Nakpil and Sons vs CA, 160 SCRA 334 (1988)
In the case at bar, although the damage was
Facts
Private respondents – Philippine Bar Association
(PBA) – a non-profit organization formed under the
corporation law decided to put up a building in
Intramuros, Manila. Hired to plan the specifications
of the building were Juan Nakpil & Sons, while
United Construction was hired to construct it. The
proposal was approved by the Board of Directors
and signed by the President, Ramon Ozaeta. The
building was completed in 1966.
In 1968, there was an unusually strong earthquake
which caused the building heavy damage, which led
the building to tilt forward, leading the tenants to
vacate the premises. United Construction took
remedial measures to sustain the building.
PBA filed a suit for damages against United
Construction, but United Construction subsequently
filed a suit against Nakpil and Sons, alleging defects
in the plans and specifications.
Technical Issues in the case were referred to Mr.
Hizon, as a court appointed Commissioner. PBA
moved for the demolition of the building, but was
opposed. PBA eventually paid for the demolition
after the building suffered more damages in 1970
due to previous earthquakes. The Commissioner
found that there were deviations in the
specifications and plans, as well as defects in the
construction of the building.
Issue Whether or not an act of God (fortuitous
event) exempts from liability parties who would
otherwise be due to negligence
Ruling
Art. 1723 dictates that the engineer/architect and
contractor are liable for damages should the
building collapse within 15 years from completion.
Art. 1174 of the NCC, however, states that no
person shall be responsible for events, which could
not be foreseen. But to be exempt from liability due
to an act of God, the ff must occur:
1) cause of breach must be independent of the will
of the debtor
2) event must be unforeseeable or unavoidable
3) event must be such that it would render it
impossible for the debtor to fulfill the obligation
4) debtor must be free from any participation or
aggravation of the industry to the creditor.
ultimately caused by the earthquake which was an
act of God, the defects in the construction, as well
as the deviations in the specifications and plans
aggravated the damage, and lessened the
preventive measures that the building would
otherwise have had.
PFIC Inc. vs. Wallem, 582 SCRA 457 (2009)
Facts
October 1995, Anhui Chemicals Import and Export
Corp. loaded on board M/S Offshore Master a
shipment consisting of sodium sulphate anhydrous,
complete and in good order for transportation to
and delivery at the port of Manila for consignee,
covered by a clean bill of lading.
On October 16, 1995, the shipment arrived in port
of manila and was discharged which caused various
degrees of spillage and losses as evidence by the
turn over survey of the arrastre operator. Asia Star
Freight delivered the shipments from pier to the
consignees in Quezon City, during the unloading, it
was found by the consignee that the shipment was
damaged and in bad condition.
April 29, 1996, the consignee filed a claim with
Wallem for the value of the damaged shipment, to
no avail. Since the shipment was insured with Phil.
First Insurance against all risks in the amount of
P2,470,213.50. The consignee filed a claim against
the First Insurance. First insurance after examining
the turn-over survey, the bad order certificate and
other documents paid the consignee but later on
sent a demand letter to Wallem for the recovery of
the amount paid to the consignee (in exercise of its
right of subrogation). Wallem did not respond to
the claim.
First Insurance then instituted an action before RTC
for damages against Wallem. RTC held the shipping
company and the arrastre operator solidarily liable
since both are charged with the obligation to deliver
the goods in good order condition.
The CA reversed and set aside the RTC's decision.
CA says that there is no solidary liability between
the carrier and the arrastre because it was clearly
established that the damage and losses of the
shipment were attributed to the mishandling by the
arrastre operator in the discharge of the shipment.
Issue
1. Whether or not the Court of Appeals erred in not
holding that as a common carrier, the carriers
duties extend to the obligation to safely discharge
the cargo from the vessel;
2. Whether or not the carrier should be held liable
for the cost of the damaged shipment;
3. Whether or not Wallems failure to answer the
extra judicial demand by petitioner for the cost of
the lost/damaged shipment is an implied admission
of the formers liability for said goods;
4. Whether or not the courts below erred in giving
credence to the testimony of Mr. Talens.
Ruling
(1) Yes, the vessel is a common carrier, and thus the
determination of the existence or absence of
liability will be gauged on the degree of diligence
required of a common carrier. (2) The first and
second issue will be resolved concurrently.
(3) The damage of the shipment was documented
by the turn0over survey and request for bad order
survey, with these documents, petitioner insist that
the shipment incurred damages while still in the
care and responsibility of Wallem before it was
turned over to the arrastre operator. However, RTC
found the testimony of Mr. Talens (cargo surveyor)
that the loss was caused by the mishandling of the
arrastre operator. This mishandling was affirmed by
the CA which was the basis for declaring the
arrastre operator solely liable for the damage.
It is established that damage or losses were
incurred by the shipment during the unloading. As
common carrier, they are bound to observe
extraordinary diligence in the vigilance over the
goods transported by them. Subject to certain
exceptions enumerated under Article 1734 of the
Civil Code, common carriers are responsible for the
loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally
placed in the possession of, and received by the
carrier for transportation until the same are
delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right
to receive them.
For marine vessels, Article 619 of the Code of
Commerce provides that the ship captain is liable
for the cargo from the time it is turned over to him
at the dock or afloat alongside the vessel at the port
of loading, until he delivers it on the shore or on the
discharging wharf at the port of unloading, unless
agreed otherwise.
COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to
the loading, handling, stowage, carriage, custody,
care, and discharge of such goods, shall be subject
to the responsibilities and liabilities and entitled to
the rights and immunities set forth in the Act.
Section 3 (2) thereof then states that among the
carriers responsibilities are to properly and carefully
load, handle, stow, carry, keep, care for, and
discharge the goods carried.
On the other hand, the functions of an arrastre
operator involve the handling of cargo deposited on
the wharf or between the establishment of the
consignee or shipper and the ship's tackle. Being the
custodian of the goods discharged from a vessel, an
arrastre operator's duty is to take good care of the
goods and to turn them over to the party entitled to
their possession.
Handling cargo is mainly the arrastre operator's
principal work so its drivers/operators or employees
should observe the standards and measures
necessary to prevent losses and damage to
shipments under its custody. Thus, in this case the
appellate court is correct insofar as it ruled that an
arrastre operator and a carrier may not be held
solidarily liable at all times. But the precise question
is which entity had custody of the shipment during
its unloading from the vessel?
The records are replete with evidence which show
that the damage to the bags happened before and
after their discharge and it was caused by the
stevedores of the arrastre operator who were then
under the supervision of Wallem.
It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case,
the damage or losses were incurred during the
discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier
is liable for the damage or losses caused to the
shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial
courts finding of actual damages in the amount of
P397,879.69 has to be sustained.
(4) Mr Talens credibility must be respected.
CA's decision is set aside. Wallem is liable.
Yao vs. Matel, 500 SCRA 136 (2006)
FACTS:
Spouses Yao contracted the services of Matela, a
licensed architect, to manage and supervise the
construction of a two-unit townhouse at a total cost
of P5M. The construction started in the first week of
April 1997 and was completed in April 1998, with
additional works costing P300K. Matela alleged that
the spouses Yao paid him the amount of P4.6M,
thereby leaving a balance of P741k. When his
demand for payment went unheeded, Matela filed
a complaint for sum of money with the RTC.
In their answer, the spouses Yao denied that the
project was completed in April 1998. Instead, they
alleged that Matela abandoned the project without
notice. They claimed that they paid Matela the sum
of P4.7M which should be considered as sufficient
payment considering that Matela used sub-standard
materials causing damage to the project which
needed a substantial amount of money to repair.
RTC rendered judgment in favor of Matela, based
on documents issued by the Building Official of
Makati City. The Court of Appeals affirmed the
decision of the lower court but modified the
amount of actual damages to P391k. Thereafter,
another case was filed by Matela, regarding the
collection of the P300k additional construction cost.
ISSUE: WON MATELA MAY COLLECT ACTUAL
DAMAGES AND THE ADDITIONAL CONSTRUCTION
COST?
HELD: NO, BOTH PARTIES ARE GUILTY OF BREACH.
Reciprocal obligations are those which are created
or established at the same time, out of the same
cause, and which result in mutual relationships of
creditor and debtor between the parties. These
obligations are conditional in the sense that the
fulfilment of an obligation by one party depends
upon the fulfilment of the obligation by the other.
In reciprocal obligations, the general rule is that
fulfilment by both parties should be simultaneous
or at the same time.
The rule then is that in reciprocal obligations, one
party incurs in delay from the moment the other
party fulfills his obligation, while he himself does
not comply or is not ready to comply in a proper
manner with what is incumbent upon him. If neither
party complies or is ready to comply with what is
incumbent upon him, the default of one
compensates for the default of the other. In such
case, there can be no legal delay. Both the trial
court and the Court of Appeals found that Matela’s
“delivery” of the project constitutes a faithful
discharge of his duties. We find otherwise. Our
evaluation of the records reveal that Matela failed
to comply with his obligation to construct the
townhouses based on the agreed specifications. As
such, he cannot be discharged from his obligations
by mere delivery of the same to the spouses Yao.
The agreed construction cost of the project was
P5M, however, the amounts reflected in the
Building Permit, the Certificate of Completion and
the Certificate of Occupancy are far less.
In the Building Permit, the total cost was pegged at
P2.1M; in the Certificate of Completion, the actual
cost of construction was P2.3M; while in the
Certificate of Occupancy the cost of the project as
built was declared at P2.31M. Considering the
discrepancies, the conclusiveness of the said
documents fall when arrayed against the pieces of
evidence introduced by the spouses Yao.
However, we find that the spouses Yao likewise
failed to comply with their undertakings. As alleged
by Matela, the spouses Yao made periodic
payments to him based on progress billings.
However, the spouses Yao refused to pay the
balance of the agreed construction cost despite
demands.
The spouses Yao justified their non-payment by
arguing that Matela abandoned the project and that
there were defects in its construction. Evidently,
both parties in this case breached their respective
obligations. The well entrenched doctrine is that the
law does not relieve a party from the effects of an
unwise, foolish or disastrous contract, entered into
with full awareness of what he was doing and
entered into and carried out in good faith.
However, in situations such as the one discussed
above, where it cannot be conclusively determined
which of the parties first violated the contract,
equity calls and justice demands that we apply the
solution provided in Article 1192 of the Civil Code:
“Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own
damages.” In the instant case, the losses to be
incurred by the parties will come, as far as Matela is
concerned, in the form of the alleged unpaid
balance of the construction cost that he is seeking
to collect from the spouses Yao.
For the latter, the losses that they will bear is the
cost of repairing the defects in the project. We
consider the amount of P4,699,610.93 which
Matela has already received from the spouses Yao,
as sufficient payment for his services and the
materials used in the project.
PEFLGC vs VP Eusebio, 434 SCRA 202 (2004)
FACTS:
the State Organization of Buildings (SOB), Ministry
of Housing and Construction, Baghdad, Iraq,
awarded the construction of the Institute of
Physical TherapyMedical Rehabilitation Center,
Phase II, in Baghdad, Iraq, (hereinafter the Project)
to Ajyal Trading and Contracting Company
(hereinafter Ajyal), a firm duly licensed with the
Kuwait Chamber of Commerce for a total contract
price of ID5,416,089/046 (or about
US$18,739,668).[2]
On 7 March 1981, respondent spouses Eduardo and
Iluminada Santos, in behalf of respondent 3-Plex
International, Inc. (hereinafter 3-Plex), a local
contractor engaged in construction business,
entered into a joint venture agreement with Ajyal
wherein the former undertook the execution of the
entire Project, while the latter would be entitled to
a commission of 4% of the contract price.[3] Later, or
on 8 April 1981, respondent 3-Plex, not being
accredited by or registered with the Philippine
Overseas Construction Board (POCB), assigned and
transferred all its rights and interests under the
joint venture agreement to VPECI, a construction
and engineering firm duly registered with the
POCB.[4] However, on 2 May 1981, 3-Plex and VPECI
entered into an agreement that the execution of
the Project would be under their joint
management.[5]
On 11 June 1981, SOB and the joint venture VPECI
and Ajyal executed the service contract[15] for the
construction of the Institute of Physical
Therapy Medical Rehabilitation Center, Phase II,
in Baghdad, Iraq, wherein the joint venture
contractor undertook to complete the Project
within a period of 547 days or 18 months. Under the
Contract, the Joint Venture would supply manpower
and materials, and SOB would refund to the former
25% of the project cost in Iraqi Dinar and the 75% in
US dollars at the exchange rate of 1 Dinar to
3.37777 US Dollars.[16]
The construction, which was supposed to start on 2
June 1981, commenced only on the last week of
August 1981. Because of this delay and the slow
progress of the construction work due to some
setbacks and difficulties, the Project was not
completed on 15 November 1982 as scheduled. But
in October 1982, upon foreseeing the impossibility
of meeting the deadline and upon the request of Al
Ahli Bank, the joint venture contractor worked for
the renewal or extension of the Performance Bond
and Advance Payment Guarantee. Petitioners
Letters of Guarantee Nos. 81-194-F (Performance
Bond) and 81-195-F (Advance Payment Bond) with
expiry date of 25 November 1982 were then
renewed or extended to 9 February 1983 and 9
March 1983, respectively.[17] The surety bond was
also extended for another period of one year,
from 12 May 1982 to 12 May 1983.[18] The
Performance Bond was further extended twelve
times with validity of up to 8 December
1986,[19] while the Advance Payment Guarantee was
extended three times more up to 24 May
1984 when the latter was cancelled after full refund
or reimbursement by the joint venture
contractor.[20] The surety bond was likewise
extended to 8 May 1987.[21]
As of March 1986, the status of the Project was 51%
accomplished, meaning the structures were already
finished. The remaining 47% consisted in electro-
mechanical works and the 2%, sanitary works,
which both required importation of equipment and
materials
ISSUE: whether the respondent contractor
has defaulted in the performance of its obligations
under the service contract.
HELD: NO.
However, since that foreign law was not properly
pleaded or proved, the presumption of identity or
similarity, otherwise known as the processual
presumption, comes into play. Our law, specifically
Article 1169, last paragraph, of the Civil Code,
provides: “In reciprocal obligations, neither party
incurs in delay if the other party does not comply or
is not ready to comply in a proper manner with
what is incumbent upon him.”
Default or mora on the part of the debtor is delay in
fulfillment of the prestation by reason of a cause
imputable to the former. It is the non-fulfillment of
an obligation with respect to time. It is undisputed
that only 51.7% of the total work had been
accomplished. As found by both the Court of
Appeals and the trial court, the delay or the non-
completion of the Project was caused by factors not
imputable to the respondent contractor.
It was rather due mainly to the persistent violations
by SOB of the terms and conditions of the contract,
particularly its failure to pay 75% of the
accomplished work in US Dollars. Indeed, where
one of the parties to a contract does not perform in
a proper manner the prestation which he is bound
to perform under the contract, he is not entitled to
demand the performance of the other party.
A party does not incur in delay if the other party
fails to perform the obligation incumbent upon him.
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
because it must appear that the tolerance or surety argued that the performance bond merely
benevolence of the creditor must have ended. guaranteed the 20% down payment and not the
entire obligation of Mabunay. THE CIAC ruled in
As stated earlier, SOB cannot yet demand complete
favor of JPLUS ASIA. THE CA ruled that Mabunay has
performance from VPECI because it has not yet
not yet incurred delay and that obligation was not
itself performed its obligation in a proper manner,
yet demandable because the contract was
particularly the payment of the 75% of the cost of
terminated prior to completion date.
the Project in US Dollars. VPECI cannot yet be said
to have incurred in delay. ISSUES: w/n the Mabunay had incurred delay?
(YES) w/n the delay should be reckoned only after
Even assuming that there was delay and that the
the lapse of the 1 year contract period, and
delay was attributable to VPECI, still the effects of
consequently w/n Mabunay’s liability for liquidated
that delay ceased upon the renunciation by the
damages arises only upon the happening of such
creditor, SOB, which could be implied when the
condition (DELAY MUST BE RECKONED FROM FILING
latter granted several extensions of time to the
OF COMPLAINT)
former. Besides, no demand has yet been made by
SOB against the respondent contractor. HELD: Mabunay already incurred delay at the time
the contract was terminated.
Demand is generally necessary even if a period has
been fixed in the obligation. And default generally Default or mora on the part of the debtor is the
begins from the moment the creditor demands delay in the fulfillment of the prestation by reason
judicially or extra-judicially the performance of the of a cause imputable to the former. It is the
obligation. Without such demand, the effects of nonfulfillment of an obligation with respect to time.
default will not arise. Article 1169 of the Civil Code provides that those
obliged to deliver or to do something incur in delay
J PLUS ASIA DEVELOPMENT CORPORATION V. UTII
from the time the obligee judicially or extrajudicially
TY ASSURANCECORPORATION, GR NO. 199650
demands from them the fulfillment of their
JUNE 26, 2013
obligation.
FACTS: J Plus Asia, represented by its chairman Joo
One who contracts to complete certain work within
Han lee, and Martin Mabunay, entered into a
a certain time is liable for the damage for not
CONSTRUCTION AGREEMENT whereby Mabunay
completing it within such time, unless the delay is
undertook to build the former’s
excused or waived. The following requisites must be
Condominium/hotel in Boracay. The project was to
present in order that the debtor may be in default:
be completed within 1 yr from the siigning of the
(1) that the obligation be demandable and already
NOTICE OF AWARD and receipt of 20% down
liquidated; (2) that the debtor delays performance;
payment (8.4 milllion) The down payment was fully
and (3) that the creditor requires the performance
paid on January 14, 2008. Per the agreed work
judicially or extrajudicially.
schedule, the completion date of the project was
December 31, 2008. Mabunay also submitted the Mabunay was already in delay. Article 1374 of the
required Performance Bond issued by Utility Civil Code requires that the various stipulations of
Assurance Corporation (UTASSCO) in the amount a contract shall be interpreted together,
equivalent to 20% down payment or P8.4 million. attributing to the doubtful ones that sense which
may result from all of them taken jointly. Here, the
Mabunay commenced work on January 7, 2008.
work schedule approved by petitioner was
However, as evidenced by the Joint Construction
intended, not only to serve as its basis for the
Evaluation Result and Status, signed by both parties,
payment of monthly progress billings, but also for
the project was only 31.39 % complete as of
evaluation of the progress of work by the
November 14, 2008. Thus, J PLUS ASIA terminated
contractor. The Construction Agreement provided
the contract and sent demand letters to Mabunay
that the contractor shall be deemed in default, if
and the surety. J Plus Asia filed a request for
among others, it had delayed without justifiable
arbitration before the Construction Industry
cause the completion of the project by more than
Arbitration Commission (CIAC) and prayed that
30 calendar days based on official work schedule
MAbunay and Surety be ordered to pay 8.9 Million
duly approved by the owner.
as liquidated damages and 2.3 Million to the
unrecouped down payment or overpayment made The Construction Agreement authorizes petitioner
to Mabunay. to confiscate the Performance Bond to answer for
all kinds of damages it may suffer as a result of the
Mabunay’s answer alleged that the delay was
contractor’s failure to complete the building. Having
caused by retrofitting and other revision works
terminated the contract, petitioner is entitled to the
ordered by Joo Han Lee. The surety on the other
proceeds of the bond as indemnification for
hand filed a MTD for lack of cause of action. The
damages it sustained due to the breach committed
by Mabunay. Such stipulation allowing the
confiscation of the contractor’s performance bond
partakes of the nature of a penalty clause, which is
an accessory undertaking to assume greater liability
on the part of the obligor in case of breach of an
obligation. The Performance Bond guaranteed not
only the 20% down payment but the full and faithful
compliance of Mabunay’s obligations under the
Construction Agreement. Nowhere in law or
jurisprudence does it state that the obligation or
undertaking by a surety may be apportioned.
The imposition of interest on the claims of
petitioner is in order. If a surety upon demand fails
to pay, he can be held liable for interest, even if in
thus paying, its liability becomes more than the
principal obligation. The increased liability is not
because of the contract but because of the default
and the necessity of judicial collection.
Gil vs CA, 411 SCRA 18 (2003)
Facts
Concepcion Palma Gil, and her sister, Nieves Palma
Gil, married to Angel Villarica, were the co-owners
of a parcel of commercial land with an area of 829
square meters in Davao City. The spouses Angel and
Nieves Villarica had constructed a two-storey
commercial building on the property.
On October 13, 1953, Concepcion filed a complaint
against her sister Nieves with the then Court of First
Instance of Davao City for specific performance, to
compel the defendant to cede and deliver to her an
undivided portion of the said property with an area
of 256.2 square meters. After due proceedings, the
court rendered judgment on April 7, 1954 in favor
of Concepcion, ordering the defendant to deliver to
the plaintiff an undivided portion of the said
property with an area of 256.2 square meters.
Nieves appealed to the Court of Appeals which
affirmed the assailed decision.
The court issued a writ of execution. Nieves,
however, refused to execute the requisite deed in
favor of her sister. On April 27, 1956, the court
issued an order authorizing ex-officio Sheriff
Eriberto Unson to execute the requisite deed of
transfer to the plaintiff over an undivided portion of
the property with a total area of 256.2 square
meters.
Instead of doing so, the sheriff had the property
subdivided into four lots namely, Lot 59-C-1, with an
area of 218 square meters; Lot 59-C-2, with an area
of 38square meters; Lot 59-C-3, with an area of 14
square meters; and Lot 59-C-4,with an area of 560
square meters, all covered by a subdivision plan.
The sheriff thereafter executed a Deed of Transfer
to Concepcion over Lot 59-C-1 and Lot59-C-2 with a
total area of 256.2 square meters.On October 24,
1956, Concepcion executed a deed of absolute sale
overLot 59-C-1 in favor of Iluminada Pacetes for a
purchase price of P21,600.00 upon which P7,500.00
is to be paid upon signing of the contract and the
balance of P14,100.00 to be paid upon delivery of
the Title. On March 16, 1966, spouses Iluminada
Pacetes and Agapito Pacetes executed a deed of
absolute sale over the disputed lots in favor
Constancio Maglana. And on April 22, 1980,
Maglana executed a deed of sale in favor of Emilio
Matulac for the purchase price of P150,000.00. And
on August 4, 1959, Concepcion died, leaving all her
obligations to her heirs including the petitioners.
On June 11, 1993, the trial court rendered judgment
in favor of the defendants. The trial court ruled that
this Court had affirmed, in G.R. No. 85538and G.R.
No. L-60690, the sales of the property from
Concepcion Palma Gil to Iluminada Pacetes, then to
Constancio Maglana and to Emilio Matulac; hence,
the trial court was barred by the rulings of the
Court. The plaintiffs appealed to the Court of
Appeals which affirmed the latter’s decision.
ISSUE:
Whether or not the trial court erred in not declaring
the sale of the properties in question from
Iluminada Pacetes to Constancio Maglana, thence,
from Constancio Maglana to Emilio Matulac NULL
and VOID for there was delay incurred by
Concepcion in not delivering the Title of the subject
lands to Pacetes.
RULING:
Article 1191[35] in tandem with Article 1592[36] of the
New Civil Code are central to the issues at bar.
Under the last paragraph of Article 1169 of the New
Civil Code, in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay in the other
begins. Thus, reciprocal obligations are to be
performed simultaneously so that the performance
of one is conditioned upon the simultaneous
fulfillment of the other.[37] The right of rescission of
a party to an obligation under Article 1191 of the
New Civil Code is predicated on a breach of faith by
the other party that violates the reciprocity
between them.[38]
That the deed of absolute sale executed by
Concepcion Gil in favor of Iluminada Pacetes is
an executory contract and not an executed contract
is a settled matter. In a perfected contract of sale of
realty, the right to rescind the said contract
depends upon the fulfillment or non-fulfillment of
the prescribed condition.
The vendee paid the downpayment of P7,500.00. By
the terms of the contract, the obligation of the
vendee to pay the balance of the purchase price
ensued only upon the issuance of the certificate of
title by the Register of Deeds over the property sold
to and under the name of the vendee, and the
delivery thereof by the vendor Concepcion Gil to
the latter. Concepcionfailed to secure a certificate
of title over the property. When she died intestate
on August 4, 1959, her obligation to deliver the said
title to the vendee devolved upon her heirs,
including the petitioners. The said heirs, including
the petitioners failed to do so, despite the lapse of
eighteen years since Concepcions death.
Iluminada was not yet obliged on August 8, 1977 to
pay the balance of the purchase price of the
property, but as a sign of good faith, she
nevertheless consigned the amount of P11,983.00,
part of the balance of the purchase price
of P14,000.00, with the court in Civil Case No. 1160.
The court accepted the consignation and she was
issued receipts therefor. Still, the heirs of
Concepcion Gil, including the petitioners, failed to
deliver the said title to the vendee. Iluminada was
compelled to file, at her expense, a petition with
the RTC docketed as Miscellaneous Case No. 4715
for the issuance of an owners duplicate of TCT No.
7450 covering the property sold which was granted
by the court on March 22, 1978. It was only on May
9, 1978 that Iluminada managed to secure TCT No.
61514 over the property under her name. Upon the
failure of the heirs to comply with the decedents
prestation, Iluminada Pacetes was impelled to
resort to legal means to protect her rights and
interests.
The petitioners, as successors-in-interest of the
vendor, are not the injured parties entitled to a
rescission of the deed of absolute sale. It was
Concepcions heirs, including the petitioners, who
were obliged to deliver to the vendee a certificate
of title over the property under the latters name,
free from all liens and encumbrances within 120
days from the execution of the deed of absolute
sale on October 24, 1956, but had failed to comply
with the obligation.
The consignation by the vendee of the purchase
price of the property is sufficient to defeat the right
of the petitioners to demand for a rescission of the
said deed of absolute sale.[45]
It bears stressing that when the vendee consigned
part of the purchase price with the Court and
secured title over the property in her name, the
heirs of Concepcion, including the petitioners, had
not yet sent any notarial demand for the rescission
of the deed of absolute sale to the vendee, or filed
any action for the rescission of the said deed with
the appropriate court.
Although the vendee consigned with the Court only
the amount of P11,983.00, P2,017.00 short of the
purchase price of P14,000.00, it cannot be claimed
that Concepcion was an unpaid seller because
under the deed of sale, she was still obligated to
transfer the property in the name of the vendee,
which she failed to do so. According to Article 1167
of the New Civil Code:
Art. 1167. If a person obliged to do something fails
to do it, the same shall be executed at his cost.
Omengan vs PNB, 512 SCRA 305 (2007)
Facts: The Philippine National Bank (PNB) approved
petitioners-spouses’ application for a revolving
credit line of P3 million. The loan was secured by
two residential lots.
The first P2.5 million was released by Branch
Manager Henry Montalvo on three separate dates.
The release of the final half million was, however,
withheld by Montalvo because of a letter allegedly
sent by Edgar’s sisters. It read:
Please be informed that the property mortgaged,
while in the name of Edgar Omengan, is owned in
co-ownership by all the children of the late
Roberto and Elnora Omengan. The lawyer who
drafted the document registering the subject
property under Edgar’s name can attest to this
fact. We had a prior understanding with Edgar in
allowing him to make use of the property as
collateral, but he refuses to comply with such
arrangement. Hence, this letter. (emphasis ours)
Montalvo was eventually replaced as branch
manager by Manuel Acierto who released the
remaining half million pesos to petitioners on May
2, 1997. Acierto also recommended the approval of
a P2 million increase in their credit line to the
Cagayan Valley Business Center Credit Committee in
Santiago City.
The credit committee approved the increase of
petitioners’ credit line (from P3 million to P5
million), provided Edgar’s sisters gave their
conformity. Acierto informed petitioners of the
conditional approval of their credit line.
But petitioners failed to secure the consent of
Edgar’s sisters; hence, PNB put on hold the release
of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the
release of the P2 million. He claimed that the
condition for its release was not part of his credit
line agreement with PNB because it was added
without his consent. PNB denied his request.
On March 3, 1999, petitioners filed a complaint for
breach of contract and damages against PNB. The
court decided in favor of petitioners.
The CA, reversed and set aside the RTC decision
dated April 21, 2001.7
Petitioners now contend that the CA erred when it
did not sustain the finding of breach of contract by
the RTC. 8
The existence of breach of contract is a factual
matter not usually reviewed in a petition filed under
Rule 45. But since the RTC and the CA had
contradictory findings, we are constrained to rule
on this issue.
Issue: Was there a breach of contract?
Ruling: There was none.
Breach of contract is defined as follows:
[It] is the "failure without legal reason to comply
with the terms of a contract." It is also defined as
the "[f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the
contract."9
In this case, the parties agreed on a P3 million credit
line. This sum was completely released to
petitioners who subsequently applied10 for an
increase in their credit line. This was conditionally
approved by PNB’s credit committee. For all intents
and purposes, petitioners sought an additional loan.
The condition attached to the increase in credit line
requiring petitioners to acquire the conformity of
Edgar’s sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional
loan, no meeting of the minds actually occurred and
no breach of contract could be attributed to PNB.
There was no perfected contract over the increase
in credit line.
"[T]he business of a bank is one affected with public
interest, for which reason the bank should guard
against loss due to negligence or bad faith. In
approving the loan of an applicant, the bank
concerns itself with proper [information] regarding
its debtors."11 Any investigation previously
conducted on the property offered by petitioners as
collateral did not preclude PNB from considering
new information on the same property as security
for a subsequent loan. The credit and property
investigation for the original loan of P3 million did
not oblige PNB to grant and release any additional
loan. At the time the original P3 million credit line
was approved, the title to the property appeared to
pertain exclusively to petitioners. By the time the
application for an increase was considered,
however, PNB already had reason to suspect
petitioners’ claim of exclusive
ownership.1avvphi1.net
A mortgagee can rely on what appears on the
certificate of title presented by the mortgagor and
an innocent mortgagee is not expected to conduct
an exhaustive investigation on the history of the
mortgagor’s title. This rule is strictly applied to
banking institutions. xxx
Banks, indeed, should exercise more care and
prudence in dealing even with registered lands,
than private individuals, as their business is one
affected with public interest. xxx Thus, this Court
clarified that the rule that persons dealing with
registered lands can rely solely on the certificate of
title does not apply to banks.12 (emphasis supplied)
Here, PNB had acquired information sufficient to
induce a reasonably prudent person to inquire into
the status of the title over the subject property.
Instead of defending their position, petitioners
merely insisted that reliance on the face of the
certificate of title (in their name) was sufficient. This
principle, as already mentioned, was not applicable
to financial institutions like PNB.
In truth, petitioners had every chance to turn the
situation in their favor if, as they said, they really
owned the subject property alone, to the exclusion
of any other owner(s). Unfortunately, all they
offered were bare denials of the co-ownership
claimed by Edgar’s sisters.
PNB exercised reasonable prudence in requiring the
above-mentioned condition for the release of the
additional loan. If the condition proved
unacceptable to petitioners, the parties could have
discussed other terms instead of making an
obstinate and outright demand for the release of
the additional amount. If the alleged co-ownership
in fact had no leg to stand on, petitioners could
have introduced evidence other than a simple
denial of its existence.
Since PNB did not breach any contract and since it
exercised the degree of diligence expected of it, it
cannot be held liable for damages.
WHEREFORE, the decision and resolution of the
Court of Appeals in CA-G.R. CV No. 71302 are
hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Spouses Giano vs. Makati Shangri-La, 641 SCRA 591
(2011)
Facts
Petitioner spouses, Luigi M. Guanio and Anna
Hernandez-Guanio, booked respondent Makati
Shangre-La Hotel for their wedding reception.
A week before their wedding reception, the hotel
scheduled a food tasting. Eventually, the parties
agreed to a package where the final price was
P1,150.00 per person.
According to the complainants, when the actual
reception took place, ” the respondent’s
representatives did not show up despite their
assurance that they would; their guests complained
of the delay in the service of the dinner; certain
items listed in the published menu were
unavailable; the hotel’s waiters were rude and
unapologetic when confronted about the delay; and
despite Alvarez’s promise that there would be no
charge for the extension of the reception beyond
12:00 midnight, they were billed and paid P8,000
per hour for the three-hour extension of the event
up to 4:00 A.M. the next day. They further claim
that they brought wine and liquor in accordance
with their open bar arrangement, but these were
not served to the guests who were forced to pay for
their drinks. They sent a letter-complaint to hotel
and received an apologetic reply from the hotel’s
Executive Assistant Manager in charge of Food and
Beverage.
They nevertheless filed a complaint for breach of
contract and damages before the Regional Trial
Court (RTC) of Makati City.
Answering, the hotel said that complainants
requested a combination of king prawns and
salmon, hence, the price was increased to
P1,200.00 per person, but discounted at P1,150.00;
that contrary to their claim, the hotel
representatives were present during the event,
albeit they were not permanently stationed thereat
as there were three other hotel functions; that
while there was a delay in the service of the meals,
the same was occasioned by the sudden increase of
guests to 470 from the guaranteed expected
minimum number of guests of 350 to a maximum of
380, as stated in the Banquet Event Order (BEO);2
and the Banquet Service Director in fact relayed the
delay in the service of the meals to complainant’s
father.
The RTC, relying heavily on the letter of the hotel’s
Executive Assistant ruled in favour of the
complainants and awarded damages in their favour.
The Court of Appeals reversed the decision, noting
that the proximate cause of the complainant’s
injury was the unexpected increase in the number
of their guests.
Issue
WON Makati Shangri-La Hotel may be held liable for
damages.
Ruling
The Supreme Court reversed the Court of Appeals
decision, noting that in this case, the obligation was
based on a contract, hence, the concept of
proximate cause has no application.
In absolving the hotel from damages, the Supreme
Court noted that: “The appellate court, and even
the trial court, observed that petitioners were
remiss in their obligation to inform respondent of
the change in the expected number of guests. The
observation is reflected in the records of the case.
Petitioners’ failure to discharge such obligation thus
excused, as the above-quoted paragraph 4.5 of the
parties’ contract provide, respondent from liability
for “any damage or inconvenience” occasioned
thereby”
Nevertheless, on grounds of equity, the High Court
awarded P50,000.00 in favour of the complainants
and justified it by saying:
“The exculpatory clause notwithstanding, the Court
notes that respondent could have managed the
“situation” better, it being held in high esteem in
the hotel and service industry. Given respondent’s
vast experience, it is safe to presume that this is not
its first encounter with booked events exceeding
the guaranteed cover. It is not audacious to expect
that certain measures have been placed in case this
predicament crops up. That regardless of these
measures, respondent still received complaints as in
the present case, does not amuse.
Respondent admitted that three hotel functions
coincided with petitioners’ reception. To the Court,
the delay in service might have been avoided or
minimized if respondent exercised prescience in
scheduling events. No less than quality service
should be delivered especially in events which
possibility of repetition is close to nil. Petitioners
are not expected to get married twice in their
lifetimes.”
What applies in the present case is Article 1170 of
the Civil Code which reads:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages.
RCPI v. Verchez, et al. enlightens: In culpa
contractual x x x the mere proof of the existence of
the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will
not permit a party to be set free from liability for
any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof.
A breach upon the contract confers upon the
injured party a valid cause for recovering that which
may have been lost or suffered.
The remedy serves to preserve the interests of the
promissee that may include his “expectation
interest ,” which is his interest in having the benefit
of his bargain by being put in as good a position as
he would have been in had the contract been
performed, or his “reliance interest ,”which is his
interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a
position as he would have been in had the contract
not been made; or his”restitution interest,” which is
his interest in having restored to him any benefit
that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their
makers or for society, unless they are made the
basis for action.
The effect of every infraction is to create a new
duty, that is, to make RECOMPENSE to the one who
has been injured by the failure of another to
observe his contractual obligation unless he can
show extenuating circumstances, like proof of his
exercise of due diligence or of the attendance of
fortuitous event to excuse him from his ensuing
liability.
Vazquez vs Ayala Corporation, 443 SCRA 231
(2004)
Facts:
 Spouses Vasquez entered into a Memorandum
of Agreement (MOA) with Ayala Corporation
for their share of stocks in Conduit
Development. The main assets of Conduit is the
49.9 hectare of land (divided into Village 1, 2
and 3 of the Don Vicente Village) being
developed by Conduit. The development was
undertaken by G.P. Construction and
Development.
 The MOA was signed on April 23, 1981, the
Closing of the agreement was to happen 4
weeks after the signing. According to the MOA,
Ayala intends to complete its development
plan 3 years after the date of the agreement.
Also, that Ayala agreed to give the petitioners a
first option to purchase the developed lots at
the prevailing market price at the time of the
purchase.
After the execution of the MOA, Ayala
suspended the work on Village 1. Ayala then
received a letter from Lancer General Builder,
informing that they were claiming the amount
of P1,509,558.80 as the subcontractor of GP.
On March 22, 1982, GP not being able to reach
an amicable settlement with Lancer, Lancer
sued GP Construction, Conduit and Ayala. GP
then filed a cross-claim against Ayala. Both
Lance and GP tried to enjoin Ayala for the
development of the property. The suit was only
terminated on February 19, 1987, after Ayala
paid both GP and Lancer.
 The Vasquez spouses, believing that Ayala was
obligated to sell them the lots 3 years after the
agreement, sent reminder letters of the
approaching so-called deadline. Also, Engr.
Turla (an authorized agent of the Vasquez) sent
a letter to Ayala stating that they expected “the
development of Phase 1 to be completed by
Feb 19, 1990, 3 years after the legal problems
with the previous contractor was settled.” By
early 1990, Ayala was able to finish the
developments and offered the lots to the
Vasquez at the prevailing price in 1990.
 The Vasquez rejected the offer and insisted to
pay the 1984 price (the original date of the
supposed 3 year develop period given by Ayala
after the agreement)
 Ayala argues that the MOA only gives the
petitioners a first right of refusal and can
therefore not demand Ayala to sell the
property at the 1984 price.
Issue: 1. WON Ayala committed or merely
expressed intent to develop the property within 3
years of the signing of the MOA
2. WON the MOA can properly be construed as an
option contract or a right of first refusal
3. WON the Vasquez spouse can compel Ayala to
sell them the property at the 1984 price
Held:
 The MOA specifically said “The Buyer hereby
commits that it will develop the Remaining
Property into a first class residential subdivision
of the same class as its New Alabang
Subdivision, and that it intends to complete the
first phase under its amended development
plan within 3 years from the date of this
Agreement” Also, under Art 1169 of the NCC,
obligations whose fulfillment a day certain has
been fixed shall be demandable only when that
day comes.
 While the first phrase uses the word commits
in reference to the development itself, the
word intends was used in relation to the
development of the property within 3 years. It
is then unmistakable that Ayala merely
expressed their intention in completing the
development within 3 years.
 An option is a preparatory contract which one
party grants another, for a fixed period and at a
determined price, the privilege to buy or sell,
or to decide whether or not to enter into a
principal contract. In a right of first refusal,
while the object might be determinate, the
exercise of the right would be independent not
only on the grantor’s eventual intention to
enter into a binding juridical relation with
another but also on terms, including the price,
that are yet to be firmed up.
 The Court held that the MOA is a mere right of
first refusal and not an option contract. The
phrase “at the prevailing market price at the
time of the purchase” connotes that there is no
definite period.
 Since it has been established that the MOA is a
mere right of first refusal, the Vasquez spouses
cannot compel Ayala to sell them the property
at the 1984 price. The moment they rejected
the offer, petitioners lost their right to
purchase the property.
 The petition is Denied.
FGU Insurance vs GP Sarmiento Tricking, 386 SCRA,
312
G.P. Sarmiento Trucking Corporation (GPS)
undertook to deliver thirty (30) units of Condura
S.D. white refrigerators aboard one of its truck,
driven by Lambert Eroles, from the plant site to the
Central Luzon Appliances in Dagupan City. While the
truck was traversing it collided with an unidentified
truck, causing it to fall into a deep canal, resulting in
damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the
shipment, paid to Concepcion Industries, Inc., the
value of the covered cargoes. FGU, in turn, being
the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement
of the amount it had paid to the latter from
GPS. The trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of
contract of carriage against GPS and its driver
Lambert Eroles with the Regional Trial Court. In its
answer, respondents asserted that GPS was the
exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as
a common carrier. Respondents further claimed
that the cause of damage was purely accidental.
The trial court, in its order of 30 April
1996,[1] granted the motion to dismiss.
The subsequent motion for reconsideration having
been denied,[3] plaintiff interposed an appeal to the
Court of Appeals, contending that the trial court
had erred (a) in holding that the appellee
corporation was not a common carrier defined
under the law and existing jurisprudence; and (b) in
dismissing the complaint on a demurrer to
evidence.
The Court of Appeals rejected the appeal of
petitioner and ruled in favor of GPS.
Issues
I. WHETHER RESPONDENT GPS MAY BE
CONSIDERED AS A COMMON CARRIER AS DEFINED
UNDER THE LAW AND EXISTING JURISPRUDENCE.
II. WHETHER RESPONDENT GPS, EITHER AS A
COMMON CARRIER OR A PRIVATE CARRIER, MAY BE
PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE
GOODS IT UNDERTOOK TO TRANSPORT SAFELY
WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.
Ruling
On the first issue, the Court finds the conclusion of
the trial court and the Court of Appeals to be amply
justified. GPS, being an exclusive contractor and
hauler of Concepcion Industries, Inc., rendering or
offering its services to no other individual or entity,
cannot be considered a common carrier. Common
carriers are persons, corporations, firms or
associations engaged in the business of carrying or
transporting passengers or goods or both, by land,
water, or air, for hire or compensation, offering
their services to the public,[8] whether to the public
in general or to a limited clientele in particular, but
never on an exclusive basis.[9] The true test of a
common carrier is the carriage of passengers or
goods, providing space for those who opt to avail
themselves of its transportation service for a
fee.[10] Given accepted standards, GPS scarcely falls
within the term common carrier.
The above conclusion notwithstanding, GPS cannot
escape from liability.
In culpa contractual, upon which the action of
petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the
existence of the contract and the failure of its
compliance justify, prima facie, a corresponding
right of relief.[11] The law, recognizing the obligatory
force of contracts,[12] will not permit a party to be
set free from liability for any kind of
misperformance of the contractual undertaking or a
contravention of the tenor thereof.[13] A breach
upon the contract confers upon the injured party a
valid cause for recovering that which may have
been lost or suffered. The remedy serves to
preserve the interests of the promisee that may
include his expectation interest, which is his interest
in having the benefit of his bargain by being put in
as good a position as he would have been in had the
contract been performed, or his reliance interest,
which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in
as good a position as he would have been in had the
contract not been made; or his restitution interest,
which is his interest in having restored to him any
benefit that he has conferred on the other
party.[14] Indeed, agreements can accomplish little,
either for their makers or for society, unless they
are made the basis for action.[15] The effect of every
infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the
failure of another to observe his contractual
obligation[16] unless he can show extenuating
circumstances, like proof of his exercise of due
diligence (normally that of the diligence of a good
father of a family or, exceptionally by stipulation or
by law such as in the case of common carriers, that
of extraordinary diligence) or of the attendance of
fortuitous event, to excuse him from his ensuing
liability.
Respondent trucking corporation recognizes the
existence of a contract of carriage between it and
petitioners assured, and admits that the cargoes it
has assumed to deliver have been lost or damaged
while in its custody. In such a situation, a default on,
or failure of compliance with, the obligation in this
case, the delivery of the goods in its custody to the
place of destination - gives rise to a presumption of
lack of care and corresponding liability on the part
of the contractual obligor the burden being on him
to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without
concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not
being a party to the contract of carriage between
petitioners principal and defendant, may not be
held liable under the agreement. A contract can
only bind the parties who have entered into it or
their successors who have assumed their
personality or their juridical
position.[17] Consonantly with the axiom res inter
alios acta aliis neque nocet prodest, such contract
can neither favor nor prejudice a third
person. Petitioners civil action against the driver can
only be based on culpa aquiliana, which,
unlike culpa contractual, would require the claimant
for damages to prove negligence or fault on the part
of the defendant.
International Corporate Bank vs Gueco, 351 SCRA
516 (2001)
Facts
The respondents Gueco Spouses obtained a loan
from petitioner International Corporate Bank (now
Union Bank of the Philippines) to purchase a car. In
consideration thereof, the Spouses executed
promissory notes which were payable in monthly
installments and chattel mortgage over the car to
serve as security for the notes.
The Spouses defaulted in payment of
installments. Consequently, the Bank filed a Case
for Sum of Money with Prayer for a Writ of
Replevin. Dr. Francis Gueco was served summons
and was fetched by the sheriff and representative of
the bank for a meeting in the bank premises. After
some negotiations and computation, the amount
was lowered to P154,000.00, However, as a result
of the non-payment of the reduced amount on that
date, the car was detained inside the banks
compound.
On August 28, 1995, Dr. Gueco went to the bank
and talked with its Administrative Support, Auto
Loans/Credit Card Collection Head, Jefferson
Rivera. The negotiations resulted in the further
reduction of the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a
managers check in the amount of P150,000.00 but
the car was not released because of his refusal to
sign the Joint Motion to Dismiss. It is the contention
of the Gueco spouses and their counsel that Dr.
Gueco need not sign the motion for joint dismissal
considering that they had not yet filed their
Answer. Petitioner, however, insisted that the joint
motion to dismiss is standard operating procedure
in their bank to effect a compromise and to
preclude future filing of claims, counterclaims or
suits for damages.
After several demand letters and meetings with
bank representatives, the respondents Gueco
spouses initiated a civil action for damages to the
MTCC. The Metropolitan Trial Court dismissed the
complaint for lack of merit.[3]
On appeal to the Regional Trial Court, the decision
of the Metropolitan Trial Court was reversed.
The case was elevated to the Court of Appeals, but
the CA denied the appeal.
Ruling
Fraud has been defined as the deliberate intention
to cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally
and necessarily arise from such act or omission; the
fraud referred to in Article 1170 of the Civil Code is
the deliberate and intentional evasion of the normal
fulfillment of obligation.[11]
We fail to see how the act of the petitioner bank in
requiring the respondent to sign the joint motion to
dismiss could constitute as fraud. True, petitioner
may have been remiss in informing Dr. Gueco that
the signing of a joint motion to dismiss is a standard
operating procedure of petitioner bank. However,
this cannot in anyway have prejudiced Dr. Gueco.
The motion to dismiss was in fact also for the
benefit of Dr. Gueco, as the case filed by petitioner
against it before the lower court would be
dismissed with prejudice. The whole point of the
parties entering into the compromise agreement
was in order that Dr. Gueco would pay his
outstanding account and in return petitioner would
return the car and drop the case for money and
replevin before the Metropolitan Trial Court. The
joint motion to dismiss was but a natural
consequence of the compromise agreement and
simply stated that Dr. Gueco had fully settled his
obligation, hence, the dismissal of the
case. Petitioner's act of requiring Dr. Gueco to
sign the joint motion to dismiss cannot be said to be
a deliberate attempt on the part of petitioner to
renege on the compromise agreement of the
parties.
It should, likewise, be noted that in cases of breach
of contract, moral damages may only be awarded
when the breach was attended by fraud or bad
faith.[12] The law presumes good faith. Dr. Gueco
failed to present an iota of evidence to overcome
this presumption. In fact, the act of petitioner bank
in lowering the debt of Dr. Gueco from P184,000.00
to P150,000.00 is indicative of its good faith and
sincere desire to settle the case. If respondent did
suffer any damage, as a result of the withholding of
his car by petitioner, he has only himself to blame.
BPI vs Lifetime Marketing, 555 SCRA 373 (2008)
Facts
Lifetime Marketing Corporation (LMC, for brevity),
opened a current account with the Bank of the
Philippine Islands (BPI, for brevity).
In this account, the sales agents of LMC would have
to deposit their collections or payments to the
latter. As a result, LMC and BPI, made a special
arrangement that the formers agents will
accomplish three (3) copies of the deposit slips, the
third copy to be retained and held by the teller until
LMCs authorized representatives, Mrs. Virginia
Mongon and Mrs. Violeta Ancajas, shall retrieve
them on the following banking day.
Sometime in 1986, LMC availed of the BPIs inter-
branch banking network services in Metro Manila,
whereby the formers agents could make [a] deposit
to any BPI branch in Metro Manila under the same
account. Under this system, BPIs bank tellers were
no longer obliged to retain the extra copy of the
deposit slips instead, they will rely on the machine-
validated deposit slip, to be submitted by LMCs
agents. For its part, BPI would send to LMC a
monthly bank statement relating to the subject
account. This practice was observed and complied
with by the parties.
As a business practice, the registered sales agents
or the Lifetime Educational Consultants of LMC, can
get the books from the latter on consignment basis,
then they would go directly to their clients to sell.
These agents or Lifetime Educational Consultants
would then pay to LMC, seven (7) days after they
pick up all the books to be sold. Since LMC have
several agents around the Philippines, it required to
remit their payments through BPI, where LMC
maintained its current account. It has been LMCs
practice to require its agents to present a validated
deposit slip and, on that basis, LMC would issue to
the latter an acknowledgement receipt.
Alice Laurel, is one of LMC’s “Educational
Consultants” or agents. On various dates covering
the period from May, [sic] 1991 up to August, 1992,
Alice Laurel deposited checks to LMC’s subject
account at different branches of BPI, Each check
thus deposited were retrieved by Alice Laurel after
the deposit slips were machine validated, except
thirteen (13) checks.
A verification with BPI by LMC showed that Alice
Laurel made check deposits with the named BPI
branches and, after the check deposit slips were
machine-validated, requested the teller to reverse
the transactions.
fraudulent transactions of Alice Laurel and her
husband was made possible through BPI teller’s
failure to retrieve the duplicate original copies of
the deposit slips from the former, every time they
ask for cancellation or reversal of the deposit or
payment transaction.
Upon discovery of this fraud in early August 1992,
LMC made queries from the BPI branches involved.
In reply to said queries, BPI branch managers
formally admitted that they cancelled, without the
permission of or due notice to LMC, the deposit
transactions made by Alice and her husband, and
based only upon the latter’s verbal request or
representation.
Thereafter, LMC immediately instituted a criminal
action for Estafa against Alice Laurel and her
husband Thomas Limoanco, before the Regional
Trial Court of Makati, This case for estafa, however,
was archived because summons could not be served
upon the spouses as they have absconded.
LMC, , filed a Complaint for Damages against BPI.
After trial on the merits, the court a quo rendered a
Decision in favor of LMC. Only BPI filed an appeal.
The Court of Appeals affirmed the decision of the
trial court but increased the award of actual
damages to P2,075,695.50 and deleted the award of
P100,000.00 as attorney’s fees.[3] Citing public
interest, the appellate court denied reconsideration
in a Resolution[4] dated 30 January 2007. In this
Petition for Review[5] dated 19 March 2007,
Issue: Whether BPI observed the highest degree of
care in handling LMCs account
Ruling: NO
Negligence in this case lies in the tellers’ disregard
of the validation procedures in place and BPI’s utter
failure to supervise its employees. Notably, BPI’s
managers admitted in several correspondences with
LMC

that the deposit transactions were cancelled
without LMC’s knowledge and consent and based
only upon the request of Alice Laurel and her
husband.[12]
BPI cannot escape liability because of LMC’s failure
to scrutinize the monthly statements sent to it by
the bank. This omission does not change the fact
that were it not for the wanton and reckless
negligence of BPI’s tellers in failing to require the
surrender of the machine-validated deposit slips
before reversing the deposit transactions, the loss
would not have occurred. BPI’s negligence is
undoubtedly the proximate cause of the loss. It is
also true, however, that LMC should have been
more vigilant in managing and overseeing its own
financial affairs. The damages awarded to it were
correctly reduced on account of its own
contributory negligence in accordance with Article
1172 of the Civil Code.
Tiu vs Arriesgado 437 SCRA 426
Facts:
On March 15, 1987, a Truck marked “Condor Hollow
Blocks and General Merchandise” was on its way to
Cebu when it’s rear tire exploded. The driver Sergio
Pedrano then parked the truck on the side of the
National Highway, left the rear lights on, and
instructed his helper, Jose Mitante, to watch over
the truck and place a spare tire on the road a few
meters away from the tire to serve as a warning
device as he went and had the faulty tire
vulcanized.
After Pedrano left, D’ Rough Riders
passenger bus carrying the respondent, passed by
the same route and hit the truck. The respondent
was injured in the collision and his wife, Felissa
Arriesgado eventually died after sustaining injuries
from the same. Hence, he filed a complaint against
the petitioner for breach of contract of carriage,
damages and for attorneys fees against the
petitioner, the owner of the bus, William Tiu and his
driver, Laspinas.
However, the petitioner filed a third-party
complaint alleging that the said truck was parked in
a slanted manner and did not have any early
warning devices displayed while it was left by the
driver which resulted to the collision and would
therefore make, Benjamin Condor, the owner of the
truck liable as well.
Also, the petitioner included that he was
covered by Philippine Phoenix Surety and Insurance
(PPSI) at the time of the incident which would
therefore make the same liable for part of the
damages that may arise as well.
PPSI, however argued that it already
attended to and settled claims of those who were
injured in the collision and that it could not accede
to the claim of Arriesgado because it was beyond
that of the terms of the insurance.
The trial court found that the contention of
the petitioner was invalid because the said truck
had left it’s tail lights open and that the said road
was well lit at the time of the accident. Hence, it
was the fault of the bus, for traveling at a fast pace,
that the collision happened. The Petitioner, Tiu,
appealed to the CA but was denied which prompted
him to seek another reconsideration.
Issue:
W/N The owner and driver of the Truck, Benjamin
Condor and Sergio Pedrano, was liable due to their
negligence in the lack of an early warning device
and hence liable to the respondent as well.
(Violation of Sec 34 of LTO Land traffic code.)
W/N Petitioner was negligent
W/N Petitioner was also liable for exemplary
damages, attorney’s fees and litigation expenses.
W/N PPSI is also liable.
Held:
The court found that indeed, the petitioner,
was liable for being negligent while being engaged
in the business of common carriage. The SC could
no longer change the facts that were sustained in
the trial court and court of appeals hence, since it
was deemed that the bus was moving in a very fast
speed which was the cause of the accident, the SC
will have to sustain that ruling and hold that indeed,
there was negligence on the part of the petitioner.
Also, the doctrine of “Last Clear Chance” is
inapplicable to the case because it could only apply
to a controversy between two colliding vehicles. In
this case, it was the passenger and not another
driver who was injured and thus, the said doctrine
could not be applied.
However, the respondents Pedrano and
Condor was found by the court to be negligent as
well. The court found that there was merit in the
contention of the petitioner that the said truck
violated Section 34 or RA 4136, wherein they did
not have proper early warning devices in
accordance with the said law.
Lastly, with regard to PPSI, the court held
that since it admitted to being bound by a contract
with the petitioner, it would be liable as well.
However, the said liability would only fall within the
amount settled in the said contract.
Hence, the petition was partially granted.
Rodzssen Supply Company v Far East Bank and delivered by Ekman and
Trust Company G.R. No. 109087. 9 May 2001. voluntarily received and kept by petitioner.

Facts: Respondent bank's right to seek recovery from

defendant Rodzssen Supply, Inc. opened with
plaintiff Far East Bank and Trust Co. a 30-day
domestic letter of credit, LC No. 52/0428/79-D, in
the amount of P190,000.00 in favor of Ekman and
Company, Inc. (Ekman) for the purchase from the
latter of five units of hydraulic loaders, to expire on
February 15, 1979; that subsequent amendments
extended the validity of said LC up to October 16,
1979; that on March 16, 1979, three units of the
hydraulic loaders were delivered to defendant for
which plaintiff on March 26, 1979, paid Ekman the
sum of P114,000.00, which amount defendant paid
plaintiff before the expiry date of the LC; that the
shipment of the remaining two units of hydraulic
loaders valued at P76,000.00 sent by Ekman was
'readily received by the defendant' before the
expiry date [of] subject LC; that upon Ekman's
presentation of the documents for the P76,000.00
'representing final negotiation' on the LC before the
expiry date, and 'after a series of negotiations',
plaintiff paid to Ekman the amount of P76,000.00;
and that upon plaintiff's demand on defendant to
pay for said amount (P76,000.00), defendant'
refused to pay ... without any valid reason'. Plaintiff
prays for judgment ordering defendant to pay the
abovementioned P76,000.00 plus due interest
thereon, plus 25% of the amount of the award as
attorney's fees.
"In the Answer, defendant interposed, inter alia, by
way of special and affirmative defenses that plaintiff
ha[d] no cause of action against defendant; that
there was a breach of contract by plaintiff who in
bad faith paid Ekman, knowing that the two units of
hydraulic loaders had been delivered to defendant
after the expiry date of subject LC; and that in view
of the breach of contract, defendant offered to
return to plaintiff the two units of hydraulic loaders,
'presently still with the defendant' but plaintiff
refused to take possession thereof.
petitioner is anchored, not upon the inefficacious
Letter of Credit, but on Article 2142 of the Civil
Code which reads as follows:
"Certain lawful, voluntary and unilateral acts give
rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or
benefited at the expense of another."
Indeed, equitable considerations behoove us to
allow recovery by respondent. True, it erred in
paying Ekman, but petitioner itself was not without
fault in the transaction. It must be noted that the
latter had voluntarily received and kept the loaders
since October 1979.
Petitioner claims that it accepted the late delivery
of the equipment, only because it was bound to
accept it under the company's trust receipt
arrangement with respondent bank.
Granting that petitioner was bound under such
arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for
almost four years with regard to the status of the
ownership or possession of the loaders. Bewildering
was its lack of action to validate the ownership and
possession of the loaders, as well as its stolidity
over the purported failed sales transaction.
Significant too is the fact that it formalized its offer
to return the two pieces of equipment only after
respondent's demand for payment, which came
more than three years after it accepted delivery.
When both parties to a transaction are mutually
negligent in the performance of their obligations,
the fault of one cancels the negligence of the other
and, as in this case, their rights and obligations may
be determined equitably under the law proscribing
unjust enrichment.

"The trial court's ruling that plaintiff [was] entitled

to recover from defendant

The CA rejected petitioner's imputation of bad faith

and negligence to respondent bank for paying for
the two hydraulic loaders, which had been
delivered after the expiration of the subject letter of
credit.

Issue: Whether or not Far East Bank can still collect

from Rodzssen despite the expiration of the letters
of Credit

Held: Be that as it may, we agree with the CA that

petitioner should pay respondent bank the amount
the latter expended for the equipment belatedly