g)  Keng Hua; Chavez; Tanguiling;  Song Fo; Boysaw; UP;  De

Erquiaga;  Angeles;  Ong;  Visayan;  Deiparine;  Iringan; and  Vda. de

Mistica. 

G.R. No. 116863 February 12, 1998

KENG HUA PAPER PRODUCTS CO. INC., petitioner,

vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE,
INC., respondents.

Facts:
Sea-Land Service (SLS), a shipping company, is a foreign corporation licensed to do business in the
Philippines. On June 29, 1982, the carrier received at its Hong Kong terminal a sealed container
containing seventy-six bales of “unsorted waste paper” for shipment to consignee in Manila. The shipment
was covered by a bill of lading which the consignee received immediately after arrival but it refused to
accept the shipment because the merchandise was in excess of 10 metric tons.

On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of
arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container
during the "free time" period or grace period. The said shipment remained inside SLS container from the
moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded
from the container on November 22, 1983, or a total of four hundred eighty-one (481) days. During the
481-day period, demurrage charges accrued.

Within the same period, letters demanding payment were sent by the SLS to Keng Hua Paper Product
Co. (KHPP) who, however, refused to settle its obligation which eventually amounted to P67,340.00.
Numerous demands were made on the defendant but the obligation remained unpaid. Plaintiff thereafter
commenced this civil action for collection and damages.

KHPP contend that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee
Waste Paper, as manifested in Letter of Credit issued by Equitable Banking Corporation, with partial
shipment permitted and defendant were to accept the shipment, it would be violating Central Bank rules
and regulations and custom and tariff laws; that SLS had no cause of action against the KHPP because
the latter did not hire the former to carry the merchandise; that the cause of action should be against the
shipper which contracted SLS's services and not against KHPP; and that the KHPP duly notified SLS
about the wrong shipment through a letter dated January 24, 1983.

The RTC found petitioner liable for demurrage, attorney's fees and expenses of litigation, affirmed by CA.

Petition for review.

Issue:
Whether or not KKHP is liable for demurrage, attorney’s fees and expenses of litigation as a
result of breach of contract of bill of lading.

Ruling:
Yes. The court ruled that a bill of lading considered as a contract of carriage and that the bill of
lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng
Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill of lading provided that the
shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge
the containerized shipment beyond the grace period allowed by tariff rules.

In a letter of credit, there are three distinct and independent contracts:

(1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing
bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms
and conditions stated therein.

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the contract for the
issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the
amount of the goods described in the commercial invoice in the contract of sale and the amount allowed
in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in
the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the
seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations
of the shipper in the bill of lading and to verify their accuracy vis-a-viz the commercial invoice and the
letter of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the
amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the
contract of transportation.

Furthermore, SLS, as carrier, had no knowledge of the contents of the container. The contract of
carriage was under the arrangement known as "Shipper's Load And Count," and shipper was solely
responsible for the loading of the container while carrier was oblivious to the contents of the shipment.
KHPP's remedy in case of overshipment lies against the seller/shipper, not against the carrier.

The assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six
percent per annum shall be computed from September 28, 1990 until its full payment before finality of
judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time
said judgment became final and executory until full satisfaction. The award of attorney's fees is
DELETED.

Rosendo Chaves, plaintiff appellant vs Fructuoso Gonzales defendant-appellee

GR L- 27454 April 30, 1970

Facts:
In the early July 1963, Chaves brought to Gonzales a typewriter repairer, his
portable typewriter for routine cleaning and servicing. Gonzales was not able to finish
the job even after repeated reminders from Chaves. On October 1963 Gonzales asked
for P6.00 for puschase of spare parts which Chaves paid.
On October 26,1963 exasperated Chaves told Gonzales to return the
typewriter. Gonzales returned the typewriter wrapped in a package. Upon reaching
home Chaves discovered that the typewriter was in a mess as the cover and some
parts were missing.
On Oct 29,1963 Chaves demanded for the return of the cover and missing parts
plus the reimbursement of P6.00. Gonzales returned the parts and paid the 6.00.
Chaves incurred a total of P89.85 for the repair of the typewriter .
Chaves filed a case demanding Gonzales to pay 90.00 as actual compensatory
damages,100 pesos for temperate damages and 500.00 for moral damages and 500.00
for attorney’s fees. But the court only awarded him 31.10 and costs of suit.
An appeal was made by Chaves unsatisfied with the decision of the CFI of Manila
which awarded him only P31.10 out of his total claim of P690.00

Issue:
 Whether or not Gonzales should be awarded his claim of 89.85 pesos for
damages. (yes)

Ruling:
Yes, Gonzales should be awarded 89.85 for damages.

Article 1167 provides that if a person obliged to do something fails to do it, the same
shall be executed at his cost. Same rule applies that if he does it in contravention of his
tenor of his obligation. What has been poorly done he undone.

With the case given, Gonzales returned the typewriter in shambles instead of repairing
it. The cost of execution should be the cost of the labor or service for the repair of
typewriter plus the expense for the parts amounting to 89.85.For in his obligation to
repair it, he failed or neglected to return it in the same condition as when he received it.

Claims for moral and temperate damages and attorney’s fees were rejected. Claims for
these should be pleaded. And no finding of fact were made on the claims for damages
and attorey’s fees.

Appealed judgment is modified ordering Gonzales to pay Chaves the sum of P89.85
with interest at the legal rate from the filing of the complaint.

G.R. No. 117190 January 2, 1997

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING
AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.

Facts:

Engineering and General Merchandising (EGM) proposed to respondent Vicente

Herce Jr. to construct a windmill system for him. After some negotiations they agreed on
the construction of the windmill for a consideration of P60,000.00 with a one-year
guaranty from the date of completion and acceptance by respondent Herce Jr. of the
project. Pursuant to the agreement Herce paid EGM a down payment of P30,000.00
and an installment payment of P15,000.00, leaving a balance of P15,000.00.

Due to the refusal and failure of Vicente to pay the balance, EGM filed a
complaint to collect the amount.

EGM denied that the construction of a deep well was included in the agreement
to build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project. He also disowned any obligation to repair or reconstruct the system and
insisted that he delivered it in good and working condition to respondent who accepted
the same without protest. Besides, its collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.

Issue:
(1) Whether or not the refusal of Tanguilig to construct the deep well as a breach
of contract of refusal and failure to pay the balance.

(2) Whether or not the collapse of the windmill be attributed to force majeure may
extinguish Tanguilig’s liability.

Ruling:

No. The court as being just and equitable, it held that is a cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall
be principally considered. An examination of such contemporaneous and subsequent
acts of respondent as well as the attendant circumstances does not persuade us to
uphold him.

(1) it directed the Herce to pay the balance of P15,000 with interest while EGM,
in return,

The court ruled that Herce Jr. himself who paid for the deep well by handing over
to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was
not part of the windmill project but a separate agreement between respondent and Pili.
Besides, if the price of P60,000.00 included the deep well, the obligation of respondent
was to pay the entire amount to petitioner without prejudice to any action that Guillermo
Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he
tendered payment directly to Pili and not to petitioner, respondent explained, rather
lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his
possession."

Can respondent claim that Pili accepted his payment on behalf of petitioner? No.
While the law is clear that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to
receive it,"9 it does not appear from the record that Pili and/or SPGMI was so
authorized.

(2) to perform the reconstruct of subject defective windmill system.

The court held that in order for a party to claim exemption from liability by reason
of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and
proximate cause of the loss or destruction of the object of the contract. In Nakpil vs.
Court of Appeals, four (4) requisites must concur:
 (a) the cause of the breach of the obligation must be independent of the will of
the debtor;
(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.

Hence, the appealed decision is MODIFIED.

Song Fo & Company vs Hawaiian Philippine Co.

G.R. No. 23769 – September 16, 1925

FACTS:

Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC)

where it would deliver molasses to the latter evidenced by a letter containing their
contract. The same states that Mr. Song Fo agreed to the delivery of 300,000 gallons of
molasses and the same requested for an additional 100,000 molasses which the HPC
promised that it will do its best to comply with the additional shipment. However, the
HPC was only able to deliver 55,006 gallons. SFC thereafter filed a complaint with two
causes of action for breach of contract against the HPC and asked for P70,369.50. HPC
answered that there was a delay in the payment from SFC and that HPC has the right to
rescind the contract because of the same· The trial court condemned HPC to pay SFC
a total of P35,317.93, with legal interest.

ISSUES:

1. Whether or not HPC has the right to rescind the contract.

RULING:

No. The general rule is that rescission will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are so substantial and fundamental as to
defeat the object of the parties in making the agreement. A delay in payment for a small
quantity of molasses for some twenty days is not such a violation of an essential
condition of the contract was warrants rescission for non-performance. Not only this, but
the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment
of the overdue accounts and continuing with the contract. Thereafter, Song Fo &
Company was not in default in payment so that the Hawaiian-Philippine co. had in
reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner,
Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
The court ruled that the appellant had no legal right to rescind the contract of sale
because of the failure of Song Fo & Company to pay for the molasses within the time
agreed upon by the parties.

BOYSAW AND YULO JR. vs INTERPHIL PROMOTIONS, INC.

148 SCRA 635

FACTS: Boysaw and his then manager, Willie Ketchum, signed a contract with Interphil
Promotion, Inc. (IPI) to engage Gabriel “Flash” Elorde in a boxing contest for the junior
lightweight championship of the world. It is included in the stipulation that the bout will
be held on September 30, 1961 at the Rizal Memorial Stadium in Manila and that
Boysaw, prior his boxing contest, should not engage in any other boxing contest without
the consent of IPI. However, on June 19, 1961, Boysaw fought in a boxing contest in
Las Vegas without IPI’s knowledge.
Ketchum turned over his managerial rights to a certain Amado Araneta only to be
transferred again to Alfredo J. Yulo, Jr. Yulo then wrote a letter to IPI informing them the
change in Boysaw’s manager and informing them about Boysaw’s readiness to
compete in the September boxing fight. Upon receipt of Yulo’s letter, IPI wrote a letter to
the Games and Amusement Board (GAB) informing the switch in Boysaw’s
management. After a series of meeting, it was agreed upon that the date of the bout is
scheduled on November 4, 1961 but Yulo refused.
On October 1961, Yulo exchanged communications with one Mamerto Besa, a
local boxing promoter, for a possible promotion of the Elorde-Boysaw title bout
scheduled on November 4, 1961, however, the said bout did not materials. Hence, the
present petition.

ISSUE: WON, Boysaw and Yulo Jr. committed a breach of contract with IPI.

RULING: YES. The evidence established that the contract was violated by Boysaw
himself when, without the approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas, Nevada. While the contract imposed no penalty for such
violation, this does not grant any of the parties the unbridled liberty to breach it with
impunity. Our law on contracts recognizes the principle that actionable injury inheres in
every contractual breach. Thus:

'Those who in the performance of their obligations are guilty of fraud, negligence or delay, and
those who in any manner contravene the terms thereof, are liable for damages." [Art. 1170, Civil
Code].

Another violation of the contract in question was the assignment and transfer,
first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial
rights over Boysaw without the knowledge or consent of Interphil. The assignments,
from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the
original contract which, to be valid, should have been consented to by Interphil. As an
addition, the refusal of the postponement overlooks the fact that by virtue the violations
committed, they have forfeited any rights of its enforcement. Since there has been
violation on the part of Yulo and Boysaw, it gave the right to IPI to rescind and repudiate
such contract altogether. IPI now has the power to rescind.

Yulo and Boysaw is the party who did not perform the undertaking which they
were bound by the terms of the agreement to perform, making them not entitled to insist
upon the performance of the contract by IPI, or recover damages by reason of their own
breach.

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST
INSTANCE IN QUEZON CITY, et al., respondents.

FACTS:

Petitioner and respondent ALUMCO entered into a logging agreement under which the latter
was granted exclusive authority, for a period starting from the date of the agreement to 31
December 1965, extendible for a further period of five (5) years by mutual agreement, to cut,
collect and remove timber from the Land Grant, in consideration of payment to UP of royalties,
forest fees, etc.

The Land Grant, situated at the Lubayat areas in the provinces of Laguna and Quezon, was
segregated from the public domain and given as an endowment to UP to be operated and
developed for the purpose of raising additional income for its support, pursuant to Act 3608.

ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an
unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay. After a
notice was given by the petitioner that they would rescind or terminate the logging agreement,
ALUMCO executed an instrument, entitled “Acknowledgment of Debt and Proposed Manner of
Payments,” which was approved by the president of UP, and which stipulated, among others,
that in case debtor (ALUMCO) fails to comply to its undertakings, the creditor (UP) has
the right to rescind the agreement without necessity of any judicial suit.

ALUMCO continued its logging operations, but again incurred an unpaid account, for the period
from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged. Petitioner UP informed respondent ALUMCO
that it had, as of that date, considered as rescinded and of no further legal effect the logging
agreement that they had entered in 1960.

ISSUE:

Whether or not petitioner UP treated its contract with ALUMCO rescinded - YES
RULING:

In connection with Article 1191 of the Civil Code, there is nothing in the law that prohibits the
parties from entering into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In other words, it is not always
necessary for the injured party to resort to court for rescission of the contract.

Of course, it must be understood that the act of party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper
court. If the other party denies that rescission is justified, it is free to resort to judicial action in
its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide
that the resolution of the contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.

The petition for certiorari is granted.

DE ERQUIAGA vs CA
GR No. 47206

Facts:

On November 3, 1968, Petitioner Santiago De Erquiaga, owner of 100% or 3,100 paid-

up shares of stock of the Erquiaga Development Corporation (EDC), entered into an
agreement with Respondent Jose L. Reynoso to sell to the latter his 3,100 shares for
P900,000 payable in installments but not later than November 30, 1968 (which was
eventually moved to December 17, 1969). In accordance to their contract, Reynoso
pledges 1,500 of the 3,100 shares in favor of Erquiaga as security balance of his
obligation. On December 17, 1969, Reynoso failed to pay the balance of P561,321.70.
Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale
of his shares in the Erquiaga Development Corporation.

CA ruled in favor or Erquiaga, thus ordering the following among others:

(1) The return of 3,100 shares to Erquiaga
(2) Reynoso should make an accounting of the fruits of the said 3,100 and to return
such fruits.
(3) Erquiaga to return the payment made by Reynoso for the said shares

In accordance to this, Reynoso returned 1,500 of the shared which he previously

pledges in favor of Erguiaga.

The petitioners allege that the order of the court that Erquiaga needs to return the
payment made by Reynoso is inequitous

Issues:
 Whether or not Erquiaga needs to return the said amount paid by Reynoso in
accordance to their contract

Ruling:

Yes. The order of respondent Court directing Erquiaga to return the sum of P410,000
(or net P348,000 after deducting P62,000 due from Reynoso under the decision) as the
price paid by Reynoso for the shares of stock, with legal rate of interest, and the return
by Reynoso of Erquiaga's 3,100 shares with the fruits(construed to mean not only
dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with
Art. 1385 of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he may
be obliged to restore. 

Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith. 
In this case, indemnity for damages may be demanded from the person causing the
loss.

The Hacienda San Jose and 1,500 shares of stock have already been returned to
Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares,
Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter
paid for those shares. Pursuant to the rescission decreed in the final judgment, there
should be simultaneous mutual restitution of the principal object of the contract to sell
(3,100 shares) and of the consideration paid (P410,000). 

WHEREFORE, the petition for review is granted

G.R. No. L-42283 March 18, 1985

BUENAVENTURA ANGELES, ET AL.,

vs.
URSULA TORRES CALASANZ, ET AL.

Facts:
Calasanz entered into a contract to sell a piece of land to the plaintiffs amounting to
3,920 pesos plus 7% interest per annum. The plaintiffs paid the down payment upon
execution of the contract and the monthly installments. Calasanz cancelled the contract
due to the failure of the plaintiffs to make subsequent payments. Because their plea for
reconsideration was not heeded, they filed a case with the CFI to compel Calasanz to
execute a deed of sale since all their subsequent payments for the land already
amounted to 4,533.38 pesos. Calasanz alleged that the complaint has no cause of
action because it is them who violated the contract for not paying for more than five
months, and that as remedy for the breach of contract, he can rescind from it. With the
lower court favoring the plaintiffs, Calasanz appealed.

Issue:
Whether or not the remedy of rescission of contract sought by the defendants is correct.
(NO)

Held:
No, the remedy of rescission of contract sought by the defendants is incorrect.

Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The right to rescind the contract for non-performance of one of its stipulations is not
absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
—
The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement. (Song Fo & Co. v.
Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of
a contract is substantial depends upon the attendant circumstances. (Corpus v.
Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968). ... .
The breach of the contract adverted to by the defendants-appellants is so slight and
casual when we consider that apart from the initial down payment of P392.00 the
plaintiffs-appellees had already paid the monthly installments for a period of almost nine
(9) years. In other words, in only a short time, the entire obligation would have been
paid. Furthermore, although the principal obligation was only P 3,920.00 excluding the 7
percent interests, the plaintiffs- appellees had already paid an aggregate amount of P
4,533.38. To sanction the rescission made by the defendants-appellants will work
injustice to the plaintiffs- appellees. It would unjustly enrich the defendants-appellants.

The Court affirmed the lower court’s judgement declaring that the contract is not validly
cancelled by Calasanz and ordering Calasanz to execute a final Deed of Sale in favor of
the plaintiffs.
CASE DIGEST: ONG VS. CA AND ROBLES
9:08 AM
G.R. no. 97347
Jaime Ong vs. Court of Appeals
July 6, 1999

Facts:
Petitioner Jaime Ong and respondents, Robles couple executed an “Agreement of
Purchase and Sale” with regard to 2 parcels of land, on which a rice mill and a piggery
were found and thus included.  The terms and conditions of the contract included an
initial payment, payment for the loan of the sellers including interest, and the balance to
be satisfied in 4 equal quarterly installments.

As agreed, petitioner took possession of the subject property and everything else
thereon upon satisfaction of the initial payment. However, petitioner failed to comply
with the payment for the loan. Plus, the checks that the petitioner issued to the couple
as payment for the balance were dishonored due to insufficient funds. To avoid
foreclosure, the respondent couple sold the ricemill with the knowledge and conformity
of petitioner.

Respondents sought for the rescission of the properties due to the latter’s failure to
comply with the terms and conditions on the contract.

RTC ruled in favor of the Robles couple and ordered the restitution of the properties.
The couple were also ordered to return an amount, as determined by the court, to Ong.

CA affirmed the decision in contemplation of Article 1191 of The New Civil Code

Issue:
(1) whether the contract entered into by the parties may be validly rescinded under
Article 1191 of the New Civil Code as distinguished to Article 1383 of the same.
 (2) whether the parties had novated their original contract as to the time and manner of
payment.

HELD:

The Contract entered into by the parties was a “Contract to Sell” which means that the
payment of the purchase price is a positive suspensive condition, the failure of which is
not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force.

Respondents bound themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of the purchase price of
P2,000,000.00 subject to the fulfillment of the suspensive condition of full payment of
the purchase price by the petitioner. Petitioner, however, failed to complete payment of
the purchase price. The non-fulfillment of the condition of full payment rendered the
contract to sell ineffective and without force and effect. 

As to the issue on novation, in order for novation to take place, the concurrence of the
following requisites is indispensable: (1) there must be a previous valid obligation; (2)
there must be an agreement of the parties concerned to a new contract; (3) there must
be the extinguishment of the old contract; and (4) there must be the validity of the new
contract. 25 The aforesaid requisites are not found in the case at bench.

VISAYAN SAWMILL COMPANY, INC., and ANG TAY

vs.
THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA
G.R. No. 83851 March 3, 1993.

Facts:
The parties agreed to enter into a contract of sale involving scrap iron, subject to the condition that the
buyer RJH will open an irrevocable and unconditional Letter of Credit in favor of Visayan Sawmill on or
before May 15, 1983.
On May 23, 1983, Visayan alleged that they sent RJH a letter cancelling the contract of sale due to the
latter’s failure to comply with the condition.
RJH filed the complaint, praying that VSC be compelled to comply with the contract by delivering to him
the scrap iron. VSC insisted that the cancellation of the contract was justified because of RJH’s
noncompliance with essential pre-conditions. The RTC ruled in RJH’s favor. The CA affirmed. Hence, this
appeal.

Issue:
Whether or not the rescission of the contract is valid. (YES)

Held:
Yes, the rescission of the contract is valid.

In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable and
unconditional letter of credit on or before May 15, 1983, but also the letter of advice received by the
petitioner from BPI Dumaguete City branch explicitly makes reference to the opening on that date of a
letter of credit in favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on
ARMACO-MARSTEEL ALLOY CORPORATION and set to expire on July 24, 1983, which is indisputably not
in accordance with the stipulation in the contract signed by the parties on at least three (3) counts:
(1) it was not opened, made or indorsed by the private respondent, but by a corporation which
is not a party to the contract;
 (2) it was not opened with the bank agreed upon; and
(3) it is not irrevocable and unconditional, for it is without recourse, it is set to expire on a
specific date and it stipulates certain conditions with respect to shipment.

Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be
compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code
does not apply; on the contrary, pursuant to Article 1597 of the Civil Code which provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has
repudiated the contract of sale, or has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may totally rescind the contract of
sale by giving notice of his election so to do to the buyer."

Thus, the petitioner corporation may totally rescind in the contract. The decision of the CA is reversed.

Deiparine vs. CA and Trinidad

GR. No. 96643, April 23, 1993

FACTS:

Spouses Carungay entered into a contract with Deiparine for the construction of a 3-
story dormitory in Cebu. Carungay agreed to pay Php970,000 inclusive of contractor’s
fee, and Deiparine bound himself to erect the building “in strict accordance to plans and
specifications.” Trinidad, a civil engineer, was designated as Carungays’ representative,
with powers of inspection and coordination with the contractor.

Trinidad reported to Carungay that Deiparine had been deviating from the plans and
specifications, thus impairing the strength and safety of the building. Carungay ordered
Deiparine to first secure approval from him before pouring cement. This order was not
heeded, prompting Carungay to send Deiparine another memorandum complaining that
the construction works are faulty and done haphazardly mainky due to lax supervision
coupled with inexperienced and unqualified staff.

Carungay then filed a complaint for the rescission of the construction contract for
damages.

ISSUE:

Whether or not the rescission of contract is valid due to breach.

RULING:
Yes. Article 1385 states that rescission creates the obligation to return the things which
were the object of the contract, together with the fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.

The construction contract falls squarely under Article 1191 because it imposes upon
Deiparine the obligation to build the structure and upon the Carungays the obligation to
pay for the project upon its completion. Article 1191 is not predicated on economic
prejudice to one of the parties but on breach of faith by one of them that violated the
reciprocity between them. The violation of reciprocity between Deiparine and Carungay
spouses, to wit, the breach caused by Deiparine’s failure to follow the stipulated plans
and specifications, has given the Carungay spouses the right to rescind or cancel the
contract.

Alfonso Iringan Vs CA
GR No. 129107

FACTS:

Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of the
Tuguegarao Cadastre. The parties executed a Deed of Sale2 on the same date with the
purchase price of P295,000.00, payable as follows:

(a) P10,000.00 - upon the execution of this instrument, and for this purpose, the vendor
acknowledges having received the said amount from the vendee as of this date;
(b) P140,000.00 - on or before April 30, 1985;
(c) P145,000.00 - on or before December 31, 1985

When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao
sent a letter to Iringan stating that he considered the contract as rescinded and that he would
not accept any further payment considering that Iringan failed to comply with his obligation to
pay the full amount of the second installment. Iringan through his counsel Atty. Hilarion L.
Aquino, replied that they were not opposing the revocation of the Deed of Sale but asked for the
reimbursement of the following amounts:

(a) P50,000.00 - cash received by you;

(b) P3,200.00 - geodetic engineer's fee;
(c) P500.00 - attorney's fee;
(d) the current interest on P53,700.00

Palao sent a letter, stating that he was not amenable to the reimbursements claimed by Iringan.

Iringa, through a new counsel, proposed that the P50,000 which he had already paid Palao be
reimbursed or Palao could sell to Iringan, an equivalent portion of the land. Palo instead wrote
Iringan that the latters obligation had reached 61,600, representing payment of arrears for
rentals from October 1985 to March 1989.

The parties failed to arrive at an agreement. On July 1, 1989 Palao filed a Complaint for Judicial
Confirmation of Rescission of Contract and Damages against Iringan and his wife.
In their answer, Palao claims that the contract of sale was a consummated contract, hence, the
remedy of Palao was for collection of the balance of the purchase price and not recission.

ISSUE:
WoN the contract was validly rescinded

HELD:

Yes, the contract was validly rescinded.

Both the trial and appellate courts affirmed the validity of the alleged mutual agreement to
rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2 thereof.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in

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

The injured party may choose between the fulfillment and the rescission of the
obligation, with payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

In ruling, SC held that under Article 1124 (now Article 1191) of the Civil Code, the right to
resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply
with what is incumbent upon him. But that right must be invoked judicially. The same article also
provides: "The Court shall decree the resolution demanded, unless there should be grounds
which justify the allowance of a term for the performance of the obligation."

In the present case, Palao instituted a Complaint for Judicial Confirmation for Rescission to
which both the trial court and CA granted.

h)  Khe Hong; and Siguan

G.R. No. 144169. March 28, 2001.*

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners,
vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM
INSURANCE CO., INC., respondents.
FACTS:

Petitioner is the owner of Butuan Shipping Lines. In one of the vessels owned by the petitioner,
Philippine Agricultural Trading Corporation boarded 3,400 bags of copra to be shipped from Masbate
to Dipolog City and which said shipment of copra was insured by PhilAm. While on board, the ship
sank amounting to total loss of the shipments. Because of the loss, the insurer paid the damages to
the consignee. Having subrogated the rights of the consignee, PhilAm instituted a civil case to
recover the money paid to the consignee based on breach of contract of carriage.

While the case was pending, petitioner executed deeds of donations of parcels of land to his
children. The trial court rendered judgment against the petitioner, Khe Hong Cheng in the civil case
on December 29, 1993. After the decision became final, a writ of execution was issued but it was not
served. Therefore, an alias writ was applied for which was granted. The sheriff did not find any
property under Butuan Shipping Lines and/or Khe Hong Cheng.

In 1997, PhilAm filed complaint for annulling the deeds of donation made by herein petitioner to
his children and alleged the donation was to defraud his creditors including PhilAm. Petitioner
filed an answer stating that the action had already prescribed.

ISSUE:

Whether or not the action to rescind the donation had already prescribed. – NO

(When did the four (4) year prescriptive period as provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the subject deeds of donation commence to
run?)

RULING:

Article 1389 of the Civil Code simply provides that the action to claim rescission must be
commenced within four years. When the law is silent as to when the prescriptive period shall
commence, general rule must apply that it will commence when the moment the action accrues.

According to the trial court, the period began from December 29, 1993 when the civil case was
resolved. Thus, the CA maintained that the four-year period began only on January 1997, the time
when it first learned that the judgment award could not be satisfied because Khe Hong Cheng had
no more properties in his name.

An action for rescission must be the last resort of the creditors and can only be availed after the
creditor had exhausted all the properties. The herein respondent came to know only in January
1997 about the unlawful conveyances of the petitioner when, together with the sheriff and counsel,
were to attach the property of the petitioner and it was then only when they found out it is no longer
in the name of the petitioner.

Since the respondent filed accion pauliana on February 1997, a month after the discovery that
petitioner had no property in his name to satisfy the judgment, action for rescission of subject
deeds had not yet prescribed.

SIGUAN VS LIM
318 SCRA 725

FACTS: Rosa Lim issued two checks payable to cash to Maria Antonia Siguan.
However, upon encashment, the checks were dishonored for the reason that Lim’s
account is closed. Siguan filed a criminal case against Lim. The court a quo convicted
Lim as charged. Upon further investigation, it was found out that Lim was also involved
in a crime of estafa which she was acquitted on appeal but held her civilly liable in the
amount of P169,000.00
Rosa Lim was found out to have executed a Deed of Donation to her children
conveying 4 parcels of land leaving no property under her name due to her reason that
she was sick. Siguan, after knowing such deed filed an accion pauliana (action to
rescind) against Lim and her children to rescind the Deed of Donation for having
performed in bad faith leaving Lim no sufficient properties to pay her obligations to the
prejudice of Siguan and other victims.
The lower court decided in favor of Siguan but the Court of Appeals overturned
the decision because two elements for filing accion pauliana are missing i.e. (1) there
must be a credit existing prior to the celebration of the contract; and (2) there must be a
fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the
rescission.

ISSUE: WON, the Deed of Donation by Lim for her children be rescinded.

RULING: NO. Article 1381 of the Civil Code enumerates the contracts which are
rescissible, and among them are “those contracts undertaken in fraud of creditors when
the latter cannot in any other manner collect the claims due them. The action to rescind
contracts in fraud of creditors is known as accion pauliana. For this action to prosper,
the following requisites must be present: (1) the plaintiff asking for rescission has a
credit prior to the alienation, although demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor
has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent;
(5) the third person who received the property conveyed, if it is by onerous title, has
been an accomplice in the fraud.
Also, Article 1383 of the same Code provides that the action for rescission is but
a subsidiary remedy which cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. The term “subsidiary
remedy” has been defined as “the exhaustion of all remedies by the prejudiced creditor
to collect claims due him before rescission is resorted to.”
In the given case, the debt of Lim to Siguan because of the negative checks was
incurred in August 1990, while the Deed of Donation was executed in August 1989, a
year before the incident making the first two elements for the rescission of a contract
missing. It is a well settled rule that without any prior existing debt, there can never be
injury nor fraud. There are also no proof that Siguan has exhausted all other legal
means to obtain satisfaction of her claim. On this score, her action for the rescission of
the questioned deed is not maintainable even if the fraud charged actually did exist.
i)  Buce;  Central;  Ponce De Leon;  Lachica;  Aranetal and   
Deudor

G.R. No. 136913 May 12, 2000 ANITA C. BUCE, petitioner, vs. THE HONORABLE
COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI TIONGCO

FACTS:

The petitioner leased a 56-square meter parcel of land where the lease contract was for
a period of fifteen years from June 1979 to June 1994 "subject to renewal for another
ten (10) years, under the same terms and conditions."

After the agreement, the petitioner constructed a building and paid the required monthly
rental of P200. Respondents later demanded a gradual increase in the rental until it
reached P400 in 1985. On 6 December 1991, private respondents' counsel wrote
petitioner informing her of the increase in the rent to P1,576.58. However, the petitioner
tendered checks on October 1991-May 1992 & January 1993, for only P400, in which
the respondents refused to accept.

Due to this, the petitioner filed a complaint praying that the rentals should be accepted
by the respondents. During the pendency, counsel for respondents wrote to the
petitioner reminding her that the contract expired on 1 June 1994 and demanding that
she pay the rentals in arrears, which then amounted to P33,000.

The RTC ruled in favor of the petitioner stating the automatic renewal of the
contract. The CA reversed this decision demanding the petitioner to leave the leased
premises.
ISSUE:
Whether or not the parties intended an automatic renewal of the lease contract when
they agreed that the lease shall be for a period of fifteen years "subject to renewal for
another ten (10) years."

RULING:

NO.
The court upheld the ruling in Fernandez v. CA where it states that: in a reciprocal
contract like a lease, the period must be deemed to have been agreed upon for the
benefit of both parties, absent language showing that the term was deliberately set for
the benefit of the lessee or lessor alone.
In the case at bar, it was not specifically indicated who may exercise the option to
renew, neither was it stated that the option was given for the benefit of the petitioner.
Pursuant to the Fernandez ruling and Article 1196 of the Civil Code, the period of the
lease contract is deemed to have been set for the benefit of both parties. Renewal of
the contract may be had only upon their mutual agreement or at the will of both of them.
Since the private respondents were not amenable to a renewal, they cannot be
compelled to execute a new contract when the old contract terminated on June 1994.
Mutuality does not obtain in such a contract of lease and no equality exists between the
lessor and the lessee since the life of the contract would be dictated solely by the
lessee.
WHEREFORE, the instant petition is partly GRANTED.
    

Central Philippine University vs. Court of Appeals

G.R. No. 112127 July 17, 1995

Facts:
Sometime in 1939, the late Don Ramon Lopez, Sr. executed a deed of donation in favor
of the Central Philippine University a parcel of land with the following annotations copied
from the deed of donation; (1) The land shall be utilized by the CPU exclusively for the
establishment and use of a medical college; (2) The said college shall not sell, transfer
or convey to any third party nor in any way encumber said land; (3) The said land shall
be called “RAMON LOPEZ CAMPUS,” and the said college shall be under obligation to
erect a cornerstone bearing that name. Any net income from the land or any of its parks
shall be put in a fund to be known as the “RAMON LOPEZ CAMPUS FUND” to be used
for improvements of said campus and erection of a building thereon.”
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed
an action for annulment of donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter had not complied with the
conditions of the donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the donated property
with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed;
that it did not violate any of the conditions in the deed of donation because it never used
the donated property for any other purpose than that for which it was intended; and, that
it did not sell, transfer or convey it to any third party.

Issue: WON there is a need to fix a period for the fulfilment of the obligation on the part
of the petitioner. (NO)

Ruling:
Under Art. 1197, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule applies,
which provides that the courts may fix the duration thereof because the fulfilment of the
obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty (50)
years has already been allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere technicality and formality
and would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits.
Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply
with what is incumbent upon him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the fixing of a period. In the
absence of any just cause for the court to determine the period of the compliance, there
is no more obstacle for the court to decree the rescission claimed.

Jose Ponce De Leon , plaintiff vs Santiago Suyjuco defendant-appellant

vs PNB , defendant-appellee
GR L-3316 October 31, 1951

Facts:
There is an appeal from a decision of the CFI of Manila absolving defendant
Santiago Suyjaco and condemning De Leon to pay said defendant sum of 18,000
and interest of 5,130 as interest. The payment should be made from Aug 6, 1944 to
may 5, 1949 the total of 23,130 in peso . With interest of 6% per annum from may 6,
1949 until full amt is paid.
De Leon bought the land from PNB. He was to pay his amortizations in 10
months. While paying his amortization, he obtained a loan from Santiago Syjuco Inc.
an amount of P200,000 in japanese military notes, payable within 1 year from May
5,1948. As stated in the promissory note that De Leon could not pay and Syjuco could
not demand payment until the agreed period which is one year from May 5,1948.
(before that di pwede magbayad at di pwede maningil). Ponce De Leon mortgaged his
land to Syjuco.
Ponce De Leon settled with PNB the remaining balance he needed to pay for the
land. And the titles were transferred to Ponce De Leon.
Ponce DeLeon had additional debt to Syjuco. And executed the same
arrangement of payment with his first debt with Syjuco.
In October 1944 Ponce De leon tendered to Syjuca the amount of 254,880 in
Japanese military notes in full payment of his debt to Syjuco. The payment included
the interest up to May 5, 1948. But Syjuco refused to accept his payments. The
consignation was deposited with the clerk of court
Meanwhile Ponce De Leon mortgaged his land to PNB. The titles were
reconstituted in the name of the Bank. Syjuco demanded that the mortgage of Ponce
De Leon with PNB be declared void.
Issue:
1. Whether or not the consignation made with the clerk of court made by Ponce
De Leon of the principal and interest of his 2 promissory notes are valid? ( invalid)
2. Is it right using the Ballantyne schedule the principal and interest of the
promissory notes were reduced using as a pattern the Ballantyne schedule ?(yes)
Ruling:
1. The consignation made by plaintiff is invalid under the law. Requirements are as
follows;
a. there is a debt due
b. consignation made because creditor whom tender of payment is made refused
to accept it as the creditor maybe absent or incapacitated to receive the payment (art
1176)
c. notice of consignation have been given to the person interested in the
performance of the obligation. ( art t 1177)
d. that the amount due is placed at the disposal of the court. (art 1178)
e. after consignation the person interested was notified (art 1178.)
With the case given, the debt existed, but the creditor did not agree with the
consignation. And the debt is not yet due and demandable. UNDER THE LAW AN
OBLIGATION WITH A PERIOD is constituted in favor of the creditor and debtor. It
cannot be accelerated and paid ahead of the prescribed period of payment. (di pwede
advance payment). The debtor cannot pay in advance even if it includes the full amount
and interest unless the creditor allow him to this.
2. The law allows payment to be in the currency of the Government at the time of
payment. Since Ponce De Leon used the peso currency it is not immoral to pay In
peso and it seemed that he had no other options.
 The attempt of the Ponce De Leon to pay in advance may be wrong but it was
because of the honest belief that the term is not binding . He did not intend to modify
the contract.
The Court declared that the mortgage claim of Syjuco should be prioritized
over that of the PNB.
Judgment shall be held in abeyance, or no order for the execution shall be issue,
until after the moratorium orders shall have been lifted.

MARIA LACHICA VS. GREGORIO ARANETA

47 OG 5699 August 19, 1949

FACTS:

Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land
with the improvements thereon. This property was bought by Investment Corporation
through Maria Lachica, the wife of the Esteban Sadang who was sales agent of
defendant corporation. 

The terms of the contract stated that the price was P20,000, of which P8,000 was to be
paid in cash and the balance of P12,000 in installments of –

            P 1,000 on or before December 31, 1943

            P 1,000 on or before December 31, 1944

            P 10,000 on or before December 31, 1945.

What the parties signed was a contract of exact content as stated, which however
omitted the words “or before.” Thus, it would appear that the payment of the
installments would be “on” and not “on or before” the dates as specified.

The contract further added that “this same property will be mortgaged to us to
guarantee the unpaid balance, and the same will bear an interest of 8 percent per
annum; said interest to be paid monthly in advance.” 

The terms were complied with, together with some resolved differences, until on Sept.
5, 1944, plaintiff Sadang went to see Araneta to pay the entire balance, including the
interest thereon and ask for the cancellation of the mortgage, but Araneta refused to
accept the tender of payment. Araneta gave as his reason for his non-acceptance that
such payment was not in accordance with the terms of the deed of sale with mortgage. 

Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta
with the CFI of Manila by way of consignation, and at the same time presented the
complaint. 

The defendant alleges that payment should be on the date specified, not before; the
plaintiffs claim that such payment may be made on or before the date specified.

ISSUE: 

Should Araneta be compelled to accept the payment?

RULING:

Yes. The contract does not prohibit if it is done before (p.5706, no. 2). A term is fixed
and “it is presumed to have been established for the benefit of the creditor as sell as
that of the debtor, unless from its tenor or from other circumstances it should appear
that the terms as established for the benefit of one or the other.” (Art. 1127, now 1196
Civil Code). And the contract specifically provides that “these periods of payment have
been agreed for the benefit of the vendor and the vendee.” Such mutual benefit has
been interpreted to consist of the time granted a debtor to find means to comply with his
obligation, and the fruits, such as interest, accruing to the creditor. 

From the SC decision in Villaseñor vs. Javellana, the only impediment to a debtor
making payment before the term fixed, is the denial to the creditor of the benefits, such
as interests, accruing to the later by reason of the fixed term. This, coupled with the fact
that the contract did not prohibit payment before the fixed date, justifies the conclusion
that under the terms signed, plaintiffs could do so. To hold otherwise, would be virtually
compelling an obligor to assume an obligation later when he offers to, and could very
well, discharge it earlier. The law should not be interpreted as to compel a debtor to
remain so, when he is in a position to release himself. 

Further, the acceleration clause in the contract signed by the parties state that “in the
event of defaults in payment of any amount due, either for capital or interest, the whole
balance shall automatically become due and payable, and the vendor shall have the
right to foreclose the mortgage in its entirety.” While the clause is standard one
contained in most mortgage deeds where the mortgage loan is payable in several
installments, still we cannot escape the conclusion, derived from the clause itself, that
payments may be made by the vendee before the dates stated in the contract .

Deudor Vs JM Tuason
GR No L-13768

FACTS:
Plaintiff claimed a parcel of land of about 50 "quiñones", or 225 hectares, located in
Tatalon, QuezonCity, over which J. M. Tuason & Co., Inc., asserted ownership under
the Land Registration Act, by virtue of an original certificate of title. The Deudors
acknowledged the title of J. M. Tuason &Co., Inc. and in consideration thereof, J. M.
Tuason & Co., Inc. undertook to pay them as stipulated in ther Compromise Agreement

Under the Compromise Agreement, and subject to its other terms and conditions, the
Deudors areobligated to deliver the clear and peaceful possession of the entire 50
quiñones to the owners. The first payment shall be P100,000.00 and shall be made
within sixty (60) days from the date thedecision rendered approving the Compromise
Agreement becomes final; Provided, that within said period the Deudors shall have
deliveres to the OWNERS of at least 20 quiñones. However, the said parcel of land was
not deliverd until January 14, 1956.

On April 27, 1956, the appellees filed supplemental motion and "manifestation" praying
that payment of balance of P79,800.00 to the Deudors "be withheld until after the
additional 129 illegal constructions in the area is removed".

On February 28, 1957, the Court, decided to set a period of 4 months fortthe Deudors
to deliver the entire 30 quiñones to the owners. Failure of the Deudors to do so will have
the effect of freeing the J.M. Tuason & Co., Inc. and the Gregorio Araneta, Inc. from all
its obligations under the Compromise Agreement and judgment.

The Deudors had not delivered the aforementioned portion of 30 "Quiñones", despite
the expiration of the period of 4 months and that, owing to the failure of the Deudors to
make said delivery, the construction of houses by squatters within said area had
continued so unabated that, as of August 12,1957, there were 341 constructions
therein.

Appellants contend the trial court had no authority to fix a period four months for the
delivery of the 30 quinones lot.

ISSUE
WoN the trial court has the authority to fix a period for the delivery of the obligation

HELD:
Yes, the trial court has the authority to fix the period of delivery of the of the obligation

Article 1197 of the Civil Code provides that:

If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended the courts may fix the duration
thereof.

The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
 In every case, the Courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them.

In the present case the Deudors admit that the Compromise Agreement "failed to prove
for a specific period within which the Deudors should deliver possession" of said 30
"quiñones". Upon the other hand, it is clear from the nature of said agreement and the
circumstances surrounding the same that a period was intended by the parties thereto.
Indeed, considering that the appellees had a Torrens title, they had no reason to agree
on paying P614,925.74 to the Deudors, except upon the expectation of delivery of said
area without unreasonable delay.

In ruling, the Court held that, when the authority granted by this provision (Article 1197,
NCC) is exercised by courts, the same do not amend or modify the obligation
concerned. Article 1197 is part and parcel of all obligations contemplated therein.
Hence, whenever a period is fixed pursuant to said Article, the court merely enforces or
carries out an implied stipulation in the contract in question. In fact, insofar as contracts
not fixing a period are concerned, said legal provision applies only if, from the nature
and circumstances surrounding the contract involved, "it can be inferred that a period
was intended" by the parties thereto. For this reason, the last paragraph of Article 1197,
ordains that "in every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties." In other words, in
fixing said period, the Court merely ascertains the will of the parties and gives
effect thereto.

   j)  Nakpil;  Republic;  Lasam;  Dioquino;  Austria;  NPC; 

Yobido;  Bacolod-Murcia;  PhilComsat; SouthWestern;  Roman Catholic
Bishop;  Pons;  Yap;  and  Limpango.

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J.
CARLOS, and the PHILIPPINE BAR ASSOCIATION

144 SCRA 596 October 3, 1986

Facts:
This case came about due to a fortuitous event that occurred when an earthquake hit
Manila, causing the building of the Philippine Bar Association (PBA) to collapse. The
plans and specifications of the said building was provided by Nakpil, while the
construction of the building itself was done by United Construction Company Inc.
(UCCI). Nakpil and UCCI puts blame on each other for the collapse of the building.
Nakpil contends that UCCI did not follow the plans and specifications and did poor
workmanship, while on the other side, UCCI blames Nakpil for the defects in the plans
and specifications. Nakpil alleged that they should be exempt from liability because the
damage and injury is due to acts of God which are unforeseeable.

Issue:
Whether or not there is a contravention of the tenor of the contract despite the fortuitous
event, giving rise to liability for damages. (YES)

Held:
Yes, there is a contravention of the tenor of the contract.

Despite the happening of a fortuitous event or an act of God, if there concurs a

corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results
in loss or damage, the obligor cannot escape liability.

Thus it has been held that when the negligence of a person concurs with an act of God
in producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from liability for loss
because of an act of God, he must be free from any previous negligence or misconduct
by which that loss or damage may have been occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants petitioners was
established beyond dispute, through reports from experts. 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 causes that
rendered the PBA building unable to withstand the earthquake of August 2, 1968. For
this reason the defendant and third-party defendants cannot claim exemption from
liability.
   

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.

G.R. No. L-21749 September 29, 1967

Facts:

In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon
Stevedoring Corporation (LSC) was being towed down the Pasig river by tugboats
"Bangus" and "Barbero"1 also belonging to the same corporation, when the barge
rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the
posts and causing the bridge to list. The river, at the time, was swollen and the current
swift, on account of the heavy downpour of Manila and the surrounding provinces on
August 15 and 16, 1960.

Sued by the Republic of the Philippines (RP) for actual and consequential damage
caused by its employees, amounting to P200,000, LSC disclaimed liability therefor, on
the grounds that it had exercised due diligence in the selection and supervision of its
employees; that the damages to the bridge were caused by force majeure; that RP has
no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation.

The court rendered judgment holding the LSC liable for the damage caused by its
employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan
bailey bridge which amounted to P192,561.72, with legal interest thereon from the date
of the filing of the complaint.

Issue:

Whether or not the collision of the barge with the piers of the Nagtahan bridge was
caused by fortuitous event or force majeure freeing from liability or breach of contract.

Ruling:
No. The court ruled that the very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually foreseen, and was not caso
fortuito.

In addition, for caso fortuito or force majeure (which in law are identical in so far as they
exempt an obligor from liability) by definition, are extraordinary events not foreseeable
or avoidable, "events that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the
event should not have been foreseen or anticipated, as is commonly believed, but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same.
Hence, the decision of the lower court affirmed.

Lasam Vs Smith
GR No 19495

Facts:

Smith was the owner of a public garage in the town of San Fernando, La Union, and
engaged in the business of carrying passengers for hire from one point to another in the
such province and the surrounding provinces. Defendant undertook to convey the
plaintiffs from San Fernando to Currimao, Ilocos Norte.

On leaving San Fernando, the automobile was operated by a licensed chauffeur, but
after having reached the town of San Juan, the chauffeur allowed his assistant, Bueno,
to drive the car. Bueno held no driver’s license, but had some experience in
driving. The car functioned well until after the crossing of the Abra River in Tagudin,
when, according to the testimony of the witnesses for the plaintiffs, defects developed in
the steering gear so as to make accurate steering impossible, and after zigzagging for a
distance of about half kilometer, the car left the road and went down a steep
embankment. The automobile was overturned and the plaintiffs pinned down under it.
Mr. Lasam escaped with a few contusions and a dislocated rib, but his wife, Joaquina,
received serious injuries, among which was a compound fracture of one of the bones in
her left wrist. She also suffered nervous breakdown from which she has not fully
recovered at the time of trial.

The complaint was filed about a year and a half after and alleges that the accident was
due to defects in the automobile as well as to the incompetence and negligence of the
chauffeur.

Issue:

WoN the accident is covered by fortuitous event

Ruling:

No, the accident is not covered by fortuitous event.

Enciclopedia Juridica Española defines caso fortuito (fortuitous event) as; "In a legal
sense and, consequently, also in relation to contracts, a caso fortuito presents the
following essential characteristics: (1) The cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will. (2) 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. (3)
The occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner. And (4) the obligor (debtor) must be free from any
participation in the aggravation of the injury resulting to the creditor."

In ruling, the Court held that some extraordinary circumstance independent of the will of
the obligor, or of his employees, is an essential element of a caso fortuito. Turning to
the present case, it is at once apparent that this element is lacking. It is not suggested
that the accident in question was due to an act of God or to adverse road conditions
which could not have been foreseen. As far as the records shows, the accident was
caused either by defects in the automobile or else through the negligence of its driver. 

Dioquino v. Laureano
G.R. No. L-25906

Facts: Attorney Pedro Dioquino, a practicing lawyer of Masbate, is the owner of a car.
On March 31, 1964, he went to the office of the MVO, Masbate, to register the same.
Attorney Dioquino requested the defendant Federico Laureano to introduce him to one
of the clerks in the MVO Office, who could facilitate the registration of his car and the
request was graciously attended to. Defendant Laureano rode on the car of Atty.
Dioquino on his way to the P.C. Barracks at Masbate. While about to reach their
destination, the car driven by plaintiff's driver and with defendant Federico Laureano as
the sole passenger was stoned by some 'mischievous boys,' and its windshield was
broken.

The defendant Federico Laureano refused to file any charges against the boy and his
parents because he thought that the stone-throwing was merely accidental and that it
was due to force majeure. Laureano refused to pay for the damaged done to the
windshield and challenged the case for judicial adjudication. There is no question that
the plaintiff tried to convince the defendant Federico Laureano just to pay the value of
the windshield and he even came to the extent of asking the wife to convince her
husband to settle the matter amicably but the defendant Federico Laureano refused to
make any settlement, clinging [to] the belief that he could not be held liable because a
minor child threw a stone accidentally on the windshield and therefore, the same was
due to force majeur.

Including in the action filed the wife, Aida de Laureano, and the father, Juanito
Laureano.

Issue:
(1) Whether or not there was fortuitous event and Federico Laureano is liable to
pay for damages.
(2) Whether or not the plaintiff is liable for damages for including Federico
Laureano’s wife and father.

Ruling:
 (1) The express language of Art. 1174 of the present Civil Code states that
"Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which
could not be, foreseen, or which, though foreseen were inevitable."
Authorities of repute are in agreement, more specifically concerning an
obligation arising from contract "that some extraordinary circumstance
independent of the will of the obligor, or of his employees, is an essential
element of a caso fortuito." 5 If it could be shown that such indeed was the
case, liability is ruled out. There is no requirement of "diligence beyond what
human care and foresight can provide." 6 The throwing of the stone by the
child was clearly unforeseen or if foreseen, was inevitable. Hence, the law
being what it is, such a belief on the part of defendant Laureano was justified
and he shall not be held liable for the damages caused to the car.
(2) No moral damages should be awarded against the parties. Mistaken as
plaintiff apparently was, it cannot be concluded that he was prompted solely
by the desire to inflict needless and unjustified vexation on them. Considering
the equities of the situation, plaintiff having suffered a pecuniary loss which
while resulting from a fortuitous event, perhaps would not have occurred at all
had not defendant Federico Laureano borrowed his car, we, feel that he is not
to be penalized further by his mistaken view of the law in including them in his
complaint. Well-worth paraphrasing is the thought expressed in a United
States Supreme Court decision as to the existence of an abiding and
fundamental principle that the expenses and annoyance of litigation form part
of the social burden of living in a society which seeks to attain social control
through law.

GUILLERMO AUSTRIA vs. THE COURT OF APPEALS

G.R. No. L-29640 June 10, 1971

Facts:
Maria G. Abad received from Guillermo Austria one pendant with diamonds worth
P4,500 to be sold on commission basis or to be returned on demand. While walking
home, two men accosted her, snatched her purse containing jewelry and cash, and ran
away. The robbery became the subject of a criminal case filed in the Court of CFI Rizal,
although nobody has been found guilty of the supposed crime.
Thus, Abad failed to return the jewelry or pay its value notwithstanding demands.
Austria filed an action against her and her husband for recovery of the pendant or of its
value, and damages. The trial court ruled in favour of plaintiff and ordered spouses to
pay Austria.
However, Abad went to the Court of Appeals and secured a reversal of the judgment
declaring that they are not responsible for the loss of the jewelry on account of a
fortuitous event, and relieved them from liability for damages to the owner.
Issue: WON the robbery incident extinguished Abad’s liabilities. (YES)
Ruling:
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a
person from responsibility, it is necessary that (1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the
obligor must be free of participation in or aggravation of the injury to the creditor. A
fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms,
floods, etc., or by the act of man, such as war, attack by bandits, robbery, etc., provided
that the event has all the characteristics enumerated above.
The point at issue in this proceeding is how the fact of robbery is to be established in
order that a person may avail of the exempting provision of Article 1174 of the new Civil
Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which, though foreseen, were inevitable.
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 established 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.

National Power Corporation petitioner vs Court of Appeals and Engineering

Construction Inc. respondents
Gr No. L-47379 May 16, 1988
Engineering Construction, Inc., petitioner vs CA and NPC
GR L-47481 May 16,1988

Facts:

On August 4,1964 The ECI had a contract with NAWASA to construct the proposed
2nd Ipo-Bicti Tunnel and other structures at Norzagaray, Bulacan. And to complete the
works within 800 calendar days from the date the contractor receives the formal
notice.

When all the excavation work at Bicto site was done, the equipment were transferred to
the Ipo site to complete other works.

On November 4,1967 the the typhoon “Welming” hit Central Luzon and the sight of the
Angat Hydro -electric Project and Dam at Ipo at Norzagaray, Bulacan was affected.
There was strong wind and heavy rain fall. The level of the water was rising at the rate
of 60 cm per hour. To prevent overflow, when it reached the height of 212 meters
above sea level, NPC opened the spillway gates.
The construction site at Ipo was affected badly by the large volume of water released.
The materials and supplies were washed away and permanent structures and
accessories were destroyed.

According to CA there was negligence on the part of NPC as it did not exercised
extra ordinary care opening the spillway gates. The gates could have been opened
gradually when the level of water was still low. Plus the NPC knew the coming of the
typhoon 4 days before it actually hit the project area.

Court of Appeals reduced the amount of consequential damages to 19,000. The price
of the new crane should not be included and bonus from NAWASA was rejected by
CA. Exemplary damages of was eliminated as there was no gross negligence on the
part of NPC.

Both parties had petitions to SC; ECI- claimed that the CA erred in its decision to
reduced the consequential damages to 19,000. And that the month bonus is justified
since the ECI’s contract has dual effects .That is bonus for earlier completion or
damages for the delay. NPC claimed that CA erred in its decision as it claimed that
the destruction and loss of the ECI’s equipment and facilities were due to the FORCE
MAJEURE. That the rise of water was an extraordinary occurrence that could not
have been foreseen.

Issue:
Whether or not the NPC is liable of negligence for the loss and damages of ECI. (liable)
Whether or not the ECI can claim as part of the damages the value of the new crane
(no)

Ruling:

1.) NPC is liable for the damages and loss of ECI.

As provide in art 1170 in civil code, the happening of a fortuitous event or an act
of God concurs a corresponding fraud, negligence, delay or contravention that results
to the loss or damage, the obligor cannot escape liability.

In this case, NPC was negligent because it opened the spillway of the gates
when the water level was already high. It could have opened the gates gradually and
earlier. It cannot escape liability even if the typhoon was an act of God or force
majeure. NPC knew the typhoon coming 4 days before and should have been more
diligent.
2. ) ECI cannot claim as part of the damages the amount of the new crane.
It would be unjust enrichment for ECI if the new crane bought by ECI will be
included in the damages. The repair of the old crane was already included in the
compensatory damages. That is why the CA did not include in the computation the rate
of a crane rented for a month (4,000 a day) when the old crane was repaired. The
purchase of the new crane cannot be charged against NPC as it was bought days
before the typhoon.
 The Court affirmed the reduction of attorney’s fees from 50,000 to 30,000. No
exemplary damages to be awarded as NPC did not act in fraudulent and and
oppressive manner. NPC’s negligence was not in bad in faith and cannot be
considered gross.
The petitions were both dismissed for lack of merit. The decision appealed from
is affirmed.

Yobido v. CA

G.R. No. 113003, October 17, 1997, 281 SCRA 1

FACTS:

On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named
Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus 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 attorneys fees was filed by Leny and her children
against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before
the Regional Trial Court of Davao City. When the defendants therein filed their answer
to the complaint, they raised the affirmative defense of caso fortuito. They also filed a
third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This third-
party defendant filed an answer with compulsory counterclaim. Defendants contented
that they exerted due diligence such that the bus was not full that time and that the tire
was new. On August 29, 1991, the lower court rendered a decision dismissing the
action for lack of merit. However, on August 23, 1993, the Court of Appeals rendered
the Decision reversing that of the lower court. Hence this case.

ISSUE:

1. Whether or not the tire blowout was a fortuitous event.

2. Whether or not defendants did not exercise utmost and/or extraordinary diligence
required of carriers under Article 1755 of the Civil Code

RULING:

The Supreme Court affirmed the decision of the Court of Appeals, reiterating provisions
of the Civil Code.

Art. 1756. In case of death or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.
 Article 1755 provides that (a) common carrier is bound to carry the passengers safely
as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances. Accordingly, in culpa
contractual, once a passenger dies or is injured, the carrier is presumed to have been at
fault or to have acted negligently. This disputable presumption may only be overcome
by evidence that the carrier had observed extraordinary diligence as prescribed by
Articles 1733, 1755 and 1756 of the Civil Code or that the death or injury of the
passenger was due to a fortuitous event. Consequently, the court need not make an
express finding of fault or negligence on the part of the carrier to hold it responsible for
damages sought by the passenger

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.
As stated above, proof that the tire was new and of good quality is not sufficient proof
that it was not negligent. Petitioners should have shown that it undertook extraordinary
diligence in the care of its carrier, such as conducting daily routinary check-ups of the
vehicles parts.

Bacolod-Murcia Milling v. Court of Appeals 182 SCRA 24, G.R. No. 81100-01
(February 7, 1990)

Facts:

1. Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar
central in Bacolod.
2. Alonso Gatuslao (Gatuslao) is a registered plantor of the Bacolod-Muria Mill
District.
3. BMMC and Gatuslao executed an “Extension and Modification of Milling
Contract.
4. From crop year 1957-1958 up to crop year 1967-1968, Gatuslao has been milling
all the sugarcane grown and produced with the Mill of BMMC.
5. From crop year 1920-21 to crop year 1967-68, the canes of planters adhered to
the mill of BMMC were transported from the plantation to the mill by means of cane cars
and through railway system operated by BMMC.
6. BMMC has been hauling planter Gatuslao’s sugar cane to its mill or factory
continuously until crop year 1967 – 1968.
7. The milling contract between BMMC and owners of the hacienda Helvetica
expired at the end of the 1964-1965 crop year.
8. The portion of the railway traversing the hacienda Helvetica was closed as per
decision of the court.
9. The use of the railroad tracks(traversing hacienda Helvetica) was temporarily
allowed due to the intervention of the President of the Philippines, which is until 1967-
1978 milling season only.
10. Gatuslao loaded their cut cranes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-MACMA) during 1968-1969 crop
year.
11. BMMC had not been able to use its cane cars and railway system for the cargo
crop year 1968-1989.

Issue/s:

1. Whether or not the termination of petitioner’s right of way over the hacienda
Helvetica caused by the expiration of its amended milling contracts with the landowners
of the land in question is fortuitous event or force majeure which will exempt petitioner
BMMC from fulfillment of its contractual obligation.
2. Whether or not BMMC was able to provide adequate and efficient transportation
facilities of the canes of Gatuslao and the other planters milling with BMMC during the
crop year 1968-69.

Ruling:

1. No. The terms of the milling contracts were clear and undoubtedly there was no
reason for BMMC to expect otherwise. The closure of any portion of the railroad track,
not necessarily in the hacienda Helvetica but in any of the properties whose owners
decided not to renew their milling contracts with the Central upon their expiration, was
foreseeable and inevitable.

Despite its awareness that the conventional contract of lease would expire in crop year
1964-1965 and that refusal on the part of any one of the landowners to renew their
milling contracts and the corresponding use of the right of way on their lands would
render impossible compliance of its commitments, BMMC took a calculated risk that all
the landowners would renew their contracts.

The closure of the railway lines was not an act of God nor it constitute force majeure. It
was due to the termination of the contractual relationships of the parties, for which
BMMC is charged with knowledge. Owners of the hacienda Helvetica notified BMMC as
 far back as August 1965 of its intention not to allow the passage of the railway system
thru its land after the aforesaid crop year. Adequate measures should have been
adopted by BMMC to forestall such paralyzations but the records show none.

2. No, BMMC failed to provide adequate transportation facilities to Gatuslao and

other adherent parties.

The inadequacies of the reparto or trailer allotment as well as the state of

unpreparedness on the part of BMMC to meet the problem posed by the closure of the
railway lines.

It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers
arrived and when two trailers finally arrived on October 1968 after several unheeded
requests, they were left on the national highway about one kilometer away from the
loading station, the means of transportation provided by BMMC is very inadequate to
answer the needs of Gatuslao.

PHIL. COMMUNICATIONS SATELLITE CORP. V. GLOBE TELECOM, INC.

G.R. No. 147324, May 25, 2004

Facts:

Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision of
various communication facilities for the military bases of the US in Clark Air Base and
Subic Naval Base. Philcomsat and Globe entered into an Agreement whereby
Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the exclusive use of the USDCA. The term of
the contract was for 60 months, or 5 years. In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.

At the time of the execution of the Agreement, both parties knew that the RP-US Military
Bases Agreement, which was the basis for the occupancy of the Clark Air Base and
Subic Naval Base in Cubi Point, was to expire in 1991.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and
the USDCA made use of the same. On 16 September 1991, the Senate passed and
adopted Senate Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty that was supposed to extend the term of the use by the US of
Subic Naval Base, among others.

Globe notified Philcomsat of its intention to discontinue the use of the earth station in
view of the withdrawal of US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe invoked as basis for the
letter of termination Section 8 (Default) of the Agreement, which provides: ”Neither party
shall be held liable or deemed to be in default for any failure to perform its obligation
under this Agreement if such failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from performing its obligation until such
force majeure or fortuitous event shall terminate. For the purpose of this paragraph,
force majeure shall mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.”

Philcomsat sent a reply letter, stating that "we expect [Globe] to know its commitment to
pay the stipulated rentals for the remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station after November 08, 1992," citing
Section 7 of the Agreement.

After the US military forces left Subic Naval Base, Philcomsat demanded payment from
Globe of its outstanding obligations under the Agreement. However, Globe refused to
heed Philcomsat’s demand. Philcomsat filed a Complaint against Globe, praying that
the latter be ordered to pay liquidated damages under the Agreement, with legal
interest, exemplary damages, attorney’s fees and costs of suit.

Issue: WON THE TERMINATION OF THE RP-US MILITARY BASES AGREEMENT

WAS A FORTUITOUS EVENT?

Ruling:

YES. There is no merit is Philcomsat’s argument that Section 8 of the Agreement

cannot be given effect because the enumeration of events constituting force majeure
therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil
Code and is therefore invalid. In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be unforeseen in order to exempt a party
to a contract from complying with its obligations therein. It insists that since the
expiration of the RP-US Military Bases Agreement, the non- ratification of the Treaty of
Friendship, Cooperation and Security and the withdrawal of US military forces and
personnel from Cubi Point were not unforeseeable, but were possibilities known to it
and Globe at the time they entered into the Agreement, such events cannot exempt
Globe from performing its obligation of paying rentals for the entire five-year term
thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable, but also to
those which are foreseeable, but inevitable. A fortuitous event under Article 1174 may
either be an "act of God," or natural occurrences such as floods or typhoons,or an "act
of man," such as riots, strikes or wars.
The enumeration under Section 8 of the Contract are either unforeseeable, or
foreseeable but beyond the control of the parties. There is nothing in the enumeration
that runs contrary to, or expands, the concept of a fortuitous event. Not being contrary
to law, morals, good customs, public order, or public policy, Section 8 of the Agreement
which Philcomsat and Globe freely agreed upon has the force of law between them.
In order that Globe may be exempt from non-compliance with its obligation to pay
rentals under Section 8, the concurrence of the following elements must be established:
(1) the event must be independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor
must be free of participation in, or aggravation of, the injury to the creditor.
The Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military Bases Agreement when the same
expired in 1991, because the prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in December 1992.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under
paragraph 8 of the Agreement. From the foregoing, the Court finds that the defendant is
exempted from paying the rentals for the facility for the remaining term of the contract.
Moreover, it would be unjust to require Globe to continue paying rentals even though
Philcomsat cannot be compelled to perform its corresponding obligation under the
Agreement.

G.R. No. 126389. July 10, 1998.

SOUTHEASTERN COLLEGE, INC., petitioner, vs. COURT OF APPEALS, JUANITA

DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents.

Obligations and Contracts; Fortuitous Events; Words and Phrases; The antecedent of

FACTS:
Private respondents are owners of a house at 326 College Road, Pasay City, while
petitioner owns a four-storey school building along the same College Road. On October
11, 1989, at about 6:30 in the morning, a powerful typhoon “Saling” hit Metro Manila.
Buffeted by very strong winds, the roof of petitioner’s building was partly ripped off and
blown away, landing on and destroying portions of the roofing of private respondents’
house.
In the aftermath, an ocular inspection of the destroyed building was spearheaded by the
city building official. In his report, he imputed negligence to the petitioner for the
structural defect of the building and improper anchorage of trusses to the roof beams
which caused the roof be ripped off the building, thereby causing damage to the
property of respondents.
Respondents filed an action for damages based on culpa aquiliana for the damage to
their house which was rendered uninhabitable. Petitioner answered that the typhoon
was an act of God and therefore beyond human control. Petitioner thus cannot be
liable for damages, absent any negligence on its part.
The trial court held petitioner liable for the damages because of the faulty construction
of petitioner’s building. The Court of Appeals affirmed with modification as to the amount
of damages.

ISSUE:
Whether or not petitioner is liable for damage caused by typhoon “Saling” being an act
of God or a fortuitous event. – NO
(Whether the damage on the roof of the building of private respondents resulting from
the impact of the falling portions of the school building’s roof ripped off by the strong
winds of typhoon “Saling,” was, within legal contemplation, due to fortuitous event)

RULING:
Petitioner cannot be held liable for the damages suffered by the private respondents as
it was caused by a fortuitous event. This conclusion finds support in Article 1174 of the
Civil Code, which provides:

“Art. 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though
foreseen, were inevitable.”
In order that a fortuitous event may exempt a person from liability, it is necessary that
he be free from any previous negligence or misconduct by reason of which the loss may
have been occasioned. An act of God cannot be invoked for the protection of a person
who has been guilty of gross negligence in not trying to forestall its possible adverse
consequences.
When a person’s negligence concurs with an act of God in producing damage or injury
to another, such person is not exempt from liability by showing that the immediate or
proximate cause of the damage or injury was a fortuitous event. When the effect is
found to be partly the result of the participation of man—whether it be from active
intervention, or neglect, or failure to act—the whole occurrence is hereby humanized,
and removed from the rules applicable to acts of God.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence
which may be foreseen but is unavoidable despite any amount of foresight, diligence or
care.
In order to be exempt from liability arising from any adverse consequence engendered
thereby, there should have been no human participation amounting to a negligent act. In
other words, the person seeking exoneration from liability must not be guilty of
negligence.
Negligence, as commonly understood, is conduct which naturally or reasonably creates
undue risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance which the circumstances justly demand, or the omission to do
something which a prudent and reasonable man, guided by considerations which
ordinarily regulate the conduct of human affairs, would do.
Petitioner cannot be made to answer for a purely fortuitous event. The claim for
damages by respondents must fail.
ROMAN CATHOLIC ARCHBISHOP OF MANILA v CA
G.R. No. 77425/77450 June 19, 1991

FACTS:

In their complaint, private respondents alleged that on August 23, 1930, the spouses
Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation
in favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of
land (Lot No. 626, Cadastral Survey of Kawit), located at Kawit, Cavite, containing an
area of 964 square meters, more or less. The deed of donation allegedly provides that
the donee shall not dispose or sell the property within a period of one hundred (100)
years from the execution of the deed of donation, otherwise a violation of such condition
would render ipso facto null and void the deed of donation and the property would revert
to the estate of the donors.

It is further alleged that on or about June 30, 1980, and while still within the prohibitive
period to dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose
administration all properties within the province of Cavite owned by the Archdiocese of
Manila was allegedly transferred on April 26, 1962, executed a deed of absolute sale of
the property subject of the donation in favor of petitioners Florencio and Soledad C.
Ignao in consideration of the sum of P114,000. 00. As a consequence of the sale,
Transfer Certificate of Title No. 115990 was issued by the Register of Deeds of Cavite
on November 15, 1980 in the name of said petitioner spouses.

The lower court ruled that the action had already prescribed and dismissed the
complaint. This was reversed by the CA.

Issue:
Whether or not the condition in the deed of donation is contrary to public policy.

Ruling:

Yes. The court held that contention of private respondents is based on the alleged
breach by petitioners of the resolutory condition in the deed of donation that the
property donated should not be sold within a period of one hundred (100) years from the
date of execution of the deed of donation. Said condition, in our opinion, constitutes an
undue restriction on the rights arising from ownership of petitioners and is, therefore,
contrary to public policy.

Donation, as a mode of acquiring ownership, results in an effective transfer of title over

the property from the donor to the donee. Once a donation is accepted, the donee
becomes the absolute owner of the property donated. Although the donor may impose
certain conditions in the deed of donation, the same must not be contrary to law,
morals, good customs, public order and public policy. The condition imposed in the
deed of donation in the case before us constitutes a patently unreasonable and undue
restriction on the right of the donee to dispose of the property donated, which right is an
indispensable attribute of ownership. Such a prohibition against alienation, in order to
be valid, must not be perpetual or for an unreasonable period of time.

In the case at bar, we hold that the prohibition in the deed of donation against the
alienation of the property for an entire century, being an unreasonable emasculation
and denial of an integral attribute of ownership, should be declared as an illegal or
impossible condition within the contemplation of Article 727 of the Civil Code.
Consequently, as specifically stated in said statutory provision, such condition shall be
considered as not imposed. No reliance may accordingly be placed on said prohibitory
paragraph in the deed of donation.

WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment
is hereby rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court,
Branch XX, Imus, Cavite.

G.R. No. 10006           September 18, 1915

YAP KIM CHUAN, plaintiff-appellee,

vs.
ALFONSO M .TIAOQUI, defendant-appellant.

Facts:

Plaintiff leased the building at No. 218 Calle Rosario, owned by the defendant, up to
December 31 of the same year, undertaking to pay therefor the sum of P310 from said
March 15 to June 30, 1913, and P315 from the subsequent first of July until the
termination of the lease; and that on April 14, 1913, because of the leaks in the roof of
the storeroom of said building, without fault or negligence on the plaintiff's part, some of
his merchandise stored in said storeroom was so wet and damaged as to cause him a
loss amounting to P1,169.

Consequently, on April 15, 1913, a list of the damaged goods was made out in the
presence of the plaintiff, the defendant and a notary public; that afterwards the
defendant expressly authorized the plaintiff to sell he damaged goods at any price,
promising to pay the difference between the selling price and the regular price of the
articles in good condition; that by virtue of said authorization and promise, plaintiff
accordingly disposed of all the damaged goods that could be sold, at a loss of P1,169;
and that notwithstanding the repeated demands made upon him to pay this amount,
according to promise, said defendant had refused and refuses to pay.

Issue:
Whether or not the owner of a tenement, is responsible for the deterioration of the
goods.

Ruling:

The Court held in the negative. A fortuitous event is an accident independent of the
obligor's will to carry out some stipulation and it is plain that for him to escape the
imputation of not performing his obligation he must be placed in a situation arising from
an unforeseen event, or in one where, even if he had foreseen it, still he could not have
avoided it, by reason of the fact that its unexpectedness and inevitability places it
beyond human control. Nobody is responsible for such unforeseen and inevitable
occurrences in the case of a fortuitous event or force majeure, unless the law expressly
so states or such responsibility has been expressly stipulated in the obligation.

LIMPANGCO SONS, plaintiff-appellant, vs. YANGCO STEAMSHIP CO., defendant-

appellee.
G.R. No. L-10283 July 25, 1916

Facts:
Plaintiff employed defendant to tow from Guagua to Manila two cascos loaded with
2,041.80 piculs of sugar, property of the plaintiff.
The cascos left Guagua towed by the launches Tahimic and Matulin, belonging to the
defendant. When the launches, together with their tows, arrived off the Malabon River,
the patron of the launch Matulin, decided to leave the cascos in the Malabon River as
testified by the casco men.

Next day, the launch Matulin was in the Malabon River and the patron talked to the men
in charge of the cascos, which were at that time tied up at Tansa, and told them that on
the following day, he would await them off the mouth of the Malabon River, and that, if
the weather was then favorable, he would tow them to Manila.

It was agreed between them that the cascos should move out of the river which is
1,500 meters away in an open sea by means of their tikines or bamboo poles and
proceed to the agreed meeting place.

As agreed and under the instructions of the patron of Matulin, the crew poled their
cascos out of the river while the Matulin waited for them outside the shallows.
The cascos were met with high seas and strong winds after passing the shallow waters.
The cascos called to the Matulin for help. The patron of the Matulin, they allege, did not
help them. By reason of the high seas and strong winds, they were driven ashore and
their cargoes lost.

The patron of the Matulin testified that he was unable to render assistance to the cascos
by reason of the shallow water in which they were at the time they were caught by the
winds and waves and washed ashore.
Issue:
WON the defendant is entitled to the extinguishment of liability due to fortuitous event.

Ruling:
No. While the captain of the Matulin would not have been responsible for an act of God
by which the cascos were lost, it was his duty to foresee what the weather was likely to
be, and to take such precautions as were necessary to protect his tow. It was not an act
of God by which the cascos were lost; it was the direct result of the failure of the captain
of the Matulin to meet the responsibilities which the occasion placed on him. To be
exempt from liability because of an act of God, the tug must be free from any previous
negligence or misconduct by which that loss or danger may have been occasioned. For,
although the immediate or proximate cause of the loss in any given instance may have
been what is termed an act of God, yet, if the tug unnecessarily exposed the two to
such accident by any culpable act or omission of its own, it is not excluded. (Manresa,
vol. 8, pages 91 et seq.; art. 1105, Civil Code.)

k)  Makati;  Tan; and Country Bankers

Makati Dev’t Corp. v. Empire Insurance Co.

G.R. No. L-21780, 30 June 1967

FACTS:

 On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a
lot. A so-called “special condition” contained in the deed of sale provides that “the
VENDEE/S shall commence the construction and complete at least 50% of
his/her/their/its residence on the property within two (2) years  to the satisfaction of the
VENDOR and, in the event of his/her/their/its failure to do so will be forfeited in favor of
the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special
condition.” To ensure faithful compliance with this “condition,” Andal gave a surety bond
the sum of P12,000 in case Andal failed to comply with his obligation under the deed of
sale.

Andal did not build his house; instead, he sold the lot to Juan Carlos. As neither Andal
nor Juan Carlos built a house on the lot within the stipulated period, the Makati
Development Corporation, sent a notice of claim to the Empire Insurance Co. advising it
of Andal’s failure to comply with his undertaking. Demand for the payment was refused,
whereupon the Makati Development Corporation filed a complaint against the Empire
Insurance Co. to recover on the bond in the full amount, plus attorney’s fees. In due
time, the Empire Insurance Co. filed its answer with a third-party complaint against
Andal. 

ISSUE:
WHETHER OR NOT Andal is entitled to pay the surety bond of Php12,000 as a penal
sanction.

RULING:
No. The so-called “special condition” in the deed of sale is, in reality, an obligation 1 — to
build a house at least 50 percent of which must be finished within two years. It was to
secure the performance of this obligation that a penal clause was inserted. Here the trial
court found that Juan Carlos had finished more than 50 percent of his house or barely a
month after the expiration of the stipulated period. There was, therefore, a partial
performance of the obligation within the meaning and intendment of article 1229. The
penal clause, in this case, was inserted not to indemnify the Makati Development
Corporation for any damage it might suffer as a result of a breach of the contract but
rather compel performance of the so-called “special condition” and thus encourage
home building among lot owners in the Urdaneta Village.

Considering that a house had been built shortly after the period stipulated, the
substantial, if tardy, performance of the obligation, having in view the purpose of the
penal clause, fully justified the trial court in reducing the penalty.

The stipulation, in this case, to commence the construction and complete at least 50
percent of the vendee’s house within two years cannot be construed as imposing a
strictly personal obligation on Andal. To adopt such a construction would be to limit
Andal’s right to dispose of the lot. There is nothing in the deed of sale restricting Andal’s
right to sell the lot at least within the two-year period and we think it plain that a reading
of such a limitation on one of the rights of ownership must rest on more explicit
language in the contract. It cannot be left to mere inference.

ANTONIO TAN, petitioner,

vs.
COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES,
respondents.
G.R. No. 116285 October 19, 2001

Facts:

On May 14, 1978 and July 6, 1978, Antonio Tan obtained two (2) loans each in the
principal amount of Two Million Pesos (P2,000,000.00), or in the total principal amount
of Four Million Pesos (P4,000,000.00) from respondent Cultural Center of the
Philippines (CCP, for brevity) evidenced by two (2) promissory notes with maturity dates
on May 14, 1979 and July 6, 1979, respectively.

Antonio Tan is defaulted but after a few partial payments he had the loans restructured
by Cultural Center of the Philippines (CCP), and petitioner accordingly executed a
promissory note on August 31, 1979 in the amount of Three Million Four Hundred
Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) payable in five (5) installments.

Tan failed to pay any installment on the said restructured loan of Three Million Four
Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32), the last installment falling due on December 31, 1980. In a letter dated
January 26, 1982, petitioner requested and proposed to respondent CCP a mode of
paying the restructured loan, i.e.,

(a) twenty percent (20%) of the principal amount of the loan upon the
respondent giving its conformity to his proposal; and

(b) the balance on the principal obligation payable in thirty-six (36) equal
monthly installments until fully paid.

On October 20, 1983, petitioner again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year allegedly due to a substantial
deduction in the volume of his business and on account of the peso devaluation. No
favorable response was made to said letters. Instead, CCP, through counsel, wrote a
letter dated May 30, 1984 to the Tan demanding full payment, within ten (10) days from
receipt of said letter, of the petitioner’s restructured loan which as of April 30, 1984
amounted to Six Million Eighty-Eight Thousand Seven Hundred Thirty-Five Pesos and
Three Centavos (P6,088,735.03).

On August 29, 1984, CCP filed a complaint for collection of a sum of money against the
Tan after the latter failed to settle his said restructured loan obligation. The Tan
interposed the defense that he merely accommodated a friend, Wilson Lucmen, who
allegedly asked for his help to obtain a loan from CCP. Tan claimed that he has not
been able to locate Wilson Lucmen.

While the case was pending in the trial court, the petitioner filed a Manifestation wherein
he proposed to settle his indebtedness to CCP by proposing to make a down payment
of One Hundred Forty Thousand Pesos (P140,000.00) and to issue twelve (12) checks
every beginning of the year to cover installment payments for one year, and every year
thereafter until the balance is fully paid. However, respondent CCP did not agree to the
petitioner’s proposals and so the trial of the case ensued.

Issue:
Whether or not Antonio Tan is also liable to the imposition of the penalty, interest on the
penalty and attorney’s fee provided in their agreement.

Ruling:

Yes. The court ruled that Article 1226 of the New Civil Code provides that:

In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may
be enforced only when it is demandable in accordance with the provisions of this Code.

(1) There is an express stipulation in the promissory note permitting the compounding of
interest as provided in the 5th paragraph of the said promissory note: "Any interest
which may be due if not paid shall be added to the total amount when due and shall
become part thereof, the whole amount to bear interest at the maximum rate allowed by
law." Thus, any penalty interest not paid, when due, shall earn the legal interest of 12%
per annum.

(2) Second, Art. 1226 provides that in obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of non-
compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be
paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

In addition, the court affirmed the contention of the petitioner to the reduction of the
penalty is justifiable pursuant to Article 1229 of the New Civil Code which provides that:
"The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable."the
Tan is liable under the note for the two percent (2%) penalty charge per month on the
total amount due, compounded monthly, for twenty-one (21) years since his default in
1980, the court as being fair and equitable, reduce the penalty charge to a straight
twelve percent (12%) per annum on the total amount due starting August 28, 1986, the
date of the last Statement of Account.

Moreover, the court also took into consideration the offers of Tan to enter into a
compromise for the settlement of his debt by presenting proposed payment schemes to
CCP. The said offers at compromise also showed his good faith despite difficulty in
complying with his loan obligation due to his financial problems. However, we are not
unmindful of the Tan’s long overdue deprivation of the use of its money collectible from
the CCP.

Hence, the decision is affirmed with modification. The penalty charge of two percent
(2%) per month on the total amount due, compounded monthly, is hereby reduced to a
straight twelve percent (12%) per annum starting from August 28, 1986. With costs
against the petitioner.

Country Bankers Insurance v. CA

G.R. No. 85161, 9 September 1991

FACTS:

Sy (petitioner) leased theaters owned by Oscar Ventanilla Enterprises Corporation

(OVEC) (respondent). Despite numerous demands and a supplemental agreement,
Petitioner failed to pay the monthly rentals and amusement taxes as stipulated in their
contract. Respondent thereafter repossessed said properties in accordance with their
written agreement. Sy filed to enjoin said action of OVEC.

ISSUE:

WON the repossession is valid.

RULING:

Yes. The repossession is valid as the same constitutes a penal clause.

Article 1226 of the Civil Code provides that as a general rule, in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance.

There is no merit in petitioners’ argument that the forfeiture clause stipulated in the
lease agreement would unjustly enrich the respondent at the expense of petitioners is
contrary to law, morals, good customs, public order or public policy. A provision which
calls for the forfeiture of the remaining deposit still in the possession of the lessor,
without prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessee’s violation of any of the terms and
conditions of the agreement is a penal clause that may be validly entered into. The
petition is denied.