Toyota Corolla from Toyota Shaw branch which he made a
downpayment of P164K to be paid in 24 monthly installments. PR thus issued 24 postdated
checks P14, 976 each. Checks were dated every 10th of each month.

To secure balance, PR executed a promissory note and a contract of chattel mortgage over the
vehicle with acceleration clause that should the mortgagor default in payment, the whole
amount remaining shall become due.

Toyota Shaw assigned all its rights and interest in chattel mortgage to RCBC.

All checks from April 10 1991 to January 10 1993 were encashed except the August 10, 1991
which was unsigned, because of this recall, the Feb and March 1993 were no longer presented
for payment.

Petitioner in his letter on January 21, 1993, demanded form the PR payment of the balance of
the debt and liquidated damages.

a contract of adhesion — that is, one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto.

CA AFFIRMED DECISION OF RTC:

The "default" was therefore not a case of failure to pay, the check being sufficiently funded, and
which amount was in fact already debitted [sic] from appellee's account by the appellant bank
which subsequently re-credited the amount to defendant appellee's account for lack of
signature. All these actions RCBC did on its own without notifying defendant until sixteen (16)
months later when it wrote its demand letter dated January 21, 1993. Notably, all the other
checks issued by the appellee dated subsequent to August 10, 1991 and dated earlier than the
demand letter, were duly encashed. This fact should have already prompted the appellant bank
to review its action relative to the unsigned check. . .

RULING:
Article 1170 of the Civil Code states that those who in the performance of their obligations
are guilty of delay are liable for damages. The delay in the performance of the obligation,
however, must be either malicious or negligent. Thus, assuming that private respondent
was guilty of delay in the payment of the value of the unsigned check, private respondent
cannot be held liable for damages. There is no imputation, much less evidence, that private
respondent acted with malice or negligence in failing to sign the check. Indeed, we agree
with the Court of Appeals' finding that such omission was mere "inadvertence" on the part
of private respondent. Toyota salesperson Jorge Geronimo testified that he even verified
whether private respondent had signed all the checks and in fact returned three or four
unsigned checks to him for signing.

As pointed out by the trial court, this whole controversy could have been avoided if only
petitioner bothered to call up private its contractual obligations, but also in observance of the
standard in human relations, for every person "to act with justice, give everyone his due, and
observe honesty and good faith," behooved the bank to do so.

Petitioner is liable for damages caused to private respondent. These include moral damages for
the mental anguish, serious anxiety, besmirched reputation, wounded feelings and social
humiliation suffered by the latter.

There was also an incident wherein post dated checks of the PR were unsigned and so returned
to the PR for signing.
BARZAGA VS COURT OF APPEALS
(time is of the essence in performing the dying wish of a person and in making the casket;
non-performance of reciprocal obligation)

 This case is clearly one of non-performance of a reciprocal obligation. In their contract

of purchase and sale, petitioner had already complied fully with what was required of
him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent
upon respondent to immediately fulfill his obligation to deliver the goods otherwise
delay would attach.

FACTS:
December 19 1990, Ignacio Barzaga’s wife diead to an ailment after prlonged pain and
suffering. Ignacio Barzaga set out to arrange for her interment on th 24 th in obedience to her
dying wish, but her wish could not be carried out.

December 21 1990, Ignacio wentto the hardware store of respondent Angelito Alviar for the
availability of materials for niche and asked if it can be delivered all at once. The following day,
7am in the morning, Ignacio went back to the hardware store to follow up the purchase, and
told the employees that it has to be delivered 8am to Memorial Cemetery in Dasma Cavite,
worker are also there, and time is of the essence. With the assurance, Barzaga paid in full
amount P2,110.

8am until 9am, materials are still nowhere in sight. Because of the delay, Barzaga went back to
the store. Boncales assured him that although the delivery truck was not yet around it had
already left the garage and that as soon as it arrived the materials would be brought over to the
cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the
memorial park and wait for the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to
the store to inquire about the materials. But he received the same answer from respondent's
employees who even cajoled him to go back to the burial place as they would just follow with
his construction materials. After hours of waiting — which seemed interminable to him —
Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded
to the police station, which was just nearby, and lodged a complaint against Alviar.

Because of distress, barzaga cancelled the transaction and look for another construction
materials elsewhere.

The niche was finally completed but it was 2 ½ days behind schedule. January 21, 1991,
Barzaga demanded Alviar to recompense for the damage he suffered. Petitioner sued Alviar
before RTC.
RESPONDENT CONTENTION: legal delay could not be validly ascribed to him because no
specific date and time was agreed upon between them. it was this obstinate refusal of petitioner
to accept delivery that caused the delay in the construction of the niche and the consequent
failure of the family to inter their loved one on the twenty-fourth of December, and that, if at
all, it was petitioner and no other who brought about all his personal woes.

RULING:
Respondent Alviar was negligent and incurred delay in the performance of his contractual
obligation. The law expressly provides that those who in the performance of their obligation are
guilty of fraud, negligence, or delay and those who in any manner contravene the tenor are
liable for damages.
Contrary to the appellate court's factual determination, there was a specific time agreed upon
for the delivery of the materials to the cemetery. Petitioner went to private respondent's store
on 21 December precisely to inquire if the materials he intended to purchase could be delivered
immediately.

The nature of private respondent's business requires that he should be ready at all times to
meet contingencies of this kind.

This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to
be put off on Christmas day. This case is clearly one of non-performance of a reciprocal
obligation. In their contract of purchase and sale, petitioner had already complied fully with
what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It
was incumbent upon respondent to immediately fulfill his obligation to deliver the goods
otherwise delay would attach.

It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish
and serious anxiety while keeping watch on Christmas day over the remains of their loved one
who could not be laid to rest on the date she herself had chosen. The lackadaisical and feckless
attitude of the employees of respondent over which he exercised supervisory authority
indicates gross negligence in the fulfillment of his business obligations. (moral damages plus
exemplary damages)
PANTALEON VS AMERICAN EXPRESS
(first world problems)

FACTS:

Petitioner, Polo Pantaleon, his wife, daughter and son, joined an escorted tour of Western
Europe. Our group arrived in Amsterdam afternoon of October 25 1991, they failed to engage in
any sight seeing and agreed to start early the next day.

The following day, group arrived in Coster Diamond House 10 minutes before 9am, and should
end in 9:30am. Thereafter, they were led to store’s showroom to allow them to select items to
purchase. Mrs. Pantaleon planned to purchase 2.5 karat diamond brilliant cut, a pendant and a
chain, total of $13,826.

Pantaleon presented his AMEX credit card together with his passportto the Coster sales clerk at
9:15am. Charge purchase was then referred electronically to respondent’s Amsterdam office at
9:20am.

10 minutes later, store clerk informed petitioners that the transaction was not approved.
9:40am, already worried of inconveniencing the group. Pantaloon asked to cancel the
transaction but was told to wait for few minutes.

45 minutes have left, Coster decided to release the items even without respondent’s approval of
the purchase. At the bus, tour guide announced that the city tour of Amsterdam is cancelled
due to lack of time for they need to catch 3pm ferry going to London.

The Approval Code was transmitted to respondent's Amsterdam office at 10:38

a.m., several minutes after petitioner had already left Coster, and 78 minutes from the time the
purchases were electronically transmitted by the jewelry store to respondent's Amsterdam
office.

Before going back to Manila, Pantaleon family proceeded to US. On 30 October

1991, Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card,
but he cancelled his credit card purchase and borrowed money instead from a friend, after
more than 30 minutes had transpired without the purchase having been approved. On 3
November 1991, Pantaleon used the card to purchase children's shoes worth $87.00 at a store
in Boston, and it took 20 minutes before this transaction was approved by respondent.

March 4, 1992 after coming back to Manila, Pantaleon sent a letter through counsel to the
respondent demanding an apology for the inconvenience humiliation and embarrassment they
suffered.

AMEX CONTENTION: purchase of $13, 826 was out of the usual purchase pattern established.

RTC Makati City rendered decision, P500K MD, P300K ED, P100K AF, P85k for litigation. But was
later on reversed.

ISSUE: whether respondent, in connection with the aforementioned transactions, had

committed a breach of its obligations to Pantaleon

RULING:

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default
are that the obligation is demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtor's performance. Petitioner asserts that
the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting the performance of the obligation by the obligor.
The requisites of mora accipiendi are: an offer of performance by the debtor who has the
required capacity; the offer must be to comply with the prestation as it should be performed;
and the creditor refuses the performance without just cause.

The delay committed by defendant was clearly attended by unjustified neglect and bad
faith, since it alleges to have consumed more than one hour to simply go over plaintiff's
past credit history with defendant, his payment record and his credit and bank references,
when all such data are already stored and readily available from its computer. This Court
also takes note of the fact that there is nothing in plaintiff's billing history that would
warrant the imprudent suspension of action by defendant in processing the purchase.

It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent 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. Moral damages do not avail to soothe the plaints of the simply
impatient, so this decision should not be cause for relief for those who time the length of their
credit card transactions with a stopwatch. 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 the petitioner, as concluded by the RTC.

SOLAR HARVEST VS DAVAO CORRUGATED CARTON

(EXCEPTION OF COMPENSATIO MORAE: even in reciprocal obligation, if the period for the
fulfillment of the obligation if fixed, demand is still necessary before the obligor can be
considered in default and before a cause of action for rescission will accrue; when different
dates for the performance of obligations fixed, the default for each obligation must be
determined by the rules given in the first paragraph of Art 1169)

(The ship carrying the bananas did not arrive.)

FACTS:

The first quarter of 1998, Solar Harvest entered into agreement with respondent Davao
Corrugated for the purchase of the corrugated carton boxes designed for the petitioner’s
business of exporting fresh bananas $1.10 each. It was not produced in writing. To get
production underway, petitioner deposited $40, 150 as full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes from the respondent. January 3,
2001 petitioner wrote letter of demand for reimbursement of the amount paid. Respondent
replied that the boxes has been completed as early as April 3, 1998 and petitioner failed to pick
them up from the former’s warehouse. Respondent even placed an additional order of 24,000
boxes, and 14,000 had been manufactured without advanced payment from petitioner.

So respondent demanded to remove the boxes from the factory and to pay the balance of
$15,400 and P132, 000 for storage fee.

Petitioner filed a complaint on the ground that the parties agreed that the boxes will be
delivered within 30 days from payment, but respondent failed to manufacture and deliver the
boxes within such time; that repeated follow up was made by plaintiff but the defendant would
only show sample boxes.

Respondent contend that as early as April 3, 1998, it already completed 36, 500 boxes contrary
to petitioner’s allegation; that petitioner made an additional order of 24,000 without prior
payment; petitioner failed to pick up

Petitioner maintained that respondent only manufactured a sample of the ordered boxes and
respondent could not have produced 14,000 without the required pre payments; presented Que
as its sole witness – he said that when he visited the warehouse, it has no logo yet. He told
respondent that it should indeed rush production because the need for the boxes was urgent.
Thereafter, he asked his partner, Alfred Ong, to cancel the order because it was already late for
them to meet their commitment to ship the bananas to China.
Respondent said that the reason it did not get the boxes because the ship did not arrive. He
was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to
apply the said amount to the unpaid balance.

RULING:

The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with
Art. 1169 of the same law, which provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

But when different dates for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first paragraph of the present article,
that is, the other party would incur in delay only from the moment the other party demands
fulfillment of the former's obligation. Thus, even in reciprocal obligations, if the period for
the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before
the obligor can be considered in default and before a cause of action for rescission will
accrue.

Complaint only alleged a follow up upon respondent, which, however would not qualify as a
demand for the fulfillment of the obligation.

In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
evidence having shown that respondent did not commit any breach of its contractual
obligation. As previously stated, the subject boxes are still within respondent's premises. To
put a rest to this dispute, we therefore relieve respondent from the burden of having to keep
the boxes within its premises and, consequently, give it the right to dispose of them, after
petitioner is given a period of time within which to remove them from the premises.

For more than 2 years, petitioner did not demand for the delivery of the boxes.
 LORENZO SHIPPING CORP VS BJ MATHEL
(cylinder liner – time is not of the essence)

FACTS:

Petitioner Lorenzo Shipping is a domestic corporation engaged in coastwise shipping. Used to

own cargo vessel M/V Dadiangas Express.
Respondent BJ Marthel is a business entity engaged in trading marketing and selling various
commodities; importer and distributor of different brands of engines and spare parts.
1987 up to this case, respondent supplied petitioner of spare parts for the latter’s marine
machine.
Z
1989, petitioner asked respondent for a quotation for various parts.

Nov 2, 1989, petitioner issued to respondent purchase order valued at P477, 000. As to the
term of payment, 25% downpayment is needed, and 5 Bi monthly installments. But instead of
paying down payment, petitioner issued in favor of BJ Marthel ten postdated checks, to be
drawn in former’s account with Allied Bank Corporation.

Petitioner issued another Purchase order for another cylinder liner; term of payment is the
same as the former. The second purchase did not state the date of delivery.

Jan 26 1990, respondent deposited the checks but was dishonored by the drawee bank due to
insufficiency of funds. Remaining 9 checks were returned back to petitioner.

Respondent thereafter placed the order of two cylinder liners (CL) with its principal in Japan
Daiei Co. Ltd.

Pajarillo delivered the CL to petitioner warehouse, and subject to verification by Eric Go,
warehouseman. While the other purchased items were paid, the two CL were left unpaid.
Respondent’s vice president sent a letter dated Jan 2 1991 demanding to petitioner payment of
the full amount of CL. Instead of paying full amount, Lorenzo Shipping paid 150,000, and sent
a letter saying that because of the delay in delivery, it would have to sell it to Singapore.
Another demand letter dated March 27 1991 was furnished requiring petitioner to pay accrued
interest and atty’s fees.

Respondent filed a complaint alleged that despite repeated oral and written demand, petitioner
refused to pay. P111,300 as of May 1991, and additional interest of 14%.

Petitioner contention – there was in fact delivery of the CL but was late as the respondent
committed to deliver those within 2 months .
- Also filed a motion for leave to sell CL alleging that CL run the risk of obsolence and
deterioration.

CA held that respondent could not have incurred delay in the delivery of the CL as no demand,
judicial or extrajudicial was made by respondent upon petitioner, in contravention of the
express provision of Art 1169 of the CC.

ISSUE: WON late delivery of the subjects of the contract of sale to justify petitioner to
disregard the terms of the contract considering that time was of the essence.
RULING:

The ultimate criterion is the actual or apparent intention of the parties and before time may be
so regarded by a court, there must be a sufficient manifestation, either in the contract itself or
the surrounding circumstances of that intention.

It is a cardinal rule that if the terms thereof are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning shall control. Their contemporaneous and
subsequent acts should be considered.

purchase order no. 13839 and 14011 did not mention the due date of delivery of the
cylinder liner.

contract undergoes three distinct stages – preparation or negotiation, perfection, and

consummation.

In the instant case, the formal quotation by respondent represented the negotiation phase of
the subject contract of sale between the parties. As of that time, the parties had not yet
reached an agreement as regards the terms and conditions of the contract of sale. Petitioner
could have ignored the offer or tendered a counter offer to respondent.

If time is of the essence as claimed by the appellee, they should have stated the same in the
said purchase orders, and not merely relied on the quotation issued by the appellant
considering the lapse of time bet the quotation issued by the appellant and the purchase order
of the appellee.

In the instant case, the appellee should have provided for an allowance of time and made the
purchase order earlier If indeed the said CL was necessary fo the repair of the vessel scheduled
on the first week of January 1990. In fact instead of cancelling the first purchase order,
appellee purchased another CL. This fact negates that there was indeed the essence in the
consummation of the contract of sale between the parties.

By accepting the CL when there was delivered to its warehouse, petitioner indisputably
waived the claimed delay in the delivery of said items.

There having been no failure on the part of BJ Marthel to perform its obligation, power to
rescind to the contract is unavailing to the petitioner. (art 1191)
CATHAY PACIFIC AIRWAYS VS APOUSES DANIEL VAZQUEZ AND MARIA LUISA VAZQUEZ

FACTS:

Respondent spouses are frequent flyers of petitioner Cathay Pacific and Gold card members of
its Marco Polo Club. The Vazquezes together with their maid went to HK for pleasure and
business. Flight retuning to Manila, they were booked on the Business Class Section. When
boarding, an attendant approached Dr. Vazquez and told that their accommodation upgraded
from Business to First Class, but refused and said that it would not look nice for them as hosts
to travel in First Class and their guests, in the Business Class; and moreover, they were going to
discuss business matters during the flight.

Dr. Vazquez continued to refuse, so the ground stewardess told them that if they would not
avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after
talking to his two friends, Dr. Vazquez gave in. Upon their return to Manila, the Vazquezes
instituted before the Regional Trial Court of Makati City an action for damages against Cathay.
P500K moral damages, 250K temperate damaged, P500k corrective damages, 250K attys fees.

Vazquezes contention – Ms. Chiu obstinately uncompromisingly and in a loud, discourteous

and harsh voice threatened" that they could not board and leave with the flight unless they go
to First Class, since the Business Class was overbooked. Ms. Chiu's loud and stringent shouting
annoyed, embarrassed, and humiliated them

Cathay contention – they usually do that when the certain section is fully booked, and priority
is given to its frequent flyers; its employees at the HK airport acted in good faith in dealing with
the Vazquezes; none of them shouted, humiliated, embarrassed or committed any act of
disrespect against them.

Trial Court - The choice imposes a clear obligation on Cathay to transport the passengers in the
class chosen by them. The carrier cannot, without exposing itself to liability, force a passenger
to involuntarily change his choice. The upgrading of the Vazquezes' accommodation over and
above their vehement objections was due to the overbooking of the Business Class. It was a
pretext to pack as many passengers as possible into the plane to maximize Cathay's revenues.
Cathay's actuations in this case displayed deceit, gross negligence, and bad faith, which entitled
the Vazquezes to awards for damages.

ISSUE:
The key issues for our consideration are whether (1) by upgrading the seat accommodation of
the Vazquezes from Business Class to First Class Cathay breached its contract of carriage with
the Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are
entitled to damages.

RULING:

First Case: meaning of a contract; Breach of contract is defined as the failure without legal
reason to comply with the terms of a contract , the failure, legal excuse, to perform any promise
which forms the whole or in part of the contract.
The contract between the parties are to transport Vazquezes to Manila on a Business Class
accommodation. Vazquezes neve denied the fact that they are Cathay’s Marco Polo Club
members, and as members they had priority for upgrading of their seat at no extra cost. But
just like other rights, it can be waived. Whatever reason they had and no matter how odd it
might be, the Vazquezes had every right to decline the upgrade and insist Buss Class
Accomodation.

Second Case: We find no persuasive proof of fraud or bad faith in this case. The Vazquezes
were not induced to agree to the upgrading through insidious words or deceitful machination
or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes
that their accommodations were upgraded to First Class in view of their being Gold Card
members of Cathay's Marco Polo Club. She was honest in telling them that their seats were
already given to other passengers and the Business Class Section was fully booked.
Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other
passengers. But, we find no bad faith in her failure to do so, even if that amounted to an
exercise of poor judgment.
Here, while there was admittedly an overbooking of the Business Class, there was no evidence
of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was
refused to board the aircraft.

Third Case: In this case, we have ruled that the breach of contract of carriage, which consisted
in the involuntary upgrading of the Vazquezes' seat accommodation, was not attended by fraud
or bad faith. The Court of Appeals' award of moral damages has, therefore, no leg to stand on.
Exemplary damages were also removed. The act of the offender must be accompanied by bad
faith or done in wanton, fraudulent or malevolent manner
Nominal damages P5000.

The well-entrenched principle is that the grant of moral damages depends upon the discretion
of the court based on the circumstances of each case. This discretion is limited by the principle
that the amount awarded should not be palpably and scandalously excessive as to indicate that
it was the result of prejudice or corruption on the part of the trial court

The Supreme Court partly granted the petition. According to the Court, the Vazquezes should
have been consulted first whether they wanted to avail themselves of the privilege or would
consent to a change of seat accommodation before their seat assignments were given to other
passengers. Normally, one would appreciate and accept an upgrading, for it would mean a
better accommodation. But, whatever their reason was and however odd it might be, the
Vazquezes had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding passes. They
clearly waived their priority or preference when they asked that other passengers be given the
upgrade. It should not have been imposed on them over their vehement objection. By insisting
on the upgrade, Cathay breached its contract of carriage with the Vazquezes. The Court,
however, was not convinced that the upgrading or the breach of contract was attended by fraud
or bad faith. The Vazquezes were not induced to agree to the upgrading through insidious
words or deceitful machination or through willful concealment of material facts.
MERALCO VS RAMOY

FACTS:
1987, National Power Corporation filed with the MTC QC an ejectment case against several
persons for illegally occupying its properties in Baesa, QC. One of the defendants was Leoncio
Ramoy.

Defendants failure to answer, MTC rendered judgment in favor of MERALCO and ordering
defendants to demolish or remove the building they built of the land of the plaintiff.

As to Leoncio Ramoy, court found that he was occupying with exact location of his apartments.

June 20, 1990, NPC ordered MERALCO for the immediate disconnection of electric power
supply to all residential and commercial establishment beneath NPC transmission. MERALCO
decided to comply with the request and thereupon issued notices of disconnection to all
establishment.

In the meantime, electric service connection of the respondents was disconnected.

Plaintiff Leoncio Ramoy testified that they are the registered owners of the parcel of land, some
portion of which occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, and others as lessees.

When MRLC was disconnecting their connection, Ramoy objected saying that their property was
outside the NPC property. But he was threatened and told not to interefere by the armed men.

During ocular inspection, it was found out that residence of Ramoy was indeed outside the NPC
Property.

ISSUE: WHETHER CA ERRED WHEN IT FOUND THAT MERALCO WAS NEGLIGENT WHEN IT
DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.

RULING:

MRLC admitted that respondents were its customers under a Service Contract where it is
obliged to supply respondents with electricity. Upon request of NPC, it disconnected the power
supply of respondents. Under the Service Contract, “[a] customer of electric service must
show his right or proper interest over the property in order that he will be provided with
and assured a continuous electric service."

Respondents’ cause of action against MRLC is anchored on culpa contractual or breach of

contract for the latter’s discontinuance of its service to respondent under 1170 of CC.

“In culpa contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.

Article 1173 also provides that 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.

The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it. To repeat, it
was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining
whether it had become final and executory.
Moreover, if it were true that the decision was final and executory, the most prudent thing for
MERALCO to have done was to coordinate with the proper court officials in determining which
structures are covered by said court order. Likewise, there is no evidence on record to show
that this was done by MERALCO. The utmost care and diligence required of MERALCO
necessitates such great degree of prudence on its part, and failure to exercise the diligence
required means that MERALCO was at fault and negligent in the performance of its obligation.

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance
of its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy
testified that he suffered wounded feelings because of MERALCO's actions. Furthermore, due to
the lack of power supply, the lessees of his four apartments on subject lot left the premises.
Clearly, therefore, Leoncio Ramoy is entitled to moral damages in the amount awarded by the
CA.

“In order that moral damaged may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. No other person could have proven such
damaged except the respondent himself as they were extremely personal to him.

Records show that MERALCO did take some measures, i.e., coordinating with NPC officials and
conducting a joint survey of the subject area, to verify which electric meters should be
disconnected although these measures are not sufficient, considering the degree of diligence
required of it. Thus, in this case, exemplary damages should not be awarded.
AREOLA VS RAMOS
(biglaang pagcancel ng insurance policy niya; negligence ng manager to
remit the payment of the insurance policy)
(insurance policy creates a reciprocal obligation between the insurer and
insured)

FACTS:

Seven months after issuance of petitioner Santos Areola’s personal Accident

Insurance Policy, respondent insurance company unilaterally cancelled the same
since company records revealed failure of the petitioner to pay premiums.

August 3, 1985, respondent insurance company offered to reinstate same policy

it had previously cancelled and proposed to extend it until December 17, 1985,
knowing that the cancellation was erroneous and that premiums were paid in full
by petitioner insured but were not remitted.

Dec 17 1984, respondent insurance company issued collector’s provision receipt

to petitioner-insured.

June 19, 1985, respondent through its Baguio City manager, Teofilo Malapit, sent
petitioner endorsement which cancelled flat policy for non-payment of premium
effective as of inception dated.

Shocked by the cancellation, petitioner confronted Ang and demand an issuance

of official receipt. But Ang said that the cancellation was a mistake. Petitioner
sent a letter demanding that he be insured under the same terms and condition;
and that should his demands be unsatisfied, he would sue for damages.

Malapit informed petitioner of partial payment of 1000 had been exhausted

pursuant to the provisions of the Short Period Scale. Malapit then warned Areola
that should he fail to pay the balance the company’s liability would cease to
operate.

But Ampil wrote Areola letter confirming that the amount of 1,609 covered by
provisional receipt 9300 was in fact received by Prudential.

A letter was again delivered by Carlito Ang to Areola spouses but the spouses
already filed a complaint for breach of contracts with damages.

Respondent company admitted that the cancellation of petitioner’s policy

was due to the failure of Malapit to turn over the premiums collected.
ISSUE: whether the erroneous act of cancelling subject insurance policy
entitle petitioner-insured to payment of damages

RULING:

Had the insured met an accident at the time, the insurance company would
certainly have disclaimed any liability because technically, the petitioner could
not have been considered insured. Consequently, the trial court held that there
was breach of contract on the part of respondent insurance company, entitling
petitioner insured to an award of the damages prayed for.

Petitioner contention – misappropriating premium is the proximate cause.

Respondent contention – reinstatement effectively restores petitioner-insured to
all his rights under the policy. Whatever cause of action there might have been
against it, no longer exist

We uphold petitioner-insured's submission. Malapit's fraudulent act of

misappropriating the premiums paid by petitioner-insured is beyond doubt
directly imputable to respondent insurance company. A corporation, such
as respondent insurance company, acts solely thru its employees. The
latters' acts are considered as its own for which it can be held to account.
The facts are clear as to the relationship between private respondent
insurance company and Malapit. As admitted by private respondent
insurance company in its answer, Malapit was the manager of its Baguio
branch. It is beyond doubt that he represented its interests and acted in its
behalf. His act of receiving the premiums collected is well within the province of
his authority. Thus, his receipt of said premiums is receipt by private respondent
insurance company who, by provision of law, particularly under Article 1910 of
the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads:

"ART. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly."

Consequently, respondent insurance company is liable by way of damages for

the fraudulent acts committed by Malapit that gave occasion to the erroneous
cancellation of subject insurance policy. Its earlier act of reinstating the insurance
policy cannot obliterate the injury inflicted on petitioner-insured. Respondent
company should be reminded that a contract of insurance creates
reciprocal obligations for both insurer and insured. Reciprocal obligations
are those which arise from the same cause and in which each party is both
a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other.

Although the erroneous cancellation of the insurance policy constituted a

breach of contract, private respondent insurance company, within a
reasonable time took steps to rectify the wrong committed by reinstating
the insurance policy of petitioner. Moreover, no actual or substantial
damage or injury was inflicted on petitioner Areola at the time the
insurance policy was cancelled. Nominal damages are "recoverable where
a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where
there has been a breach of contract and no substantial injury or actual
damages whatsoever have been or can be shown."
TANGUILIG VS COURT OF APPEALS
(collapse of the windmill, deepwell)
(because of the destruction of the windmill, demand is not necessary since
it is the duty of Tanguilig to bear the expenses because of the destruction)
DOCTRINES:
- In order to claim exemption from liability by reason of fortuitous events,
four requisites must concur: (1) cause of the breach of obligation must
be independent of the will of the obligor; (2) event must either be
unforeseeable or unavoidable; (3) event must be such as to render it
impossible for the debtor to fulfill his obligation; (4) debtor must be
free from any participation or aggravation of the injury of the creditor.
- Neither party shall incur in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him.

FACTS:

The case involves the proper interpretation of the contract entered into between
the parties.

Petitioner Jacinto Tanguilig doing business under the name JMT

Engineering and General Merchandising proposed to Vicente Herce Jr to
construct windmill system for him. They agreed to construct the windmill for a
consideration of 60,000 with one year from the date of completion and
acceptance by respondent. Respondent paid 30,000, and a down payment of
15,000, leaving a balance of 15,000.

1988, because of failure and refusal of the respondent to pay the balance,
petitioner filed a complaint to collect the amount.

Respondent answer – he already paid this amount to SPGMI which constructed

deep well in connection with the windmill system. Payment should be credited to
his account by petitioner. It should also be an offset in the defects in the windmill
system causing the structure to collapse.

Petitioner contention – that the deepwell is not included in the agreement to

build windmill. 60,000 included incidental materials for the project. Denied any
obligation saying that he delivered it in good and working condition to respondent
who accepted the same without protest; collapse was also made by the typhoon.,
which relieved him from any liability.

ISSUE: firstly, whether the agreement to construct the windmill system

included the installation of a deep well and, secondly, whether petitioner is
under obligation to reconstruct the windmill after it collapsed.
RULING:
Preponderance of evidence supports the finding of the trial court that the
installations of a deepwell was not included in the proposals of petitioner to
construct a windmill for respondent. There is absolutely no mention in the two
documents that the deep well pump is a component of the proposed windmill
system. ”Deep well” and “deep well pump” are mentioned in both but these do
not indicate the deep well is part of the system. It merely describes the kind of
deep well suitable for the windmill.

We find it also unusual that Pili would readily consent to build a deep well the
payment for which would come supposedly from the windmill contract price on
the mere representation of petitioner, whom he had never met before, without a
written commitment at least from the former.

Respondent cannot claim the benefit of the law "concerning payments made by a
third person." The Civil Code provisions do not apply in the instant case because
no creditor-debtor relationship between petitioner and Guillermo Pili and/or
SPGMI has been established regarding the construction of the deep well.
Specifically, witness Pili did not testify that he entered into a contract with
petitioner for the construction of respondent's deep well. If SPGMI was really
commissioned by petitioner to construct the deep well, an agreement particularly
to this effect should have been entered into.

SECOND ISSUE:

Petitioner failed to show that the collapse of the windmill was due solely to a
fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely
stated that there was a "strong wind." But a strong wind in this case cannot
be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong
wind should be present in places where windmills are constructed, otherwise the
windmills will not turn.

The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in
it which could only be attributable to the appellee." It emphasized that
respondent had in his favor the presumption that "things have happened
according to the ordinary course of nature and the ordinary habits of life." This
presumption has not been rebutted by petitioner.

As to the default in payment of his outstanding balance: untenable. When

the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract.
Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner
who should bear the expenses for the reconstruction of the windmill. Article 1167
of the Civil Code is explicit on this point that if a person obliged to do something
fails to do it, the same shall be executed at his cost.

Vicente Herce is directed to pay Jacinto Tanguilig the balance of 15,000 with
interest, and in turn, petitioner Tanguilig is ordered to reconstruct subject
defective windmill system, in accordance with the one year guaranty and to
complete the same within three months from the finality of this decision.
NAKPIL AND SONS VS COURT OF APPEALS
(EARTHQUAKE)
(it was also due to the plans and specifications made by the architects
such as the Nakpil and Sons which made them liable, despite the
earthquake)
DOCTRINES: Act of God has been defined as an accident, due directly and exclusively to
natural causes without human intervention, which by no amount of foresight, pains or care.
 To be exempt from the liability due to an act of God: (a) cause of the breach of
obligation must be independent of the will of the obligor, (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free
from any participation in, or aggravation of the injury to the creditor.
 If upon the happening of a fortuitous event, there concurs a corresponding fraud,
negligence, delay or violation or contravention of the tenor of the obligation, which
results to the damage. To be free from any damages, he must be free from any previous
negligence or misconduct by which that loss or damage may have been occasioned.

FACTS:

Petitioners Juan Nakpil and Sons seeks reversal of the decision for exoneration from liability
while petitioner Phil Bar Assoc seeks the modification of the decision to obtain an award of P1,
830,000 for the loss of the PBA building plus damages.

Plaintiff PBA incorporated under the corporation law, decided to construct a building on its 840
square meters lot in Intramuros, Manila. The construction was undertaken by United Const. the
plans and specifications for the building were prepared by the other third party defendants
Juan Nakpil and Sons. It was completed June 1966.
Augusrt 2, 1968, unusually strong earthquake hit MNL, the building was strongly damaged. The
tenants vacated the building.

Plaintiff commenced this action for the recovery of damages arising from the partial collapse
against United Corp. Plaintiff contention – due to the defects in the construction, failure of the
contractors to follow plans and specifications.

Defendant Contention – filed a third party complaint against architects who prepared plans
and specifications, collapse was due to the defects in plans and specifications.

Plaintiff, in the meantime, moved twice for the demolition of the building on the ground that it
may topple down in case of another strong earthquake. April 30, 1979, it was authorized to be
demolished at the expense of the plaintiff.

ISSUE: WHETHER ACT OF GOD, AN UNUSUALLY STRONG EARTHQUAKE, WHICH CAUSED

THE FAILURE OF THE BUILDING, EXEMPTS FROM LIABILITY, PARTIES WHO ARE
OTHERWISE LIABLE BECAUSE OF THEIR NEGLIGENCE.

RULING:
Art 1723: The engineer or architect who drew up the plans and specifications for a building
is liable for damages if within fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and specifications, or due to the defects
in the ground. The contractor is likewise responsible for the damage if the edifice falls
within the same period on account of defects in the construction or the use of materials of
inferior quality furnished by him, or due to any violation of the terms of the contract. If the
engineer or architect supervises the construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not imply waiver of any of the causes of
action by reason of any defect mentioned in the preceding paragraph. The action must be
brought within ten years following the collapse of the building."

There is no dispute that earthquake is a fortuitous event or an act of God. But if upon the
happening of a fortuitous event, there concurs a corresponding fraud negligence delay or
violation in contravention of the tenor, which results in the damage or loss, the obligor
cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When the effect, the cause of which is
to be considered, is found to be in part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of God.

The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans
and specifications, and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications
prepared by them.

As correctly assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate cause that rendered the PBA building unable to withstand the
earthquake.

The findings of the lower Court on the cause of the collapse are more rational and accurate.
Instead of laying the blame solely on the motions and forces generated by the earthquake, it
also examined the ability of the PBA building, as designed and constructed, to withstand and
successfully weather those forces. The evidence sufficiently supports a conclusion that the
negligence and fault of both United and Nakpil and Sons, not a mysterious act of an
inscrutable God, were responsible for the damages.

The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim
that the eccentricity could be absorbed within the factor of safety, the Commissioner answered
that, while the same may be true, it also contributed to or aggravated the damage suffered by
the building.

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and
the third-party defendants in effecting the plans, designs, specifications, and construction of
the PBA building and We hold such negligence as equivalent to bad faith in the performance
of their respective tasks.

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith, without which the damage
would not have occurred.
REPUBLIC VS LUZON STEVEDORING
(property of Luzon stevedoring was being towed, when the barge rammed the wooden piles
of Nagtahan Bridge)

DOCTRINES: Where an immovable and stationary object like the Nagtahan bridge,
uncontrovertedly provided with adequate openings for passage of watercraft, is
rammed by a barge exclusively controlled by appellant, causing damage to its
supports, there arises a presumption of negligence on appellant's part or its
employees, manning the barge or the tugs that towed it. In the ordinary course of
events, such a thing does not happen if proper care is used.

FACTS:

In the afternoon of August 17, 1960, a property owned by Luzon Stevedoring was
being towed down the Pasig River by tugboats Bangus and Barbero also
belonging to the same corporation,when the barge rammed against one of the
wooden piles of Nagtahan bridge causing the river to list. The river was swollen
and the current swift due to heavy downpour in Manila.

Sued by the RP for actual damages and consequential damages, amounting to

200,000, defendant Luzon Stevedoring disclaimed liability on the ground that it
had exercised due diligence in the selection and supervision of its employees;
that the damages was due to force majeure, plaintiff has no capacity to sue; that
Nagtahan Bridge was an obstruction to navigation.

ISSUE:
WHETHER THE COLLISION OF APPELLANT’S BARGE PERMITTED THE
PLAINTIFF-APPELLEE TO INTRODUCE ADDITIONAL EVIDENCE OF
DAMAGES AFTER SAID PARTY HAD RESTED ITS CASE.

RULING:

As to the first question considering that the Nagtahan bridge was an immovable
and stationary object and uncontrovertedly provided with adequate openings for
the passage of water craft, including barges like of appellant's, it is undeniable
that the unusual event that the barge, exclusively controlled by appellant,
rammed the bridge supports raises a presumption of negligence on the part of
appellant or its employees manning the barge or the tugs that towed it. For in the
ordinary course of events, such a thing does not happen if proper care is used.

Appellant said that it assigned the task to the more competent and more
experience among its patrons, and the towlines engine, and equipment double
checked and inspections.
Otherwise state, the appellant, Luzon Stevedoring Corporation, knowing
and appreciating the perils posed by the swollen stream and its swift
current, 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. Hence, the lower
Court committed no error in holding it negligent in not suspending
operations and in holding it liable for the damages caused.

Even if true, these circumstances would merely emphasize the need of

even higher degree of care on appellant's part in the situation involved in
the present case. The appellant, whose barges and tugs travel up and down
the river everyday, could not safely ignore the danger posed by these
allegedly improper constructions that had been erected and, in place, for
years.
FIL ESTATE PROPERTIES VS SPOUSES GONZALO
(economic crisis is not a fortuitous event, as the economy or the peso
continually fluctuates)
(spouses demanded for a refund)
FACTS:

Petitioner Fil Estate Properties entered into a contract to sell a condo unit to
respondent spouses Gonzalo, and Consuelo Go at Eight Sto Domingo, condo
project of petitioner located in QC. Spouses paid a total of P3.4M of the contract
P3,620M.

Because of the failure of the petitioner to develop the condominium, 1999,

spouses demanded the refund of the amount they paid plus interest.

Petitioner did not refund the spouses, latter filed a complaint against petitioner for
reimbursement of P3,620M representing lump sum price of the condo unit plus
interest of 100K.

Petitioner contention – respondent has no cause of action since the delay

in the construction of the condominium was caused by the financial crisis
that hit Asian region, a fortuitous event.

BUT, HLURB ratiocinated that the Asian financial crisis that resulted in the
depreciation of the peso is not a fortuitous event because the fluctuation in the
value of the peso is a daily occurrence which is foreseeable; that when petitioner
discontinued the development of its condominium, it failed to fulfill its contractual
obligation to the spouses. Art 1475, parties may demand performance.

ISSUE: WHETHER CA IS WRONG IN HOLDING THAT THE ASIAN

FINANCIAL CRISES IS NOT A FORTUITOUS EVENT THAT WOULD XCUSE
THE DELIVERY BY PETITIONER OF THE SUBJECT CONDOMINIUM TO
RESPONDENTS.

RULING:

petitioner contention: 1174, argues that the Asian financial crisis was a
fortuitous event being unforeseen or inevitable. That the resultant economic
collapse of the real estate was unforeseen by the whole Asia; that had it all the
required govt permits; that it had not abandoned the project but only suspended
the work.

Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty e.g .
increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday occurrence, and
fluctuations in currency exchange rates happen everyday, thus, not an
instance of caso fortuito.

We are constrained to modify the CA grant of atty’s fees from 25,000 to

100K as just and equitable since respondents were compelled to secure
the services of counsel over 8 years to protect their interest due to
petitioner’s delay in the performance of their clear obligation.
SALUDAGA VS FAR EASTERN UNIVERSITY
(negligence of the agency of the security guard)
(shooting incident is not a fortuitous event)

FACTS:

Petitioner Joseph Saludaga was a sophomore law student of respondent FEU

when he was shot by Alejandro Rosete, one of the security guards on duty at the
school premise in 1996. Petitioner was was rushed to FEU-NRMF due to the
wound he sustained. Rosete was brought to the police station where he said that
the shooting was accidental. He was released on the ground that no complaint
was filed against him.

Petitioner thereafter filed a complaint for damages, breached their obligation to

provide students with a safe and secure environment conducive for learning.
Respondent in turn, filed a third party complaint against Galaxy the agency
contracted by respondent FEU, to indemnify them of whatever would be
adjudged in favor of petitioner.

Trial court rendered decision in favor of petitioner: that FEU and Edilberto de
Jesus, as president to pay jointly and severally Joseph Saludaga.

ISSUE: WHETHER SHOOTING INCIDENT IS A FORTUITOUS EVENT

RULING:

Petitioner is suing the respondent for damages based on the alleged breach of
student-school contract for a safe learning environment; that plaintiff waited for
one year for the defendant to perform their moral obligation but the wait was
fruitless. The indifference and total lack of concern of defendants served to
exacerbate plaintiff’s miserable condition.

In the instant case, the latter breached this contract when defendant allowed harm to
befall upon the plaintiff when he was shot at by, of all people, their security guard
who was tasked to maintain peace inside the campus.

It is undisputed that petitioner was enrolled as a sophomore law student in

respondent FEU. As such, there was created a contractual obligation between
the two parties. On petitioner's part, he was obliged to comply with the rules and
regulations of the school. On the other hand, respondent FEU, as a learning
institution is mandated to impart knowledge and equip its students with the
necessary skills to pursue higher education or a profession. At the same time, it
is obliged to ensure and take adequate steps to maintain peace and order within
the campus.

It is settled that in culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding
right of relief. In the instant case, we find that, when petitioner was shot
inside the campus by no less the security guard who was hired to maintain
peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and
secure environment to its students.

Total reliance on the security agency about these matters or failure to

check the papers stating the qualifications of the guards is negligence on
the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the
security agency it hired. To do so would result to contracting away its
inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order

for force majeure to be considered, respondents must show that no
negligence or misconduct was committed that may have occasioned the
loss. An act of God cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of
a person's participation — whether by active intervention, neglect or failure
to act — the whole occurrence is humanized and removed from the rules
applicable to acts of God.

Article 1170 of the Civil Code provides that those who are negligent in the
performance of their obligations are liable for damages. Accordingly, for breach
of contract due to negligence in providing a safe learning environment,
respondent FEU is liable to petitioner for damages.

HOWEVER
The fact that a client company may give instructions or directions to the security
guards assigned to it, does not, by itself, render the client responsible as an
employer of the security guards concerned and liable for their wrongful acts or
omissions.
Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was imposed against Rosete
despite the shooting incident; moreover, he was even allowed to go on leave of
absence which led eventually to his disappearance. Galaxy also failed to monitor
petitioner's condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good
their pledge to reimburse petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU with
an unqualified security guard, which resulted to the latter's breach of
obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU
for such damages equivalent to the above-mentioned amounts awarded to
petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with

Galaxy for being grossly negligent in directing the affairs of the security
agency. It was Imperial who assured petitioner that his medical expenses
will be shouldered by Galaxy but said representations were not fulfilled
because they presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.
FIL-ESTATE PROPERTIES VS SPOUSES RONQUILLO
(same as Fil Estate vs Go)

FACTS:

Petitioner Fil-Estate Properties is the owner and developer of the Central Park
Place tower while co-petitioner Fil-Estate is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from
petitioner 82-sq meter condo unit at Central Park for a pre-selling contract price
of P5,174M.

Respondents executed and signed a reservation application agreement wherein

they deposited 200K as reservation fee.

Upon learning that construction had stopped, respondent likewise stopped

paying monthly amortization. Claiming to have paid a total of P2M, respondent
demanded a full refund of their payment with interest.

When their demands went unheeded, respondents were constrained to file a

complaint for refund and damages before Housing and Land Use Regulation
Board. Respondents prayed for reimbursement/refund.

The Arbiter considered petitioner’s failure to develop condominium project as a

substantial breach of obligation which entitles respondents to seek for rescission
with payment of damages; that mere economic hardship is not an excuse for
contractual and legal delay.

Appellate court supported the HLURB ARBITER CONCLUSION, WHICH

WAS AFFIRMED BY THE BOARD OF COMMISSION AND OFFICE OF THE
PRESIDENT, “”PETITIONER’S FAILURE TO DEVELOP THE CONDOMINIUM
PROJECT IS TANTAMOUNT TO A SUBSTANTIAL BREACH WHICH
WARRANTS A REFUND OF THE TTOAL AMOUNT PAID.” APPELLATE
COURT POINTED OUT THAT PETITIONER’S FAILURE TO PROVE THAT
THE ASIAN FINANCIAL CRISIS CONSTITUTES A FORTUITOUS EVENT
WHICH COULD EXCUSE THEM FROM PERFORMING CONTRACTUAL AND
STATUTORYOBLIGATIONS.

ISSUE: WHETHER ASIAN FINANCIAL CRISES CONSTITUTES FORTUITOUS

EVENT TO JUSTIFY DELAY IN THE PERFORMANCE OF THEIR
CONTRACTUAL OBLIGATION.

RULING:
PETITIONER CONTENTION: THERE WAS NO BAD FAITH WHICH
ALLEGEDLY LED TO ANY ACT OF MISREPRESENTATION, PETITIONERS
CLAIM THAT THERE WAS A MERE DELAY IN THE COMPLETION OF THE
PROJECT AND THAT THEY ONLY RESORTED TO SUSPENSION AND
REFORMATTING AS A TESTAMENT TO THEIR COMMITMENT TO THEIR
BUYERS; THEY MUST NOT BE ORDERED TO PAY DAMAGES BECAUSE
THEY NEVER INTENDED TO CAUSE ANY DELAY.

The rulings were consistent that first, the Asian financial crisis is not a
fortuitous event that would excuse petitioners from performing their
contractual obligation; second, as a result of the breach committed by
petitioners, respondents are entitled to rescind the contract and to be
refunded the amount of amortizations paid including interest and damages;
and third, petitioners are Likewise obligated to pay attorney's fees and the
administrative fine.

(Article 1191) the power to rescind obligations is implied in reciprocal ones

in case one of the obligors should not comply with what is incumbent upon
him.

Conformably with these provisions of law, respondents are entitled to rescind the
contract and demand reimbursement for the payments they had made to
petitioners.
Principle of stare decisis (Fil Estate vs Go)

We likewise affirm the award of attorney's fees because respondents were forced
to litigate for 14 years and incur expenses to protect their rights and interest by
reason of the unjustified act on the part of petitioners.

Finally, we sustain the award of moral damages. In order that moral damages
may be awarded in breach of contract cases, the defendant must have acted in
bad faith, must be found guilty of gross negligence amounting to bad faith, or
must have acted in wanton disregard of contractual obligations.
METRO CONCAST STEEL CORP VS ALLIED BANK CORP

(loan agreement; backing out of Peakstar from the MOA is not related to
the debt of Metro Concast to Allied Bank; representation by Atty Saw to
Allied Bank is not proved; nonpayment of Peakstar is not fortuitous event)

FACTS:

Metro Concast is a corporation duly organized and existing under and by virtue of
the PH laws, engaged in the business of manufacturing steels, through its
officers, obtained several loans from the Allied Bank. These loans were covered
by promissory note and separate letters of credit/ trust receipts.

The interest rate under promissory note was pegged at 15.25% per annum and
penalty charge of 3% per month in case of default.

Petitioners failed to settle their obligations under the promissory note and trust
receipts. Allied Bank sent demand letters seeking payment of total amount
P51million but to no avail. Allied bank prompted to file a complaint.

Petitioners admitted their indebtedness to Allied bank but denied liability for
interest and penalties charged, for paying P65M by way of interest charged from
1992 to 1997; also alleged the economic reverses suffered by the Ph
economy in 1998 as well as devaluation of peso against US dollar made a
great downfall of the steel industry.

To fulfill their obligation, Metro Concast offered their remaining assets, consisting
machineries, equipment to Allied Bank but was refused. Allied adviced them to
sell the equipment and apply the proceeds of the sale to their outstanding
balance; but no one took the offer.

2002, Peakstar oil represented by Crisanta Camiling expressed interest to buy

scrap metal. During negotiation, Peakstar, through Camiling obligated itself to
purchase the scrap for a total consideration of P34M.

But peakstar reneged on all its obligation under the MOA. Now petitioners
asserverated that (a) failure to pay was due to force majeure, (b) that since the
Allied agreed to the terms and conditions of the payment proposed by Peakstar,
it must therefore be settled their obligations to Allied Bank.
Claiming that the subject complaint was falsely and maliciously filed, petitioners
prayed for awards of moral damages in the amount of 20M in favor of Metro
Concast.

RTC RULING: subject be dismissed holding that the causes of action sued upon
had been paid or otherwise extinguished; that since AIlied was duly represented
by Atty Saw, and drafted MOA, and accepted the bank guarantee by Bankwise,
the appraisal of developments regarding the sale and disposition of the scrap
metal, it reason out that the MOA was binding between Metro COncast and
Peakstar.

CA RULING: there was no legal basis in fact and in law to declare that when
Bankwise reneged the guarantee under the MOA, petitioner be deemed to be
discharged from their obligations lawfully incurred in favor of the Allied; that Atty
Saw was duly authorized to act for and in behalf of Allied

ISSUE: WHETHER THE LOAN OBLIGATIONS INCURRED BY THE

PETITIONERS UNDER THE SUBJECT PROMISSORY NOTE AND VARIOUS
TRUST RECEIPTS HAVE ALREADY BEEN EXTINGUISHED

RULING:

Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or remission
of the debt, the confusion or merger of the rights of creditor and debtor,
compensation or novation. In the present case, petitioners essentially argue that
their loan obligations to Allied Bank had already been extinguished due to
Peakstar's failure to perform its own obligations to Metro Concast pursuant to the
MoA. Petitioners classify Peakstar's default as a form of force majeure in the
sense that they have, beyond their control, lost the funds they expected to have
received from the Peakstar (due to the MoA) which they would, in turn, use to
pay their own loan obligations to Allied Bank. They further state that Allied Bank
was equally bound by Metro Concast's MoA with Peakstar since its agent, Atty.
Saw, actively represented it during the negotiations and execution of the said
agreement.
The MoA is a sale of assets contract, while petitioners' obligations to Allied Bank
arose from various loan transactions. Absent any showing that the terms and
conditions of the latter transactions have been, in any way, modified or novated
by the terms and conditions in the MoA, said contracts should be treated
separately and distinctly from each other, such that the existence, performance
or breach of one would not depend on the existence, performance or breach of
the other. In the foregoing respect, the issue on whether or not Allied Bank
expressed its conformity to the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues
related to petitioners' loan obligations to the bank. Besides, as the CA pointed
out, the fact of Allied Bank's representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to exculpate petitioners from
their loan obligations to Allied Bank.

While it may be argued that Peakstar's breach of the MoA was unforeseen by
petitioners, the same is clearly not "impossible" to foresee or even an event
which is "independent of human will." Neither has it been shown that said
occurrence rendered it impossible for petitioners to pay their loan obligations to
Allied Bank and thus, negates the former's force majeure theory altogether. In
any case, as earlier stated, the performance or breach of the MoA bears no
relation to the performance or breach of the subject loan transactions, they being
separate and distinct sources of obligation. The fact of the matter is that
petitioners' loan obligations to Allied Bank remain subsisting for the basic reason
that the former has not been able to prove that the same had already been paid
or, in any way, extinguished.
VICTORIA SEOANE VS CATALINA FRANCO

CASE DOCTRINES:

Where it is apparent from the nature of the obligation and the circumstances of
the case that there was an intention to grant to the debtor a time for payment and
such time has been left to the will of the debtor, the obligation is not due and
payable until an action has been commenced by the creditor against the debtor
for the purpose of having the court fix the date on and after which the obligation
is payable and, in pursuance of said action, such date has been fixed.

FACTS:

The mortgage in question was executed on 13 of October 1884 to secure

the payment of sum 4,876.01 the mortgagor agreeing to pay the sum little
by little. The claim appears to have been presented to the plaintiff’s intestate on
the 8th of Aug 1911. Nothing has been paid either of principal of interest.

"1128. When the obligation does not fix a term, but it can be inferred from its nature
and circumstance that there was an intention of granting it to the debtor, the courts
shall fix the duration of such a term.

"The courts shall also fix the duration of a term when it may have been left at the will
of the debtor."

The obligation in question seems to leave the duration of the period for the payment
thereof to the will of the debtor. "1128. When the obligation does not fix a term, but it
can be inferred from its nature and circumstance that there was an intention of
granting it to the debtor, the courts shall fix the duration of such a term. "The courts
shall also fix the duration of a term when it may have been left at the will of the
debtor."

RULING:

From these decisions it is clear that the instrument sued upon in the case at bar
is one which leaves the period of payment at the will of the mortgagor. Such
being the case, as action should have been brought for the purpose of having the
court set a date on which the instrument should become due and payable. Until
such action was prosecuted no suit could be instrument. It is, therefore, clear that
this action is premature. The instrument has been sued upon before it is due.
The action must accordingly be dismissed.
This section evidently covers all rights of action of whatever kind or nature,
except those which have special limitations and re referred to in subsequent
sections. A right of action to fix a day for the determination of the time of
payment is included within the terms of this section. The mortgage in
question having left the period of payment to the will of the mortgagor, an
action could have been maintained by the mortgagee at any time after its
execution for the naming of a date on which the instrument must be paid in
full. That right of action accrued as soon as the instrument was executed. Such
action, therefore, falls within the provisions of section 38, and not having been
commenced within the ten years next following the 1st day of October, 1901,
such action cannot, under the facts as they now appear, be maintained.
SICAM VS LULU JORGE

FACTS:

This is a petition by Roberto Sicam seeking to annul the decision of the CA.

October 1987, Lulu Jorge pawned several pieces of jewelry with Agencia RC
Sicam to secure loan totaling to P59,500.

October 19, 1987, two armed men entered the pawnshop and took away cash
and jewelry inside the pawnshop vault.

While victims are in the office, two persons entered into the office with guns; ties
Sicam with electric wire.

Sicam informed Lulu of the incident. Lulu sent his disbelief saying that all
jewelries were deposited to Far East Bank.

Lulu said to Sicam to prepare the jewelry for withdrawal, but he failed to so.

Lulu filed with her husband with RTC seeking indemnification for the loss of the
jewelry, and payment of casual moral and exemplary damages.

Petitioner Sicam filed his Answer contending that he is not the real party-in-
interest as the pawnshop was incorporated on April 20, 1987 and known as
Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care
and diligence in the safekeeping of the articles pledged with it and could not be
made liable for an event that is fortuitous.

RTC Decision: Sicam cannot be solely liable due to the fact that a pawnshop
has a separate and distinct personality with the stockholders. Corporate debt is
not the debt or credit of a stockholder. that robbery is a fortuitous event
which exempts the victim from liability for the loss, citing the case of
Austria v. Court of Appeals ; and that the parties' transaction was that of a
pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop
as a pledgee is not responsible for those events which could not be
foreseen.

CA DECISION: the CA applied the doctrine of piercing the veil of corporate entity
reasoning that respondents were misled into thinking that they were dealing with
the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to
them bear the words "Agencia de R.C. Sicam"; and that there was no indication
on the pawnshop tickets that it was the petitioner corporation that owned the
pawnshop which explained why respondents had to amend their complaint
impleading petitioner corporation.

That Austria is not applicable since the robbery incident happened in 1961 when
the criminality had not yet reached the levels attained in the present day, but they
have become liable for contributory negligence and should be liable for loss of
jewelry.

We find no justification to absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is that
the veil of corporate fiction may be pierced when made as a shield to
perpetrate fraud and/or confuse legitimate issues. The theory of corporate
entity was not meant to promote unfair objectives or otherwise to
shield them.(no merit as per SC)

notably that at the time respondent lulu pawned her jewelry, the pawnshop
was owned by petitioner Sicam himself. As correctly observed by the CA,
in all the pawnshop receipts issued to respondent Lulu in September 1987,
all bear the words "Agencia de R.C. Sicam," notwithstanding that the
pawnshop was allegedly incorporated in April 1987. The receipts issued
after such alleged incorporation were still in the name of "Agencia de R.C.
Sicam," thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was
owned solely by petitioner Sicam and not by a corporation.

Clearly, in view of the alleged incorporation of the pawnshop, the issue of

whether petitioner Sicam is personally liable is inextricably connected with
the determination of the question whether the doctrine of piercing the
corporate veil should or should not apply to the case.

As to whether the robbery is a fortuitous event:

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.
For a person not to be liable, it is necessary that on has committed no
negligence or misconduct that may have occasioned the loss.

Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault with
the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be
stored in a vault inside the pawnshop. The very measures which petitioners
had allegedly adopted show that to them the possibility of robbery was not
only foreseeable, but actually foreseen and anticipated. Petitioner Sicam's
testimony, in effect, contradicts petitioners' defense of fortuitous event.

The provision on pledge, particularly Article 2099 of the Civil Code,

provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must take
care of the pawns the way a prudent person would as to his own property.

Furthermore, petitioner Sicam's admission that the vault was open at the
time of robbery is clearly a proof of petitioners' failure to observe the care,
precaution and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was open, the
combination was already off.

In Austria, Maria Abad received from Guillermo Austria a pendant with

diamonds to be sold on commission basis, but which Abad failed to subsequently
return because of a robbery committed upon her in 1961. The incident became
the subject of a criminal case filed against several persons. Austria filed an action
against Abad and her husband (Abads) for recovery of the pendant or its value,
but the Abads set up the defense that the robbery extinguished their obligation.
The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence. The CA, however, reversed
the RTC decision holding that the fact of robbery was duly established and
declared the Abads not responsible for the loss of the jewelry on account of a
fortuitous event. We held that for the Abads to be relieved from the civil liability of
returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient
that the unforeseen event, the robbery, took place without any concurrent fault on
the debtor's part, and this can be done by preponderance of evidence; that to be
free from liability for reason of fortuitous event, the debtor must, in addition to the
casus itself, be free of any concurrent or contributory fault or negligence.
We found in Austria that under the circumstances prevailing at the time the
Decision was promulgated in 1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that rendered travel after
nightfall a matter to be sedulously avoided without suitable precaution and
protection; that the conduct of Maria Abad in returning alone to her house in the
evening carrying jewelry of considerable value would have been negligence per
se and would not exempt her from responsibility in the case of robbery. However
we did not hold Abad liable for negligence since, the robbery happened ten years
previously, 1961 when criminality had not reached the level of incidence
obtaining in 1971.

In contrast, 1987, robbery was already prevalent and petitioners in fact had
already foreseen it as they wanted to deposit the pawn with the nearby bank for
safekeeping.

Hernandez case - We further held that the fact that two robbers attacked him in
broad daylight in the jeep while it was on a busy highway and in the presence of
other passengers could not be said to be a result of his imprudence and
negligence.
Cruz case – records did not show any act of negligence on hr part and
negligence can never be presumed.
HERNANDEZ VS COA

FACTS:
Teodoro Hernandez was the officer-in-charge and special disrbursing officer of
the Ternante beach Project of PH Tourism in Cavite.
Went to the main office in Manila, July 1 1983 to encash two checks covering
wages of the employees and operating expenses. Money will be available at 10
in the morning and be back in Ternante at 3pm. He collected the money and left
the main office.

He thought of going back to his house, that it would be safer. Took the jeep
bound to his house in BUlacan.

In EDSA, two persons boarded with knives in hand and robbery in mind. Forcibly
took the money at the petitioner’s pocket, he slit the pocket.

Petitioner sustained injuries in the lip arms and knees. Robbers were
subsequently charged with robbery but the one who stole the money had not
been seen.

Petitioner filed for relief from money accountability.

Regional director COA absolved Hernandez from negligence.

The petitioner stresses that he decided to encash the checks in the

afternoon of July 1, 1983, which was a Friday, out of concern for the
employees of the Project, who were depending on him to make it possible
for them to collect their pay the following day. July 2 and 3 being non-
working days and July 4 being a holiday, they could receive such payment
only on the following Tuesday unless he brought the encashed checks on
July 1, 1983, and took it to Ternate the following day.

On his decision to take the money home that afternoon instead of returning
directly to Ternate, he says that the first course was more prudent as he
saw it, if only because his home in Marilao, Bulacan, was much nearer than
his office in Ternate, Cavite. The drive to Ternate would take three hours,
including a 30-minute tricycle ride along the dark and lonely Naic-Ternate
road; and as he would be starting after three o'clock in the afternoon, it was
not likely that he would reach his destination before nightfall. By contrast,
the road to Marilao was nearer and safer.
Petitioner further contended that the robbery in Ternante is stronger than
in MArilao.

ISSUE:

whether these acts are so tainted with negligence or recklessness as to

justify the denial of the petitioner's request for relief from accountability for
the stolen money.

RULING:
It is true that the petitioner miscalculated, but the Court feels he should not
be blamed for that. The decision he made seemed logical at that time and
was one that could be expected of a reasonable and prudent person. And
if, as it happened, the two robbers attacked him in broad daylight in the
jeep while it was on a busy highway, and in the presence of other
passengers, it cannot be said that all this was the result of his imprudence
and negligence. This was undoubtedly a fortuitous event covered by the
said provisions, something that could not have been reasonably foreseen
although it could have happened, and did.

We find, in sum, that under the circumstances as above narrated, the

petitioner is entitled to be relieved from accountability for the money
forcibly taken from him in the afternoon of July 1, 1983
YOBIDO VS CA

FACTS:

WHETHER OR NOT THE EXPLOSION OF A NEWLY INSTALLED TIRE OF A

PASSENGER VEHICLE IS A FORTUITOUS EVENT THAT EXEMPTS
CARRIER FROM LIABILITY

Tito and Leny Tumboy and their minor children, boarded Yobido liner bound for
Davao City.

Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the
bus exploded. The bus fell into a ravine around three (3) feet from the road and
struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and
physical injuries to other passengers.

On November 21, 1988, a complaint for breach of contract of carriage, damages

and attorney's fees was filed by Leny and her children against Alberta Yobido,
the owner of the bus, and Cresencio Yobido, its driver.

PLAINTIFF CONTENTION:
The plaintiffs asserted that violation of the contract of carriage between them and
the defendants was brought about by the driver's failure to exercise the diligence
required of the carrier in transporting passengers safely to their place of
destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 o'clock in
the afternoon. The winding road it traversed was not cemented and was wet due
to the rain; it was rough with crushed rocks. The bus which was full of
passengers had cargoes on top. Since it was "running fast," she cautioned the
driver to slow down but he merely stared at her through the mirror. At around
3:30 p.m., in Trento, she heard something explode and immediately, the bus fell
into a ravine.

DEFENDANTS CONTENTION:
Abundio Salce, who was the bus conductor when the incident happened, testified
that the 42-seater bus was not full as there were only 32 passengers, such that
he himself managed to get a seat. He added that the bus was running at a speed
of "60 to 50" and that it was going slow because of the zigzag road. He affirmed
that the left front tire that exploded was a "brand new tire" that he mounted on the
bus on April 21, 1988 or only five (5) days before the incident. The Yobido Liner
secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo
Parts.
However, upon such re-examination, we found no reason to overturn the findings and
conclusions of the Court of Appeals. As a rule, when a passenger boards a common carrier, he
takes the risks incidental to the mode of travel he has taken.

After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and
at all events to carry them safely and without injury. However, when a passenger is injured or
dies, while traveling, the law presumes that the common carrier is negligent.

1755 – DILIGENCE OF A VERY CAUTIOUS PERSON WITH A DUE REGARD FOR ALL THE
CIRCUMSTANCES.

In view of the foregoing, petitioners' contention that they should be exempt from liability because the tire
blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous
event is possessed of the following characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee the event which 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 his obligation in a normal manner; and (d)
the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.

Under the circumstances of 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. Neither may the fact that the tire bought and used in the vehicle is of a brand name
noted for quality, resulting in the conclusion that it could not explode within five days' use. Be
that as it may, 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.

Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as
conducting daily routinary check-ups of the vehicle's parts.

Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which
resulted in the death of Tito Tumboy, it is deemed to have acted recklessly. As such, private Respondents
shall be entitled to exemplary damages.
JUNTILLA VS FONTANAR
(overloading, maximum speed, not fortuitous for it is not independent of the will of the driver)

FACTS:

The jeepney was

Plaintiff was a passenger of public utility jeepney from Danao City to Cebu City.
driven by defendant Berfol Camoro. It was registered under the franchise of
defendant Clemente Fontanar but was actually owned by defendant Fernando
Banzon.
The right rear tire exploded causing the vehicle to turn turtle. In the process, the
plaintiff who was sitting at the front seat was thrown out of the vehicle. Upon landing
on the ground, the plaintiff momentarily lost consciousness. When he came to his
senses, he found that he had a lacerated wound on his right palm. Aside from this,
he suffered injuries on his left arm, right thigh and on his back.

Petititoner Roberto Juntilla filed for breach of contract with damages against
Clemente Fontanar Fernando Banzon and Berfol Camoro.

Respondent CONTENTION: accident that caused losses to the petitioner was

beyond the control of the respondent that the tire exploded was newly bought and
was only slightly used at the time it blew up.

ISSUE: whether the passenger jeepney is liable for negligence to the plaintiff

YES. In the case at bar, there are specific acts of negligence on the part of the
respondents. The records show that the passenger jeepney turned turtle and
jumped into a ditch immediately after its right rear tire exploded. The evidence
shows that the passenger jeepney was running at a very fast speed before the
accident. We agree with the observation of the petitioner that a public utility jeep
running at a regular and safe speed will not jump into a ditch when its right rear
tire blows up. There is also evidence to show that the passenger jeepney was
overloaded at the time of the accident. The petitioner stated that there were three
(3) passengers in the front seat and fourteen (14) passengers in the rear. While it
may be true that the tire that blew-up was still good because the grooves of the
tire were still visible, this fact alone does not make the explosion of the tire a
fortuitous event. No evidence was presented to show that the accident was due to
adverse road conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of
the accident.

In the case at bar, the cause of the unforeseen and unexpected

occurrence was not independent of the human will. The accident was
caused either through the negligence of the driver or because of
mechanical defects in the tire. Common carriers should teach their
drivers not to overload their vehicles, not to exceed safe and legal
speed limits, and to know the correct measures to take when a tire
blows up thus insuring the safety of passengers at all times.
PERLA COMPANIA VS SPOUSES GAUDENCIO AND PRIMITIVA
SARANGAYA

FACTS:

1986, spouses erected semi-concrete, semi narra one storey commercial

building fronting the provincial road of Santiago, Isabela. The 2-storey residence
of the Sarangayas was behind the second and third doors of the building. On the
left side of the commercial building, the office of Matsushita.

1988, petitioner Perla, entered into the contract of lease of first door of Super A
Building. Petitioner corporation renovated its rented space and divided into two:
left side as office and right used by Pascual as a garage of 1981 model 4-door
Ford Cortina, company provided vehicle.

July 1988, Pascual left for San Fernando Pampanga but did ot bring the car. 3
days late he returned, decided to warm up the car. He heard an unusual sound
and then he saw a small flame coming out of the engine.

Respondents were busy watching television when they heard two loud
explosions and in no time, the fire spread inside their house, destroying
belongings, furniture, and appliances.

Respondents filed a civil complaint based on quasi-delict against petitioners for

a sum of money and damages; that Pascual acted with gross negligence while
petitioner-corporation lacked required diligence in the selectiojn and supervision
of Pascual as its employee.

Respondents presented a witness saw Pascual buying gasoline in a container

from a nearby gas station, placed in the rear compartment of the car.

Pascual insisted that the fire was purely accident, fortuitous event.
Petitioner: refused liability, that it exercised due diligence of a good father of the
family in the selection and supervision of Pascual as branch manager.

The appellate court was in accord with the trial court's findings that the doctrine
of res ipsa loquitur was correctly applied in determining the liability of Pascual
and that petitioner-corporation, as the employer, was vicariously liable to
respondents.

Res ipsa loquitur is a Latin phrase which literally means "the thing or the
transaction speaks for itself." It relates to the fact of an injury that sets out
an inference to the cause thereof or establishes the plaintiff's prima facie
case. The doctrine rests on inference and not on presumption. The facts of
the occurrence warrant the supposition of negligence and they furnish
circumstantial evidence of negligence when direct evidence is lacking.

The doctrine is based on the theory that the defendant either knows the
cause of the accident or has the best opportunity of ascertaining it and the
plaintiff, having no knowledge thereof, is compelled to allege negligence in
general terms. In such instance, the plaintiff relies on proof of the
happening of the accident alone to establish negligence.

To sustain allegation of negligence based on the doctrine of res ipsa

loquitur:

1) the accident is of a kind which does not ordinarily occur unless someone is
negligent;
2) the cause of the injury was under the exclusive control of the person in charge
and
3) the injury suffered must not have been due to any voluntary action or contribution
on the part of the person injured.

FIRST REQUISITE: flames spewing out of a car engine, when it is switched on, is
obviously not a normal event. Neither does an explosion usually occur when a car
engine is revved. Hence, in this case, without any direct evidence as to the cause
of the accident, the doctrine of res ipsa loquitur comes into play.
A prudent man should have known that a 14-year-old car, constantly used in
provincial trips, was definitely prone to damage and other defects. For failing to
prove care and diligence in the maintenance of the vehicle, the necessary
inference was that Pascual had been negligent in the upkeep of the car.

SECOND REQUISITE: In this case, the car where the fire originated was under
the control of Pascual. Being its caretaker, he alone had the responsibility to
maintain it and ensure its proper functioning. No other person, not even the
respondents, was charged with that obligation except him.

THIRD REQUISITE: there is nothing in the records to show that respondents

contributed to the incident. They had no access to the car and had no
responsibility regarding its maintenance even if it was parked in a building they
owned.
The relationship between the two petitioners was based on the principle of pater
familias according to which the employer becomes liable to the party aggrieved
by its employee if he fails to prove due diligence of a good father of a family in
the selection and supervision of his employees. The burden of proof that such
diligence was observed devolves on the employer who formulated the rules and
procedures for the selection and hiring of his employees.

To fend off vicarious liability, employers must submit concrete proof, including
documentary evidence, that they complied with everything that was incumbent on
them. Here, petitioner-corporation's evidence hardly included any rule or
regulation that Pascual should have observed in performing his functions. It also
did not have any guidelines for the maintenance and upkeep of company
property like the vehicle that caught fire. Petitioner-corporation did not require
periodic reports on or inventories of its properties either. Based on these
circumstances, petitioner-corporation clearly did not exert effort to be apprised of
the condition of Pascual's car or its serviceability.

Article 2180 of the Civil Code states that employers shall be liable for the
damage caused by their employees. The liability is imposed on all those who by
their industry, profession or other enterprise have other persons in their service
or supervision. Nowhere does it state that the liability is limited to employers in
the transportation business.
JIMMY CO VS CA AND BROADWAY MOTOR SALES CORPORATION

- It is a not a defense for a repair shop of motor vehicles to escape liability

simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully and
forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking
of another's property. It must be proved and established that the event was
an act of God or was done solely by third parties and that neither the
claimant nor the person alleged to be negligent has any participation.

FACTS:

Petitioner entrusted his Nissan pick-up car in 1988 to private respondent

engaged in the sale, distribution and repair of motor vehicle for some job repair
services and supply of parts.

PR undertook to return on July 21, 1990 in accordance with the job contract.
Come July 21, PR could not release the vehicle as the battery was weak and
was not yet replaced. Petitioner had to buy a new one.

When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he
was told that it was carnapped earlier that morning while being road-tested by
private respondent's employee along Pedro Gil and Perez Streets in Paco,
Manila. Private respondent said that the incident was reported to the police.

Having failed to recover his car and its accessories or the value thereof,
petitioner filed a suit for damages against private respondent anchoring his
claim on the latter's alleged negligence. For its part, private respondent
contended that it has no liability because the car was lost as a result of a
fortuitous event — the carnapping.

whether a repair shop can be held liable for the loss of a customer's vehicle
while the same is in its custody for repair or other job services

RULING:
(see doctrine above)

Carnapping does not foreclose the possibility of fault or negligence on the part of
private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous
event, still private respondent cannot escape liability. Article 1165 11 of the New
Civil Code makes an obligor who is guilty of delay responsible even for a
fortuitous event until he has effected the delivery. In this case, private respondent
was already in delay as it was supposed to deliver petitioner's car three (3) days
before it was lost. Petitioner's agreement to the rescheduled delivery does not
defeat his claim as private respondent had already breached its obligation.
Moreover, such accession cannot be construed as waiver of petitioner's right to
hold private respondent liable because the car was unusable and thus, petitioner
had no option but to leave it.

Consequently, the burden shifts to the possessor who needs to present

controverting evidence sufficient enough to overcome that presumption.
Moreover, the exempting circumstances — earthquake, flood, storm or
other natural calamity — when the presumption of fault is not applicable do
not concur in this case. Accordingly, having failed to rebut the
presumption and since the case does not fall under the exceptions, private
respondent is answerable for the loss.

It must likewise be emphasized that pursuant to Articles 1174 and 1262 of

the New Civil Code, liability attaches even if the loss was due to a
fortuitous event if "the nature of the obligation requires the assumption of
risk". Carnapping is a normal business risk for those engaged in the repair
of motor vehicles. For just as the owner is exposed to that risk so is the repair
shop since car was entrusted to it. That is why, repair shops are required to first
register with the Department of Trade and Industry (DTI) and to secure an
insurance policy for the "shop covering the property entrusted by customer for
repair, service or maintenance" as a pre-requisite for such
registration/accreditation. Violation of this statutory duty constitutes negligence
per se. Having taken custody of the vehicle, private respondent is obliged not
only to repair the vehicle but must also provide the customer with some form of
security for his property over which he loses immediate control.

Failure of the repair shop to provide security to a motor vehicle owner would
leave the latter at the mercy of the former. Moreover, on the assumption that
private respondent's repair business is duly registered, it presupposes that its
shop is covered by insurance from which it may recover the loss. If private
respondent can recover from its insurer, then it would be unjustly enriched if it will
not compensate petitioner to whom no fault can be attributed. Otherwise, if the
shop is not registered, then the presumption of negligence applies.
GUILLERMO AUSTRIA VS PACIFICO AND MARIA ABAD
(PENDANT; ROBBERY AT THAT TIME WAS NOT PREVALENT, STILL
CONSIDERED FORTUITOUS EVENT)

FACTS:

Guillermo Austria delivered to Maria Abad one pendant with diamonds at 4,500
to be sold on a commission basis, to be returned on demand.

Feb 1, 1961, while walking home, was said to have been accosted by two men,
hit her on the face, while the other snatched he purse containing the jewelry and
cash, and ran away.

Among the jewelries taken was the consigned pendant.

As Abad failed to return the jewelry or pay for its value notwithstanding demands,
Austria brought in the Court of First Instance of Manila an action against her and
her husband for recovery of the pendant or of its value, and damages. Answering
the allegations of the complaint, defendant spouses set up the defense that the
alleged robbery had extinguished their obligation.

ISSUE: WHETHER ROBBERY IS A FORM OF FORTUITOUS EVENT

RULING:

(Requisites to be exempt from liability by reason of fortuitous event)

It may be noted the reform that the emphasis of the provision is on the events,
not on the agents or factors responsible for them. To avail of the exemption
granted in the law, it is not necessary that the persons responsible for the
occurrence should be found or punished; it would only be sufficient to establish
that the enforceable event, the robbery in this case, did take place without any
concurrent fault on the debtor's part, and this can be done by preponderant
evidence.

We are not persuaded, however, that the same rule should obtain ten years
previously, in 1961, when the robbery in question did take place, for at that
time criminality had not by far reached the levels attained in the present
day.

There is likewise no merit in petitioner's argument that to allow the fact of robbery
to be recognized in the civil case before conviction is secured in the criminal
action, would prejudice the latter case, or would result in inconsistency should
the accused obtain an acquittal or should the criminal case be dismissed. It must
be realized that a court finding that a robbery has happened would not
necessarily mean that those accused in the criminal action should be found guilty
of the crime; nor would a ruling that those actually accused did not commit the
robbery be inconsistent with a finding that a robbery did take place.

The evidence to establish these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals under
review, the petition in this case is hereby dismissed, with costs against the
petitioner.
FAR EAST BANK AND TRUST COMPANY VS SMP INC
- Readily discernible from the face of respondent SMP's Complaint is that
there is a statement of causes of action. Assuming the facts to be true, (a)
respondent SMP still owns subject goods on account of an agreement with
CLOTHESPAK contained in a provisional receipt that "SMP can get back
the goods delivered at any time in case the check(s) are dishonored and
returned by the bank for any reason;" (b) petitioner has a correlative duty
to respect such ownership; and, (c) the act of petitioner in including the
goods among the attached properties violated the right of respondent SMP
and entitled it to recover damages or other appropriate relief. On the basis
of those allegations, the trial court can render a valid judgment.

FACTS:
Plaintiff is engaged in the manufacture production formulation trade and export of
polystyrene products and other businesses connected with polystyrene products.

1995, sales Executive of plaintiff, undertook the acceptance and servicing of a

purchase order of CLOTHESPAK MANUFACTURING PHILS, 4000 bags or
sacks of general purpose.

Purchase order was delivered on January 23, 24, 25 and 27 1995 to the plant of
CLOTHESPAK.

Payment was duly ordered and delivered, Clothespak issued post dated checks
and delivered upon delivery of ordered goods.

When the above checks were deposited by SMP on their maturity dates, the drawee
bank dishonored and returned them for the reason "Account Closed".

Deputy Sheriff Loquinario made an actual levy/attachment on the properties found

on the premises of CLOTHESPAK, including plastic resins and plastic hangers.

This would seem to indicate that FEBTC directed the Sheriff to attach any and all
goods found in the premises of CLOTHESPAK without regard as to whether they
are those "goods intended to be attached," and most likely in order to make it
difficult to trace, verify or check, the Sheriff just listed the goods without detailed
description or identification. Since FEBTC was desperate in recovering whatever it
can recover from its credit exposure to CLOTHESPAK, even goods clearly not
owned by FEBTC by virtue of its alleged Trust Receipts just had to be attached for
any reason.

On 8 April 1997 SIDDCOR filed a Motion to Dismiss the Complaint on the

assertion that no action was filed by respondent SMP against the Sheriff within
120 days from the filing of the bond as provided in Sec. 17, Rule 39, of the Rules
of Court.

Petitioner asserts that the Complaint of respondent SMP does not state a cause
of action because on the basis of the allegations therein, subject goods were
already owned by CLOTHESPAK at the time of attachment.

A cause of action is an act or omission of one party in violation of the legal right
of the other. Its essential elements are: (a) the existence of a legal right in the
plaintiff; (b) a correlative legal duty in the defendant; and, (c) an act or omission
of the defendant in violation of plaintiff's right with consequential injury or damage
to the plaintiff for which he may maintain an action for the recovery of damages
or other appropriate relief. 10 Readily discernible from the face of respondent
SMP's Complaint is that there is a statement of causes of action. Assuming the
facts to be true,

(a) respondent SMP still owns subject goods on account of an agreement with
CLOTHESPAK contained in a provisional receipt that "SMP can get back the
goods delivered at any time in case the check(s) are dishonored and returned by
the bank for any reason"; (b) petitioner has a correlative duty to respect such
ownership; and, (c) the act of petitioner in including the goods among the
attached properties violated the right of respondent SMP and entitled it to recover
damages or other appropriate relief. On the basis of those allegations, the trial
court can render a valid judgment.