Case 36

Distinction between substantial and casual/slight breach

Song Fo v. Hawaiian Phils. 47 Phil 821 (1928)

FACTS:
A written contract between Song Fo & Co. and Hawaiian-Philippine Co. was made. They have
agreed to deliver 300,000 gallons of molasses. Mr. Song Heng, the representative of Song Fo &
Co., demanded that an additional 100,000 gallons be delivered. It was written as follows: “Mr.
Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we
stated we believe that this is possible and will do our best to let you have these extra 100,000
gallons…” The payment for this molasses shall be done at the end of each month. Plaintiff
presented a complaint with two causes of action for breach of contract against the
defendant, in which judgment was asked for P70,369.50. Defendant set up the special defense
that the plaintiff delayed the payment for the molasses, compelling the former to cancel and
rescind the contract.

ISSUE:
W/N the respondent had the right to rescind the contract with the petitioner.

HELD:
No. The terms of payment fixed by the parties are controlling. The time of payment stipulated for
in the contract should be treated as of the essence of the contract. Theoretically, agreeable to
certain conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had
the right to rescind the contract because of the breach of Song Fo & Company. But actually,
there is here present no outstanding fact which would legally sanction the rescission of the
contract by the Hawaiian-Philippine Co. 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.

GARCIA
37

Spouse Velarde, vs. Court of Appeals [G.R. No. 108346, July 11, 2001]

FACTS: David Raymundo, herein private respondent, is the absolute and registered owner of a
parcel of land in Dasmarinas Village, Makati. His father, George Raymundo, negotiated with
plaintiffs, Velardes for the sale of the said property which was, however, under lease. A Deed of
Sale was executed by defendant, as vendor, in favor of plaintiff, as vendee. Prior to the sale, the
aforesaid parcel of land was mortgaged to BPI to secure the payment of a loan of P 1, 800, 000.
Pertinent stipulations of the Deed of Sale. Petitioners paid P800,000 and agreed to assume the
mortgage obligations on the property to BPI in the name of the vendor (respondent) While the
application for the assumption of the mortgage obligations on the property is not yet approved by
the Bank, the mortgage obligations on the property are to be paid for by the vendee, in the name
of the vendor/respondent. In the event that the vendee violates any of the terms and conditions,
the down payment of P800,000 and all the payments made with the Bank on the mortgage loan
shall be forfeited in favor of David Raymundo, respondent. Raymundo shall resume total and
complete ownership and possession of the property sold by way of Deed of Sale with
Assumption of Mortgage and the same shall be deemed automatically cancelled and be of no
force or effect, in the same manner as if (the) same had never been executed or entered into.
Pursuant to the Deed, plaintiffs paid BPI the monthly interest on the loan for three months. On
December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with
BPI was not approved. This prompted plaintiffs not to make any further payment. Defendants,
through counsel, wrote to plaintiffs informing the latter that their non-payment to mortgage
constituted non-performance of obligation. Respondents replied through counsel stating that
they are willing to pay the balance not later that Jan 21, 1987. However, such payment would
depend on several conditions newly provided for in the letter. Defendants sent plaintiff a notarial
notice of cancellation/ rescission of the intended sale of the subject.

ISSUE: Whether or not there was a breach of contract.

RULING: YES. Petitioner: nonpayment of the mortgage did not constitute breach of contract
considering their request to assume the obligation has been disapproved by the bank.
Accordingly, the payment of monthly amortizations ceased to be their obligations, and devolved
upon the private respondents again.

Petitioners only sent a letter offering to make such payment only upon fulfillment of certain
conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot
take the place of actual payment.

GRAVADOR
CASE 38

Breach of Obligation- Distinction betweeb substantive and casual/slight breach

Angeles, et al. vs. Ursula Calasanz, et al., G.R. No. L-42283, March 18,1985

FACTS: This is an appeal from the decision of the Court of First Instance of Rizal, Seventh
Judicial District, Branch X, declaring the contract to sell as not having been validly cancelled and
ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-
appellees, to pay P500.00 attorney's fees and costs.
Calansaz(C) and Angeles(A) and Juani (J) entered into contract to sell a piece of land for
the amount 3,920 pesos and a 7% interest per annum. Angeles and Juani paid till July
1966amounting to 4533.38. Dec 1966 Calansaz wrote a letter requesting remittance of past dues
and on January 1967 he cancelled the contract because of failure to meet subsequent
payments. A and J wrote a letter of plea for reconsideration which C denied. A and J filed a case
to compel C to execute deed of sale in their favor because after computing the subsequent
payments they found out that it already amounted to 4533.38 including interests realty taxes and
incidental expenses. C alleged that the complaint has no cause of action and that they also
violate the paragraph 6 of the said contract when they failed to pay more than 5 months.

ISSUE: WON there was a breach of contract?

RULING: No, there is no breach of contract. The right to rescind the contract for non-
performance of one of its stipulations, therefore, 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 . The question of
whether a breach of a contract is substantial depends upon the attendant circumstances. The
breach of the contract adverted to by the defendants-appellants is so slight and casual when we
consider that apart from the initial downpayment 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.

CASE NO. 39
Concept; Distinction between substantial and casual/slight breach
Delta Motor Corp. vs. Genuino & CA, G.R. No. 55665, February 8, 1989
FACTS: Private respondents are owners of an iceplant and cold storage who ordered black iron
pipes from Delta Motors, for which the latter provided two letter quotations indicating the selling
price and delivery of said pipes. Terms of payment are also included. Genuino made initial
payments on both contracts but delivery of pipes was not made by Delta, thus, Genuino did not
made subsequent payments notwithstanding agreed terms of payment.

On July 1972, Delta offered to deliver the pipes but Genuino refused because construction of ice
plant building where pipes were to be installed was not yet finished. Three years later, Genuino
asked Delta to deliver the iron pipes within 30 days upon receipt of request. Delta is unwilling to
deliver unless Genuino agree to a new quotation price set by former. Respondent rejected new
quoted price ad instead filed a complaint for specific performance with damages seeking Delta to
deliver the pipes. Meanwhile, Delta in its answer prayer for rescission of contract pursuant to Art.
1191 of NCC. After trial the Court of First Instance ruled in favor of Delta. On appeal, the Court of
Appeals reversed CFI decision. MR was filed but was denied. Hence, this petition.

ISSUE: W/N Genuinos' nonperformance of its obligations was a substantial breach, let alone a
breach of contract, as would warrant rescission under Art. 1191 of NCC.

RULING: No. In construing Art. 1191, the Supreme Court has stated that, "rescission will be
ordered only where the breach complained of is substantial as to defeat the object of the
parties in entering into the agreement. It will not be granted where the breach is slight or
casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29,
1967, 21 SCRA 284, 290.] Further, "the question of whether a breach of a contract is substantial
depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G.
R. No. L-29155, May 13,1970,33 SCRA 1, 18].
In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of
its obligations was not a substantial breach, let alone a breach of contract, as would
warrant rescission.
First, Delta did not do anything when Genuinos refused to accept the delivery of the pipes two
months after the execution of contract. Secondly, three (3) years later when the Genuinos offered
to make payment Delta did not raise any argument but merely demanded that the quoted prices
be increased. Moreover, the power to rescind under Art. 1191 is not absolute. "The act of a
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." In the instant case, Delta made no
manifestation whatsoever that it had opted to rescind its contracts with the Genuinos. It only
raised rescission as a defense when it was sued for specific performance by private
respondents.

CASE NO. 40

Breach of Obligation- Distinction betweeb substantive and casual/slight breach

Vermen Realty vs. CA, GR 101762, July 6, 1993

FACTS: Petitioner Vermen Realty and Development Corporation, as First Party, and private
respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract denominated
as "Offsetting Agreement".

Private respondent filed a complaint with the RTC for rescission of the Offsetting Agreement with
damages. In said complaint, private respondent alleged that petitioner Vermen Realty
Corporation had stopped issuinpurchase orders of construction materials after April, 1982,
without valid reason, thus resulting in the stoppage of deliveries of construction materials on its
(Seneca Hardware) part, in violation of the Offsetting Agreement.
ISSUE: WON the circumstances of the case warrant rescission of the Offsetting Agreement as
prayed for by Private Respondent when he instituted the case before the trial court.

RULING: Yes. We rule in favor of private respondent. There is no controversy that the provisions
of the Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or
established at the same time, out of the same cause, and which results in a mutual relationship
of creditor and debtor between parties. In reciprocal obligations, the performance of one is
conditioned on the simultaneous fulfillment of the other obligation. Article 1191 of the Civil Code
provides the remedy of rescission in (more appropriately, the term is "resolution") in case of
reciprocal obligations, where one of the obligors fails to comply with that is incumbent upon him.

“The general rule is that rescission of a contract will not be permitted for a slight or causal
breach, but only for such substantial and fundamental breach as would defeat the very object of
the parties in executing the agreement. The question of whether a breach of contract is
substantial depends upon the attendant circumstances.”

LAO
41
MODES OF BREACH: FRAUD
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.
FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811 July 31, 1953

FACTS: the appellant Woodhouse entered into a written agreement with defendant Halili stating
among others that, that they shall organize a partnership for the bottling and distribution of
Mission soft drinks, appellant to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefore; that plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed partnership and that the plaintiff was to receive
30 per cent of the net profits of the business. Appellant prays for the execution of the contract of
partnership; accounting of profits and share thereof of 30 percent with damages in the amount of
P200,000. The Defendant on the other hand claims that, the defendant’s consent to the
agreement, was secured by the representation of plaintiff that he was the owner, or was about to
become owner of an exclusive bottling franchise, which representation was false, and that
appellant did not secure the franchise but was given to defendant himself that defendant did not
fail to carry out his undertakings, but that it was plaintiff who failed and that plaintiff agreed to
contribute to the exclusive franchise to the partnership, but plaintiff failed to do so with a
counterclaim for P200,00 as damages.

ISSUE: WON false representation, if it existed, annuls the agreement to form the partnership

RULING: No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it liable for damages only. The
Supreme Court has held that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente) inducement to the making of the contract.

The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.

LAUGHTON
CASE NO. 42

Modes of Breach- Art.1170

Lydia L. Geraldez, vs. CA & Kenstar Travel Corporation,
G.R. No. 108253, February 23, 1994

FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against
respondent Kenstar Travel Corp. Petitioner booked the Volare 3 tour with Kenstar. The tour
covered a 22-day tour of Europe for $2,990.00 which she paid the total equivalent amount of
P190,000.00 charged by private respondent for her and her sister, Dolores. At the tour, petitioner
claimed that what was alleged in the brochure was not what they experienced. There was no
European tour manager as stated in the brochure, the hotels where they stayed in which were
advertised as first class were not, the UGC leather factory which was specifically included as a
highlight of the tour was not visited and The Filipino tour guide provided by Kenstar was a first
timer thus inexperienced. The Quezon City RTC rendered a decision ordering respondent
Kenstar to pay moral, nominal, and exemplary damages totalling P1,000,000 and P50,000
attorney’s fees. On appeal, respondent Court of Appeals deleted the award for moral and
exemplary damages and reduced the nominal damages and attorney’s fees to P30,000 and
P10,000 respectively.

ISSUE: W/N Kenstar acted in bad faith or with gross negligence in discharging its obligations in
the contract?

RULING: YES. Kenstar acted in bad faith and with gross negligence in discharging its obligation.
This incompetence must necessarily be traced to the lack of due diligence on the part of private
respondent in the selection of its employees. The effects of dolo causante are the nullity of the
contract and the indemnification of damages, 63 and dolo incidente also obliges the person
employing it to pay damages. Wherefore, ordering private respondent Kenstar Travel
Corporation to pay petitioner Lydia L. Geraldez.

CASE NO. 43
Modes of Breach
INTL CORPORATE BANK v. GUECO, 351 SCRA 516

FACTS: Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In
consideration thereof, the debtors execute PNs, and a chattel mortgage was made over the car.
As the usual story goes, the spouses defaulted in payment of their obligations and despite the
lowering of the amount to be paid, they still failed to pay. Thereafter, they tendered a manager’s
check in favor of the bank. Nonetheless, the car was still detained for the spouses refused to sign
the joint motion to dismiss. The bank averred that the joint motion to dismiss is part of standard
office procedure to preclude the filing of other claims. Because of this, the spouses filed an action
for damages against the bank. And by the time the case was instituted, the check had become
stale in the hands of the bank.

ISSUE: W/N the spouses are entitled for damages arising from fraud.
RULING: No. The Court failed to see how the act of the petitioner bank in requiring the
respondent to sign the joint motion to dismiss could constitute as fraud.

Fraud has been defined as the deliberate intention to cause damage or prejudice. Petitioner may
have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a
standard operating procedure of petitioner bank. However, this cannot in any way have
prejudiced Dr. Gueco.

The whole point of the parties entering into the compromise agreement was in order that Dr.
Gueco would pay his outstanding account and in return petitioner would return the car and drop
the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss
was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco
had fully settled his obligation, hence, the dismissal of the case.

Hence, petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss cannot be said to
be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the
parties.

CASE NO. 44

Negligence
Ridjo Tape and Chemical Corp. v. CA
G.R. No. 126074, February 24, 1998

FACTS: MERALCO demanded payment from Ridjo Tape & Chemical Corp for their unregistered
electric consumption from November 1990 – February 1991 amounting to P415K. MERALCO
also demanded that Ridjo Paper Corp pay their unregistered electric consumption for the period
of July 1991 – April 1992 in the amount of P89K. MERALCO sent them notices to settle their
account or it would be forced to disconnect their electricity. The unregistered electric
consumption charges was due to the defects Ridjo Corp’s electric meter

ISSUE: Whether or not the petitioners, despite the absence of evidence of tampering, are liable
to pay for the unregistered electrical service.

RULING: YES. RIDJO IS PARTLY LIABLE FOR THE UNREGISTERED ELECTRIC

CONSUMPTION. MERALCO was negligent for which it must bear the consequences. Its failure
to make the necessary repairs and replacement of the defective electric meter installed within the
premises of petitioners was obviously the proximate cause of the instant dispute between the
parties. Public utilities should be put on notice, as a deterrent, that if they completely disregard
their duty of keeping their electric meters in serviceable condition, they run the risk of forfeiting,
by reason of their negligence, amounts originally due from their customers. The Court cannot
sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely
until suddenly the public utilities concerned demand payment for the unrecorded electricity
utilized when, in the first place, they should have remedied the situation immediately. If we turn a
blind eye on MERALCO's omission, it may courage negligence on the part of public utilities, to
the detriment of the consuming public. However, it is to be expected that the Ridjo Corporations
were consciously aware that these devices or equipment are susceptible to defects and
mechanical failure. It is difficult to believe that the Ridjo Corporations were ignorant of the fact
that stoppages in electric meters can also result from inherent defects or flaws and not only from
tampering or intentional mishandling. Since they were also negligent in failing to check their
meters, it is only fair that they pay for the electricity that they used.
Case no. 45
Mohammad
RODZSSEN SUPPLY CO., INC. v. FEBTC
Negligence Art. 1172

Facts: In the complaint from which the present proceedings originated, it is alleged that on
January 15, 1979, defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and
Trust Co. a 30-day domestic letter of credit, LC No. 52/0428/79-D, in the amount of P190,000.00
in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five units of
hydraulic loaders, to expire on February 15, 1979; that subsequent amendments extended the
validity of said LC up to October 16, 1979; that on March 16, 1979, three units of the hydraulic
loaders were delivered to defendant for which plaintiff on March 26, 1979, paid Ekman the sum
of P114,000.00, which amount defendant paid plaintiff before the expiry date of the LC; that the
shipment of the remaining two units of hydraulic loaders valued at P76,000.00 sent by Ekman
was ‘readily received by the defendant’ before the expiry date [of] subject LC; that upon Ekman’s
presentation of the documents for the P76,000.00 ‘representing final negotiation’ on the LC
before the expiry date, and ‘after a series of negotiations’, plaintiff paid to Ekman the amount of
P76,000.00; and that upon plaintiff’s demand on defendant to pay for said amount (P76,000.00),
defendant’ refused to pay . . . without any valid reason’. Plaintiff prays for judgment ordering
defendant to pay the abovementioned P76,000.00 plus due interest thereon, plus 25% of the
amount of the award as attorney’s fees.

The trial court’s ruling that plaintiff [was] entitled to recover from defendant the amount of
P76,000.00 was based on its following findings/conclusions: (1) under the contract of sale of the
five loaders between Ekman and defendant, upon Ekman’s delivery to, and acceptance by,
defendant of the two remaining units of the five loaders, defendant became liable to Ekman for
the payment of said two units. However, as defendant did not pay Ekman, the latter pressed
plaintiff for the payment of said two loaders in the amount of P76,000.00. In the honest belief that
it was still under obligation to Ekman for said amount, considering that Ekman had presented all
the necessary documents, plaintiff voluntarily paid the said amount to Ekman. Plaintiff’s . . .
voluntary and lawful act of payment g[a]ve rise to a quasi-contract between plaintiff and
defendant; and if defendant should escape liability for said amount, the result would be to allow
defendant to enrich itself at plaintiff’s expense.

Issue: Was Petitioner Liable to Respondent?

Held: Yes. Respondent bank’s right to seek recovery from petitioner is anchored, not upon the
inefficacious Letter of Credit, but on Article 2142 of the Civil Code, "Certain lawful, voluntary and
unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be
unjustly enriched or benefited at the expense of another."

When both parties to a transaction are mutually negligent in the performance of their obligations,
the fault of one cancels the negligence of the other and, as in this case, their rights and
obligations may be determined equitably under the law proscribing unjust enrichment.

CASE 46

NICANOR

CULPA CONTRACTUAL VS CULPA AQUILANA

NARCISO GUTIERREZ vs. BONIFACIO GUTIERREZ

G.R. No. 34840 September 23, 1931

FACTS: On February 2, 1930, a passenger truck and an automobile of private ownership
collided while attempting to pass each other on a bridge. The truck was driven by the chauffeur
Abelardo Velasco, and was owned by saturnine Cortez. The automobile was being operated by
Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio’s father and mother, Mr.
and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the
mother, together with several other members of the Gutierrez family were accommodated
therein. The collision between the bus and the automobile resulted in Narciso Gutierrez, a
passenger of an autobus suffering a fractured right leg which required medical attendance for a
considerable period of time.

ISSUE: Whether or not both the driver of the truck and automobile are liable for damages and
indemnification due to their negligence. What are the legal obligations of the defendants

RULING: YES. Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand,
Saturnino Cortez’s and his chauffeur Abelardo Velasco’s obligation rise from culpa contractual.

The youth Bonifacio was an incompetent chauffeur that he was driving at an excessive rate of
speed, and that, on approaching the bridge and the truck, he lost his head and so contributed by
his negligence to the accident (cupla aquilana). The liability of Saturnino Cortez, the owner of the
truck, and his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract
(culpa contractual)

PIEDAD
Case No. 47

Culpa Aquiliana v. Culpa Contractual

Vazquez vs. Borja 74 Phil 560 (1944)

FACTS: Respondent De Borja filed a complaint against petitioner Vazquez for allegedly not
fulfilling his obligations to the respondent. Respondent contends that, petitioner by virtue of an
agreement obligated himself to sell 4,000 cavans for P2.10 each to the respondent, but petitioner
only delivered 2,488 cavans of palay and when repeatedly demanded for the remaining balance
of 1,512 cavans, petitioner refused to do so thus incurring damages. Petitioner argues that he
had nothing to do with whatever transactions mentioned in the complaint in his own personal
capacity because such agreement was entered by the respondent and a corporation (Natividad-
Vazquez Sabani Development Co., Inc.) where he is acting as a manager. Both the Trial Court
and the CA held the petitioner in his personal capacity liable for negligence.
ISSUE: W/N the Trial Court and CA erred in holding petitioner principally liable for such
negligence

RULING: NO. both the trial court and the CA failed to distinguish between Culpa Contractual and
Culpa Aquiliana. In Culpa Contractual, the fault and negligence is anchored in articles 1101-
1104 of the Civil Code which those incidental to the fulfillment or nonfulfillment of a contractual
obligation; while the fault and negligence referred to in articles 1902 is the Culpa Aquiliana
which synonymous but not identical to tort of the common law, which gives rise to an obligation
independently of any contract (MP). In this case, the fact that the corporation, acting thru
Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make
Vazquez principally or even subsidiarily liable for such negligence since it was the corporation's
contract, its nonfulfillment, whether due to negligence or fault the corporation is liable and not its
agent.
REYES
Case 48

Standard of care required- Art. 1173 par. 2

 Manuel De Guia v The Manila Electric Railroad and Light Company,
G.R. No. L-14335

FACTS: The petitioner, a physician, boarded a car at the end of the line with the intention of
coming to the city. At about thirty meters from the starting point, the car entered a switch, the
petitioner remaining on the back of the platform holding the handle of the right-hand door. Upon
coming out of the switch, the small wheels of the rear car left the track, ran for a short distance,
and struck a concrete post. As the car stopped, the petitioner was thrown against the door,
receiving bruises and possible internal injuries. The trial court found that the motorman was
negligent for having maintained too rapid a speed. On the other hand, the respondent insisted
that the derailment of the car is supposed to be due to a fortuitous event and not the negligence
of the motorman, i.e. a stone lodged between the rails at the juncture of the switch, unobserved
by the motorman.

ISSUE: W/N the respondent is liable for damages?

RULING/MP: Yes, the respondent is liable for damages.

The petitioner had boarded the car as a passenger for the city of Manila and the company
undertook to convey him for hire. The relation between the parties was, therefore, of a
contractual nature, and the duty of the carrier is to be determined with reference to the principles
of contract law, i.e. the company was bound to convey and deliver the petitioner safely and
securely with reference to the degree of care, which, under the circumstances, is required by law
and custom applicable to the case. (culpa contractual)

Upon failure to comply with this obligation the carrier incurs the liability commonly incident to the
breach of contractual obligations; and where the delinquency is due to the negligence if its
employee, the carrier cannot avail itself of the defense that it had exercised due care in the
selection and instruction of such employee and that he was in fact an experienced and reliable
servant.

Note: culpa aquiliana - relevant to prove that the company exercise due care in the selection and
instruction of the motorman; liability incurred by negligence in the absence of a contractual
relation

SAJILI
CASE NO. 49

b. Standard of care required- Art. 1173 par. 2

US v. Barias, 23 Phil. 434
1912

MAIN POINT: Negligence is want of the care required by the circumstances. It is a relative or
comparative, not an absolute, term and its application depends upon the situation of the parties
and the degree of care and vigilance which the circumstances reasonably require. Where the
danger is great, a high degree of care is necessary, and the failure to observe it is a want of
ordinary care under the circumstances.
FACTS: On November 2, 1911, defendant Segundo Barias, a motorman for the Manila Electric
Railroad and Light Company, was driving his car along Rizal Avenue and stopped at an
intersection to take on some passengers. He looked backward, presumably to be sure that all
passengers were aboard, and then started the car. At that moment, Fermina Jose, a 3-year old
child, walked or ran in front of the car. She was knocked down and dragged at some distance to
death. Defendant knew nothing of this until his return, when he was informed of what happened.
He was charged and found guilty of homicide resulting from reckless negligence.
ISSUE: Whether the evidence shows such carelessness or want of ordinary care on the part of
the defendant as to amount to reckless negligence

RULING: YES. It was his duty to satisfy himself of that fact by keeping a sharp lookout, and to do
everything in his power to avoid the danger which is necessarily incident to the operation of
heavy street cars on public thoroughfares in populous sections of the city. This the defendant did
not do, and the result of his negligence was the death of the child.

SAKIR
CASE NO. 50

. 1173 – STANDARD OF CARE REQUIRED

Sarmiento v. Sps. Cabrido, 401 SCRA 122 (2003)

FACTS: Petitioner was asked to engage the services of Dingding’s Jewelry Shop owned by
respondents Sps. Cabrido to reset a pair of diamond earring into two gold rings . She sent a
certain Tita Payag to do so. When the diamond earrings were in the custody of the shop,
respondent Marilou Sun tried to dismount the diamond from its setting but was unsuccessful. So,
she asked their goldsmith, Santos, to do it. However, when the latter tried to remove the gem
using a pair of pliers, it broke. A complaint for damages was later filed before the MTCC. The
defendants argue that they cannot be held liable because allegedly, their contract of service did
not necessarily include the dismounting of the diamond from its original setting. Following this
reasoning, the RTC, and later the Court of Appeals, ruled that the respondents were absolved
from liability for the breach of contract.

ISSUE: WON the Court of Appeals erred in affirming the decision of RTC that no liability arose
from the damage that happened in the process of dismounting the diamond from the earrings.

RULING: Yes. Obligations arising from contracts have the force of law between the contracting
parties. Corollarily, those who in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene the tenor thereof, are liable for
damages. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. In the case at bar, it is beyond doubt that Santos
acted negligently in dismounting the diamond from its original setting. It appears to be the
practice of the trade to use a miniature wire saw in dismounting precious gems, such as
diamonds, from their original settings. However, Santos employed a pair of pliers in clipping the
original setting, thus resulting in breakage of the diamond. The jewelry shop failed to perform
its obligation with the ordinary diligence required by the circumstances.

Case No. 51
Salazar

(Standard of care required- Art. 1173 par. 2)

Crisostomo v. CA, 409 SCRA 528 (2003)
G.R. No. 138334 , August 25, 2003

FACTS: Petitioner Crisostomo contracted services of respondent Caravan Travels and Tours
International to arrange and facilitate her booking, accommodation for a package tour to different
countries costing P74,322.70. She missed the first flight of the tour and called Menor, her niece
who was manager of the company to complain. She was booked another tour and upon return
she demanded reimbursement of P61,421.70, the difference between the first planned tour and
the concluded “British Pageant” tour. Respondent refused to reimburse contending that it was
non-refundable. Petitioner filed a complaint for breach of contract of carriage and damages
saying the first tour was the respondent’s fault due to confusion on departure date and the 2nd
tour was merely a substitute. Respondent argues that petitioner was informed of the correct date
and it was printed on the ticket. TC held respondent was negligent but also declared petitioner
guilty of contributory negligence, which deducted 10% from amount claimed as refund. The CA
also found both parties at fault, but the petitioner is more negligent and not entitled for damages,
and was asked to pay the balance of the tours. Petitioner contends that respondent did not
observe the standard of care required of a common carrier when it informed her wrongly of the
flight schedule.

ISSUE: Whether or not the petitioner is entitled for damages and that the respondent is more
negligent, for in contract of carriage the common carrier is obliged to observe the utmost care
and extraordinary diligence required of the passenger?

RULING: No. The petition is denied. The respondent is not in the business of transporting
passengers or goods and therefore not a private nor common carrier. They were only to make
travel arrangements. The object of contractual relation is the service of arranging,
facilitating,booking ,ticketing and accommodation. Thus it is not bound under law to observe
extraordinary diligence in performance of its obligation. Since the contract between the parties is
an ordinary one for services, the standard of care required of the respondent is that of a good
father of a family under Article 1173 of the Civil Code. The test to determine whether negligence
attended the performance of an obligation is: did the defendant in doing the alleged negligent act
use that reasonable care and caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. The respondent performed its prestation
under the contract as well as everything else that was essential to book petitioner for the tour.
The company performed its duty diligently and did not commit any contractual breach. Hence,
petitioner cannot recover and must bear her own damage.

CASE NO. 52
SUBA

SABENA BELGIAN WORLD AIRLINES v. CA

MAIN POINT: Art. 1733 of the [Civil] Code provides that from the very nature of their
business and by reasons of public policy, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods transported by them.

FACTS: Private respondent MA. PAULA SAN AGUSTIN was a passenger on board Flight SN
284 of defendant airline originating from Casablanca to Brussels, Belgium on her way back to
Manila. She checked in her luggage which contained her valuables all amounting to $4,265.00,
for which she was issued Tag No. 71423. She stayed overnight in Brussels and her luggage was
left on board Flight SN 284. Upon Arrival in Manila, she learned that her luggage was missing
and was advised to accomplish and submit a property Irregularity Report which she submitted
and filed on the same day. Upon follow up, it remained missing; thus, she filed her formal
complaint with the office of Ferge Massed, petitioner’s Local Manager, demanding immediate
attention.

Two weeks later she was notified that her luggage was found. But unfortunately plaintiff was
informed that the luggage was lost for the second time. She demanded payment but the airline
refused to settle the claim. Petitioner airline company, in contending that the alleged negligence
of private respondent should be considered the primary cause for the loss of her luggage, avers
that, despite her awareness that the flight ticket had been confirmed only for Casablanca and
Brussels, and that her flight from Brussels to Manila had yet to be confirmed, she did not retrieve
the luggage upon arrival in Brussels.

ISSUE: W/N the airline is liable for the lost luggage

RULING: Yes. Fault or negligence consists in the omission of that diligence which is demanded
by the nature of an obligation and corresponds with the circumstances of the person, of the time,
and of the place. When the source of an obligation is derived from a contract, the mere breach
or non-fulfillment of the prestation gives rise to the presumption of fault on the part of the obligor.
This rule is not different in the case of common carriers in the carriage of goods which, indeed,
are bound to observe not just the due diligence of a good father of a family but that of
“extraordinary” care in the vigilance over the goods.

The only exceptions to the foregoing extraordinary responsibility of the common carrier is when
the loss, destruction, or deterioration of the goods is due to any of the following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.’

Not one of the above excepted causes obtains in this case.

The airline cannot invoke the tort doctrine of proximate cause because the private respondent’s
luggage was lost while it was in the custody of petitioner. The “loss of said baggage not only
once by twice,” said the appellate court, “underscores the wanton negligence and lack of care”
on the part of the carrier.

Amilhussin

Case No. 53

AGCAOILI VS. GSIS

No. L-30056, August 30, 1988

FACTS: The appellant Government Service Insurance System (GSIS) approved the application
of appellee Agcaoili for the purchase of house and lot in the GSIS Housing Project at Nangka
Marikina, Rizal, with the condition that Agcaoili should occupy the said house and lot within three
days from receipt of notice otherwise the application shall be automatically disapproved and will
be awarded to another applicant. Agcaoili tried to fulfil the condition but could not because the
house was uninhabitable. The fixtures, ceilings, and even utilities were inexistent. The appellee
refused to pay the remaining instalments and fees until GSIS made the house inhabitable but to
no avail. GSIS opted to cancel the award and demand Agcaoili to vacate the premises. The
house and lot was consequently awarded to another applicant. Agcaoili sued GSIS in the Court
of First Instance of Manila for specific performance with damages and obtained a
favorable judgement. Hence this petition for appeal by GSIS.

ISSUE: WON the cancellation by GSIS of the award in favor of petitioner Agcaoili just and
proper?

RULING: NO. It was the duty of the GSIS, as seller, to deliver the thing sold in a condition
suitable for its enjoyment by the buyer for the purpose contemplated. There would be no sense
to require the awardee to immediately occupy and live in a shell of a house, structure consisting
only of four walls with openings, and a roof. GSIS had an obligation to deliver to Agcaoili a
r§easonably habitable dwelling in return for his undertaking to pay the stipulated price.

Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it
cannot invoke Agcaoili’s suspension of payment of amortizations as cause to cancel the contract
between them. It is axiomatic that “(i)n reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him.

TALAVER
Case No. 54
DELAY (MORA)
Barzaga vs. Court of Appeals, 268 SCRA 105, G.R. No. 115129 February 12, 1997

MAINT POINT: The law expressly provides that those who in the performance of their
obligation are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.

FACTS:
The Ignacio Barzaga’s wife who was dying, expressed her wish to be laid to rest before
Christmas day to spare her family of the long vigils as it was almost Christmas. So upon her
death, he bought materials from Angelito Alviar’s hardware store for the construction of her
niche. But that store failed to deliver the materials on the agreed time and date despite repeated
follow-ups. The niche was completed in the afternoon of the 27th of December, and Barzaga's
wife was finally laid to rest.

ISSUE: Whether or not there was delay in the performance of the private respondent's
obligation?

RULING: Yes. Since the respondent was negligent and incurred delay in the performance
of his contractual obligations, the petitioner is entitled to be indemnified for the damage
he suffered as a consequence of the delay or contractual breach. This is clearly a case of
non-performance of a reciprocal obligation, as in the contract of purchase and sale, the
petitioner had already done his part, which is the payment of the price. It was incumbent
upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay
would attach. An award of moral damages is incumbent in this case as the petitioner has
suffered so much.

TALAVER
Case No. 54
DELAY (MORA)
Barzaga vs. Court of Appeals, 268 SCRA 105, G.R. No. 115129 February 12, 1997
MAINT POINT: The law expressly provides that those who in the performance of their
obligation are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.

FACTS:
Ignacio Barzaga’s wife who was dying, expressed her wish to be laid to rest before Christmas
day to spare her family of the long vigils as it was almost Christmas. So upon her death, he
bought materials from Angelito Alviar’s hardware store for the construction of her niche. But that
store failed to deliver the materials on the agreed time and date despite repeated follow-ups. The
niche was completed in the afternoon of the 27th of December, and Barzaga's wife was finally
laid to rest.

ISSUE: Whether or not there was delay in the performance of the private respondent's
obligation?

RULING: Yes. Since the respondent was negligent and incurred delay in the performance
of his contractual obligations, the petitioner is entitled to be indemnified for the damage
he suffered as a consequence of the delay or contractual breach. This is clearly a case of
non-performance of a reciprocal obligation, as in the contract of purchase and sale, the
petitioner had already done his part, which is the payment of the price. It was incumbent
upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay
would attach. An award of moral damages is incumbent in this case as the petitioner has
suffered so much.

TINGKAHAN
CASE NO. 55

Art. 1169 Delay (Mora)

Cetus Development Corp v. CA

Facts: Private respondents were the lessees of the premises originally owned by Susana Realty.
The payments of the rentals were paid by them to a collector of the Susana Realty who went the
premises monthly. Susana Realty, however, sold the property to petitioner Cetus Development,
Inc. The private respondents then continued to pay their monthly rentals to a collector sent by the
petitioner. In succeeding months, for three months, the private respondents failed to pay their
rentals because no collector came. They then contacted the petitioner over the telephone as to
where they should pay their rentals. The petitioner then told them that they would send a
collector to collect the rentals. Private respondents waited but no collector came. Petitioner then
sent a letter to each of the private respondents demanding that they vacate the subject premises
and to pay their arrearages within 15 days from the receipt thereof. With this, private respondents
immediately upon the receipt of such demand, tendered their payments which were accepted by
the petitioner with the condition that the acceptance was without prejudice to the filing of
ejectment suit. For failure of the private respondents to vacate the premises as demanded,
petitioner filed an ejectment suit against them.

Issue: Whether there was a delay of payment by the private respondents

Ruling: NO. There was no failure yet on the part of the private respondents to pay rents for three
consecutive months. It has been duly established that it has been customary for private
respondents to pay their rentals through a collector sent by the lessor. Article 1169 of the Civil
Code provides that those obliged to deliver or to do something incur in delay from the time the
oblige judicially or extrajudicially demands from them the fulfillment of their obligation. The
moment the petitioner extrajudicially demand the payment of the rentals, private respondents
immediately answered their obligation by paying their arrearages of rentals to the petitioner.

ADIL
Case 56

Modes of Breach; Delay (Mora) – Art. 1169

Crismina Garmens v. CA, March 9, 1999

FACTS: Crismina Garments, Inc (herein petitioner), was engaged in the export of girls denim
pants, contracted the services of Norma Siapno (private respondent), the sole proprietress of the
DWilmar Garments, for the sewing of assorted girls denims under P.O 1404. Petitioner was
obliged to pay PhP76,410.00 for her services. The petitioner acknowledged the delivery of the
sewed garments. At first, the respondent was told that some pants were defective. But later, she
was told that the pants were already good. Petitioner failed to pay the respondent, and when she
demanded for the petitioner to pay, petitioner in a letter demanded refund amounting to
PhP49,925.51 which is the value of damaged pairs of denim. Respondent filed her complaint on
Jan. 8, 1981, for the collection of the principal amount. The Trial court on Feb. 28, 1989, ruled in
favor of the respondent ordering the defendant to pay the former the sum of PhP76,140.00 with
interest thereon at 12% per annum to be counted from the filing of the until fully paid. The CA
affirmed except for award of attorney’s fees which was deleted. Petitioner then filed a Motion for
Reconsideration, arguing that the interest rate should be computed at 6% per annum as provided
under Art. 2209 of the Civil Code, not 12% per annum as prescribed under Circular No. 416 of
the Central Bank of the Philippines.

ISSUE: W/N it is proper to impose the 12% interest rate per annum for an obligation that does
not involve a loan involve a loan or forbearance of money in the absence of stipulation of the
parties.

RULING/MP: No. The court sustain the petitioner’s contention that the interest rate should be
computed at 6% per annum. The court stressed that the interest rate under CB Circular 416
applies to (i) loans; (ii) forbearance of money, goods or credits; or (iii) a judgment
involving a loan or forbearance of money, goods or credits. Cases beyond the scope of
the said circular are governed by Art. 2209 of the Civil Code, which considers a form of
indemnity for the delay in the performance of an obligation. When an obligation, not
constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. Because the amount due in this case arose from a contract for a piece of work, not from
a loan or forbearance of money, the legal interest of 6% per annum should be applied.

ALMONTE
Case 57
Breach of Obligation; Delay (Moya)

Keng Hua v. CA, Feb. 12, 1998, PANGANIBAN

FACTS: Sea-Land Service, a shipping company, is a foreign corporation licensed to do business

in the Philippines. On 29 June 1982, Sea-Land received at its Hong Kong terminal a sealed
container, Container
SEAU 67523, containing 76 bales of “unsorted waste paper” for shipment to Keng Hua Paper
Products, Co. in Manila. A bill of lading to cover the shipment was issued by Sea-Land. On 9 July
1982, the shipment was discharged at the Manila International Container Port. Notices of arrival
were transmitted to Keng Hua but the latter failed to discharge the shipment from the container
during the “free time” period or grace period. The said shipment remained inside the Sea-Land’s
container from the moment the free time period expired on 29July 1982 until the time when the
shipment was unloaded from the container on 22 November 1983, or a total of 481 days. During
the 481-day period, demurrage charges accrued. Within the same period, letters demanding
payment were sent by Sea- Land to Keng Hua who, however, refused to settle its obligation
which eventually amounted to P67,340.00. Numerous demands were made on Keng Hua but the
obligation remained unpaid. Sea- Land thereafter commenced the civil action for collection and
damages. The RTC found Keng Hua liable for demurrage, attorney’s fees and expenses of
litigation. Keng Hua appealed to the Court of Appeals, which denied the appeal and affirmed the
lower court’s decision in toto. In a subsequent resolution, it also denied Keng Hua’s motion for
reconsideration. Hence, the petition for review.

ISSUE: W/N Keng Hua Paper Products Co. Inc. was liable for delay

RULING: YES. The acceptance of a bill of lading by the shipper and the consignee, with full
knowledge of
its contents, gives rise to the presumption that the same was a perfected and binding contract .
Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may
cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of
violating said laws, without a clear demonstration that taking delivery of the shipment has
become legally impossible, cannot defeat the petitioner's contractual obligation and liability under
the bill of lading. In truth, demurrage is merely an allowance or compensation for the delay or
detention of a vessel. It is often a matter of contract, but not necessarily so. The very
circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a
fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure
of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds
itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate
consideration of all the circumstances attending the usual earnings and expenditures in common
voyages? It appears to us that an allowance, by way of demurrage, is the true measure of
damages in all cases of mere detention, for that allowance has reference to the ship's expenses,
wear and tear, and common employment.

ANOOS
CASE NO. 58

Delay (Mora) - Art. 1169

Kind: Mora Solvendi
Aerospace Chemical Industries vs. CA, GR No. 108129, September 23, 1999

FACTS: On June 27, 1986, Aerospace Chemical Industries (Aerospace) purchased 500 metric
tons of sulfuric acid from Philippine Phosphate Fertilizer (Philphos) to be paid at least 5 days
prior to shipment date. Aerospace would also provide the means of transport to pick-up the
purchases from the load ports. On August 6, 1986, Private respondent advised Aerospace to
withdraw the sulfuric acid from the Basay port because Philphos has been incurring incremental
expense for each day of delay of shipment. On October 3, 1986, Petitioner paid P553,280 for
500 MT of sulfuric acid and then chartered M/T Sultan Kayumanggi on November 19 to pick it up
but it only withdrew 70.009 MT as the vessel was not in mint condition. On December 12, 1986,
Philphos asked Aerospace to retrieve remaining sulfuric acid so the tanks could be emptied by
December 15 and will charge them if they fail to comply. December 18, M/T Sultan Kayumanggi
docked at Sangi, Cebu but withdrew only 157.51 mt. Kayumanggi eventually sank with a total of
227.51 mt sulfuric acid on board. Aerospace chartered another vessel, M/T Don Victor, with a
capacity of approximately 500 MT. Petitioner then asked Philphos for additional orders of sulfuric
acid to replace its sunken purchases. Respondent instructed Aerospace to lift the remaining 30
mt from the Basay port or pay maintenance and storage expenses starting August 1, 1986. In
other words, Aerospace failed to pick-up all its purchases. This constituted to breach of contract.
Picking up purchases was part of the contract. On July 1988, petitioner insisted on picking up
their purchase plus additional order as they have already paid the chartered vessel for the full
500 mt capacity. Otherwise, they would commence legal action. Finally, on 1989, petitioner filed
a complaint for specific performance and/or damages. Private respondent filed a counterclaim
stating that it was petitioner who was remiss in the performance of its obligation in arranging the
shipment requirements and as a consequence, should pay the damages.

ISSUE: W/N there was a breach of contract on the part of the petitioner

RULING: YES. As the buyer, petitioner was obligated under the contract to undertake the
shipping requirements of the cargo from assigned load ports. They chartered M/T Kayumanggi,
which turned out to be unstable and unseaworthy. Considering such, it was incumbent upon
Aerospace to immediately replace the vessel with another which complies with the necessary
loading conditions of sulfuric acid. However, despite repeated demands of Philphos, petitioner
failed to comply. Where there has been a breach of contract by the buyer, the seller has a right of
action for damages. A cause of action of the seller for damages may arise where the buyer
refuses to remove the goods, such that buyer has to remove them.

Article 1170 of the Civil Code provides: "Those who in the performance of their obligations are
guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof,
are liable for damages." Further, Art. 1169 states: Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. This article provides that the following requisites must be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.

Hence, petitioner is guilty of delay, after private respondent made the necessary extrajudicial
demand by requiring petitioner to lift the cargo at its designated load ports. When petitioner failed
to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is
indubitably liable for proven damages.

BENITEZ
59
General Rule: Creditor should make demand before debtor incurs delay (Art. 1169)
Santos Ventura Hocorma Foundation vs. Santos
GR 153064, November 4, 2004 441 SCRA

FACTS: Ernesto V. Santos (respondent) and Santos Ventura Hocorma Foundation, Inc. (SVHFI)
(petitioner) executed a Compromise Agreement wherein petitioner shall pay Plaintiff Santos
P14.5 Million in the following manner P1.5 Million immediately upon the execution of the
agreement and the balance of P13 Million shall be paid within a period of not more than two (2)
years from the execution of the agreement. Petitioner was able to settle the 13 million balance
through an auction of one of SVHFI’s properties. Respondents prayed that petitioner be ordered
to pay legal interest on the obligation, alleging that there was delay on the part of petitioner in
paying the balance of P13 million.

ISSUE: Whether the respondents are entitled to legal interest.

RULING: YES. The two-year period must be counted from October 26, 1990, the date of
execution of the compromise agreement, and not on the judicial approval of the compromise
agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on
October 28, 1992, the obligation was already due and demandable. When the petitioner failed to
pay its due obligation after the demand was made, it incurred delay.

In order for the debtor to be in default, it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.

All three requisites are present in this case.

Notes for Recit:

Article 1169 of the New Civil Code provides: Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.

Delay as used in this article is synonymous to default or mora which means delay in the
fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time.

CRUZ
CASE NO. 60

General Rule: Creditor should make demand before debtor incurs delay- Art. 1169
Dr. Daniel Vazquez & Ma. Luisa M. Vazquez, vs. Ayala Corporation
G.R. No. 149734, November 19, 2004

FACTS: On April 23, 1981, Petitioners, spouses Vasquez, entered into a Memorandum of
Agreement (MOA) with the respondent, Ayala Corporation. Ayala Corp. bought the Vazquez
spouses all of the shares of stock in Conduit Development, Inc. The main asset was a property in
Ayala Alabang which the Conduit develop under a development plan where the land was divided
into Villages 1, 2 and 3. G.P. Construction and Development Corp handled the development.
Under the MOA, Ayala Corp. was to develop the entire property, less what was defined as the
"Retained Area". The Vasquez spouses was to retained the said “Retained Area” where the area
that Ayala Corp. was to develop was called the “Remaining Area.” In this "Remaining Area" were
4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the
spouses at the prevailing price at the time of purchase.

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the project.
Ayala received a letter from Lancer General Builder Corp. who claimed a certain amount as
subcontractor. When G.P. Construction did not have an amicable settlement with Lancer, Lancer
sued G.P. Construction, Conduit and Ayala Corp. G.P. Construction and Lancer both tried to
enjoin Ayala from undertaking the development of the property. The suit was terminated in 1987.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area"
within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of
the approaching so-called deadline. However, no demand after 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their
authorized agent categorically stated that they expected development of Phase 1 to be
completed 3 years from the settlement of the legal problems with the previous contractor. By
early 1990, Ayala finished the development of the vicinity. The 4 lots were then offered to be sold
to the Vasquez spouses at the prevailing price in 1990. But the Vazques spoused rejected
because they wanted to pay the prices i
Article 1169 of the Civil Code provides: Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. However, the demand by the creditor shall not be necessary in order that delay may
exist:(1) When the obligation or the law expressly so declares; or (2) When from the nature and
the circumstances of the obligation it appears that the designation of the time when the thing is to
be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform. In order that the debtor may be in default it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain
has been fixed shall be demandable only when that day comes. However, no such day certain
was fixed in the MOA.
In this case, petitioners, therefore, cannot demand performance after the three (3) year period
fixed by the MOA for the development of the first phase of the property since this is not the same
period contemplated for the development of the subject lots. Since the MOA does not specify a
period for the development of the subject lots, petitioners should have petitioned the court to fix
the period in accordance with Article 1197 of the Civil Code. As no such action was filed by
petitioners, their complaint for specific performance was premature, the obligation not being
demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to have
delayed performance of the obligation.

DELOS REYES
CASE NO. 61

Delay (Mora) – Exceptions Art. 1169

Abella v. Francisco, 55 Phil. 447 (1931)

FACTS: This is an appeal from the judgment of CFI Rizal Guillermo Francisco bought lots 937 to
945 in Tala Estate, Novaliches, Caloocan, Rizal from the Government in installments. He was
behind in his payments and thus, in order to pay off certain obligations, Francisco sold the said
lots to Julio C. Abella. On 31 October 1928, he signed a document in which it was shown that he
received P500 on that date from Abella as payment for the lots and that the balance was due on
or before the 15th day of December, 1928, extendible 15 days thereafter.

Abella paid another P415.31 on 13 November 1928 upon demand made by Francisco. On 27
December 1928, when Francisco was in Cebu, he authorifranciszed Roman Mabanta to sign the
deed of conveyance of the lots to Abella. He also instructed him that if Abella fails to pay the
remainder of the selling price, the sale/option to purchase would be considered cancelled and
the paid amount of P915.31 should be returned to Abella. On 3 January 1929, Mabanta informed
Abella about Francisco’s instructions and he gave Abella until the 5th of January to pay off the
balance of the selling price. Abella was only able to pay on 9 January but the payment was
rejected by Mabanta as he considered the sale rescinded already. He likewise returned the
P915.31 to Abella. Abella brought an action to compel Francisco to execute the deed of sale
upon receipt of the balance and to declare him the owner of the said lots. The CFI absolved
Francisco, hence this appeal.

ISSUE: WON Francisco can rescind the contract given the delay in the payment of the within the
specified time.

RULING: Yes. The plaintiff failed to pay the price of the lots within the stipulated time and since
the contract between plaintiff and defendant was an option for the purchase of the lots, time was
an essential element in it. Abella’s claim the Mabanta extended the deadline for the payment to
Jan. 9, but Mabanta stated that he only extended the deadline until Jan. 5 which was
corroborated by Paz Vicente. Abella also admitted this when he told Narciso Javier that his
option to purchase the lots expired on Jan. 5. Under Art. 1124 of the Civil Code, the defendant is
entitled to resolve the contract for failure to pay the price within the time specified.

DINALAGAN
62
EUSEBIO DE LA CRUZ v. APOLONIO LEGASPI
G.R. No. L-8024, Nov. 29, 1955PONENTE: Bengzon, J.

FACTS:
 Plaintiff-appellee Eusebio de la Cruz sued herein defendant-appellant Apolonio Legaspi
and his wife to compel the delivery of a parcel of land the latter sold to De la Cruz in December,
1949. It was alleged in the complaint an execution of a contract, the terms thereof, the refusal of
defendants to accept payment of the purchase price of P450 which De la Cruz had tendered,
and the undue retention of the land. In their answer, spouses Legaspi admitted the sale and the
price. However, they claimed that before the document of sale was made, De la Cruz agreed to
pay them purchase price right after the document is executed on December 5, 1949.But after the
signing and ratification of the document by the Notary Public and after De la Cruz took the
original document, he refused to pay theP450. For lack of consideration and for deceit,
they argued that thedocument should be annulled. De la Cruz in turn claimed that spouses
Legaspi's allegation gave no excuse for them to retain the property, rejecting the
price. The trial court rendered judgment ordering De la Cruz to pay the P450 and the spouses
Legaspi to receive such and to deliver possession of the property to him after such payment.
Spouses Legaspi filed a motion for reconsideration but the same failed. Hence, this appeal.

ISSUE:
Whether or not the contract of sale is void for lack of consideration.

RULING:
No. The Court stressed that it cannot be denied that when the document was signed, the
cause or consideration existed: P450. The document specifically said so; and such was
undoubtedly the agreement. Subsequent non-payment of the price at the time agreed
upon did not convert the contract into one without cause or consideration: a nudum
pactum. In the case at bar, the situation was rather one in which there is failure to pay the
consideration, with its resultant consequences. As such, when after the notarization of the
contract, De la Cruz failed to hand the money to spouses Legaspi as he previously promised.
There was defaulton his part at most, and the spouses Legaspi has the right to demandinterest
(legal interest) for the delay, pursuant to article 1501 (3) of the CivilCode, or to demand
rescission in court. However, said failure did notresolve the contract since no stipulation
to that effect was alleged. There
was neither any agreement nor allegation that payment on time was
essential.
Moreover, even if the contract of sale herein question had expressly
provided for "automatic rescission upon failure to pay the price," the trial
judge could allow De la Cruz to enforce the contract in effect because
spouses Legaspi did not make a previous demand on him for payment of
the purchase price through a suit or notarial act. As provided for by Article
1504 of the Civil Code, “in the sale of real property, even though it may
have been stipulated that in default of the price within the time agreed
upon, the resolution of the contract shall take place ipso facto, the vendee
may pay even after the expiration of the period, at any time before demand
has been made upon him either by suit or by notarial act. After such
demand has been made the judge cannot grant him further time. It was
noted by the Court that the demand referred to by the law is a demand for
rescission. From the foregoing, the Court affirmed the judgment of the trial
Court.

FARGAS
63
Exceptions Art. 1169
Samperoy, G.R. No. L-8024. November 29, 1955

FACTS:
Plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the Province of
Tarlac, by virtue of a writ of execution issued by the Court of First Instance of Pampanga,
attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and
his tenants on seven parcels of land. Plaintiff offered to redeem said sugar cane and tendered to
the defendant Valdez the amount sufficient to cover the price paid by the latter, the interest
thereon and any assessments or taxes which he may have paid thereon after the purchase, and
the interest corresponding thereto. However, Valdez refused to accept the money and to return
the sugar cane to the plaintiff.

ISSUE:
W/N future crops to be harvested can be considered a valid object of sale.

HELD:
Yes. A valid sale may be made of a thing, which though not yet actually in existence, is
reasonably certain to come into existence as the natural increment or usual incident of something
already in existence, and then belonging to the vendor, and then title will vest in the buyer the
moment the thing comes into existence (Emerson vs. European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.). A man may sell property of which he is
potentially and not actually possessed.

GARCIA
64
VDA De Villa ruel v. Manila Motor Co. Inc.
G.R. No. L-10394| December 13, 1958

FACT: the plaintiffs Villaruel and the defendant Manila Motor Co. Inc. entered into a contract of
lease for a term of five years and renewable for another period of five years. The defendants
enjoyed the leased premises and also paid the plaintiffs of rental payments until the Japanese
invaded and occupied the provincial capital of Bacolod in 1941. The Japanese ejected the
defendants from the premises and used such as quarters without any rental payments from June
1942 to March 1945. After the liberation of the city, the Americans also occupied the same
building with rental payments of the same rate as that of paid by the defendants. Thereafter,
when the US finally gave up the occupation of the building, the defendants exercised their option
to renew the contract for additional period of five years. Both parties agreed upon the same. The
defendant then offered to pay the amount of P350 (equivalent to a seven months’ rent). The
plaintiff accepted the payment "without prejudice" to their demand for rents in arrears and for the
rescission of the contract of lease. The plaintiff commenced an action before the CFC of Neg.
Occidental against Defendant Company for the rescission of the contract and the payment of
rents in arrears. During the pendency of the case, a fire razed the leased building. As a result,
Plaintiffs a supplemental complaint to include a 3rd cause of action to recover of the value of the
burned building. The trial court rendered judgment in favor of the plaintiff.

ISSUE: W/N Manila Motors Co. is liable for the loss of the leased building.

RULING: NO. Motors Co. is liable for the lessor’s (plaintiff’s) insistence upon collecting the
occupation rentals for 1942 loss of the 1945 was unwarranted in law. Hence, their refusal to
accept the current rentals leased building. Without qualification placed them in default (mora
creditoris or accipiendi) with the result that thereafter, they had to bear all supervening risks of
accidental injury or destruction of the leased premises. While not expressly declared by the Code
of 1889, this result is clearly inferable from the nature and effects of mora, and from Articles
1185, 1452 [par. 3] and 1589). ART. 1185. When the obligation to deliver a certain and
determinate thing arises from the commission of a crime or misdemeanor the obligor shall not be
exempted from the payment of its value, whatever the cause of its loss may have been, unless,
having offered the thing to the person entitled to receive it, the latter should have refused without
reason to accept it. Art. 1452.

GRAVADOR
CASE NO. 65

ART. 1169 – COMPENSATIO MORAE

Central Bank v. CA, 139 SCRA 46 (1985)

FACTS: This is a petition for review on certiorari to set aside as null and void the decision of the
Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision
dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages
with preliminary injunction.

Sulpicio Tolentino took a loan of P80,000 from Island Savings Bank (ISB) and mortgaged his
property for the amount loaned.ISB was able to deliver P17,000 of the P80,000 loan before it
was declared insolvent by the Central Bank and prohibiting it to further issue new loans and
investments. Tolentino likewise issued a promissory note for the P17,000 with a 12%
interest.When Tolentino failed to pay his mortgage, ISB filed for a foreclosure of the mortgaged
property of Tolentino. Both parties were in default since ISB only provided P17,000 and Tolentino
never paid the P17,000 promissory note. The SC held that only 21.25 hectares of Tolentino’s
land can be foreclosed and not the totality of 100 hectares. Tolentino is likewise held to pay the
P17,000 plus P41,210 representing 12% interest per annum

ISSUE: WON Island Saving Bank can fully foreclose the mortgage lang of Tolentino and whether
there is a default for both parties?

RULING: No. Island Savings Bank cannot fully foreclose the land of Tolentino. But it can only
foreclose up to the equivalent of the P17,000 that it had released to Tolentino or a total of 21.25
hectares of the total 100 hectares of land. The reason for which is that Tolentino issued a
promissory note for the amount the bank has given him. The Court ruled that if Tolentino did not
issue a PN, then he would not be liable to pay the amount to the bank since the bank was also in
default in paying Tolentino with the remaining P63,000 of the loan.

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (and when
one party has performed or is ready and willing to perform his part of the contract, the
other party who has not performed or is not ready and willing to perform incurs in delay
(Art. 1169 of the Civil Code).

Yes. The reason of ISB that it can no longer provide for the P63,000 because of the Central
Bank’s resolution is untenable. The resolution only prohibits the ISB from issuing new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan
agreements previously contracted. Likewise, since Tolentino issued a Promissory Note in favor
of the bank, and failed to pay the amount of the note, he is also liable for default in payment of
his obligation. Article 1192 of the civil code provides that in case both parties have committed a
breach of their reciprocal obligations, the liability of the first infract or shall be equitably tempered
by the courts

Compensatio morae - it is a delay in reciprocal obligations

CASE NO. 66
Effects; Contravention of Tenor
Chavez v. Gonzalez, (1970)

FACTS: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and servicing of the said typewriter but the latter was not
able to finish the job. During October 1963, the plaintiff gave the amount of P6.00 to the
defendant which the latter asked from the plaintiff for the purchase of spare parts, because of the
delay of the repair the plaintiff decided to recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff reached their home he opened it and examined that
some parts and screws was lost. That on October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D).
The following day, the defendant returned to the plaintiff some of the missing parts, the interior
cover and the P6.00. The plaintiff brought his typewriter to Freixas Business Machines and the
repair cost the amount of P89.85. He commenced this action on August 23, 1965 in the City
Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and
P500.00 as attorney’s fees. The defendant made no denials of the facts narrated above, except
the claim of the plaintiff that the cost of the repair made by Freixas Business Machines be fully
chargeable against him.

ISSUE: Whether or not the defendant is liable for the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?

RULING: No, he is not liable for the total cost of the repair made by Freixas Business Machines
instead he is only liable for the cost of the missing parts and screws. The defendant
contravened the tenor of his obligation in repairing the typewriter of the plaintiff that he
fails to repair it and returned it with the missing parts, he is liable under “ART. 1167. If a
person obliged to do something fails to do it, the same shall be executed at his cost. This
same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone.”

CASE NO. 67

Contravention of the tenor

Telefast v. Castro, 158 SCRA 445 (1988)

FACTS: Consolacion Castro, wife of plaintiff Ignacio and mother of the other plaintiffs, passed
away. On that same day, her daughter Sofia, who was then in the Philippines, addressed a
telegram to her father, Ignacio Castro who was in the U.S.A., to announce Consolacion's death.
The telegram was accepted by the Telefast, a company engaged in transmitting telegrams, for
transmission after payment was made by Sofia. However, the telegram never reached its
addressee. Thus, Consolacion was buried with only her daughter Sofia in attendance. Neither
the husband nor any of the other children of the deceased, then all residing in the United States,
returned for the burial. When Sofia returned to the United States, she discovered that the wire
she had caused the defendant to send had not been received. She and the other plaintiffs
thereupon brought action for damages arising from defendant's breach of contract.

ISSUE: Won the petitioner can be held liable for the moral, compensatory and exemplary
damages?

RULING: YES, there was a contract between the petitioner and private respondent Sofia C.
Crouch whereby, for a fee, petitioner undertook to send said private respondent's message
overseas by telegram. Petitioner failed to do this despite performance by said private respondent
of her obligation by paying the required charges. Petitioner was therefore guilty of contravening
its and is thus liable for damages. This liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would result in an inequitous situation where
petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. Art.
1170 of the Civil Code provides that "those who in the performance of their obligations are guilty
of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are
liable for damages." Art. 2176 also provides that "whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done." The petitioner's
act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo. Art. 2217 of the Civil Code states: "Moral damages include
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury.

LAO
68
Modes of Breach: Contravention of The Tenor

Arrieta v. NARIC, 10 SCRA 79 (1964)

FACTS: Paz Arrieta was awarded by NARIC the contract of delivery of 20,000 metric tons of
Burmese rice at $203 per metric ton. On the other hand, the corporation committed itself to pay
for the imported rice by means of an irrevocable, confimed, and assignable letter of credit in US
currency in favor of Arrieta or supplier in Burma immediately. However, the corporation took the
first step to open a letter of credit a full month from the execution of the contract only July 30,
1952. On the same day, Arrieta advised the corporation of the extreme necessity for the
immediate opening of the letter of credit since she had by then made a tender to her supplier in
Ragoon Burma. Consequently, the credit instrument applied for was opened only on September
8, 1952, since the corporation was not in financial capacity to pay the 50% marginal cash deposit
when the credit instrument was approved on August 4, 1952. As a result of the delay, the
allocation of Arrieta was cancelled and the 5% deposit, approximately Php 200,000, was
forfeited. Arrieta tried to restore the cancelled Burmese rice allocation, but failed. Arrieta then
instead offered to substitute Thailand rice to NARIC, communicating that such was a solution
which should be beneficial for both parties. However, the corporation rejected the substitution.
Hence, Arrieta sent a letter to the corporation, demanding for the compensation for the damages
caused her.

ISSUE: WON the failure to open immediately the letter of credit in dispute amounted to a breach
of the contract for which the corporation should be held liable.

RULING: Yes. Under Article 1170, “those who in the performance of their obligation are guilty of
fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable
in damages.” The terms “in any manner contravene the tenor thereof” includes any illicit act
which impairs the strict and faithful fulfillment of the obligation, or every kind or defective
performance. In general also, every debtor who fails in the performance of his obligation is bound
to indemnify for the losses and damages caused thereby. The payment for damages or the
award to be given should be converted into the Philippine peso at the rate of exchange prevailing
at the time the obligation was incurred pursuant to RA 527.

LAUGHTON
CASE NO. 69

Contravention of the tenor

Victoriano Magat vs. Medialdea (206 Phil 341)

FACTS: Respondent entered into a contract with the U.S. Navy Exchange, Subic Bay,
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the
necessary taximeter and a radio transceiver. Isidro Q. Aligada, acting as an agent, approached
the petitioner in behalf of the respondent and proposed to import from Japan thru the plaintiff
herein or thru plaintiff’s Japanese business associates, all taximeters and radio transceivers
needed by the defendant. Thereafter, petitioner found out that defendant had already been
operating his taxicabs without the required radio transceivers. And when pressed by the U.S.
Navy to comply, defendant blamed petitioner, claiming the latter was in delay. Petitioner sent a
letter to the defendant ascertaining his intention to fulfill his end of the bargain but he did not
reply. In view of defendant’s failure to fulfill his contractual obligations with the petitioner, the
petitioner filed a case against the defendant for breach of contract and damages. Respondent
filed a motion to dismiss alleging a lack of cause of action. He contended that plaintiff was merely
anticipating his loss or damage which might result from the alleged failure of defendant to comply
with the terms of the alleged contract. Plaintiff’s right therefore under his cause of action is not
yet fixed or vested. Respondent Judge in this case dismissed the complaint.

ISSUE: W/N the respondent is guilty for breach of contract.

RULING: YES. The Court contends that the parties, both businessmen, entered into the
aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of
the contract by either of them, the other would necessarily suffer loss of his expected profits.
Since the loss comes into being at the very moment of breach, such loss is real, “fixed and
vested” and, therefore, recoverable under the law.

Article 1170 of the Civil Code provides: Those who in the performance of their obligation are
guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof
are liable for damages.

The phrase “in any manner contravene the tenor” of the obligation includes any illicit act or
omission which impairs the strict and faithful fulfillment of the obligation and every kind of
defective performance. The damages which the obligor is liable for includes not only the value of
the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to
obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that
are the natural and probable consequences of the breach of the obligation and which the parties
have foreseen or could have reasonably foreseen at the time the obligation was constituted; and
in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which
may be reasonably attributed to the nonperformance of the obligation. The same is true with
respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles
2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract
where the defendant acted in bad faith.

CASE NO. 70
Contravention of the Tenor
Eastern Shipping Lines v. CA [G.R. No. 97412, July 12, 1994]

FACTS: Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment
as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service,
which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro,
one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse.
The latter excepted to one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so
that it became subrogated to all the rights of action of consignee against the defendants Eastern
Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court.
The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal
interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants,
the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUE: W/N the injured party is entitled to damages.

RULING: Yes. When an obligation is breached, the contravenor can be held liable for damages.
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable
damages.

CASE NO. 71

Contravention of the Tenor

NPC v. EIN Chemical Corp. and Phil. International Surety Co., G.R. No. L-24856, Nov. 14,
1986

FACTS: National Power Corporation (NPC), after public bidding, awarded to the EIN Chemical
Corporation (EIN), the contract formalized to supply and deliver 3,691 long tons of crude sulfur in
one shipment to the Maria Cristina Fertilizer Plant in Iligan City. Anticipating failure to deliver on
the contract date, EIN requested and was granted by NPC a further extension of the expiry date
of the letter of credit. Even though it failed to deliver as per contract, EIN requested to be allowed
to participate in another bidding to be conducted by NPC but the latter disqualified EIN from
participating in the said bidding. The NPC instead sued EIN for damages for breach of contract
before the then Court of First Instance of Manila. The lower court dismissed the case declaring
that EIN was not in bad faith; that, the extension of the expiry date of the letter of credit carried
with it the extension of the delivery time; that before it became the duty of EIN to deliver, the NPC
should first open the letter of credit notwithstanding the fixed delivery date; that NPC was
unjustified in disqualifying EIN from bidding for the next contract; and, that there was scarcity of
bottoms when the expiry date of the letter of credit was extended.

ISSUE: Whether or not EIN committed a breach of contract which would entitle NPC to
damages.

RULING: A review of the records shows that the contract was freely entered into by both parties
in good faith. The provisions of the contract, however, indicate that there is no relationship
between the delivery date and the opening of the letter of credit which was anyway opened within
a reasonable time after the signing of the contract.

Evidently, the EIN clearly committed a breach of contract by failing to completely deliver on its
contract inspite of the leniency of the NPC in enforcing its rights. Laxity of a contracting party in
the enforcement of its rights under the contract does not in any manner diminish its rights
thereunder.

Considering the foregoing, the Court resolved to SET ASIDE the appealed decision, and to
render a new one directing the appellees to pay appellant, jointly and severally, the amount of
the performance bond, the liquidated damages from August 19, 1956 up to January 20, 1958
when the appellant purchased crude sulfur from other sources, and the costs.
Case no. 72
Mohammad
Chavez v. Gonzales
Art. 1167

Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a typewriter
repairman for the cleaning and servicing of the said typewriter but the latter was not able to finish
the job. During October 1963, the plaintiff gave the amount of P6.00 to the defendant which the
latter asked from the plaintiff for the purchase of spare parts, because of the delay of the repair
the plaintiff decided to recover the typewriter to the defendant which he wrapped it like a
package. When the plaintiff reached their home he opened it and examined that some parts and
screws was lost. That on October 29, 1963 the plaintiff sent a letter to the defendant for the
return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day,
the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
The plaintiff brought his typewriter to Freixas Business Machines and the repair cost the amount
of P89.85. He commenced this action on August 23, 1965 in the City Court of Manila, demanding
from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees. The
defendant made no denials of the facts narrated above, except the claim of the plaintiff that the
cost of the repair made by Freixas Business Machines be fully chargeable against him.

Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?

Held: No, he is not liable for the total cost of the repair made by Freixas Business Machines
instead he is only liable for the cost of the missing parts and screws. The defendant contravened
the tenor of his obligation in repairing the typewriter of the plaintiff that he fails to repair it and
returned it with the missing parts, he is liable under “ART. 1167. If a person obliged to do
something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone.”

CASE 73

NICANOR

TANGUILIG vs. CA

G.R. No. 117190, January 2, 1997

FACTS: Petitioner, doing business under the name and styleJ.M.T. Engineering and General
Merchandising, proposed to respondent to construct a windmill system for him (respondent).
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 of the project.
Pursuant to the agreement, respondent paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal of respondent to pay the balance, petitioner filed a
complaint by which respondent denied in his answer. Moreover, assuming that he owed the
petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system
which caused the structure to collapse after a strong wind hit their place.

Petitioner disowned any obligation to repair the system and insisted that he delivered it in good
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: Whether or not petitioner is under obligation to reconstruct the windmill after it collapsed.

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

PIEDAD
Case No. 74

Action for Damages Art. 1170

Telefast v. Castro, 158 SCRA 445 (1988)

FACTS: Following the death of Consolacion Bravo-Castro wife of the respondent, his daughter
who was vacationing in the Philippines addressed a telegram to the respondent who was in the
US informing him of the death if his wife. The telegram was accepted by the petitioner for
transmission after payment of fees but the telegram did not reach to the respondent which
resulted to his nonattendance to the interment of his wife. Because of this, the respondent and
his daughter filed an action for damages arising from the petitioner’s breach of contract.
Petitioner avers that the reason why the telegram did not reach the respondent was due to
technical and atmospheric factors beyond its control but there was no evidence appeared on
record that the petitioner attempted to advice the daughter as to why they could not able to
transmit the telegram.
ISSUE: W/N the petitioner is liable for damages

RULING: YES. Art. 1170 of the CC states that a company is liable for damages if such company
is guilty of fraud, negligence, or delay in the performance of its obligation. Here, failure of
telegram company to send the sender's telegram overseas despite payment of the required
charges, makes it guilty of contravening its obligation and is liable for damages (MP). Petitioner
and the respondent’s daughter entered into a contract whereby, for a fee, petitioner undertook to
send said message overseas by telegram. This, petitioner did not do, despite performance of her
obligation by paying the required charges. Petitioner was therefore guilty of contravening its
obligation and is thus liable for damages.
REYES
Case 75
 Action for damages- Art.1170
Arrieta v. NARIC
10 SCRA 79

FACTS: Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the
supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, the lowest
hence the contract was awarded to her. On July 1,1952, Arrieta and NARIC entered into
contract. Arrieta was obligated to deliver 20,000 metric ton of Burmese rice at $203.00 per metric
ton to NARIC. In return, NARIC committed itself to pay for the imported rice “ by means of an
irrevocable, confirmed and assignable letter of credit in US currency in favour of Arrieta and/or
supplier in Burma (THIRI SETKYA), immediately.” NARIC took the first step to open the letter of
credit on July 30, 1952 by forwarding to the PNB its application for commercial letter of credit.
Arrieta with the help of a counsel, advised NARIC of the necessity for the opening of the letter
because she tender her supplier in Ragoon, Burma of 5 % of the price of 20,000 tons at
$180.70 and if she didn’t comply the 5% will be confiscated if the required letter of credit is not
received by them before August 4, 1952. PNB informed NARIC that their application of credit
letter amounting to $3,614,000.00 was approved with the condition of 50% marginal cash be
paid. NARIC does not meet the condition. The allocation of Arrieta’s supplier in Ragoon was
cancelled and the 5% deposit was forfeited.

ISSUE: W/N Naric is liable for damages?

RULING/MP: Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon,
Burma was the failure of NARIC to open the letter of credit within a specific period of time. One
who assumes contractual obligation and fails to perform in which he knew and was aware when
he entered in the contract, should be liable for his failure to do what is required by a law.

Under the Art. 1170 of the Civil Code, not only the debtors guilty of fraud, negligence or default
but also a debtor of every, in general, who fails in the performance of his obligation is bound to
indemnify for the losses and damages caused thereby.

SAJILI
CASE NO. 76

B. Action for damages- Art.1170

Victoriano Magat vs. Medialdea (206 Phil 341)

MAIN POINT: The damages which the obligor is liable for includes not only the value of the loss
suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain
[lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that are the
natural and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted; and in
case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may
be reasonably attributed to the nonperformance of the obligation.

FACTS: That sometime in September 1972, the defendant entered into a contract with the U.S.
Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to
be provided with the necessary taximeter and a radio transceiver for receiving and sending of
messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay,
Philippines. Magat obliged himself to import the necessary gadgets from Japan using his
connections and to deliver said gadgets to Guerrero. Guerrero, however, refused to open a letter
of credit in favor of the foreign supplier to cover payment of the goods ordered by him.
Thereafter, it has came to Magat’s knowledge that Guerrero had been began operating his
taxicabs without the required radio transceivers and even put the blame regarding the delay
upon Magat which in turn destroyed his reputation to the Naval Authorities With whom he
regularly transacted business

ISSUE: Whether or not there is contravention of the terms.

RULING: YES. The complaint recites the circumstances that led to the perfection of the contract
entered into by the parties. It further avers that while petitioner had fulfilled his part of the
bargain, private respondent failed to comply with his correlative obligation by refusing to open a
letter of credit to cover payment of the goods ordered by him and that consequently, petitioner
suffered not only loss of his expected profits, but moral and exemplary damages as well. Since
the loss comes into being at the very moment of breach, such loss is real, "fixed and vested"
and, therefore, recoverable under the law.

SAKIR
CASE NO. 77

ART. 1170 – ACTION FOR DAMAGES

Eastern Shipping Lines v. CA, July 12, 1994

FACTS: This is an action against defendants shipping company (Eastern Shipping Lines,
petitioner), arrastre operator (MPSI) and broker-forwarder (ABC) for damages sustained by a
shipment while in defendants' custody, filed by the insurer-subrogee (Mercantile Insurance
Company, Inc, plaintiff/respondent) who paid the consignee the value of such losses/damages.
Two drums of riboflavin were supposed to be shipped through a vessel owned by petitioner,
insured by respondent. However, one drum was said to be damaged and excepted from the
delivery. Due to losses suffered from the alleged damages, respondent had to pay the consignee
P19,032.95 under the insurance policy. The Court of Appeals ruled in favor of plaintiff MICI.

ISSUE: Whether or not petitioner may be held liable for damages.

RULING: Yes. The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until the lapse
of a reasonable time for their acceptance by, the person entitled to receive them. When the
goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable. A factual finding of both the court a quo and
the appellate court is that there is sufficient evidence that the shipment sustained damage while
in the successive possession of appellants. Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.

Case No. 78
Salazar

Action for damages- Art.1170

NPC v. EIN Chemical Corp. and Phil. International Surety Co.
G.R. No. L-24856, Nov. 14, 1986

FACTS: A contract was awarded to Ein Chemical Corp.(Ein) by The National Power Corp. (NPC)
after public bidding to supply and deliver 3,691 long tons of crude sulfur to the Maria Cristina
Fertilizer Plant in Iligan City on or before May 10, 1956, for the price of P374,374.91 to be paid
by NPC. To guarantee its obligation, EIN posted a bond from the Philippine International Surety
Co. in the amount of P74,874.98. Then NPC opened a letter of credit with PNB for Ein where the
expiry date of such letter of credit was thrice adjusted from its original date of expiration upon
Ein’s request for extension of the expiration date for it anticipated that it cannot deliver its
obligation on the date agreed in the contract. However, on the day of its delivery, Ein only
delivered 1,000 long tons of crude sulfur ostensibly due to lack of bottoms; but was paid by NPC
the amount of P101,764.05. As a consequence, for failure to comply with its obligation, NPC
prohibited Ein to participate in another public bidding. The failure also led NPC to file an action
against EIN for breach of contract.The lower court ruled in favor of EIN on the ground that the
extension of the expiry date of the letter of credit carried with it the extension of the delivery time.
Hence, NPC appealed the adverse ruling of the lower court.

ISSUE: Whether or not respondent EIN committed a breach of contract which would entitle NPC
to damages.

RULING: Yes. The EIN clearly committed a breach of contract by failing to completely deliver on
its contract in spite of the leniency of the NPC in enforcing its rights. Laxity of a contracting party
in the enforcement of its rights under the contract does not in any manner diminish its rights there
under. The provisions of the contract, however, indicate that there is no relationship between the
delivery date and the opening of the letter of credit which was anyway opened within a
reasonable time after the signing of the contract. The extensions of the expiry dates of the
letter of credit cannot, by any means, be interpreted as extensions of the delivery date. If
this was the intention of the parties, then a corresponding date or deadline could have
been provided. As the terms show, no other delivery date can even be inferred.

NPC has been very lenient by extending the expiry date of the letter of credit thrice despite the
failure of EIN to fully deliver on the contract. The problem of bottoms is one that is well-known
and anticipated by suppliers and shippers, and NPC cannot be faulted for such problem since it
opened the letter of credit within a reasonable time after the signing of the contract. The NPC, in
fact, had no duty to inform EIN of -the shipping time between the US Atlantic ports and the
Philippines since all shippers and suppliers are presumed to know this as part of their business

CASE NO. 79
SUBA

KHE HONG CHENG v. CA

FACTS: The Philippine Agricultural Trading Corporation shipped on board the vessel M/V
PRINCE ERIC, owned by Khe Hong Cheng (petitioner, Cheng for brevity), 3,400 bags of copra at
Masbate, for delivery to Zamboanga del Norte. The shipment of copra was covered by a marine
insurance policy issued by American Home Insurance Company (respondent Philam’s assured).
M/V/ PRINCE ERIC, sank, resulting in the total loss of the shipment. Because of the loss, the
insurer, American Home, paid the amount of P354,000.00. American Home instituted a Civil
Case to recover the money paid to the consignee, based on breach of contract of carriage.

While the case was still pending, on December 20, 1989, Cheng executed deeds of donations of
parcels of land in favour of his children. (The same deed was registered on December 27,
1989)The trial court rendered judgement against Cheng on December 29, 1993, four years after
the donations were made and the TCTs were registered in the donees names. A writ of
execution was issued; however, it was not served. An alias writ of execution was, thereafter,
applied for and granted. Despite earnest efforts, the sheriff found no property under the name of
Butuan Shipping Lines and/or Cheng to levy or garnish the satisfaction of the trial court’s
decision.On January 17, 1997, the sheriff, accompanied by counsel of respondent Philam, went
to Butuan City to enforce the alias writ of execution, they discovered that petitioner Cheng no
longer had any property and he had conveyed the subject properties to his children.Philam filed
a complaint for the rescission of the deeds of donation executed by Cheng in favour of his
children and for the nullification of their titles.

ISSUE: Whether or not the action to rescind the subject deeds of donations already prescribed.

RULING: No. An accion pauliana accrues only when the creditor discovers that he has no other
legal remedy for the satisfaction of his claim against the debtor other than an accion pauliana.
The accion pauliana is an action of a last resort. Respondent Philam only learned about the
unlawful conveyances made by petitioner Cheng in January 1997 when its counsel accompanied
the sheriff to Butuan City to attach the properties of Cheng. There they found that he no longer
had any properties in his name. it was only then that respondent Philam’s action for rescission of
the deeds of donation accrued because then it could be said that respondent Philam had
exhausted all legal means to satisfy the trial court’s judgement in its favour. Since respondent
Philam filed its complain for accion pauliana against Cheng on February 25, 1997, barely a
month from its discovery that Cheng had no property to satisfy the judgement award against him,
its action for rescission of the subject deeds clearly had not yet prescribed.

Amilhussin

Case No. 80

Siguan vs. Lim, 318 SCRA 725, G.R. No. 134685 November 19, 1999

FACTS: On 25 and 26 August 1990, respondent LIM issued two Metrobank checks in favor of
petitioner SIGUAN. Upon presentment by petitioner with the drawee bank, the checks were
dishonored for the reason “account closed.” Demands to make good the checks proved futile. As
a consequence, a criminal case for violation of Batas Pambansa Blg. 22 was filed by petitioner
against LIM. Meanwhile, on 2 July 1991, a Deed of Donation conveying the parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil,
was registered with the Office of the Register of Deeds of Cebu City. New transfer certificates of
title were thereafter issued in the names of the donees.

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children to rescind the
questioned Deed of Donation and to declare as null and void the new transfer certificates of title
issued for the lots covered by the questioned Deed, as the same was allegedly made in bad faith
hand fraud of creditors. In its decision of 31 December 1994, the trial court ordered the rescission
of the Deed and declared null and void the transfer certificates but on appeal, Court of Appeals
reversed said decision and dismissed petitioner’s accion pauliana. Hence, this petition for review
on certiorari.

ISSUE: WON the questioned Deed of Donation was made in fraud of petitioner and, therefore,
rescissible.

RULING: No. 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.

In this case, the fourth requisite for an accion pauliana to prosper is not present. (4) the act being
impugned is fraudulent. It was not sufficiently established that the properties left behind by LIM
were not sufficient to cover her debts existing before the donation was made.

Case No. 81
Accion Pauliana
Siguan v. Lim 318 SCRA 725, G.R. No. 134685 (November 19, 1999)

MAINT POINT: Requisites for accion pauliana are: a) Plaintiff asking for rescission has a
credit prior to the alienation, although demandable later; b) Debtor has made a
subsequent contract conveying a patrimonial benefit to a third persons; c) Creditor has
no other legal remedy to satisfy his claim, but would benefit by rescission of the
conveyance to the person.
Act being impugned is fraudulent; and d) The third parsons who received the property
conveyed, if by onerous title, has been an accomplice in the fraud.

FACTS:
On 25 and 26 August 1990, Rosa Lim issued two Metrobank checks to satisfy her debts to Maria
Antonia Siguan but the checks were dishonoured for the reason account closed. So Lim was
charged for violation of BP 22. On December 29 1992, RTC convicted LIM as charged. On
August 10, 1989, LIM executed a Deed of Donation in favour of her children, and the same was
registered with the Office of the Register of Deeds on July 2, 1991. On June 23, 1993, SIGUAN
filed an accion pauliana against LIM and her children, to rescind the questioned Deed of
Donation and to declare as null and void the new transfer certificates of title.

ISSUE: Whether or not the questioned Deed of Donation was made in fraud of petitioner and,
therefore, rescissible?

RULING: No. The rescission required the existence of creditors at the time of alleged fraudulent
alienation. The case at bar fulfills none of the requisites of the accion pauliana.

TINGKAHAN
CASE NO. 82

Art. 1177
Oria v. Mc Micking

Facts: Gutierrez Hermanos filed an action for recovery of a sum of money against Oria
Hermanos & Co. and herein plaintiff filed an action for recovery also for the same defendant.
Before the institution of the suits, members of the Company dissolved their relations and entered
into a liquidation. Tomas Oria y Balbas acting in behalf of his co-owners entered into a contract
with the herein plaintiff for the purpose of transferring and selling all the property which the Oria
Hermanos & Co. owned and among the goods stated on that instrument was the steamship
Serpantes and which the subject of this litigation. When the Trail Court resolved the action for
recovery filed by Gutierrez Hermanos and jugdment was in his favor, The sheriff demanded to
Tomas Oria y Balbas to make payment but the latter said there were no funds to pay the same.
The sheriff then levied on the steamer, took possession of the same and announced it for public
auction. Herein plaintiff claimed that he is the owner of the steamer by virtue of the selling of all
the properties of the said Company.
Issue: Whether there was a valid sale between Oria Hermanos & Co. to Manuel Oria y Gonzales
as against the creditors of the company.

Ruling: NO. At the time of said sale the value of the assets of Oria Hermanos & Co., as stated
by the partners themselves, was P274,000. The vendee of said sale was a son of Tomas Oria y
Balbas and a nephew of the other two persons heretofore mentioned which said three brothers
together constituted all of the members of said company.The plaintiff is a young man of 25 years
old and has no property before the said selling. The court had laid down the rules in
determining whether a there has been fraud prejudicing creditors: 1) consideration of
conveyance is fictitious; 2) transfer was made while the suit against him (Tomas Oria y
Balbas) was pending; 3) sale by insolvent debtor; 4) evidence of insolvency; 5) transfer of
all properties; 6) the sale was made between father and son; 7) and the failure of the
vendee to take exclusive possession of the property. The case at bar shows every one of
the badges of fraud.

ADIL
Case 83

Extinguishment of Liability in Case of Breach Due to Fortuitous Event-Art 1174;Effect of

concurrent fault
Juan Nakpil & Sons v. CA, 144 SCRA 597 (1986)

FACTS: Juan Nakpil & Sons were hired by the Philippine Bar Association (PBA) to plan the
specification of a building in Intramuros, Manila. While United Construction was hired to construct
it. The building was completed in 1966. In 1968, a strong earthquake caused the building heavy
damage, which led the building to tilt the building forward. United Construction took remedial
measures to sustain the building. PBA filed a suit for damages against United Construction, but
United Construction subsequently filed a suit against Nakpil and Sons, alleging defects in the
plans and specifications. Technical Issues in the case were referred to Mr. Hizon, as a court
appointed Commissioner. PBA moved for the demolition of the building, but was opposed. PBA
eventually paid for the demolition after the building suffered more damages in 1970 due to
previous earthquakes. The Commissioner found that there were deviations in the specifications
and plans, as well as defects in the construction of the building.

ISSUE: W/N an act of God (fortuitous event) exempts from liability parties who would otherwise
be due to negligence.

RULING/MP: No. Art. 1723 dictates that the engineer/architect and contractor are liable for
damages should the building collapse within 15 years from completion. However, Art. 1174 of the
Civil Code, states that no person shall be responsible for events, which could not be foreseen.
But to be exempt from liability due to an act of God, the following must occur: (a) cause of breach
must be independent of the will of the debtor; (b) event must be unforeseeable or unavoidable;
(c) event must be such that it would render it impossible for the debtor to fulfill the obligation; (d)
debtor must be free from any participation or aggravation of the industry to the creditor. In the
case at bar, although the damage was ultimately caused by the earthquake which was an
act of God, the defects in the construction, as well as the deviations in the specifications
and plans aggravated the damage and lessened the preventive measures that the building
would otherwise have had. To be exempt from liability due to an act of God, the
engineer/architect/contractor must not have been negligent in the construction of the
building.

ALMONTE
Case 84
Extinguishment of Liability in Case of Breach Due to Fortuitous Event; Requisites
 Republic v. Luzon Stevedoring Co., 21 SCRA 279 (1967)

FACTS: Barge L-1892 owned by Luzon. was being towed down the Pasig River by two tugboats
"Bangus" and "Barbero” (also owned by Luzon). The barge rammed against one of the wooden
piles of Nagtahan bailey bridge, smashing the posts and causing the bridge to list. At the time,
the river’s current was swift and the water was high due to heavy rains in Manila. The Republic
sued the company for the actual and consequential damages caused (P200,000). Luzon
disclaimed liability, 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
plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to
navigation. CFI held Luzon liable for the damage caused by its employee and ordered it to pay
the actual cost of the repair of the Nagtahan bailey bridge (P192,561.72), with legal interest
thereon from the date of the filing of the complaint.

ISSUE: W/N the collision of Luzon’s barge with the supports or piers of the Nagtahan bridge was
in law caused by fortuitous event or force majeure

RULING: No. The collision is not caused by a fortuitous event. force majeure are extraordinary
events which are not foreseeable, or which, though foreseen, were inevitable. considering that
the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with
adequate openings for the passage of water craft, including barges like of appellant's, it is
undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed
the bridge supports raises a presumption of negligence on the part of appellant or its employees
manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing
does not happen if proper care is used. The mere difficulty to foresee the happening is not
impossibility to foresee the same. The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito.

ANOOS
CASE NO. 85

EXTINGUISHMENT OF LIABILITY IN CASE OF BREACH DUE TO FORTUITOUS EVENT

ART. 1174
REQUISITES: EFFECR OF CONCURRENT FAULT
DIOQUINO V. LAUREANO, 33 SCRA 65 (1970)

FACTS: Atty. Pedro Dioquino went to the MVO’s office in Masbate to register his car. There, he
met Federico Laureano, patrol officer of the office, who was about to leave for the Provincial
Commander’s office. Dioquino asked Laureano to introduce him to one of the clerks in the MVO
office to facilitate the registration of his car. Laureano graciously attended to it. Laureano then
rode in Dioquino’s car, with a driver on the wheel, going to the Provincial Commander’s office.
Dioquino was not with them; Laureano was the sole passenger. En route, the car was stoned by
some boys and its windshield was broken. Laureano chased the boys and was able to catch one
of them. The boy was taken to Dioquino, and the father was called, but no arrangements were
made about the damage. 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. Thus, Dioquino tried to convince Laureano to pay for 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 Laureano refused to make any settlement, but the latter refused, clinging to the same force
majeure belief. Dioquino filed an action for damages in CFI against Laureano, his wife, and his
father. CFI ruled in favor of Dioquino, but only made Laureano pay – not the wife and father.

ISSUE: W/N the incident was force majeure.

RULING: YES. The situation falls under Art. 1174. What happened was clearly unforeseen. It
was a fortuitous event resulting in a loss that must be borne by the owner of the car. In the
extinguishment of liability in case of breach due to fortuitous event as provided in Article 1174, it
is not enough that the event should not have been foreseen or anticipated, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility
to foresee the same. The express language of Article 1174, except for the addition of the nature
of an obligation requiring the assumption of risk, compels the conclusion that in the absence of a
legal provision or an express covenant, “no one should be held to account for fortuitous cases.”

BENITEZ
86
Art 1174: Requisites: Effect of concurrent fault
Austria v. CA
39 SCRA 527 (1971)

FACTS: Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds valued
at P4,500.00, to be sold on commission basis or to be returned on demand. While walking home,
Abad was said to have been robbed her purse containing jewelry, including the consigned
pendant, and cash, and ran away. RTC rendered judgment for the plaintiff, and ordered Abad to
pay to the Austria the sum of P4,500.00, with legal interest. CA reversed the decision and
declared respondents not responsible for the loss of the jewelry on account of a fortuitous event,
and relieved them from liability for damages to the owner. Petitioner contends that the Court of
Appeals erred in finding that there was robbery in the case, although nobody has been found
guilty of the supposed crime.

ISSUE: Whether in a contract of agency (consignment of goods for sale) it is necessary that
there be prior conviction for robbery before the loss of the article shall exempt the consignee
from liability for such loss.

RULING: NO. 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. It must be
realized that a court finding that a robbery has happened would not necessarily mean that those
accused in the criminal action should be found guilty of the crime; nor would a ruling that those
actually accused did not commit the robbery be inconsistent with a finding that a robbery did take
place.

Notes for Recit:

Requsites to constitute a caso fortuito that would exempt a person from responsibility:
(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;
(3) the obligor must be free of participation in or aggravation of the injury to the creditor.

CRUZ
CASE NO. 87

Extinguishment of Liability in Case of Breach Due to Fortuitous Event- Art. 1174

B. Requisites
1. Effect of concurrent fault
NPC v. CA, G.R. No. L-47379, 161 SCRA 334 (1988)

FACTS: On August 4, 1964, plaintiff Engineering Construction, Inc. executed a contract in Manila
with the National Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials and to construct the proposed 2nd
lpo-Bicti Tunnel, in Bulacan, and to complete said works within 800 calendar days from the date
the Contractor receives the formal notice to proceed. The project involved two (2) major phases:
the first phase comprising, the tunnel work covering a distance of seven (7) kilometers, passing
through the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of
the defendant National Power Corporation is located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.

By September 1967, the plaintiff corporation completed the first major phase of the work, the
tunnel excavation work. Some portions of the outworks at the Bicti site were still under
construction. After the plaintiff finished the tunnel excavation work at Bicti site, all the equipment
was transferred to the Ipo site where some projects were yet to be completed.

On November 4,1967, typhoon 'Welming' hit Central Luzon, passing through the defendant's
Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the
project area. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the

dam, since the water level had reached the danger height of 212 meters above sea level, the
defendant, NPC, caused the opening of the spillway gates.

ISSUE: Whether or not the destruction and loss of the ECI’s equipment and facilities were due to
act of God or force majeure

RULING: NO. The destruction and loss of the ECI’s equipment and facilities were not due to
force majeure.

NPC cannot escape liability because its negligence was the proximate cause of the loss and
damage even though the typhoon was an act of God.—It is clear from the appellate court’s
decision that based on its findings of fact and that of the trial court’s, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height
of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually
and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days
before it actually struck. And even though the typhoon was an act of God or what we may call
force majeure, NPC cannot escape liability because its negligence was the proximate cause of
the loss and damage.

As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals (144 SCRA 596, 606–607): Thus,
if upon the happening of a fortuitous event or an act of God, 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. The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the participation of man, whether it
be from active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris,
pp. 1174–1175). Thus, it has been held that when the negligence of a person concur s 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 the loss
National Power Corporation vs. Court of Appeals, 161 SCRA 334, No. L-47379, No. L-47481
May 16, 1988

DELOS REYES
CASE NO. 88

Extinguishment of Liability in Case of Breach Due to Fortuitous Event Art. 174 – Effect of
concurrent fault
Yobido v. CA, 281 SCRA 1 (1997)

FACTS: Tito and Leony Tumboy, together with their minor children boarded Yobido Liner bus
bound for Davao City from Surigao del Sur. While driving in Agusan del Sur, the left front tire of
the bus exploded, in which the bus fell into ravine that cause the death of Tito Tumboy and
injured physically other passengers. A complaint for breach of contract was filed by Leny against
the owner of the bus,, Alberta Yobido and its driver.

The Yobidos used as defense that the case was a caso foruito. More so, a separate charge was
filed against the Philippine Phoenix Surety and Insurance but was dismissed. During the trip to
Davao, Leny cautioned the driver that the bus was running fast but he merely stared at her. The
tire that exploded was a new one installed only five days before the incident. Drivers on the other
hand, underwent driving tests before they were employed.

ISSUE: WON the the Yobido (bus-owner) be exempt from liability because the tire blowout was
no more than a fortuitous event that could not have foreseen.

RULING: No. Under the circumstances of the present case, the explosion of the new tire may not
be considered a fortuitous event. 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. A common carrier may not be absolved from liability in case of
force majeure or fortuitous event alone. The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an accident.

In culpa contractual, once a passenger dies or injured, the carrier is presumed to have been at
fault or to have acted negligently. This presumption may only be overcome by evidence that the
carrier had observed extraordinary diligence.

The Yobido failed to rebut the testimony of Leny Tumboy that the bus was running so fast that
she cautioned the driver to slow down. These contradictory facts must, be resolved in favor of
liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the
established condition of the road tough, winding and wet due to rain. It was incumbent upon the
defense to establish that it took precautionary measures considering partially dangerous
condition of the road.

Yobido failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence.

DINALAGAN
89
Bacolod-Murcia Milling v. Court of Appeals
182 SCRA 24, G.R. No. 81100-01 (February 7, 1990)
Facts:

Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar central in
Bacolod.Alonso Gatuslao (Gatuslao) is a registered plantor of the Bacolod-Muria Mill District.
BMMC and Gatuslao executed an “Extension and Modification of Milling Contract .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.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.BMMC has been hauling planter
Gatuslao’s sugar cane to its mill or factory continuously until crop year 1967 – 1968.The milling
contract between BMMC and owners of the hacienda Helvetica expired at the end of the 1964-
1965 crop year.The portion of the railway traversing the hacienda Helvetica was closed as per
decision of the court. 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. Gatuslao loaded their cut cranes on trucks provided by the
Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-MACMA) during 1968-
1969 crop year.BMMC had not been able to use its cane cars and railway system for the cargo
crop year 1968-1989.

Issue/s:

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.

Ruling:

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.

FARGAS
90
Philcomsat vs. Globe Telecom
GR No. 147324, May 25, 2004, 430 SCRA

FACTS:
Respondent installed and configured communication facilities for the exclusive use of the
US Defense Communications Agency in Clark Air Base and Subic Naval Base. Globe Telecom
later contracted the Philcomsat for the provision of the communication facilities. As both
companies en
tered into an Agreement, Globe obligated itself to operate and provide an IBS Standard B earth
station with Cubi Point for the use of the USDCA. The term of the contract was for 60 months, or
5years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved. As the saga continues, the Philippine Senate passed and adopted Senate Resolution
No. 141 and decided not to ratify the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements to extend the term of the use by the US of Subic Naval Base, among
others. In other words, the RP-US Military Bases Agreement was suddenly terminated.

ISSUE:
W/N the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements constitutes force majeure which exempts Globe from complying
with its obligations under the Agreement.

HELD:
Yes. No reversible error was committed by the Court of Appeals in issuing the assailed Decision;
hence the petitions are denied. 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. Clearly, the foregoing 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 under Article
1174.

GARCIA
91
Bricktown Development vs. Amor Tierra Development
G.R. No. 112182
December 12, 1994

FACT: petitioner Bricktown Development Corporation signed two contracts to sell 96 residential
lots in the Multinational Village Subdivision in La Huerta, Paraaque, Metro Manila, to petitioner
Tierra Corp. The total price of P21,639,875.00 was to be paid by the private respondent in the
following amounts and dates: P2,200,000.00 on March 31, 1981, P3,209,000.75 on June 30,
1981, and P4,729,906.25 on December 31, 1981. The remaining P11,500,000.00 was to be
paid by the private respondent assuming petitioner's corporation's mortgage liability to the
Philippine Savings Bank or in cash. On
March 31, 1981, the parties signed a new agreement that said private respondent would
pay petitioner an extra P55,364.68 or 21 percent interest on the balance of the
down payment for the period from March 31 to June 30, 1981, and P390,367.37, which was the
amount of interest paid by petitioner corporation to the Philippine Savings Bank to update the
bank loan from February 1 to March 31, 1981. Petitioner Corporation sent private respondent a
notice of contract cancellation on October 12, 1981. This was because private respondent had
not paid the installment due on June 30, 1981, or the interest on the unpaid balance of the initial
payment. On September 26, 1983, the private respondent asked for a refund of the
P2,445,497.71 it had given to the petitioner. But petitioner didn't do what was asked of him, so a
private respondent took him to court. The lower court ruled in favor of the private respondent,
and the appellate court agreed with that decision in every way.

ISSUE: whether or not Petitioner Corporation could legally get out of the sales contracts.

RULING: YES. Petitioner Corporation had the right to cancel the contracts to sell. In the end, we
have to say that petitioner corporation was still within its legal rights when it declared the
contracts to sell null and void. However, given the unusual circumstances found by the trial court
and confirmed by the Court of Appeals, it would be unfair to let Petitioner Corporation lose the
payments made to it by private respondent. In fact, the Court has said that good faith and fair
dealing must always be part of a contract's relationship between the parties. Based on what the
lower court said, petitioners did not meet that standard at all. The Court doesn't think it would be
fair to make petitioners pay interest on the amount to be refunded based on the judicial demand,
because private respondent shouldn't be able to get out of its own mistake.

GRAVADOR
CASE NO. 92
 EFFECT OF CONCURRENT FAULT
VDA DE VILLARUEL v. MANILA MOTOR CO. INC AND COLMENARES, DEC. 1958

FACTS: Plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract
whereby, the former agreed to convey by way of lease with a term of five years, to commence
from the time that the building were delivered and placed at the disposal of the lessee company,
ready for immediate occupancy. The contract was renewable for an additional period of five
years. The leased premises were placed in the possession of the lessee on the 31st day of
October, 1940, from which date, the period of the lease started to run continued until the
Japanese invasion in 1941. The American forces occupied the same buildings that were vacated
by the Japanese, including those leased by the plaintiffs, until Oct 1945. Monthly rentals were
paid by the said occupants to the owners during the time that they were in possession, as the
same rate that the defendant company used to pay. Thereafter, when the US Army finally gave
up the occupancy the premises, the Manila Motor Co., Inc., through their branch manager, Grey,
decided to exercise their option to renew the contract for the additional period of five 5 years, and
the parties, agreed that the seven months occupancy by the US Army would not be counted as
part of the new 5-year term. However, before resuming the collection of rentals, Villaruel upon
advice demanded payment of rentals corresponding to the time the Japanese military occupied
the leased premises. The defendant refused to pay, resulting to the plaintiff ’s issuing of notice
seeking the rescission of the contract and the payment of rentals from June 1942 to March 1945.
The plaintiff commenced an action before the CFC of Neg. Occidental against defendant
company for the (1) rescission of the contract and (2) the payment of rents in arrears. During the
pendency of the case, a fire razed the leased building. As a result, Plaintiffs a supplemental
complaint to include a 3rd cause of action to recover of the value of the burned building

ISSUE: W/N Manila Motors Co. is liable for the loss of the leased building

RULING: NO. The lessor’s (plaintiff’s) insistence upon collecting the occupation rentals for 1942-
1945 was unwarranted in law. Hence, their refusal to accept the current rentals without
qualification placed them in default (mora accipiendi) with the result that thereafter, they had to
bear all supervening risks of accidental injury or destruction of the leased premise. The effect or
mora of the lessors was not cured by the failure of the lessee to make the consignation of the
rejected payments, but the lessee remained obligated to pay the amounts tendered and not
consigned by it in court. The only effect of the failure to consign the rentals in court was that the
obligation to pay them subsisted and the lessee remained liable for the amount of the unpaid
contract rent, corresponding to the period from July to November, 1946; it being undisputed that,
from December1946 up to March 2, 1948, when the commercial buildings were burned, the
defendants-appellants have paid the contract rentals at the rate of P350 per month. But the
failure to consign did not eradicate the default (mora) of the lessors nor the risk of loss that lay
upon them.

CASE NO. 93

Eastern Shipping Lines v. CA, 234 SCRA 781

FACTS: Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment
as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service,
which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro,
one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse.
The latter excepted to one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so
that it became subrogated to all the rights of action of consignee against the defendants Eastern
Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court.
The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal
interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants,
the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUE: Whether or not a claim for damage sustained on a shipment of goods can be a solidary
or joint and several, liability of the common carrier, the arrastre operator and the customs broker.

RULING: YES. The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until the lapse
of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-
1738, Civil Code). When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable (Art. 1735, Civil Code). There are, of course,
exceptional cases when such presumption of fault is not observed but these cases, enumerated
in Article 1734 of the Civil Code, are exclusive, not one of Which can be applied to this case.

Since it is the duty of the arrastre to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility also devolves upon the
carrier. Both the arrastre and the carrier are therefore charged with the obligation to deliver the
goods in good condition to the consignee. A factual finding of both the Supreme Court and the
appellate court was that there was sufficient evidence that the shipment sustained damage while
in the successive possession of appellants. Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.

CASE NO. 94

Usurious Transactions

Crismina Garments v. CA, 304 SCRA 356 (1999)

FACTS: Petitioner Crismina Garments, Inc. contracted the services of respondent Norma
Siapno, for sewing assorted pieces of assorted girl's denims. Petitioner was obliged to pay the
respondent for her services, in the total amount of P76,410.00. However, petitioner failed to pay
said amount. Respondent filed a complaint with the trial court for the collection of the principal
amount of P76,410.00 to which the court rendered a decision in favor of respondent ordering
petitioner to pay respondent the amount of P76,410.00 with interest thereon at 12% per annum.
On appeal to the Court of Appeals, the appellate court armed the trial court's ruling. Hence, this
petition. Petitioner contended that the interest rate should be six percent (6%) per annum,
pursuant to Article 2209 of the Civil Code. On the other hand, private respondent maintained that
the interest rate should be twelve percent (12%) per annum, in accordance with Central Bank
Circular No. 416.

ISSUE: Whether it is proper to impose interest at the rate of twelve percent (12%) per annum for
an obligation that does not involve a loan or forbearance of money in the absence of stipulation
of the parties.

RULING: Petitioner is correct. Court stressed that the interest rate under CB Circular No. 416
applies to (1) loans; (2) forbearance of money, goods, or credits; or (3) a judgment involving a
loan or forbearance of money, goods or credits. Cases beyond the scope of the said circular are
governed by Article 2209 of the Civil Code, which considers interest a form of indemnity for the
delay in the performance of an obligation. Because the amount due in this case arose from a
contract for a piece of work, not from a loan or forbearance of money, the legal interest of six
percent (6%) per annum should be applied. Furthermore, since the amount of the demand could
be established with certainty when the Complaint was led, the six percent (6%) interest should be
computed from the ling of the said Complaint. But after the judgment becomes final and
executory until the obligation is satisfied, the interest should be reckoned at twelve percent (12%)
per year. Private respondent maintains that the twelve percent (12%) interest should be imposed,
because the obligation arose from a forbearance of money. This is erroneous. In Eastern
Shipping, the Court observed that a "forbearance" in the context of the usury law is a "contractual
obligation of lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." Using this standard, the
obligation in this case was obviously not a forbearance of money, goods or credit.

LAO
95
Usurius Transactions

Keng Hua Products v. CA, 286 SCRA 257 (1998)

FACTS: Sea-Land received at its Hong Kong terminal a sealed container, ContainerSEAU
67523, containing 76 bales of “unsorted waste paper” for shipment to Keng Hua Paper
Products,Co. in Manila. A bill of lading to cover the shipment was issued by Sea-
Land. On 9 July 1982,the shipment was discharged at the Manila International
Container Port. Notices of arrival weretransmitted to Keng Hua but the latter failed to
discharge the shipment from the container during the“free time” period or grace period. The said
shipment remained inside the Sea-Land’s container fromthe moment the free time period
expired on 29July 1982 until the time when the shipment wasunloaded from the container
on 22 November 1983, or a total of 481 days. During the 481-day period,demurrage charges
accrued. Within the same period, letters demanding payment were sent by Sea-Land to Keng
Hua who, however, refused to settle its obligation which eventually amountedto
P67,340.00. Numerous demands were made on Keng Hua but the obligation remained unpaid.
Sea-Land thereafter commenced the civil action for collection and damages. The RTC found
Keng Hualiable for demurrage, attorney’s fees and expenses of litigation. Keng Hua appealed to
the Court ofAppeals, which denied the appeal and affirmed the lower court’s decision in toto. In a
subsequentresolution, it also denied Keng Hua’s motion for reconsideration. Hence, the petition
for review.

ISSUES: WON Keng Hua Paper Products Co. Inc. was bound by the bill of lading.

RULING: Yes. A “bill of lading delivered and accepted constitutes the contract of carriage even
though not signed,” because the “acceptance of a paper containing the terms of a proposed
contract generally constitutes an acceptance of the contract and of all of its terms and conditions
of which the acceptor has actual or constructive notice.” In a nutshell, the acceptance of a bill of
lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding contract. Shipper and consignee were
liable for payment of demurrer charges; Section 17 of the bill of lading 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. Section 17 of the bill of lading provided “Cooperage Fines. The shipper and
consignee shall be liable for, indemnify the carrier and ship and hold them harmless against”

LAUGHTON
CASE NO. 96
 Monetary Board Circular # 905 lifting the interest rate ceiling- (vs. 2209)
Security Bank v. RTC Makati, 263 SCRA 453 (1996)

FACTS: In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k.
The agreed interest rate was 23% per annum. The promissory note was freely and voluntarily
signed by both parties. Leia Ventura was the comaker. Eusebio defaulted from paying. Security
Bank sued for collection. Judge Gorospe of the Makati RTC ordered Eusebio to pay but he
lowered the interest rate to 12% per annum.

ISSUE: W/N the courts have liberality to reduce stipulated interest rates to the legal rate of 12%
per annum

RULING: NO. From the examination of the records, it appears that indeed the agreed rate of
interest as stipulated on the three (3) promissory notes is 23% per annum. The applicable
provision of law is the Central Bank Circular No. 905 which took effect on December 22,
1982.The absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly
excessive. Further, Eusebio never questioned the rate. He merely expressed to negotiate the
terms and conditions. The promissory notes were signed by both parties voluntarily. Therefore,
stipulations therein are binding between them.

CASE NO. 97
Usurious Transactions- Art. 1175, 1413, 1961

v. CA, 256 SCRA 292 (1996)

FACTS: In 1981, Philippine National Bank granted to petitioners, spouses Ponciano Almeda and
Eufemia Almeda,several loan/credit accommodations totaling P18 Million payable in 6 years at
an interest rate of 21% perannum.

March 31, 1984 the bank, over petitioners’ protests, raised the interest rate to 28% pursuant to
their creditagreement; interest rate increased to a high of 68% between March 1984 to Sept 1986
before the loan wasto mature in March 1988, the spouses filed a petition for declaratory relied
with prayer for a writ ofpreliminary injunction and TRO—spouses sought clarification as to WON
the PNB could unilaterally raiseinterest rates on the loan, pursuant to the credit agreement’s
escalation clause.

ISSUE: W/N respondent bank was authorized to raise its interest rates from 21% to as high as
68% under the credit agreement.

RULING: No. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905,
nothing in the said circular could possibly be read as granting carte blanche authority to lenders
to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets.

C.B. Circular No. 905 could not be properly invoked to justify the escalation clauses requiring that
the increase be ”within the limits allowed by law,” such circular not being a grant of specific
authority.

CASE NO. 98

Usurious Transactions
 Angel Warehousing vs. Chelda, G.R. No. L-25704 April 24, 1968

FACTS: Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964
against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery
of alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the
complaint, plus attorney's fees of P5,000.00. Alleging that post-dated checks issued by
defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram I.
Mohinani, had left the country, and that defendants have removed or disposed of their property,
or are about to do so, with intent to defraud their creditors, preliminary attachment was also
sought. Answering, defendants averred that they obtained four loans from plaintiff in the total
amount of P26, 500.00, of which P5, 620.00 had been paid, leaving a balance of P20, 880.00;
that plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2% and
2.5% per month, and, consequently, plaintiff has no cause of action against defendants and
should not be permitted to recover under the law. A counterclaim for P2, 000.00 attorney's fees
was interposed. Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically
denying under oath the allegations of usury.

ISSUE: Whether or not the creditor may recover the principal of the loan in a loan with usurious
interest.

RULING: Yes. The Supreme Court ruled that the appellants failed to consider that a contract of
loan with usurious interest includes principal and accessory conditions. Article 1420 of the New
Civil Code provides in this regard: “In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.”

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies
only as to the prestation to pay the stipulated interest; hence, being separable, the latter only
should be deemed void, since it is the only one that is illegal.

Case no. 99
First Metro Investment vs. Este. Del Sol (Nov. 15, 2001, 369 SCRA)

Facts: Petitioner FMIC granted respondent a loan of Seven Million Three Hundred Eighty Five
Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction of a sports complex
at Montalban, Rizal. Respondent also executed, as provided for by the Loan Agreement, an
Underwriting Agreement with underwriting fee, annual supervision fee and consultancy fee with
Consultancy Agreement for four (4) years, coinciding with the term of the loan. The said fees
were deducted from the first release of loan. Respondent failed to meet the schedule of
repayment. Petitioner instituted an instant collection suit. The trial court rendered its decision in
favor of petitioner. The Court of Appeals reversed the decision of the trial court in favor of herein
respondents after its factual findings and conclusion.

Issue: Whether or not the Underwriting and Consultancy Agreements were mere subterfuges to
camouflage the usurious interest charged by the petitioner.

Held: YES. In the instant case, several facts and circumstances taken altogether show that the
Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal
scheme employed by petitioner FMIC to conceal and collect excessively usurious interest. “Art.
1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent
the laws against usury shall be void. The stipulated penalties, liquidated damages and attorney’s
fees, excessive, iniquitous and unconscionable and revolting to the conscience as they hardly
allow the borrower any chance of survival in case of default. Hence, the instant petition was
denied and the assailed decision of the appellate court is affirmed.