Oblicon 2nd Week Digest Compile.docx

1

FRAUD (DOLO) LYDIA L. GERALDEZ, vs. HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION/ G.R. No. 108253 /Regalado, J A successful case against a traveling agency. A very feel good case. It tried to differentiate between dolo causante and dolo incidente but ultimately got lazy and said it didn’t matter which one since Kenstar is liable either way. Important People: Kenstar Travel Corp. (Private Respondent) Geraldez (Petitioner) Zapanta (The star of the case) Facts: 1. Geraldez came to know about Kenstar Travel Corp. and the tours they offer through their advertisements. Geraldez paid for a European tour denominated as VOLARE 3 for her and her sister. 2. VOLARE 3, as advertised, included a European tour manager, first-class hotels, and a visit to the UGC Leather factory. 3. The tour was not as advertised. There was no European tour manager. All they got was a lousy Filipino guide who had never been to Europe. Furthermore, the hotels were far from first-class. They also failed to follow the itinerary and ended up sight-seeing the outside of a closed factory. 4. Geraldez filed for damages against Kenstar. Issues w/ Holding: 1. Whether or not Kenstar acted in bad faith or with gross negligence in discharging its obligations under the contract? Yes. They acted in bad faith when: a. They selected Zapanta as the tour guide despite knowing her to be inexperienced. During the tour, she failed to attend the basic needs of the tourists, to arrange medical attention (When Geraldez’s sister fell ill, Zapanta merely called the ambulance and left the two to fend for themselves) and to follow the itinerary. b. They failed to provide a European tour manager. Kenstar raised the defense that the tour manager is a company (Kuoni Travel of Switzerland) and not an actual person. However, the wording of the advertisements belies this defense e.g. use of “he” and flaunting that he can answer any question. Furthermore, Zapanta repeatedly assured the tourists that the European tour manager will come. Clearly, these indicate that the European tour manager is a person. c. They failed to provide first-class hotels with complete amenities that were conveniently located along the way as advertised. Kenstar sought to defend itself by claiming that they were first-class “commensurate to the tourist’s budget.” Such reason is pure sophistry. Kenstar fixed the charges and the accommodations. Cheapness could not justify a substandard from of service. 2. Whether or not the delimitation of responsibility 1 in the brochure protects Kenstar from liability? No. The contract is a contract of adhesion. 2 Being so, it must be construed against the one who drafted it. Even assuming that the same is enforceable, it cannot exculpate Kenstar since responsibility arising from fraudulent acts cannot be stipulated against by reason of public policy. 3. Whether or not Kenstar is liable to the petitioner?

1 2

“Kenstar Travel Corporation, their employees or sub-agents shall be responsible only for booking and making arrangements as your agents.” A contract wherein almost all the provisions are drafted by one party, and the other need only “adhere” or affix his signature thereto.

2 Whether Kenstar has committed dolo causante or dolo incidente3, it is indubitably liable for damages to petitioner when Kenstar reneged on its promises as explained above. Dispositive WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and P20,000.00 as and for attorney's fees, with costs against private respondent. The award for nominal damages is hereby deleted. Doctrine: Dolo causante or causal fraud Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1269) Dolo incidente or incidental fraud Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (1270) _________________________________________________________________________________________________________ Modes of Breach: Negligence G.R. No. 34840 Gutierrez v. Gutierrez Malcolm, J. This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a result of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both sets of defendants appealed. IMPORTANT PEOPLE Narciso Gutierrez Bonifacio Gutierrez, et. al. FACTS 1. On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnino 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. 2. A passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical attendance for a considerable period of time, and which even at the date of the trial appears not to have healed properly. ISSUE with HOLDING 1. Whether or not both parties were liable In the United States, it is uniformly held that the head of a house, the owner of an automobile, who maintains it for the general use of his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant. - The liability 3

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

3 of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract, fully supported by evidence. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur. - The case is one of two drivers approaching a narrow bridge from opposite directions, with neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident. 2. Whether or not there was contributory negligence on the part of the petitioner - Aside from the fact that the defense of contributory negligence was not pleaded, the evidence bearing out this theory of the case is contradictory in the extreme and leads us far afield into speculative matters. 3. Whether or not the damages awarded were appropriate - All facts considered, including actual expenditures and damages for the injury to the leg of the plaintiff, which may cause him permanent lameness, in connection with other adjudications of this court, lead the Court to conclude that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in approximating the damages by monetary compensation is well elucidated by the divergence of opinion among the members of the court. DISPOSITIVE PORTION In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both instances. DOCTRINE The running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant. _________________________________________________________________________________________________________ De Guia vs. Manila Electric Railroad & Light Co. Liability of Carrier for Negligence of Employee Art. 2180 Remember when the MRT got derailed? Almost the same story here, except that it happened to Manila Electric Railroad in 1920. IMPORTANT PEOPLE Manuel de Guia (physician from Caloocan who got injured due to the derailment of the train car he rode in) FACTS 1. 2. 3. 4. 5. 6.

7. 8. 9.

Manuel de Guia was awarded P6,100 by Court of First Instance due to his injuries caused by the derailment of the train car. Manila Electric Railroad and Light Co. caused the accident de Guia was in; also appealed to SC. Sept. 4, 1915, de Guia rides the car of the train at 8:00 PM. 30 meters later, the train came at a switch (the railway shifts so the train turns left or right on to another railway). You’re supposed to slowdown but seems like the driver did not but he says otherwise. This claim is belied by evidence: a. Train was almost empty b. Train was running behind schedule c. Trial court thought train was running @ high speed Car derailed because of a rock lodged in the switch, larger than goose egg. Motorman did not see the rock. Seems fortuitous but court sustains the allegation of negligence due to the fact that the car was traveling @ higher speed. Why? It took a long time for the driver to actually notice the car got derailed. The train car went on being derailed for a while and eventually hit a post and then the train stopped.

4

ISSUE with HOLDING 1.

Is the company liable for the damage done by the negligence of the motorman? YES. ● ● ● ● ● ●

2.

De Guia 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, CONTRACTUAL IN NATURE, and the duty of the carrier is to be determined with reference to the PRINCIPLES OF CONTRACT LAW. The company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care under the circumstances, as required by law and custom. What governs this are Article 1172 (of NCC, 1103 of OCC) and Article 1315 (of NCC, 1258 of OCC) TAKE NOTE: in the NCC, Articles 1756, 1759 govern COMMON CARRIERS. These provisions were not present in the OCC. Contractual relation present therefore good father of family defense not applicable as this only applies to quasidelicts (2180)

How much should be paid to de Guia for damages? Court opines that the amount is too high. ● ● ● ● ●

● ● ● ● ● ● ● ●

Court believes that the company exercised good faith, that is, the defense that they had due diligence in choosing and instructing subordinates. (See Article 2201) Thus, the damages to be paid should be determined by what could be foreseen at that time. Court did not change the charge of P900 loss of earnings (P300/mo) P3,900 lost through inability accept job as district health officer The possible salary that he would be paid if he could take the District Health Officer job was P1600 p.a. + P350 allowance for the possibility of outside practice. This was considered as part of the damage to be paid -> SC says too speculative to award. De Guia also asked for payment for doctor’s bills P10,000 – cost of medical treatment + P30,000 damage from character of injuries De Guia claimed that as a result of accident, he experienced a host of other injuries, traumatic neurosis (PostTraumatic Stress Disorder now) Witnesses presented were his doctor friends Defendant’s doctors were more conservative and claimed that the PTSD stimulated (the court didn’t understand what traumatic neurosis was) The Court opined that the expenses after more than a year (Dr. Montes called in P350, P250) are already too far from event – not covered anymore + other fees SC also opines that the doctors who examined him probably did not charge him as they were his friends. SC rejects this claim and says that de Guia exaggerated damages claimed, should be limited to reasonably suited. P1,100 damages awarded.

DISPOSITIVE PORTION Judgment modified. Damage awarded is reduced from P6,100 to P1,100. DOCTRINE Compare this with the Air France case. The non-application of 2180 was correct here due to the fact that there was an existing contract between parties in this case, whilst quasi-delicts do not have pre-existing contractual relations between parties. _________________________________________________________________________________________________________ NEGLIGENCE No. 7567, 12 November 1912

5 U.S. v. BARIAS CARSON A motorman of a streetcar fails to see a child walking across the tracks and runs over her as a result. He is convicted in the trial court for homicide resulting from reckless negligence, a sentence from which he appeals. The SC upholds the conviction with slight modification as to duration. IMPORTANT PEOPLE Segundo Barias, a motorman on streetcar No. 9, run 7 of the Pasay-Cervantes lines of the Manila Electric Railroad and Light Company Fermina Jose, a girl 2 or 3 years old (2 in dispositive, 3 in statement of facts) FACTS 1.

2.

3. 4.

At about 6am of November 2, 1911, Barias was driving along Rizal Avenue. He stopped near its intersection with Calle Requesen to take on some passengers. Barias looked backward to check whether all the passengers were aboard, and then he started his car. At that moment, Fermina Jose walked or ran in front of the car. She was knocked down and dragged underneath it, and was left dead on the tracks with a crushed head. Barias did not know anything about the incident until he was informed of it upon his return. There is no substantial dispute as to the facts. One witness testified that he was still looking backwards when he started the car, and another directly contradicted it (how so, the court did not say). Barias was found guilty of imprudencia temeraria (reckless negligence) and sentenced to 1 year and 1 month of imprisonment in Bilibid, plus costs.

ISSUE with HOLDING 1. Whether the evidence shows carelessness on Barias’s part as to amount to reckless negligence – YES Wherever he was looking, it was clear that he started his car from a standstill without looking over the track immediately in front of the car. This is a failure to carry out his duty to satisfy himself that the track before his car was clear, something that he had no right to assume. The incident occurred along a public street in a densely populated section of the city, at 6am when people begin to move about. Under these conditions he was bound to exercise a high degree of diligence in the performance of his duties. In fact, he would have seen the child by the exercise of ordinary diligence. Counsel for Barias said that his position was such that a child might have walked up immediately in front of the car without coming within the line of his vision. The court, upon examining the photographs of the car, said that he could have very easily leaned his head and shoulders very slightly and glanced in front of the car, and by doing so he would have seen the child. Counsel also argued that in US v. Barnes, the defendant was acquitted even though he could have been held guilty of negligence had he known there was another person where his gun was pointed. The court said that he had no reason to anticipate the presence of a person in the line of fire, which is not the same as in this case as he had to guard against the possibility that some one might be on the track immediately in front of the car. The diligence required of passenger carriers applies to street railway companies as well: extraordinary care and diligence (Art. 1756, NCC). Although the provision pertains to passengers (and the victim Fermina Jose was not a passenger of the streetcar), the court held that this requirement applies with equal force to the duty of avoiding the infliction of injuries upon pedestrians and others who cross the streets upon which the cars of these companies run.

6 DISPOSITIVE PORTION Judgment affirmed, but sentence reduced to 6 months 1 day of prision correccional. _________________________________________________________________________________________________________ Breach of Obligation: Modes of Breach — Negligence G.R. No. 141258 Sarmiento v. Sps. Sun-Cabrido Corona, J.

IMPORTANT PEOPLE Dra. Virginia Lao: owner of jewelry Tomasa Sarmiento: petitioner Tita Payag: was asked to go to jewelry shop Sps. Sun-Cabrido: defendants; owners of Dingding’s Jewelry Shop Ma. Lourdes (Marilou) Sun: employee of jewelry shop Zenon Santos: goldsmith FACTS 1. Dra. Virginia Lao asked Tomasa Sarmiento to find someone to reset a pair of diamond earrings into two gold rings. Sarmiento sent Tita Payag with the pair of earrings to Dingding’s Jewelry shop, owned and managed by spouses Luis and Rose Cabrido, which accepted the job order for Php400.00. 2. Sarmiento provided 12 grams of gold for crafting the ring settings, and three days later, Payag delivered one of Lao’s diamond earrings (worth .33 carat, almost perfect in cut and clarity) to the shop. 3. Ma. Lourdes Sun tried to dismount the diamond from the original setting, but she failed and asked Zenon Santos to do it. Santos used a pair of pliers to twist the setting and in the process, broke the gem. 4. Sarmiento asked the Cabridos to replace the diamond with the same size and quality, but they refused, forcing the former to buy a replacement herself worth Php 30,000.00. 5. Sarmiento filed a complaint for damages against the Cabridos and Sun. 6. Rose Cabrido denied transaction with Payag; Santos denied being an employee of the shop. 7. Decisions of the lower courts: a. MTCC: ruled in favor of Sarmiento b. RTC: reversed the decision, absolving the respondents of any responsibility arising from breach of contract c. CA: affirmed RTC decision

ISSUES 1. WON CA erred in holding that Santos is not an employee of defendants, thus answerable for his own actions - YES 2. WON CA erred in sustaining the RTC decision - YES Arguments: • Petitioner claims that the dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents under the contract of service. • Respondents: agreement was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the said diamonds from their original setting (upheld in RTC and CA ruling) HOLDING • Facts show that Santos has been working at the shop as a goldsmith for 6 months. Payag also testified that she had transacted at least 10 times before in the shop, always through Sun. • Court is inclined to agree with the MTCC in giving credence to Sarmiento’s contentions since they had the opportunity to observe the behavior of the witnesses and the respondents’ inconsistenty impugns their credibility • They initially denied existence of any transaction, but they later acknowledged the transaction, but saying that dismounting the diamond from the original setting is not part of the job • Sun expressed no reservation regarding the dismounting of the diamond which is an integral part of the job order. She examined it,

7 tried to dismount it, and passed the task to Santos. Because of this, the job’s obligation to reset the pair of earrings cannot be denied. • “Obligations arising from contracts have the force of law between 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” • Santos clearly acted with negligence. He should have used a miniature wire saw instead of pliers in dismounting the diamond. • In general, moral damages are not recoverable in actions for damages predicated on breach of contract Moral damages may be awarded in a breach of contract, if 1 there is proof that the defendants acted with bad faith or guilty of gross negligence or in wanton disregard of one’s contractual obligation. Santos had 40 years of experience as a goldsmith and should have known he was using the wrong equipment which entailed an unnecessary risk of breakage. • Respondents had an honest belief that they were not responsible thus negating any basis for award of attorney’s fees. DISPOSITIVE PORTION WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs against the petitioners. SO ORDERED. DOCTRINE RELEVANCE TO THE LESSON OTHER NOTES not enumerated in Art 2219 1 Art. 2219: Moral damages may be recovered in the following and analogous cases: (1) a criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in Art 309; (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,32, 34, and 35. The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brother and sisters may bring the action mentioned in No. 9 of this article, in the order named. _________________________________________________________________________________________________________ LESSON: Standard of Care GR NO 138334 Crisostomo vs Court of Appeals PONENTE: Ynares-Santiago IMPORTANT PEOPLE Estela Crisostomo – Petitioner Meriam Menor – Niece of petitioner who worked at Caravan Travel and Tours International Caravan Travel and Tours International (CTTI) - Respondent FACTS 1.

May 1991 - Crisostomo contracted the services of CTTI to arrange and facilitate her booking, ticketing and accommodation in a tour called “Jewels of Europe.” The tour cost Php74,322.70.

8 2. 3. 4. 5.

6. 7. 8.

9.

June 12, 1991 - Menor went to Crisostomo’s residence to deliver the tickets. She told Crisostomo to be at NAIA on Saturday, two hours before her flight. June 15, 1991 - Without checking her travel documents, Crisostomo went to NAIA for her flight on Saturday, June 15 th. However, it turned out that her flight was for June 14th and not June 15th. Menor prevailed upon petitioner to take another tour (“British Pageant”). This tour cost Php20,881.00. Upon Crisostomo’s return to Europe, she demanded from respondent the reimbursement of Php61,421.70, representing the difference between the sum she paid for the “Jewels of Europe” tour and the amount she owed for the “British Pageant” tour. Respondent refused to reimburse her, because the package was non-refundable. Petitioner filed a complaint against the respondent for breach of contract of carriage and damages. Petitioner’s position: - Her failure to join the “Jewels of Europe” was due to respondent’s fault since it did not clearly indicate the departure date on the plane ticket. - Respondent was negligent and did not observe the standard of care required of a common carrier when it informed her wrongly of the flight schedule. Respondent’s position: - Petitioner was informed of the correct departure date, which was clearly and legibly printed on the plane ticket. - It is accepted industry practice to disallow refund for individuals who failed to take a booked tour. - “British Pageant” tour was not a substitute for the “Jewels of Europe” tour.

ISSUE with HOLDING 1. Whether or not CTTI is a common carrier - No - A contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. Such person or association of persons are regarded as carriers and are classified as private or special carriers and common or public carriers. - A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public. - At most, respondent acted merely as an agent of the airline - The object of petitioner’s contractual relation with respondent is the latter’s service of arranging and facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage 2.

Whether or not CTTI observed the proper standard of care - Yes - Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code. - Menor’s negligence was not sufficiently proved, considering that the only evidence presented on this score was petitioner’s uncorroborated narration of the events. - The evidence on record shows that respondent exercised due diligence in performing its obligations under the contract and followed standard procedure in rendering its services to petitioner. As correctly observed by the lower court, the plane ticket issued to petitioner clearly reflected the departure date and time, contrary to petitioner's contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured the plane tickets. It arranged petitioner’s hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.

9 -

Respondent performed its prestation under the contract as well as everything else that was essential to book petitioner for the tour.

DISPOSITIVE PORTION WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a forbearance of credit.

RELEVANCE TO THE LESSON The required standard of care depends of the nature of the services to be rendered. A common carrier is required to exercise extraordinary diligence in the fulfilment of its obligation. A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public. _________________________________________________________________________________________________________ ART. 1169 – DELAY (MORA) G.R. Nos. 77647-77652 Cetus Development, Inc. vs. CA Medialdea, J.

IMPORTANT PEOPLE Cetus Development, Inc. – petitioner Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, Flora Nagbuya – private respondents FACTS 1. 2.

3.

4.

Private respondents were lessees of the premises at No. 512, Quezon Blvd., Quiapo, Manila, originally owned by Susana Realty. They paid their rental fees to a collector of Susana Realty who went to the premises monthly. Susana Realty sold the property to petitioner Cetus. Respondents then continued to pay their monthly rentals to a collector sent by Cetus. ● For 3 months, the private respondents failed to pay rent because no collector came. They then called Cetus over the phone as to where they should pay. Cetus told them that they would send a collector, but no one came. Cetus then sent a letter to each of the private respondents demanding that they vacate the premises and to pay within 15 days from the receipt thereof. Private respondents immediately made their payments, which were accepted by the petitioner on the condition that the payment was without prejudice to the filing of an ejectment suit. For failure of the private respondents to vacate the premises as demanded, petitioner filed an ejectment suit against them.

ISSUE with HOLDING 1. W/N there was a delay of payment by the private respondents to Cetus – No ● There was no failure yet on the part of the private respondents to pay rents for 3 months. It was customary for them to pay their rentals through a collector sent by the lessor, evidenced by their arrangement with their previous lessor, Susana Realty.

10 ●

Art. 1169 of the Civil Code: 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. ● The moment the Cetus extrajudicially demanded the payment of the rentals (through letter), private respondents immediately answered their obligation by paying their arrearages of rentals to it.

DISPOSITIVE PORTION Petition denied. CA decision affirmed. DOCTRINE Art. 1169, Civil Code: 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 declare; 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 reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. _________________________________________________________________________________________________________

AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS G.R. No. 108129 Ponente: Quisumbing, J.

Important People/Parties Aerospace Chemical Industries, Inc. – Petitioners Philippine Phosphate Fertilizer, Corp. – Private Respondent Facts: 1. 2. 3.

4. 5.

6.

7.

Aerospace Industries, Inc. purchased five hundred (500) metric tons of sulfuric acid from private respondent, Philippine Phosphate Fertilizer Corporation [P553,280.00] Private respondent asked petitioners to withdraw the sulfuric acid purchased at Basay, Negros Oriental Storage tank because the private respondents were incurring an expense of P2,000.00 each day in the delay in shipment. There were two failed attempts to ship the sulfuric acid using the chartered M/T Sultan Kayumanggi, as in both cases the ship tilted from the weight of the cargo. Later on, the M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner then sent a number of demand letters asking for the delivery of the remaing sulfuric acid amounting to 272.49 MT, and its intention to further purchase 227.51 MT in light of the loss of the product due to the sinking of the cargo ship. Petitioner then requested the private respondent to get its additional order of 227.51 MT of sulfuric acid at Isabel Leyte, but the private respondents replied that it was not possible for such to happen due to limitations and the delayed arrival of imported sulfuric acid from Japan. Hence, the petitioner filed a complaint for specific performance and/or damages before the RTC. Private respondent replied in its counter claim that it was the petitioner instead that was remiss in its performance of obligations in arranging the shipping requirements. The RTC found in favor of the petitioner, but the CA reversed the said decision and found in favor of the private respondents.

Issues: The Supreme Court Division synthesize the pertinent issues as the ff: 1. Did the respondent court err in holding that the petitioner committed breach of contract that:

11 a. b.

2. 3.

The petitioner paid the full value of its purchases, yet only received a porition? The parties have agreed for the additional purchase of 227.51 Mt of sulfuric acid, hence the prior delay has been waived? Did the respondent court err in awarding damages to private respondent Should expenses for the storage and preservation of the purchased fungible goods be on the sellers account pursuant to Article 1504 of the Civil Code?

Ruling: 1. Breach of Contract -- The Court holds that the conclusion reached by the CA was founded upon preponderant evidence. a. Petitioners’ claim was based only on allegations of its employee that the storm (force majeure) caused the delay and failure to lift the sulfuric acid at the port. b. On the other hand, the Court finds that the storm was not the proximate cause of the petitioners’ failure to transport the purchases on time, but rather the technical inadequacy of the cargo ship contracted to do such shipping; and that the eventual sinking of the said ship was not because of force majeure, but according to the report, it was actually unstable and unseaworthy. c. The testimony of the third party, surveyor Rabes, regarding the weather condition at the time was rightly given more weight as a third party he was neither the employee of either party. d. Petitioner, as the buyer, was obligated to under the contract to undertake the shipping requirements. It was the petitioner that employed the services of the M/T Kayumanggi, it was also the petitioners’ prerogative to immediately replace said ship when technical troubles arose, but it did not. e. The Court concurs with the conclusion reached by the respondent Court which says that: i. Not true that defendant was not ready to deliver the 272.49 MT balance of sulfuric acid as it was ready as early as August 15, 1986, ii. What defendant could not do was sell the additional 227.51 MT iii. Defendant had no obligation to this additional order, and cannot be faulted for inability to meet requirements. iv. Defendants inability to deliver the additional amount is not legal justification to refuse lifting the remaining balance of 272.49 MT 2. Damages – Where there has been 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 they buyer has to remove them. a. Art. 1170, Art. 1169 b. Respondent Court erred in counting the delay of the petitioner based on the letter, starting from August 6, 1986. c. The categorical demand to lift the said goods from Basay was established December 15, 1986. Due to the delay, the private respondents had to extend their lease until August 31, 1987. Therefore, petitioners should reimburse private respondents rental expenses (P32,000.00) monthly from December 15, 1986 to August 31, 1987. 3. Expenses of storage of fungible goods should be on the seller – The petitioners use as the basis of its argument, Art 1504 of the Civil Code which states: a. Unless otherwise agreed, the goods remain at the sellers risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyers risk whether actual delivery has been made or not b. However, with an exception: Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault c. As established prior, the petitioner is indeed guilty of delay, and therefore liable for the expenses incurred due to said delay. d. However, considering that the petitioners already paid P303,483.37 as advanced payment for the additional sulfuric acid, the P272,000.00 in rentals should be deducted, leaving P31,483.37 refundable to the petitioner.

Dispositive Portion WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against petitioners advance payment of Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37) representing the

12 price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein petitioner. Costs against the petitioner. _________________________________________________________________________________________________________

Delay (Mora) — Art. 1169 G.R. No. 153004 Santos Ventura HOCORMA Foundation Inc., vs. Ernesto Santos and Riverland Inc. Quisimbing

SVHFI and Ernesto Santos entered into a compromise agreement to lift the notices of lis pendens on SVHFI’s real properties in consideration of the payment of a certain sum within 2-years. SVHFI incurred a delay in the performance of its obligation, entitling Santos to legal interest as compensation for the delay. IMPORTANT PEOPLE 1. Ernesto V. Santos — Respondent 2. Santos Ventura Hocorma Foundation, Inc. (SVHFI) — Petitioner FACTS 1. Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in multiple civil cases 2. Oct. 26, 1990 — parties executed a Compromise agreement with the following conditions: A. that SVHFI would pay Santos P1.5 million upon the execution of the agreement B. the balance of 13 million would be paid within 2 years either in one lump sum or in installments, and that if they were not able to pay then the debt would be satisfied with portions of land or real properties that were the subject of their civil cases C. Upon execution of the agreement, Santos would cause the dismissal of their civil cases and life the notices of lis pendens on the affected real properties D. If any of the properties were sold or disposed of, the proceeds of the sale would be partially devoted to the payment of this obligation 3. The conditions upon the execution of the compromise agreement were complied with on both sides, leaving a balance of P13 million due to Santos 4. SVHFI later sold two real properties that were previously subjects of lis pendens so Santos sent a letter demanding payment of the balance. This was ignored by SVHFI. Meanwhile, the compromise agreement was approved by the RTC of Makati 5. Santos sent another letter asking when they would pay the balance and because SVHFI did not respond, he applied with the RTC for the issuance of avwrit of execution of the compromise agreement. This was granted. So the Sheriff levied n the subject properties of SVHFI. 6. SVHFI tried to challenge the execution of the RTC’s judgment but failed 7. SVHFI held 2 auctions, both of which were won by Riverland, Inc. One on November 22, 1994 for P12 million and another on February 8,1995. Both provided for the right of redemption within 1 year from the date of registration of the properties 8. on June 2, 1995, Santon and Riverland Inc. filed a complaint for declatory relief and damages alleging that the petitioner delayed in paying the P13 million balance and that the payment of the P12 million was only made on November 22, 1994 even if under the compromise agreement, the obligation became due on October 26, 1992. So they prayed that SVHFI pay legal interest among other costs of litigation, and that the sales be declared final and not subject to legal redemption. The court decided in favor of Santos and Riverland, Inc.

ISSUE with HOLDING 1. W/N the respondents are entitled to legal interest

13 petitioner’s stand: (1) where a compromise agreement/judgment does not provide for the payment of interest, legal interest by way of penalty on account of fault or delay is not due and payable. (2) Respondents are barred by res judicator from seeking legal interest because of the waiver clause in the compromise agreement. (3) the compromise agreement did not provide for a period within which the obligation will become due and demandable so Santoss needs to ask for judicial intervention to fix the period. Respondents: (1) right to damages is based on delay in the payment of the obligation provided in the compromise agreement (2) the compromise agreement provided for a 2-year period and was approved by the RTC • a compromise is a contract where the parties avoid/put an end to litigation by mutual consent in the hope of gaining, balanced by the danger of losing. It does have the effect and authority of res judicator even if it has not been judicially approved. • It became binding, with the 2-year period commencing, upon its execution (october 26, 1990) and NOT when it was approved by the court (september 30, 1991). So, when respondents wrote a demand letter on october 28, 1992, the obligation was certainly due and demandable and the petitioner incurred a delay in failing to pay. Note the following provision: article 1169 of the NCC: those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation • delay is synonymous to default or mora: it is the nonfulfillment of the obligation with respect to time. Requisites of default: 1. the obligation is demandable and already liquidated — since the 2-year period had lapsed and the respondents sent a demand letter, the obligation was due and demandable. Also, the obligation was liquidated because the debtor knew how much he was to pay and when to pay it 2. the debtor delays performance — petitioner settled the balance on February 8, 1995, more than 2 years after the extrajudicial demand. They even tried to hinder the execution of the executory judgment, further delaying the fulfilment of the obligation. 3. the creditor requires the performance judicially or extrajudicially — the demand letter is considered an extrajudicial demand • petitioner is liable for damages for the delay in the performance of its obligation. the respondents were deprived of funds that they were entitled to by virtue of the compromise agreement. because of this, they are entitled to compensation for the loss of use of those funds in the form of interest. Without an agreement in this regard, what is applied is the legal interest for loan as forbearance of money which is 12% per annum to be computed from the default DISPOSITIVE PORTION WHEREFORE, the petition is DENIED for lack of merit. The decision dated January 20, 2002 of the Court of Appeals and its April 12, 2002 Resolution in CA- G.R. CV No. 55122 are AFFIRMED. Costs against the petitioner. DOCTRINE article 1169 of the NCC: those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation Respondents deprived of funds to which they are entitled to are entitled to compensation for the loss of use of those funds in the form of interest a compromise agreement is a way for parties to avoid or put an end to litigation by arriving at a comprise. It becomes a source of rights and obligations from the moment it is executed and NOT when it is approved by the court. RELEVANCE TO THE LESSON This case illustrates how delay/default/mora is incurred and the repercussions of such delay with respect to a demandable obligation. OTHER NOTES Lis Pendens — Latin for "a suit pending," a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property. The lis pendens (or notice of pending action) is filed with the clerk of the court, certified that it has been filed, and then recorded with the County Recorder. This gives notice to the defendant who owns real estate that there is a claim on the property, and the recording informs the general public (and particularly anyone interested in buying or financing the property) that there is this potential claim against it. _________________________________________________________________________________________________________

14

NEGLIGENCE (CULPA) Vasquez vs. Borja/ G.R. No. L-48930/ Ozaeta, J.

Vasquez as manager of NVSD Co. entered into a contract to deliver cavans of palay to Borja. Because of their failure to do so, Borja filed a suit for damages against Vasquez. The Court dismissed the complaint since the proper party is NVSD and not Vasquez since it was entered into in his capacity as manager. Important People: Antonio Vasquez (Petitioner) Francisco de Borja (Respondent) Fernando Busuego (Co-defendant in an earlier case. Treasurer of the company.) Natividad-Vasquez Sabani Development Co., Inc. (Unfortunate enough to have Vasquez as its manager.) Facts: 1. Vasquez and Busuego jointly and severally obligated themselves to sell to Borja 4,000 cavans of palay, to be delivered during the month of February. Borja paid 8,400 in advance. 2. The duo delivered to the plaintiff during the months of February, March, and April only 2,488 cavans of palay of the value of 5,224.80. However, they refused to deliver the rest despite repeated demands. 3. As a result, Borja suffered 1,000 in damages. The 1,510 empty sacks of the 4,000 he delivered to the duo was not returned or paid for. He suffered another 150 in damages. 4. Borja sued Vasquez. Vasquez denied entering the contract in his personal capacity alleging that Borja signed a contract with the company he is a manager of and filed a counter-claim for damages caused by Borja suing him. Issue w/ Holding: 1. Whether the plaintiff entered into the contract with Vasquez in his personal capacity or as manager of the Natividad-Vasques Saban Development Co., Inc.? The preponderance of evidence, as found by the Court of Appeals, shows that he entered the contract in his capacity as president and manager. That finding of fact is final. 2. Whether or not the Court of Appeals erred in remanding the case for further trial? Yes. Court of Appeals should have dismissed the case since Vasquez is not the proper party but Natividad-Vasquez Saban Development Co., Inc. A corporation is an artificial being with its own personality separate from its stockholders. It is a necessary legal fiction and may only be disregarded if an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. Such, however, is not alleged or proven. 3. Whether or not Vasquez could be held guilty of negligence and thus render him personally liable? No. 1101-1104 refers to negligence or fault incidental to the fulfillment or nonfulfillment of a contractual obligation. The company’s negligence in the nonfulfillment of the contract cannot make Vasquez liable. If independently of the contract, Vasquez by his fault or negligence caused damage to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code based on culpa aquiliana. Dispositive: The judgment of the CA is reversed, and the complaint is hereby dismissed, without costs. Dissent:

15 Paras, J.: Vasquez as president of NVSD is liable for damages. Vasquez, as acting president and manager of NVSD, and with full knowledge of the then insolvent status of his company, agreed to sell to De Borja 4,000 cavans of palay. Further, NVSD was soon thereafter dissolved. Doctrine: Juridical persons like companies have a personality separate from its managers and stockholders. _________________________________________________________________________________________________________

LESSON: DELAY Art. 1169 G.R. No. G.R. No. 32336. December 20, 1930 Abella v. Francisco AVANCEÑA, C.J. Francisco and Abella entered into an option to purchase (as held by the lower court, not a contract of sale) lots of the Tala Estate which Francisco owns but still not fully paid and he’s actually in arrears. The initial contract provides that payment of the balance (with P500 downpayment) should be on Dec. 15, extendable for 15 days (hence Dec. 30). On Dec. 27, Francisco authorized Mabanta (his agent) to sign the conveyance of the lots to Abella upon payment of the balance, but if he can’t pay, then the option will be considered cancelled. Mabanta extended the period to Jan 5, but Abella was not able to pay and tendered only in Jan 9. The Trial Court held that the option to purchase was deemed cancelled because time was essential. The SC is divided (Whether it’s sale or option to purchase) but in any case or even though the contract is to be considered that of Sale, the rescission is still valid because time was considered an essential element of the contract since Francisco has to pay his arrears due in Dec. that year. IMPORTANT PEOPLE: Abella – buyer Francisco - seller FACTS 1.

2.

Francisco purchased from the Government on installments, lots 937 to 945 of the Tala Estate in Rizal. He was in arrears for some of these installments. On the 31st of October, 1928, he signed the following document:

"Received from Abella (P500), payment on account of lots Nos. 937 to 945 containing an area of 221 hectares, at (P100) per hectare. The balance due on or before December 15, 1928, extendible 15 days thereafter. 3.

After having made this agreement, the Abella proposed the sale of these lots at a higher price to George C. Sellner, collecting P10,000 on account thereof on December 29, 1928. (Not really relevant).

4.

P415.31 was paid by Abella on November 13, 1928, upon demand made by the Francisco.

5.

On December 27th of the same year, Francisco was in Cebu, he wrote to Roman Mabanta, attaching a power of attorney authorizing him to sign in behalf of the defendant all the documents required by the Bureau of Lands for the transfer of the lots to the plaintiff. -

In that letter the defendant instructed Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform him that the option would be considered cancelled, and to return to him the amount of P915.31 Abella paid.

16 6.

On January 3, 1929, Mabanta notified the Abella re above.

7.

Abella asked for a few days’ time, but Mabanta, following the instructions he had received from Francisco, only gave him until the 5th of that month.

8.

Abella did not pay the rest of the price on the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however, refused to accept it, and gave him to understand that he regarded the contract as rescinded. On the same day, Mabanta returned by check the sum of P915.31 which the plaintiff had paid.

9.

Hence Petitioner came to Court to enforce the Contract. He said Mabanta granted him an extension til Jan 9 but Mabanta denied this and was corroborated by Paz Vicente and by the plaintiff’s own admission to Narciso Javier that his option to purchase those lots expired on January 5, 1929.

ISSUE with HOLDING: 1. Whether the contract is sale of option to purchase – Court held it was option to purchase. In holding that the period was an essential element of the transaction between plaintiff and defendant, the trial court considered that the contract in question was an option for the purchase and that in an agreement of this nature the period is deemed essential. The opinion of the court is divided upon the question of whether the agreement was an option or a sale, but even supposing it was a sale, the court holds that time was an essential element in the transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain obligation which fell due in the month of December, 1928. The time fixed for the payment of the price was therefore essential for the defendant, and this view in borne out by his letter to his representative Mabanta instructing him to consider the contract rescinded if the price was not completed in time. 2. Whether the rescission was valid. – YES. In accordance with article 1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to pay the price within the time specified. _________________________________________________________________________________________________________

Art 1169, Exceptions L-8024 De la Cruz v. Legaspi & Samperoy BENGZON, J.

IMPORTANT PEOPLE Eusebio De La Cruz, plaintiff-appellee, Apolonio Legaspi and Concordia Samperoy, defendants-appellants. FACTS 1. In November 1950, De la Cruz sued Apolonio Legaspi and his wife to compel delivery of the parcel of land they had sold to him in December 1949; the complaint alleged: a. the refusal of defendants to accept payment of the purchase price of P450 which he had tendered b. undue retention of the realty 2. Defendants admitted the sale and the price; but they alleged that before the document of sale was made, the plaintiff agreed to pay the defendants the amount of P450 right after the document is executed that very day (December 5) However, after the document was signed and ratified by the Notary Public and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay the sum of P450 . To them, lack of consideration and for deceit are ground for annulment of the document. 3. Plaintiff filed petition for judgment on the pleadings: defendants have no excuse toretain property. Defendants didn’t budge and continued to stand for annulment. 4. Judge Reyes rendered judgment a. ordering plaintiff to pay the price of P450 to defendants b. ordering the latter to receive such price and immediately after such receipt, to deliver possession of the property to plaintiff 5. Having failed in a motion to reconsider, defendants appealed in due time; out of the 7 errors they assigned, 2 maintaining propositions were:

17 a. the trial judge erroneously disregarded their allegations b. allegations deemed admitted by plaintiff when he moved for judgment on the pleadings established a good defense, because the contract was without consideration, and was resolved by plaintiff's failure to pay the price right after the document was executed ISSUES with HOLDING 1. W/N trial judge erroneously disregarded their allegations His Honor considered the allegations made both in the complaint and in the answer. However, he found that defendants' allegations constituted no defense (to be explained in #2). 2. W/N allegations Appellants rightly say that the Civil Code — not the New Civil Code — regulates the transaction, which occurred in 1949. However, their assumption that “as plaintiff failed to pay the price after the execution of the document of sale as agreed previously, the contract became null and void for lack of consideration” is wrong. 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 a nudum pactum (see Doctrine). The situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants as he previously promised, there was default on his part, and defendants' right was to demand interest — legal interest — for the delay, (article 1501 (3) of the Civil Code), or to demand rescission in court. Such failure, however, did not ipso facto resolve the contract, no stipulation to that effect having been alleged. Neither was there any agreement nor allegation that payment on time was essential. Indeed, even if the contract of sale had expressly provided for "automatic rescission upon failure to pay the price," the trial judge could allow plaintiff to enforce the contract because defendants had not made a previous demand on him, by suit or notarial act. 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. (Art. 1504 Civil Code.). This previous demand is a demand for rescission (Manresa). DISPOSITIVE PORTION The appealed judgment will therefore be affirmed, with costs against appellants. So ordered. DOCTRINE Nudum practicum 'bare or naked Promise' refers to a promise that is not legally enforceable for want of consideration. _________________________________________________________________________________________________________ Lesson: Delay - Mora accipiendi G.R. No. L-10394 (1958) Vda. De Villaruel v. Manila Motor Co., Inc. REYES, J. B. L., J.

Villaruel leased a property in favor of Manila Motor Co. The premises were occupied by Japanese military from 1942-1945. Villaruel demanded payment from lessee company for the said period to which lessee refused. No tender was made until November 1946 and subsequently, the property was destroyed by fire. The court ruled that the dispossession of lessee during Japanese occupation exempted it from obligation to pay lease. Thus, by improperly refusing to accept the tenders of rentals, Villaruel incurred default (mora) and must shoulder the accidental loss of the premises.

18

IMPORTANT PEOPLE Claudia Vda. De Villaruel – plaintiff, appellees (lessor) Manila Motor Co. Inc., Arturo Colmenares – defendants, appellants (lessee)

FACTS 1. 2. 3. 4. 5. 6.

Appeal against CFI judgment ordering Manila Motor Co., Inc to pay Villaruel for the lease of their building from June 1, 1942 to March 29, 1945 (used by Japanese military) and pay for the destruction of the property. Manila Motor Co., Inc. leased the building from Villaruel and entered a contract. The contract lasts for 5 years and that the amount of Php 350 a month should be paid. Possession started on the 31st day of October 1940. The leasing continued until the invasion in 1941. Lessee was dispossessed of the premises by the Japanese military. Upon liberation, Americans took possession of the said property and paid for the same amount to Villaruel. Leasing by Manila Motor Co. resumed, and paid rentals from Oct 1945 to June 1946. Come July 1946, lessor insisted on collecting the 1942-1945 rents as well and refused to accept further payment by lessee. While the trial was ongoing, the property got burned. Villaruel then sought for a supplemental complaint demanding reimbursement. CFI granted the petition of Villaruel giving rise to this appeal.

ISSUE with HOLDING 1. W/N Manila Motor Co., Inc. is liable to pay for the rental fees at the time of the Japanese Occupation and liable for the destruction of property. NO. ● Based on International Law, the occupation of premises by the Japanese military is a pertubacion de derecho (trespassing under color of title) and not pertubacion de hecho (mere act of trespass), for which the lessors are liable under Art. 15604. ● Even if the lessees were deemed liable, collection of rent was barred by Debt Moratorium. ● The lessor' 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 creditoris or accipiendi) with the result that thereafter, they had to bear all supervening risks of accidental injury or destruction of the leased premises as can be inferred from the ff. provisions: 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 (3) If fungible things should be sold for a price fixed with relation to weight, number, or measure, they shall not be at the purchaser's risk until they have been weighed, counted, or measured, unless the purchaser should be in default. ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he shall bear the loss in case of the destruction of the work before it is delivered, unless its acceptance has been delayed by the default of the other party.

4

ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of the leased property; but the lessee shall have a direct action against the trespasser. It the third person, be it the Government or a private individual, has acted in reliance upon a right, such action shall not be deemed a mere act of disturbance.

19 DISPOSITIVE PORTION WHEREFORE, the decision appealed from is modified in the sense that the appellant Manila Motor Company should pay to the appellees Villaruel only the rents for the leased premises corresponding to the period from July up to November 1946, at the rate of P350 a month, or a total of P1,750. Costs against appellees in both instances. So ordered. DOCTRINE Mora accipiendi – refusal to accept rents places lessors in default. Such shall cause lessors to incur liability for supervening risk.

_________________________________________________________________________________________________________ Central Bank v CA Makasiar, J. Sulpicio Tolentino contracted a loan for 80,000php, mortgaging 100 hectares as collateral. Turns out Island Bank Savings is insolvent and can only provide 17,000php of the 80,000php. Tolentino signed a promissory note to pay the partial release in 3 years at 12% interest. They were unable to. IMPORTANT PEOPLE Sulpicio Tolentino FACTS 1. 2. 3. 4. 5. 6.

Tolentino contracts a lone for 80,000 from Island Savings Bank ISB partially releases 17,000 Tolentino signs promissory note to pay it all in 3 years at 12% interest ISB is found to be insolvent and is prohibited by the monetary board of the central bank from conducting business in the Philippines. ISB files extrajudicial foreclosure of Tolentino’s land in view of his inability to settle his 17,000php loan Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction in view of ISB’s inability to release the remaining 63,000php from the original loan.

ISSUE with HOLDING 1. WON Tolentino’s petition for specific performance or rescission and damages will prosper -No. ● Specific performance cannot be granted given that ISB has been prohibited from conducting business ● Tolentino was not able to pay the 17,000 php loan making him a party in default, not entitled to rescission. (Article 1191 NCC) ● Both parties being unable to perform their reciprocal obligations, both are entitled to damages. However, 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 infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. 2.

WON Tolentino is liable for the 17k

20 -Yes. ● ● ● ●

He executed a promissory note to pay it within 3 years. He has not. Had he not executed the note, he would not be liable. Should he be unable to pay, his land will be foreclosed. However, as the debt was not fully released, only a proportional part of the land will be foreclosed. 17/80 = 21.25% 21.25% of 100 hectares = 21.25 hectares

DISPOSITIVE PORTION WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND 1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID; 2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND 3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO. DOCTRINE Compensatio morae states that when two parties with reciprocal liabilities are in default, no liability will arise from either party. _________________________________________________________________________________________________________ Modes of Breach: Contravention of the Tenor No. L-73867 Telefast Communication/Philippine Wireless Inc. vs Castro, Sr. J. Herrera Petitioner is being charged by Sandiganbayan for failing to secure the truck seized from Ancla by the BIR for failure to pay taxes. IMPORTANT PEOPLE Telefast: petitioner/defendant-appellant Ignacio Castro, Sr.: respondents/plaintiffs-appellees FACTS 1. 2.

3. 4. 5. 6. 7.

petition for review on certiorari on the decision of Intermediate Appellate Court Sofia Crouch, daughter of Castro announced the death of her mother through telegram, which was accepted by defendant in its Dagupan Office but the telegram never reached hence the funeral of the mother was not attended by Castro and the other children who were all residing in the US daughter only discovered that the telegram wasn't received so she and the plaintiffs brought action for damages; case was filed in CFI Pangasinan defense of defendant: technical and atmospheric factors beyond its control; but it did not advise Sofia CFI Pangasinan ordered defendant to pay plaintiffs damages petitioner appealed and the Intermediate Appellate Court affirmed the decision but modified the award of damages compensatory damages to Sofia and exemplary damages were eliminated, and moral damages were reduced

21 8.

petitioner appealed from the modified judgment of the appellate court contending that moral damages should be eliminated since its negligent act was not motivated by fraud, malice or recklessness; it can only be held liable for the fees paid by Sofia for the telegram

ISSUE with HOLDING W/N petitioner is not liable for moral damages (NO) ● Art. 2176 Civil Code: whoever by act of omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done ● petitioner and respondent entered into a contract whereby for a fee, petitioner undertook to send respondent's message ● petitioner did not do so despite respondent's performance of obligation (paying the fee) thus petitioner is guilty of contravening its obligation and is liable for damages ● liability is not limited to actual or qualified damages ● Article 2217 Civil Code: Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission. ● petitioner's act or omission was the cause of respondent's suffering ● trial court's award of compensatory damages is upheld, as well as exemplary damages DISPOSITIVE PORTION petition is denied and decision appealed from is modified _________________________________________________________________________________________________________ Contravention of the tenor G.R. No. L-15645 Arrieta vs. NARIC Regala

This is an appeal of the defendant-appellant NARIC from the decision of the trial court that awarded to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract. FACTS 1. 2.

3. 4.

5.

On May 19, 1952, the plaintiff participated and won in the NARIC public bidding for the shipping of 20,000 metric tons of Burmese rice. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton. In turn, the defendant corporation committed itself to pay immediately "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency.” However, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant took the first step to open a letter of credit. a. Asked the Philippine National Bank to consider their request as a special case, considering that it does not have enough capital deposited in the institution. On the same day, Mrs. Arrieta advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit because she had then made a tender to her supplier that was equivalent of 5% of the FOB price of 20,000 tons at $180.70. a. This tender will be confiscated if the required letter of credit is not received prior to the deadline of August 4, 1952.

22 6.

On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application was approved with the condition that marginal cash deposit be paid and that drafts are to be paid upon presentment. Furthermore, the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement.” 7. However, the appellant corporation was not in any financial position to meet the condition. a. In a letter dated August 2, 1952, the NARIC confessed to the appellee that it cannot meet the financial requirement of 50% of the value of the letter amounting (around $1.8 million) 8. Thus, the credit instrument only opened on September 8, 1952, which is more than 2 months from the execution of the contract. And because of this, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to approximately P200,000.00 was forfeited. 9. The appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of $286,000.00, U.S. currency, representing unrealised profit. The demand having been rejected she instituted this case now on appeal. 10. The trial court awarded to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant-appellant NARIC. 11. Hence this appeal ISSUE with HOLDING 1. WON there was a contravention in the tenor of the contract? a. Yes, the sole and principal reason for the cancellation of the allocation contracted by the appellee was the failure of the letter of credit to be opened with the contemplated period. b. Appellant corporation insists that the fault lies with the appellee. i. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee failed to seasonably furnish data necessary and required for opening the same, namely, "(1) the amount of the letter of credit, (2) the person, company or corporation in whose favour it is to be opened, and (3) the place and bank where it may be negotiated.” a. Appellant's explanation has neither force nor merit. In the first place, the explanation refers to a question of fact. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. His conclusion on the matter is sufficiently borne out by the evidence presented. b. Secondly it is clear that what singularly delayed the opening of the stipulated letter of credit was the inability of the appellant corporation to meet the condition importation by the Bank for granting the same. i. Had it been able to put up the 50% marginal cash deposit demanded by the bank, then the letter of credit would have been approved, opened and released as early as August 4, 1952. c. The liability of the appellant, however, stems also from its wilful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the prestation. d. Article 11 of the Civil Code which 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 in damages.” i. Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations a decreed liable; in general, every debtor who fails in performance of his obligations is bound to indemnify for the losses and damages caused thereby. The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfilment of the obligation or every kind or defective performance. DISPOSITIVE PORTION UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the contract was executed. The appellee insurance company, in the light of this judgment, is relieved of any liability under this suit. No pronouncement as to costs.

23

DOCTRINE Article 11 of the Civil Code which 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 in damages.” Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations a decreed liable; in general, every debtor who fails in performance of his obligations is bound to indemnify for the losses and damages caused thereby. The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfilment of the obligation or every kind or defective performance. _________________________________________________________________________________________________________ Modes of Breach: CONTRAVENTION OF TENOR G.R. No. L-37120 April 20, 1983 Victoriano Magat vs. Medialdea ESCOLIN, J. Guerrero wanted to secure a contract with the US Navy to operate taxis in the area. His agent, Aligada researched and made an arrangement with Magat in importing the required taximeter and radio receiver from the latter’s Japanese business contacts. Magat agreed with the offer and ordered said equipment. Guerrero did not pay Magat so the latter did not release the equipment. US Navy reprimanded Guerrero for not having the required equipment so he blamed Magat for the delay in delivery of the equipment, in turn ruining Magat’s reputation. It turns out that Guerrero only used Magat to get the deal with US Navy. Magat filed a complaint. Guerrero filed Motion to Dismiss. Hon. J. Medialdea dismissed the complaint filed by Magat for failing to state a cause of action. Hence this petition. IMPORTANT PEOPLE Victorino D. Magat, petitioner/plaintiff Judge Leo D. Medialdea, respondent Santiago A. Guerrero, respondent/ defendant Isidro Q. Aligada FACTS 1.

2.

3.

4.

September 1972, Guerrero 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. Isidro Q. Aligada, acting as agent of Guerrero conducted the necessary project studies on how best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay, Philippine. - Magat is experienced in the business, has connections and goodwill which was already established with the Naval personnel of Subic Bay, Philippines, especially in providing the U.S. Navy with needed materials or goods on time as specified by the U.S. Navy, be they of local origin or imported either from the United States or from Japan. - Aligada approached Magat in behalf of the defendant and proposed to import from Japan thru the latter or the latter’s Japanese business associates, all taximeters and radio transceivers needed by the defendant in connection with his contract with the U.S. Navy, Subic Bay, Philippines. Guerrero and Aligada were able to import from Japan with the assistance of the Magat and his Japanese business associates the necessary taximeters for defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines, the plaintiff's assistance in this matter having been given to Guerrero for free. Aligada, also acting as agent of Guerrero, made representations with the Magat to the effect that Guerrero desired to procure from Japan thru Magat the needed radio transceiver. Aligada secured a firm offer in writing dated September 25, 1972, wherein Magat quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by Magat to the Guerrero to be delivered 60-90 days after receipt of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities.

24 5.

Magat received notice of the fact that Guerrero accepted the former's offer to sell to the defendant the items, as well as the terms and conditions of said offer, as shown by the signed conformity of the defendant appearing on Annex 'A' which was duly delivered by the Guerrero's agent to Gonzales, whereupon all that the plaintiff had to do in the meantime was to await advice from the defendant as to the radio frequency to be assigned by the proper authorities to the defendant.

6.

Believing that the Guerrero would faithfully fulfill his contract, considering his signed conformity as well as the letter dated October 4, 1972, of his agent aforementioned, and in order that plaintiff's promised delivery would not be delayed, Magat took steps to advise the Japanese entity entrusted with the manufacture of the items listed to the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with regards to radio frequency would follow as soon as same is received by the plaintiff from the defendant.

7.

In his letter dated October 6, 1972, Guerrero advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed with the plaintiff herein, which fact was duly communicated to the plaintiff by the defendant's aforementioned agent.

8.

By his letter dated October 7, 1972, addressed to Magat by Guerrero's agent, defendant's agent qualified defendant's instructions contained in his letter of October 6 in the sense that plaintiff herein should proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit;

9.

Since it is a normal business practice in cases of foreign importation that the buyer opens a letter of credit in favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a letter of credit by the defendant.

10. Guerrero and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods ordered by him. 11. Magat learned that Guerrero has been operating his taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs, he impliedly laid the blame for the delay upon Magat, thus destroying the reputation of the plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts business. 12. March 27, 1973, Magat wrote a letter thru his counsel, to ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff herein or whether he desired to have the contract between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand. 13. Guerrero entered into a contract with the plaintiff herein without the least intention of faithfully complying with his obligation is thereunder, but he did so only in order to obtain the concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the expense and prejudice of third parties such as the plaintiff herein. 14. In view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff will suffer the following damages: [a] P523,938.98- Magat will have to pay for the radio transceivers he ordered which are now in the hands of the plaintiff's Japanese representative. [b] P 52,393.89 or 10% of the purchase price by way of loss of expected profits from the transaction or contract between plaintiff and the defendant. [c] P200,000.00; Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business dealings with Japanese firms, thereby resulting also in loss of possible profits in the future. [d] P200,000.00 as moral and exemplary damages;

25 [e] attorney's fees the sum of P50,000.00" 15. Guerrero filed a motion to dismiss said complaint for lack of cause of action,that “it is clear 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”. 16. The respondent judge, over petitioner's opposition, issued a minute order dismissing the complaint. ISSUE with HOLDING 1. W/N there was cause of action. YES. Guerrero’s arguments: - Magat's right of recovery under his cause of action is premised not on any loss or damage actually suffered by him but on a non-existing loss or damage which he is expecting to incur in the near future. - Plaintiff's right under his cause of action is not yet fixed or vested. SC found the test of legal sufficiency of the cause of action adequately satisfied. - Court found that the complaint laid out 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. Court held: Essential elements of a cause of action are present, to wit: [1] the existence of a legal right to the plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. 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. Complaint sufficiently alleges bad faith on the part of the defendant. 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. DISPOSITIVE PORTION Questioned order of dismissal is hereby set aside and the case ordered remanded to the court of origin for further proceedings. RELEVANCE TO THE LESSON From Article 1170 of the Civil Code, The phrase "in any manner contravene the tenor" of the obligation includes any ilicit 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 oblige but also the profits which the latter failed to obtain. 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 non-performance of the obligation. _________________________________________________________________________________________________________ III. Remedies of Creditor in Case of Breach CONTRAVENTION OF TENOR 32 SCRA 547 (1970) Chaves v. Gonzales

26 REYES, J.B.L., J. Chaves brought his typewriter to Gonzales for repair. The latter did not do his job for a span of time and only kept on buying time. Chaves got impatient and asked to get the typewriter back. He received it in “shambles” with some pieces missing. He got it repaired at the cost of P58.75. CFI of Manila ordered Gozales to pay Chaves Php31.10, the amount of the missing parts. Chaves appeals since he believes he should be paid for the repair expenses, the amount of the missing parts as well as the damages. SC held that Chaves should receive Php 89.85, with interest at the legal rate from the filing of the complaint. IMPORTANT PEOPLE Rosendo O. Chaves, plaintiff-appellant Fructuoso Gonzales, defendant-appellee FACTS 1. Chaves delivered to the Gonzales a portable typewriter for routine cleaning and servicing”. 2. Gonzales was not able to finish the job after some time despite repeated reminders made by the plaintiff; that the “defendant merely gave assurances, but failed to comply with the same”. 3. “After getting exasperated with the delay of the repair of the typewriter”, Chaves went to the house of the defendant and asked for its return. It was returned in “shambles” and with missing parts worth P31.10. 4. The repair of the typewriter costs P58.75. 5. Chaves filed a complaint. CFI Manila ordered Gonzales to pay P31.10 for the missing parts. ISSUE with HOLDING 1. W/N defendant should pay for the amount of repair. YES, because the obligation or contract was to repair it. The time for compliance having evidently expired, and there being a breach of contract by nonperformance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in this case. It is clear that the defendant appellee contravened the tenor of his obligation because he not only did not repair the typewriter but returned it “in shambles”, according to the appealed decision. For such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code for the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in. 2. W/N he is entitled to receive for moral damages. NO. These were not alleged in his complaint. Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis thereof must be proved. The appealed judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on questions of law.

DISPOSITIVE PORTION Defendant-appellee is ordered to pay Php 89.85, with interest at the legal rate from the filing of the complaint. RELEVANCE TO THE LESSON Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

27

Article 1173. “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. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. _________________________________________________________________________________________________________

ACTIONS FOR UNDOING OF POOR WORK Tanguilig vs CA 117190 Bellosillo, J

Petitioner entered into a contract to construct a windmill for private respondent. Subject windmill was destroyed by a “strong wind”. Court demands petitioner to reconstruct windmill. Imoportant People Jacinto Tanguilig- owner JMT Eng’g and General Merchandise(pet) Vicente Herce Jr- availed services of JMT, (resp) FACTS 1. Parties entered into a contract to build windmill. Tanguilig offered to construct in consideration of P60,000 from Herce Jr. Contract came with a 1 year guaranty; 2. Herce Jr tendered dp 30k, and another installment of 15k. Balance 15k was not paid; 3. Tanguilig filed a complaint to collect the unpaid sum of 15k from Herce Jr; 4. In his answer, Herce Jr alleges he already paid said sum to certain Mr. Pili owner of SPGMI in consideration of a deep well constructed as a part of the windmill project. He claims therefore that he has fulfilled his obligation and that in any case his nonpayment of the balance should be offset by the defects of the windmill which lead it to collapse after a strong wind struck their place 5. RTC ruled in favor of pet by finding no agreement between Tanguilig and Herce Jr to construct a well, that it was not part of their contract contrary to Mr Pili’s claim that he was commissioned by pet. It also found no clear and convincing proof that the windmill fell down due to a defect in its construction; 6. CA reversed, finding the deep well was included in the contract to build the mill and that there can be no finding of force majeure that could free Tanguilig from his liability to reconstruct; 7. Tangulig finds error in the CA’s reversal ISSUES with RULING 1. W/n the agreement to construct the windmill system included the installation of a deep well, COURT RULES IN THE NEGATIVE Deep well is not included in the contract There were two proposals for the project and neither of the two mentions the construction of a deep well, even remotely. While it was mentioned, it was only to describe what kind of well the windmill was suitable for. If the parties intended to include it in the undertaking in would have expressly done so. It wasn’t included in the itemized materials. 2. W/n petitioner is under obligation to reconstruct the windmill after it collapsed, COURT SAYS YES o Tanguilig claims freedom from liability to reconstruct, his basis? Force majeure o In order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. o In Nakpil vs. Court of Appeals,[i] four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it

28 impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. Destruction of the windmill was not solely due to a fortuitous event; Pet’s reason of a “strong wind” hitting the place cannot be considered as a fortuitous event in this case, as when windmill’s are constructed normally and necessarily in these places, else it will not run; The Court agrees with the appellate tribunal that “ given the newly constructed windmill system, the same could not have collapsed had there been no inherent defect in it which could only be attributed” to Tanguilig o Likewise, petitioner’s claim that it is Herce Jr that should bear the damage as he is in delay in his payment of the 15k balance, is untenable. o Herce Jr could not be in delay when it was Tanguilig who was not ready to comply with his obligation in a proper manner (1169), the windmill having collapsed. o The Court demands reconstruction of the windmill in favor of Herce Jr o 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 be undone. (1098) FALLO WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty and to complete the same within three (3) months from the finality of this decision. RELEVANCE TO THE LESSON: Art 1167, supra Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra-judicially 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 declare; 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 reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a) _________________________________________________________________________________________________________

IV. Subsidiary Remedies of Creditor LESSON: ACCION PAULIANA G.R. No. 144169. March 28, 2001 KHE HONG CHENG v. CA KAPUNAN, J. Cheng owns a vessel which sank so he was made liable to pay for the value of the cargo insured by Philam. The lower court ruled in favor of Philam but even before the judgment was rendered, Cheng already donated all his properties to his children. So when the sheriff was about to execute the writ, there were no more properties available for execution. Philam then filed a petition to rescind (accion pauliana) the deed of donations which were intended to defraud creditors. Cheng raised the defense that the period to rescind already prescribed but the Court held otherwise. Judgment of CA affirmed in favor of Philam. IMPORTANT PEOPLE:

29 Petitioner: Khe Hong Cheng Respondent: American Home Insurance (respondent Philam’s assured) medyo magulo, si American home nagbayad sa policy holder but biglang si Philam na ang naging respondent. Anyway di naman xa related sa lesson. FACTS 1. Cheng is the owner of Butuan Shipping Lines, one of his vessels is M/V Prince Eric which sank on Oct 1985. 2. On board was the cargo (copra) of Phil. Agri. Trading Corp covered by a marine insurance poly issued by American Home. 3. American Home paid 354,000 to the policy holder and filed a case with the RTC to recover the money paid on the ground of breach of contract of carriage. 4. While the case was pending, (December 1989) Cheng transferred his lands by way of donation to his children. 5. Judgment was rendered on Dec. 1993 in favor of respondent Philam (na). But sheriff found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy 6. On Jan 1997, the sheriff together with counsel of Philam went to Butuan and discovered the conveyance of properties to his children. 7. Philam filed a complaint on February 1997 for rescission of the deeds of donation executed by Cheng. 8. Cheng raised the defense that the action for rescission already prescribed on December 1993 four years after registration under Article 1389 of the Civil Code provides that, “The action to claim rescission must be commenced within four years.” Action should be counted from registration because under Section 52 of Presidential Decree No. 1529, registration is constructive notice to all persons.

ISSUES: WON right to rescind already prescribed – NO. Or WON accion pauliana is availing. – YES. HOLDING: Article 1389 is silent as to when the prescriptive period would commence, the general rule is from the moment the cause of action accrues – from Jan 1997 (not December 1989) Article 1150 of the Civil Code is particularly instructive: Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Concept of Accion Pauliana: Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of only after all other legal remedies have been exhausted and have been proven futile. For an accion pauliana to accrue, the following requisites must concur: 1) That the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent;

30 5) That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud. To count the four year prescriptive period to rescind an allegedly fraudulent contract from the date of registration of the conveyance with the Register of Deeds, as alleged by the petitioners, would run counter to Article 1383 of the Civil Code and the third requisite to file an action for rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim. An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial court is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had no inkling of the Court’s decision. Had respondent Philam filed his complaint on December 27, 1989, such complaint would have been dismissed for being premature. Not only were all other legal remedies for the enforcement of respondent Philam’s claims not yet exhausted at the time the deeds of donation were executed and registered. Respondent Philam would also not have been able to prove then that petitioner Khe Hong Chneg had no more property other than those covered by the subject deeds to satisfy a favorable judgment by the trial court. As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of petitioner Khe Hong 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 judgment in its favor. Since respondent Philam filed its complaint for accion pauliana against petitioners on February 25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him, its action for rescission of the subject deeds clearly had not yet prescribed. _________________________________________________________________________________________________________ Accion Pauliana G.R. No. 134685L-58652 Siguan v Lim Davide, Jr Petitioner Siguan files an accion pauliana against the Lims rescinding the Deed of Donation Rosa Lim executed to transfer parcels of land in favor of her children. However, the accion pauliana does not prosper because it lacks the proper requisites mainly due to the reason that the property has been alienated a year prior to Siguan becoming Lim’s creditor. IMPORTANT PEOPLE Maria Antonia Siguan, petitioner; Rosa Lim (LIM), Linde, Ingrid, and Neil Lim (LIM’s children), respondents. FACTS

31 1. August 25 & 26, 1990 - LIM issued two Metrobank checks in the sums of P300,000 and P241,668, respectively, payable to cash. a. 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. 2. As a consequence, criminal cases for violation of BP Blg. 22 were filed by petitioner against LIM in RTC Cebu City. In its a. Decision convicted LIM as charged; the case is pending before the Court for review 3. 31 July 1990 – LIM was convicted of estafa by the RTC Quezon City by a certain Victoria Suarez. a. This decision was affirmed by the Court of Appeals b. On appeal, the Court acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest. 4. 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 was registered with the Office of the Register of Deeds of Cebu City a. 2 parcels in Barrio Lahug, Cebu City and another 2 parcels in Cebu City (unspecified) b. New transfer certificates of title were thereafter issued in the names of the donees 5. 23 June 1993 – petitioner filed an accion pauliana against LIM and her children before Branch 18 of the RTC of Cebu City to 1) rescind the questioned Deed of Donation and to 2) declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed 6. a. b. c.

Petitioner claimed that: Sometime in July 1991, LIM fraudulently transferred all her real property to her children in bad faith and in fraud of creditors LIM conspired with her children in antedating the questioned Deed of Donation to the prejudice of her creditors LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations

7. LIM denied any liability to petitioner and claimed that: a. her convictions in the BP 22 criminal cases were erroneous b. the Deed of Donation was not antedated but was made in good faith at a time when she had sufficient property, and it was only registered only on 2 July 1991 because she was seriously ill 8. RTC decision: a. ordered the rescission of the questioned deed of donation b. declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil Lim c. ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim d. directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorneys fees; and P5,000 as expenses of litigation. 9. Court of Appeals decision reversed the RTC decision and dismissed petitioners accion pauliana a. 2 requisites for filing an accion pauliana were absent:  there must be a credit existing prior to the celebration of the contract  there must be a fraud (or intention to commit) to the prejudice of the creditor seeking the rescission b. Also, the Deed of Donation (notarized) appears to have been executed on 10 August 1989  Under Section 23 of Rule 132, ROC: the Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date  No antedating of the Deed of Donation was made → no convincing evidence  LIM’s indebtedness to petitioner was incurred in August 1990 (1 year after the execution of the Deed) → the first requirement for accion pauliana not met c. Claim of “fraud of creditors” is untenable because fraud must prejudice the creditor seeking the rescission (Victoria Suarez, not petitioner, became LIM’s creditor on 8 October 1987)

32

10. Petitioner’s arguments: a. CA finding that it was not “fraud of creditors” is contrary to well-settled jurisprudence laid down in Oria v. McMicking → enumerated the various circumstances indicating the existence of fraud in a transaction; CA did not prior final judgment against LIM in declaring Victoria Suarez as LIMs judgment creditor before the execution of the Deed of Donation b. CA incorrectly applied Section 23, Rule 132 ROC; provision should be read with Section 30→provides that notarial documents are prima facie evidence of their execution, not of the facts which gave rise to their execution and of the date of the latter c. CA overlooked Article 759, NCC → “The donation is always presumed to be in fraud of creditors when at the time of the execution thereof the donor did not reserve sufficient property to pay his debts prior to the donation.” → LIM made no reservation of sufficient property to pay her creditors prior to the execution of the Deed of Donation 11. Respondents’ arguments: a. Having agreed on the law and requisites of accion pauliana, petitioner cannot take shelter under a different law b. Petitioner cannot invoke the credit of Victoria Suarez c. CA correctly applied Section 23 of Rule 132, ROC d. Petitioner failed to present convincing evidence that the Deed of Donation was antedated and executed in fraud of petitioner e. CA correctly struck down the awards of damages, attorney’s fees and expenses of litigation because there is no factual basis for them ISSUE with HOLDING I. W/N Deed of Donation was made in fraud of petitioner and, therefore, rescissible - NO Under Art. 1381 → those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them → rescissible contracts Accion pauliana – action to rescind contacts in fraud of creditors The action the requisites for accion pauliana to prosper: 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 Requisites 1 and 2 are not present because the Deed appears to have been executed in August 1989, or one year before petitioner became creditor to LIM  Without prior existing debt, there can be no fraud  Notarial documents are public documents and are evidence of fact that give rise to their execution and date (Sec. 19 & 23, Rule 132, ROC)  Registration of deeds on July 2, 1991 is not enough to overcome presumption of truthfulness 3. The creditor has no other legal remedy to satisfy his claim Requisite 3 is not fulfilled because petitioner failed to prove that she has exhausted all other legal means to obtain the satisfaction of her claim  Arts. 1381 & 1383 → action for rescission is only “subsiadiary remedy” → last resort 4. The act being impugned is fraudulent Requisite 4 is not present because presumption of fraud (see Arts. 795 2nd par., 1387) cannot apply to the case  Petitioner’s alleged credit existed a year after the deed was executed; she couldn’t have been prejudiced by the alienation

33 

 

Petitioner failed to adduce evidence that LIM does not have sufficient property to pay her debts (Art 759); her other properties include: Parcel of land in Mandaue City Parcel of land in Talisay, Cebu 2 parcels of land in St. Bernard, Southern Leyte Petitioner also failed to prove that her case fall as any circumstance the Court has laid down as evidencing fraud Victoria Suarez cannot be considered a party in this case because it was Siguan (petitioner) who was moving for rescission

II. W/N the awards of damages, attorneys fees and expenses of litigation are proper - NO  Court found no factual/legal basis for such in the record.  Trial court made awards without stating justification. DISPOSITIVE PORTION WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto. _________________________________________________________________________________________________________ V. Extinguishment of Liability in Case of Breach Due To Fortuitous Event B. Requisites Concurrent Fault G.R. No. L-47851 Nakpil & Sons v. CA Paras, J.

An earthquake caused PBA’s building to partially collapse. PBA sought recovery for damages from UCI and Nakpil. The Court ruled that both UCI and Nakpil are liable for damages despite the fortuitous event due to their concurrent negligence resulting to defects in construction and in the plans and specifications. IMPORTANT PEOPLE Philippine Bar Association (PBA) – plaintiff, owner of building Juan F. Nakpil & Sons (Nakpil) – prepared the plans, specifications (architects) The United Construction Co., Inc. (UCI) – construction company FACTS 1. PBA decided to construct an office building and sought the services of UCI and Nakpil. 2. Aug. 2,1968 – an earthquake hit Manila and the building sustained major damage. 3. PBA filed for recovery of damages against UCI, alleging that the partial collapse was due to defects in construction. 4. UCI filed a complaint against architects Nakpil, alleging the collapse to be due to defects in the plans and specifications. 5. Technical issues were referred to Commissioner Hizon whose findings stated that while the damage sustained was caused directly by the August 2, 1968 earthquake, they were also caused by the defects in the plans prepared by Nakpil and deviations from said plans by UCI and even the owners to exercise the requisite degree of supervision in the construction of subject building. 6. Trial Court agreed with the findings (except regarding the owner) and ruled in favor of PBA. 7. Defendants claim that the damages were due to the earthquake, which was an act of God, and therefore they should not be liable. ISSUE with HOLDING 1. W/N the earthquake, an act of God which caused the collapse of the building, exempts from UCI and Nakpil from liability? NO.

34 · The general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code). · An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (1 Corpus Juris 1174). The earthquake of August 2, 1968 is a fortuitous event. · To exempt the obligor from liability under Article 1174 of the Civil Code, the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. · Thus, if upon the happening of a fortuitous event, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation which results in loss or damage, the obligor cannot escape liability. · The negligence of UCI and Nakpil was established beyond dispute both in the lower court and in the CA. UCI was found to have made substantial deviations from the plans and specifications and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision; while Nakpil were found to have inadequacies or defects in the plans and specifications prepared by them. The defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2, 1968. (CA also affirmed the observation that buildings situated in the same area withstood the earthquake.) For this reason the defendants cannot claim exemption from liability. DISPOSITIVE PORTION Decision appealed from is hereby MODIFIED. Court imposes upon defendants indemnity in favor of PBA of P5,000,000.00 to cover all damages occasioned by the loss of the building and an additional P100,000.00 for attorney's fees. DOCTRINE When the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. _________________________________________________________________________________________________________ LESSON: Effect of concurrent fault No. L-21749 Republic vs. Luzon Stevedoring Corporation Reyes, JBL Appeal from a decision of the CFI of Manila adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to the plaintiff-appellee Republic of the Philippines. IMPORTANT PEOPLE Republic of the Philippines Luzon Stevedoring Corporation (LSC) FACTS 8. A barge owned by the LSC rammed against one of the wooden piles of the Nagtahan bridge, smashing the posts and causing the bridge to list. 9. There was a heavy downpour the previous days, causing the river to swell and making the currents swift. 10. LSC disclaimed liability on the grounds that: It had exercised due diligence in the selection and supervision of its employees

35 Damages to the bridge were caused by force majeure Plaintiff has no capacity to sue Nagtahan bridge is an obstruction to navigation 11. CFI held the defendant liable for the damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan bridge. ISSUE with HOLDING 2. Whether or not the collision of appellant’s barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure. No The appellant strongly stresses the precautions taken by it on the day in question and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event. These very precautions, however, completely destroy the appellant's defense. Caso fortuito or force majeure are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civil Code) 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 very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito. 3. Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce additional evidence of damage after said party had rested its case. No Whether or not further evidence will be allowed after a party offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in clear case of abuse. In the present case, no abuse of that discretion is shown. DISPOSITIVE PORTION WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs against the defendant-appellant. DOCTRINE Caso fortuito or force majeure are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable." (Art. 1174, Civil Code) RELEVANCE TO THE LESSON For an event to be considered a fortuitous event, 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. _________________________________________________________________________________________________________ CONCEPT OF FORTUITOUS EVENT No. L-25906 Dioquino vs. Laureano Fernando, J. Plaintiff’s windshield was broken by a rock thrown by a passing boy. He files a suit for damages against defendant, who was only riding in the car with him when it happened (wtf). The SC denies the petition, saying that defendant isn’t liable for the broken windshield. IMPORTANT PEOPLE Atty. Pedro Dioquino – plaintiff

36 Federico Laureano – defendant; MVO patrol officer FACTS 1. Plaintiff went to the MVO (old name for LTO?) of Masbate to get his car registered. There he met defendant, who was on his way to the office of the Prov. Commander of the Phil. Constabulary (PC barracks). 2. Plaintiff asked defendant to introduce him to a clerk in the MVO who could help with his registration, and defendant graciously attended to him. In return for the favor, plaintiff let defendant ride in his car to the PC barracks. 3. While on their way to the PC barracks, plaintiff’s car was stoned by mischievous boys, who broke the windshield. Defendant chased and caught one of them, and they took him to the PC barracks. 4. The boy’s father was called, but no satisfactory arrangements were made about the damage to the windshield. Defendant refused to press charges against the boy because he thought the stone-throwing was accidental. 5. Plaintiff tried to make defendant pay for the damage himself (wtf), and defendant refused. Plaintiff filed a suit for damages against defendant, his wife, and his father, and the lower court held defendant liable. · Defendant now appeals, not only wanting to be absolved from liability but also seeking damages from plaintiff for also filing charges against his wife and his father (wtf). ISSUE with HOLDING 1. W/N defendant is liable – No. · Art. 1174: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be, foreseen, or which, though foreseen were inevitable. o The incident in question falls under the category of fortuitous events. It was clearly unforeseen, and therefore the loss must be borne by the owner of the car, the plaintiff. · The risk of having such damage done is automatically assumed by the plaintiff, and there seems to be no logical reason to have the defendant pay for the damages. He didn’t even cause the accident to happen, directly or indirectly. · Plaintiff’s impleading of the wife and father were unjustified and probably prompted by plaintiff’s desire to inflict unjust vexation on them. Plaintiff, as a member of the Bar, should have known better. DISPOSITIVE PORTION Lower court decision reversed. Cases against defendant, his wife and his father are dismissed, but no moral damages shall be awarded to them. DOCTRINE Art. 1174: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be, foreseen, or which, though foreseen were inevitable. _________________________________________________________________________________________________________ Austria v. CA & Abad (1971) Petition: Appeal by certiorari Petitioner: Guillermo Austria (necklace owner) Respondent: CA, Pacifico Abad, Maria Abad Ponencia: JBL Reyes DOCTRINE: It is NOT necessary that there be prior criminal conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss.

37

FACTS: 1. Guillermo Austria entered into a contract of agency to Maria Abad a 4500-peso necklace. 2. Necklace was consigned to Abad either to be sold on commission or to be returned on demand. 3. Abad was allegedly robbed of necklace. 4. RTC: Abad is liable for necklace. 5. CA: reversed RTC. ISSUES: 1. WON Abad is absolved of liability due to fortuitous event. 2. WON Abad is guilty of contributory negligence.

PROVISION: ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. RULING + RATIO: 1. YES. Defendant is absolved due to the robbery being a fortuitous event. PET says: CA erred in ruling that there was robbery. For robbery to fall as fortuitous event there ought to be conviction in criminal case. SC: No. Civil case = lower standard of evidence. Acquittal in a criminal case does not mean that the robbery did not happen. It may mean that the accused may have not done the robbery, but that that the robbery still happened. 2.

NO. Abad is not guilty of contributory negligence.

-

PET says: Abad is guilty of negligence because she was walking alone but carrying a large sum of money and the risk of getting robbed was foreseeable and may have been avoided.

-

SC: That may be true now, but robbery happened 10 years ago, where the crime rate was not as high as it is nowadays.

DISPOSITION: Petition dismissed. - CA decision affirmed. Abad has no liability. _________________________________________________________________________________________________________ Extinguishment of Liability in Case of Breach Due to Fortuitous Event G.R. No. L-47379 NPC vs. CA Gutierrez, Jr. ECI was tasked with a construction project for NAWASA. Due to a strong typhoon, NPC had open the spillway gates of Angat Dam which was near the project site. This damaged and destroyed the equipment and facilities of ECI. Court reduced the award of damages due to ECI but found NPC to be negligent and liable despite thepresence of an act of God.

38

FACTS 1. Consolidated petitions seeking to set aside the decision of the CA, declaring NPC liable for damages against Engineering Construction Inc. (ECI) 2. August 4, 1964 — ECI executed a contract in Manila with National Waterworks and Sewerage Authority (NAWASA) where it would furnish all tools, labor, equipment and materials and construct the 2nd Ipo-Bicti Tunnel and the necessary structures within 800 calendar days 3. ECI finished the tunnel excavation phase by September 1967 but in November of that year, typhoon “Welming” struck causing the water levels of NPC’s Angat dam (which was near the project site) to rise up to dangerous levels. Because of this, they opened the spillway gates and caused ECI’s materials and supplies as well as camp facilities and some permanent structures to be destroyed 4. CA found NPC liable due to the negligent manner with which they let the spillway gates be opened, allowing an “extraordinary large volume of water” out when they should have opened them gradually before the climax (??) of the storm. Note that NPC knew the typhoon was coming 5. Damages awarded equalled P675,785.31 but this was reduced by the court (a) P213,200 was for the rentals of a crane for 1 year to temporarily replace the one that was destroyed but it appears that they were able to buy another crane which, if the contract of sale was adhered to, arrived in a month. So the temporary replacement was probably only rented for that time for a total cost of P19,200. (b) P120,000 was supposed to be given to ECI for finishing the project a month early (within the 800 days) but the court rejected the award of this because the incident occurred after 1170 days (c) Exemplary damages were also eliminated because there was no bad faith on the part of NPC ISSUE with HOLDING NPC’s petition: the destruction of ECI’s equipment and facilities were due to force majeure and the rapid rise of water in the reservoir of its damn could not have been foreseen ECI’s petition: the CA has no basis in concluding that they acquired a new crane and so the reduction of consequential damages from P333,200 to P19K is unwarranted and the award of P120k for lost bonus is justified 1. Whether or not the destruction of ECI’s equipment and facilities was due to force majeure • based on the trial court’s and appellate court’s findings, NPC was NEGLIGENT because it opened the spillway gates of the Angat Dam only at the height of the typhoon when they knew it would’ve been safer to open it gradually and earlier since they knew it was coming 4 days before it arrived • the typhoon may have been force majeure but the proximate cause of the loss and damage was their negligence so they cannot escape liability • Juan Nakpil & Sons vs. CA: “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 CC which results in loss or damage, the obligor cannot escape liability” • to escape liability, the damage done must be caused exclusively by the violence of nature • Also, whether or not there was negligence on the part of NPC is a question of fact which the court will not address 2. Whether or not the CA erred in reducing the consequential damages • considering the fact that there was a contract of sale with the promise by Asian Enterprises that they would deliver the new crane within 60 days (after the flooding) and this would have been cheaper than renting a crane for a year, there’s no reason that ECI would’ve opted to rent a crane instead. Also, it was found that they were able to repair their crane for P77k which was already included in the compensatory damages. No reason, then, to find anything erroneous about the award of damages

39 • The P120k supposedly lost for failing to earn the one month bonus from NAWASA cannot be granted because the damage was incurred long after the deadline to finish construction. They wouldn’t have earned it anyway. • Additionally, the court was right in ruling that there was no bad faith on the part of NPC and the deletion of exemplary damages is justified DISPOSITIVE PORTION Wherefore, the petitions in G.R. No. 47379 and G.R. No. 47481 are both DISMISSED for LACK OF MERIT. The decision appealed from is AFFIRMED. DOCTRINE One cannot escape liability on the basis of force majeure (act of God) if the proximate cause of the damage caused is their fraudulence, negligence, delay, or violation or contravention in any manner of the tenor of the obligation. The damage caused must be exclusively due to the act of God _________________________________________________________________________________________________________ Fortuitous Event: Effects of Concurrent Fault G.R. No. 113003 Yobido v. CA Romero, J. In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from liability for the death of a passenger. IMPORTANT PEOPLE Yobido Bus Lines Leny, Ardee, and Jasmin Tumboy FACTS April 26, 1988: Spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28year-old Tito Tumboy and physical injuries to other passengers. November 21, 1988: A complaint for breach of contract of carriage, damages and attorney’s fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint, they raised the defense of fortuitous event. The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the driver’s failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 o’clock in the afternoon. The winding road it traversed was not cemented and was wet due to the rain; it was rough with crushed rocks. The bus which was full of passengers had cargoes on top. Since it was running fast, she cautioned the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard something explode and immediately, the bus fell into a ravine. The RTC dismissed the complaint. CA set aside the judgment of the RTC and entered ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses. ISSUE with HOLDING 1. Whether or not the death of Tumboy was due to a fortuitous event

40 When a passenger is injured or dies while travelling, the law presumes that the common carrier is negligent. In culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence as prescribed by Articles 1733, 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous event. A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. o The explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days’ use. Be that as it may, it is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. o 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. 2. Whether or not the CA misapprehended facts and, therefore, its findings of fact cannot be considered final which shall bind the Court Petitioners proved through the bus conductor, Salce, that the bus was running at 60-50 kilometers per hour only or within the prescribed lawful speed limit. However, they 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, therefore, 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 rough, winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary measures considering partially dangerous condition of the road. Proof that the tire was new and of good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicles parts. DISPOSITIVE PORTION WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in the amount of P20,000.00. Costs against petitioners. DOCTRINE Presumption of Negligence When a passenger is injured or dies while travelling, the law presumes that the common carrier is negligent. This disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence Fortuitous Event; Requisites (a) The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will; (b) It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) The obligor must be free from any participation in the aggravation of the injury resulting to the creditor. _________________________________________________________________________________________________________ Effect of Concurrent Fault

41 GR 81100-01 Bacolod-Murica Milling Co vs CA J. Paras A sugarcane farmer sues BMMC for not collecting his cane on time. But BMMC attributes this to the expiry of one of their RoW in Angeles Estate, making it unable to use its railway system to ship the cane. BMMC likens the incident to force majeure, thus it claims that it is not liable for the losses. NOTE: Naging issue din ang breach of contract. Hindi ko na siya sinali kasi hindi siya part ng lesson. IMPORTANT PEOPLE Alonso Gatuslao – sugarcane planter BMMC – Owner and operator of the sugar central in Bacolod FACTS 1. 2. 3.

4.

5. 6.

BMMC is the owner and operator of the sugar central in Bacolod City. Gatuslao is a registered planter of the Bacolod Murica Mill District. On May 24, 1957 BMMC and Gatuslao executed a “Extension and Modification of Milling Contract”. Since crop year 19571958 up to crop year 1967-1968, Gatuslao has been milling all the sugarcane grown and produced with BMMC. Since crop year 1920-1921 and up top crop year 1967-1968, 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 a railway system operated by BMMC that passed through various RoWs of other haciendas. But BMMC was not able to use its railway system for crop year 1968-1969. Records show that when the milling contracts of Hacienda Helvetia (part of Angeles Estate) expired with BMMC at the end of crop year 1964-1965, the corresponding RoW of the owners of Hda. Helvetia granted to central also expired. Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-1969 due to the closure in 1968 of the portion of the railway traversing the Had. Helvetia. Gatuslao sued BMMC for its failure to transport the canes for crop year 1968-1969, and for which, he sustained losses.

ISSUE with HOLDING 1. Was the closing of the tracks a force majeure? - The terms of milling contract 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 Had. Helvetia, but it any of the properties were owners decided not to renew their milling contracts with Central upon their expiration, was foreseeable and inevitable. - Central should have anticipated and should have provided for the eventuality before committing itself. Under the circumstances, it has no one to blame but itself and cannot now claim exemption from liability. - Lower court found that the Angeles Estate notified BMMC as far back as August or September 1965 of its intention not to allow the passage of the railway system through its land after the aforesaid year. - Adequate measure should have been adopted by BMMC to forestall such paralyzation but the records show none. DISPOSITIVE PORTION BMMC is liable (this is the gist) DOCTRINE Art 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. _________________________________________________________________________________________________________ Extinguishment of Liability in Case of Breach Due to Fortuitous Event - Art. 1174

42 G.R. No. 147324 Philcomsat v. Globe Telecom TINGA, J. IMPORTANT PEOPLE Philcomsat Globe Telecom FACTS 1. Globe had been engaged in the coordination of the provision of various communication facilities for the military bases of the US in Clark, Pampanga and in Cubi Point, Zambales to be used exclusively by the US Defense Communications Agency (USDCA). 2. May 7, 1991: Philcomsat and Globe entered into an Agreement — Philcomsat will establish, operate, and provide an earth station for the USDCA in Cubi for five years, and Globe will pay monthly rentals for each leased circuit involved. 3. At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Philippines and US was to expire in 1991. a. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such by the US Government 4. Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same. 5. Sept. 16, 1991: the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval Base, among others 6. Dec. 31, 1991: the PH government sent a Note Verbale to the US government notifying them of the termination of the RP-US MBA on December 31, 1992, and that all US military forces should complete its withdrawal by that date. 7. Aug. 6, 1992: Globe notified PHILCOMSAT of its intention to discontinue the use of the earth station effective November 8, 1992. It used the basis of Section 8 of the Agreement: a. “Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.” 8. PHILCOMSAT replied referring to Section 7 of the Agreement: a. “...Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two T1 circuits, for the remaining life of the agreement.” b. They were demanding payment of Globe’s outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees — GLOBE REFUSED.

43 9. Globe insists that it was constrained to end the Agreement due to thetermination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which constituted force majeure under the Agreement; the occurrence of said events exempted Globe, as it contends, from paying rentals for the remaining period of the Agreement. ISSUE with HOLDING 1. WON the termination of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of the US military forces and personnel from Cubi Point constitute force majeure would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat - YES a. Art. 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 i. force majuere: 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 b. force majuere under Sec 8 of Agreement: ( 1 ) a n y l a w, o r d e r , regulation, direction or request of the Philippine Government; (2) strikes or other labor difficulties; (3) insurrection; (4) riots; (5) national emergencies; (6) war; (7) acts of public enemies; (8) fire, floods, typhoons or other catastrophies or acts of God; and (9) other circumstances beyond the control of the parties c. Those in the enumeration above are e i t h e r u n f o r e s e e a b l e , o r foreseeable but beyond the control of the parties; there is nothing in the enumeration that runs counter to, or expands, the concept of a fortuitous event under Art. 1174 d. Requisites for Globe to be exempt from non- compliance: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free from participation in, or aggravation of, the injury to the creditor i. The requisites are present in the instant case: 1. Philcomsat and Globe had no control over the nonrenewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate 2. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992 3. Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances beyond the control of Globe 4. The formal order from Cdr. Walter Corliss, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of Globe e. It would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement. 2. WON Globe is liable to pay rentals under the Agreement for the month of December 1992 - YES a. US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. b. USDCA had control over the earth station and had the option of using the same until the said date. c. Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time, thus Globe is liable for rental payments until December. DISPOSITIVE PORTION

44 WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decisionof the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED. DOCTRINE Art. 1174: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen, were inevitable. _________________________________________________________________________________________________________ Eastern Shipping Lines v. CA, 234 SCRA 781 (1994) 



 

An appeal from the decisions of the RTC and lower court charging plaintiff shipping company, along with the Metro Port (arrastre operator) and Allied Brokerage Corporation (customs broker) liable for damages to the 1 of the 2 drums of riboflavin shipped from Yokohama to Manila, the same being insured by defendant insurance company. Was determined that when goods were loaded into the vessel SS Eastern Comet they were in good condition, but when it was delivered to Metro Port it was already damaged. The same was observed in the Allied Brokerage warehouse, when it was determined that one of the drums had spilled and that the same contained a fake and adulterated substance. Defendant insurance company had to sustain the damages which amounted to 19,032.95 Defendant sues plaintiff for the amount of the damages, citing breach of contract of carriage as grounds.

Answer of the Three Defendants (in appealed case):  Eastern Shipping Lines: shipment was discharged in good order from the vessel unto the custody of the Metro Port Service so that any damage/loss incurred after the shipment was incurred after the shipment was turned over  Metroport: although shipment was discharged to their custody, portion of the same was already in bad order  Allied Brokerage: plaintiff has no cause of action against it, not being negligent or at fault for the fact that the shipment was already damaged. Ruling of the Lower Courts:  That there is no doubt that the shipment sustained damages previous to reaching the cosignee, in the successive custodies of the three defendants.  Under Art. 1737 of the NCC, it is the common carrier’s duty to observe extraordinary diligence in the vigilance of goods  Thus RTC and CA ordered three defendants to pay plaintiff amount of 19,032 pesos with 12 percent interest per year from filing of the complaint. Issues in Appeal: 1. WON the petitioner can be held severally and jointly liable with the two other defendants in appealed case 2. WON the rate of the interest for the damages should commence from the filing of the complaint at the rate of 12% or from the date of the ruling of the RTC at the rate of 6% Ruling: Petition is granted in part, affirmed the liability of the petitioner but interest shall be computed upon finality of the decision. Ratio: 1.

Liability is demandable from plaintiff as it is held that it is the common carrier’s duty to observe the requisite diligence in the shipment of good a. This diligence shall be from the time articles are surrendered to or unconditionally places in the possesstion of the carrier for transportation, until the acceptance by the person to receive them b. A presumption arises against the carrier for the failure to observe such diligence c. No need for an express finding of negligence to hold it liable

45 d.

2.

As to WON the plaintiff can be charged alongside the two other defendants, it was held in Fireman’s Fund Insurance Co. v Metro Port Service that the carrier and arrastre operator are liable in solidum. i. Ratio: Since it is the duty of the arrastre to take care of the goods in their custody, such responsibility devolves around the carrier as well. Both are charged with the obligation to deliver goods in good condition. ii. Besides, Eastern Shipping Lines shall be liable for the amount whether or not there are other solidarily liable with it. Legal interest shall be charged upon the discretion of the court and in view of certain guidelines. a.

Jurisprudence

Cases First Group

   

Second Group



 

Rate of Interest Reformina v Tomol Philippine Rabbit Bus Lines v Cruz Florendo v Ruiz National Power Corporation v Angas



Malayan Insurance Company v Manila Port Service Nakpil and Sons v CA American Express International v IAC







Time when Computation Starts

Consistent holding that 12% applies only to loans or forbearance of money, goods or credits 6% for other cases, when it involves payment of indemnities in the concept of damage



From the time complaint was filed until adjudged amount is fully paid

Consistent holding that 12% applies only to loans or forbearance of money, goods or credits 6% for other cases, when it involves payment of indemnities in the concept of damage



Varied and was not consistent Malayan: 6% from the date of decision of the court a quo, as this was the date that interest was reasonably determined after proof American Express: 6% computed from the finality of the decision until paid Nakpil and Sons: 12% from the finality of the decision until amount is paid







- Held that although decisions were varied and there is discord in the application, it is of no matter because the courts are vested with discretion, depending on the equities for each case b.

“Rules of Thumb” i. When an obligation, regardless of it source, is breached, then the contravener can be liable for damages. Title XVII on Damages in the CC will apply. ii. With regard to award of interest in actual and compensatory damages, the following shall be imposed: 1. When obligation consisting of a loan or forbearance of money, in the interest due shall be of that stipulated in writing. It shall earn interest from the time judicially demanded. In absence of stipulation, shall be 12% per annum and computed from judicial and extrajudicial demand.

46 2.

When obligation is not a forbearance or a loan, then damages imposed by court are chargeable with interest at the rate of 6% per annum. No interest adjudged on unliquidated claims or until demand can be established with reasonable certainty, begin from demand or when it cannot be determined then it shall begin to run only from the date the judgment of the court is made, when demand is ascertained. When judgment becomes final and executory, the rate of legal interest in either case shall be 12% per annum from such finality until its satisfaction. _________________________________________________________________________________________________________ USURIOUS TRANSACTIONS 304 SCRA 356 CRISMINA GARMENTS, INC., vs. CA PANGANIBAN Norma Siapno filed a complaint against Crismina Garments, Inc. because she wasn’t paid for the denims she made which were defective according to the latter. The sole issue in this case is whether the payment due to Siapno should have an interest of 6% or 12% per annum. The Court ruled that it should be 6% per annum since the amount is not a forbearance, but rather payment that arose from a contract for a piece of work. IMPORTANT PEOPLE Crismina Garments, Inc. (‘Crismina’) – petitioner Norma Siapno (‘Siapno’) - respondent FACTS 1. Crismina is engaged in the export of girls’ denim pants. It contracted the services of Siapno, the sole proprietess of D’Wilmar Garments for the sewing of 20,762 pieces of girls’ denims for the price of P76,410. 2. Siapno was told that the goods were defective. She offered to take delivery of the defective pants. 3. She was later told that the goods were already good and was directed to return for her payment. 4. Crismina failed to pay her the amount because allegedly, 6,164 pants were defective. Crismina said that she was liable for the amount of the damaged pants. 5. TC ruled in favor of Siapno, and directed Crismina to pay her the amount with 12%/annum interest. CA affirmed the ruling. ISSUE with HOLDING 1. W/N it is proper to impose interest at the rate of 12%/annum for an obligation that does not involve a loan or forbearance of money in the absence of stipulation of parties. (in this case, particularly of a late payment) Ø Court: should be 6% per annum. Ø Crismina: should be 6% accdg to Art. 2209 CC Ø Siapno: should be 12% accdg to Central Bank Circular 416, because the the ‘money sought to be recovered by her is in the form of forbearance.’ Ø Court: the interest rate under said CB 416 applies to loans, forbearance of money, goods or credits or a judgment involving a loan or forbearance of money, goods or credits. o Cases beyond scope of the CB are governed by Art 2209 CC, which considers interest a form of indemnity for the delay in the performance of an obligation. Ø “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” (Eastern Shipping Lines, Inc. vs. CA) o Amount due in this case arose from a contract for a piece of work, not from a loan or forbearance of money. o Eastern Shipping: 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.

47 DISPOSITIVE PORTION The rate of interest shall be 6% per annum, computed from the time of the filing of the Complaint in the trial court until the finality of the judgment. If the adjudged principal and the interest remain unpaid thereafter, the interest rate shall be 12% per annum computed from the time the judgment becomes final and executory until it is fully satisfied. JUDGMENT MODIFIED. DOCTRINE Art 2209 CC RELEVANCE TO THE LESSON Interest shall be computed in accordance with the stipulation of the parties. In the absence of such agreement, the rate shall be 12%/annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, 6%. _________________________________________________________________________________________________________ USURIOUS TRANSACTIONS G.R. No. 116863; 12 February 1998 Keng Hua Paper Products Co., Inc. v. Court of Appeals PANGANIBAN Two companies fight over who is at fault in a case of a shipment that was never picked up: the shipper contends that the receiver should pay for the expenses incurred because of the delay, and the receiver contends that the shipper was at fault for shipping too much product. IMPORTANT PEOPLE Keng Hua Paper Products, Co., Inc, petitioner (Keng Hua) Sea-Land Service, Inc., respondent (Sea-Land) FACTS 1. 2.

3.

4.

Sea-Land, at its Hong Kong terminal, received a sealed container containing 76 bales of unsorted wasted paper for shipment to Keng Hua in Manila. Sea-Land issued a bill of lading5 to cover the shipment. On July 9, 1982, the shipment was discharged at Manila. Notices of arriveal were transmitted to Keng Hua but it did not take the shipment during the “free time” or grace period, which expired on July 29. The shipment was unloaded from the container on November 22, 1983, 481 days from the expiry of the grace period. Demurrage 6 charges accrued during the 481-day period, and the obligation, which Keng Hua refused to settle, eventually reached P67,340. The obligation remained unpaid despite several demands, so Sea-Land commenced this civil action for collection and damages. Keng Hua said that it purchased 50 tons of waste paper from Ho Kee Waste Paper. The remaining balance of the shipment was only 10 tons, but the shipment Sea-Land was asking it to accept was 20 metric tons, 10 in excess. Keng Hua said that if it were to accept, it would violate Central Bank rules, that there was no cause of action against them but there was against Sea-Land, and that they notified Sea-Land about the wrong shipment through a letter. The RTC found Keng Hua liable for demurrage, attorney’s fees, and costs. Keng Hua appealed to the CA, which denied its appeal and its MR.

ISSUE with HOLDING 1. Whether Keng Hua was bound by the bill of lading – YES A bill of lading (BOL), if accepted, gives rise to the presumption that the same was a perfected and binding contract. This issue is then hinged on whether Keng Hua had accepted the BOL. Section 17 of the BOL provided that the shipper and 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. Both lower courts found Keng Hua liable. 5

The Bill of lading (BOL) is one of the most important documents in the shipping process. To ship any goods, a bill of lading is required and acts as a receipt and a contract. A completed BOL legally shows that the carrier has received the freight as described and is obligated to deliver that freight in good condition to the consignee. (http://economictimes.indiatimes.com/definition/bill-of-lading) 6 A charge payable to the owner of a chartered ship in respect of failure to load or discharge the ship within the time agreed (Oxford Dictionary)

48 Keng Hua admits physical acceptance of the BOL, but that its subsequent actions belie the finding that it accepted the terms and conditions therein, citing the notice it received from Sea-Land acknowledging that Keng Hua declined to accept the shipment. Its letter to Sea-Land also stated that to accept the BOL would be tantamount to smuggling because to accept 20 instead of 10 tons would endanger them legally. Keng Hua argues that the delay was a consequence of the overshipping. Still, Keng Hua received the BOL immediately after the arrival of the shipment. It was only 6 months later that it notified SeaLand saying it could not accept the shipment, which letter merely said that it could not pick up the cargo, and not that it rejected the BOL. Its longtime inaction conveyed its acceptance. Sea-Land’s notice simply said that it wasn’t picking up the cargo and was likewise not proof of Keng Hua’s rejection of the BOL. As for its legal endangerment, mere apprehension of violating said laws, without demonstrating that it would be legally impossible to take the shipment, does not absolve it of liability. 2.

Whether Keng Hua must pay demurrage charges, and if so, how much – YES, but less than that demanded by Sea-Land, because of a later reckoning point for the computation of interest Keng Hua says that Sea-Land made no demand for the sum of P67,340, and that the latter’s loss and prevention manager demanded P50,260 but its counsel subsequently asked for P37,800. However, the sum of P67,340 was a factual conclusion of the trial court affirmed by the CA. In the letter dated April 24, 1983, Sea-Land’s counsel demanded P37,800, but since then the additional demurrage increased because of Keng Hua’s refusal to pay. It then ballooned, of course, to P67,340. Keng Hua insists that it did not know of the claim of this amount until it received summons to the Sea-Land’s complaint against it, and so interest may not be allowed to run from the date of Sea-Land’s extrajudicial demands on March 8, 1993 (P50,260) or on April 24, 1983 (P37,800) considering that in both letters there was no demand for interest. The Court agrees with Keng Hua on this point. The BOL did not specify the amount of demurrage, and the total amount was not established until the trial court made its findings through judgment. The legal interest rate, then, should be six percent per annum pursuant to NCC Article 2209, to be computed from the date of the trial court’s decision (September 28, 1990). Twelve percent per annum shall then be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction. No attorney’s fees should be awarded because the mention thereof in the dispositive portion was not supported in the ratio decidendi. DISPOSITIVE PORTION The assailed decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney’s fees is DELETED. _________________________________________________________________________________________________________ Usurious Transactions 263 SCRA 453 (1996) Security Bank vs. RTC Makati Hermosisima, Jr. Security Bank and Trust Company files for a review on certiorari assailing the decision of the RTC of Makati which found private respondent Magtanggol Eusebio liable to petitioner for a sum of money. The main issue is: should the rate of interest on a loan for forbearance of money follow the 12% per annum rate of interest or should it follow what was stipulated in the contract? IMPORTANT PEOPLE Security Bank and Trust Company Magtanggol Eusebio FACTS

49 1.

Security Bank and Eusebio had the following Promissory notes executed (in favor of Security Bank) a. P100,000 (6 months installment, 23% p.a. up to 5th installment) b. P100,000 (6 months instalment, 23% p.a.) c. P 65,000 (6 months installment, 23% p.a.)

2.

Leila Ventura signed as co-maker in these promissory notes. She is thus jointly and severally liable with co-defendant Eusebio.

3.

Upon maturity, the principal balance remaining on the notes are: a. b. c.

P16,665 as of September 1983 P83,333 as of August 1983 P65,000 as of August 1983

4.

Eusebio fails to settle the balances, thus Security Bank files a collection case which was decided in favor of Security Bank. However, the court granted rates of 12% p.a. instead of the 23% stipulated in the notes.

5.

Security Bank files a motion for partial reconsideration, but was denied. Hence, this petition with the Supreme Court.

ISSUE with HOLDING 1. W/N THE 23% RATE OF INTEREST PER ANNUM AS STATED IN THE CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT EUSEBIO IS ALLOWABLE AND NOT AGAINST THE USURY LAW YES. The promissory notes were all signed in 1983, this means they are already covered by Central Bank Circular No. 905 which states that “Sec. 1. The rate of interest, xxx, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law as amended. Sec 2. The rate of interest xxx in the absence of express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum.” It is not for the court, nor is there any valid reason to change the stipulations in the contract when it does not go against any law, moral, good custom, public order or policy. Only in the absence of a stipulation can the court impose the 12% rate. DISPOSITIVE PORTION IN VIEW OF THE FOREGOING, the decision of the respondent court a quo is hereby AFFIRMED, with the MODIFICATION that the rate of interest that should be imposed is 23% per annum. DOCTRINE In a loan or forbearance of money, the interest due should be what is stipulated in the contract/ in writing and in the absence thereof, only then can the court impose the 12% per annum rate. RELEVANCE TO THE LESSON Article 1306 of the NCC states: The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs public order or public policy. Article 2209 of the NCC states: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there bing no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. Central Bank Circular No. 905 and PD 858, PD 1684, PD 1685 Also check Articles 1175, 1413, and 1961. _________________________________________________________________________________________________________ Almeda v Court of Appeals (17 April 1996)

50

Summary: Spouses Almeda entered into loans with the Philippine National Bank. PNB increased the agreed upon interest rates of the loans, invoking a clause in their contract stating that they can increase the interest rates “within the limits allowable by law.” The courteventually rules that PNB is not allowed to do so as contracts rely upon the essential equality inherent in the parties to a contract. Facts: · Spouses Ponciano Almeda and Eufemia Almeda applied for and were granted several loans by the Philippine National Bank amounting to 18 million pesos payable in 6 years at an interest rate of 21% per annum. · To secure the loan, the spouses executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land together with the building erected thereon located at Pasong Tamo Makati. · Their contract with PNB gave PNB “the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future.” · Between 1981 and 1984, spouses made several partial payments, a substantial portion of which was applied to accrued interest. · Respondent bank then raised the interest rate to 28%. · Before the loan was to mature, the spouses filed a petition for declaratory relief with prayer for preliminary injunction and TRO with the RTC. They additionally sought clarification as to whether or not PNB could unilaterally raise interest rates. · Lower court granted the preliminary injunction enjoining PNB from enforcing said interest rate. By this time, the spouses were already in default of their loan obligations. · PNB then ordered the extrajudicial foreclosure of petitioners’ mortgaged properties. The court however, granted a preliminary injunction staying the auction of the property. · The preliminary injunction expired and the petitioners filed a motion for reconsideration. In the interim, they tendered the amount of 40,142,518 consisting of the principal (18,000,000) as well as the accrued interest calculated at the originally stipulated 21% interest rate. PNB refused to accept the payment. · Lower courts kept granting the writ of preliminary injunction which led to respondent bank filing a petition with the CA assailing the orders of the RTC. · CA ultimately rendered its assailed decision setting aside the orders of the RTC and upholding respondent bank’s right to foreclose the mortgaged property. Hence the instant petition. Issues with holding: · Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as 68% NO. The binding effect of any agreement between parties to a contract is premised on two principles: i) any obligation arising from contract has the force of law between the parties; ii) there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconsciable result is void. Any stipulation regarding the validity of the contract which is left solely to the will of one of the parties is likewise invalid. The respondent bank clearly unilaterally altered the terms of its contract with petitioners without the prior assent of the latter. Art 1956 of the civil code is clear: “no interest shall be due unless it has been expressly stipulated in writing.” The interest rate which appears to have been agreed upon by the parties to the contract was 21%. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. Escalation clauses in credit agreements are perfectly valid. Such clauses, however, are nonetheless still subject to laws governing agreements between parties. Apart from violating the principle of mutuality of contracts, there is authority for disallowing the interest rates imposed by respondent bank. Not only the increases of the interest rates on the basis of the escalation clause

51 patently unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored. · Whether or not respondent bank is granted authority to foreclose the Marvin Plaza (mortgaged property of private petitioners) NO. Respondent bank relies on PD 385 which was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government’s projects. The government, however, is not exempt from observing basic principles of law, fairness, and decency under the due process clause of the Constitution. In the first place, because of the dispute regarding interest rate increases, the exact amount of petitioner’s obligations can not be determined. Thus, the foreclosure provisions of PD 385 can be validly invoked only after settlement of the question involving the interest rate on the loan. Furthermore, petitioners made a valid consignation of what they, in good faith, honestly believed to be the real amount of their remaining obligations with the respondent bank. Ruling: Wherefore, premsises considered, the decision of the CA is hereby reversed and set aside. Doctrine: The binding effect of any agreement between parties to a contract is premised on two principles: i.) ii.)

any obligation arising from contract has the force of law between the parties there must be mutuality between the parties based on their essential equality.

Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconsciable result is void. Any stipulation regarding the validity of the contract which is left solely to the will of one of the parties is likewise invalid. _________________________________________________________________________________________________________ Usurious Transactions CASE NUMBER Angel Jose Warehousing v Cheldea Bengzon J.P., J Cheldea, et al contracted a loan from Angel Warehousing. Cheldea paid in post dated checks. However, Angel Warehousing alleges that Cheldea had intent to defraud them with the disposal of their property and now demand payment IMPORTANT PEOPLE David Syjuco - Defendant FACTS 1. Cheldea obtained 4 loans totaling 26,500 php, of which 5,620 php had been paid 2. Plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month 3. The court found that there remained due from defendants an unpaid principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had actually been deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted from the unpaid principal of P20,287.50, leaving a balance of P19,247.35 still payable to the plaintiff.

52 4. Given the fact that this has now become a usurious transaction, Defendant avers that there is no cause of action and that the principal amount may no longer be recovered. ISSUE with HOLDING 1. Whether the illegal terms as to payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. · No. · 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." · a 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.

DISPOSITIVE PORTION WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted therefrom, and the correction of the clerical error as to the principal still recoverable, from P19,247.35 to P19,239.35, the appealed judgment is hereby affirmed. No costs. So ordered. _________________________________________________________________________________________________________ USURIOUS TRANSACTIONS 369 SCRA 99 First Metro Investment Corporation (FMIC) v. Este Del Sol Mountain Reserve, Inc. (ESTE) De Leon, J. This is a petition for review on certiorari of a decision of the Court of Appeals which found and declared that the fees provided for in the Underwriting and Consultancy Agreements executed by FMIC and ESTE with a Loan Agreement were mere cloaks to hide the usurious interest charged by FMIC. IMPORTANT PEOPLE FMIC, ESTE FACTS 1. On January 31, 1978, FMIC granted ESTE a loan of P7,385,500 to finance the construction and development of Este’s sports/resort complex project. Under the terms of the loan agreement, interest was pegged at 16% annually based on the diminishing balance. In case of default, an acceleration clause was provided and that (1) the amount due was subject to 20% one-time penalty, (2) the total of the amount due and penalty was subject to interest at the highest rate permitted by law from the date of default until payment, (3) liquidated damages, accrued interests plus attorney’s fees. 2. On the same date, ESTE also executed, as provided by the Loan Agreement, an Underwriting Agreement, FMIC will underwrite on a best-efforts basis the public offering of 120,000 common shares of ESTE’s capital stock for P200,000. Also, ESTE shall pay an annual supervision fee of P200,000 and consultancy fee of P332,500 for 4 years. A Consultancy Agreement was also executed where ESTE engaged the services of FMIC for a fee as consultant to render general consultancy services. 3. On Feb 22, 1978, FMIC billed ESTE for the underwriting fee (P200,000), consultancy fee (P1,330,000), and supervision fee (P200,000). These fees were paid by ESTE to FMIC which deducted the same from the first release of the loan.

53 4. However, ESTE failed to meet the schedule of repayment and incurred the obligation of P12,679,639.98. After extra-judicial foreclosure of the mortgaged property and applying the proceeds from the foreclosure to the loan, FMIC instituted an instant collection suit against ESTE to collect the remaining deficiency balance plus interest and attorney’s fees and costs. 5. RTC ruled in favor of FMIC and ordered ESTE to pay all fees claimed by FMIC. However, CA reversed this decision and declared that the fees in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest and ordered FMIC to return these fees to ESTE. Also, the stipulated penalties, liquidated damages and attorney’s fees were deemed “excessive, unconscionable and revolting to the conscience” and that in lieu thereof, the 20% one-time penalty and 10% of attorney’s fee would be reasonable and suffice to compensate FMIC. ISSUE with HOLDING 1. W/N the Underwriting and Consultancy Agreements were used as devices to conceal the usurious interest - YES a. A usurious interest is any rate of interest in excess of the maximum allowed by the Usury Law. However, petitioner contends that the Usury Law does not apply because Central Bank Circular No. 905 has removed the ceiling on interest rates. While the circular only took effect on January 1, 1983, it should apply retroactively to a contract executed on 1978, as in the present case. However, the Court ruled that in the rule of contracts, the laws in force at the time the contract was made and entered into govern the contract - which in this case was the Usury Law. Also, the CB Circular did not repeal or amend the Usury Law but simply suspended its effectivity. A CB Circular cannot repeal a law because only a law can repeal another law. Thus, the retroactive application cannot and should not be presumed. b. Generally, when a contract is evidenced by a written instrument, such document is the best evidence of the terms of the contract and courts need only to rely on the face of the contract to determine the intention of the parties. However, an exception may be made when, from a construction of the whole transaction, it is apparent that there exists a corrupt intention to hide a usurious loan behind its legal form. While the FMIC represents that the underwriting and consultancy agreements were separate and distinct from loan agreement, the Court considered several facts and circumstances which taken together show that the Underwriting and Consultancy Agreements were simply devices made to conceal and collect excessively usurious interest. i. All agreements made were executed simultaneously and were set to mature or shall remain effective during the same period of time. ii. The underwriting agreement was made to be a condition precedent for the loan and thus is “part and parcel of the Loan Agreement.” iii. ESTE was billed for a one-time consultancy fee amounting to P1,330,000 despite the clear provision which states that the fees will be paid equally over 4 years. iv. The underwriting, supervision and consultancy fees were billed on the same occasion as the first partial release of the loan and the fees were deducted from this release, in effect reverting a portion of the loan to FMIC. v. FMIC was unable to organise and supervise an underwriting group to sell shares of ESTE as required in the Agreements. Also, there was no need for the Underwriting Agreement because ESTE had its own licensed marketing arm to sell shares and that all shares had already been sold. vi. FMIC did not comply with the obligation under the Consultancy Agreement and it has also been shown that there was no need for consultancy because ESTE’s officers appeared to be more competent to be consultant in the development of the sports/ resort complex. An apparently lawful loan is usurious when it is intended that additional compensation for a loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender’s service which are of little value or which are not to be rendered such as in the instant case.

54 c. Lastly, petitioner contends that the CA erred in awarding amounts not prayed for by the respondents. However, the Court ruled that whether the amounts have been expressly prayed for is of no moment and that a party is entitled to as much relief as the facts may warrant. DISPOSITIVE PORTION WHEREFORE, the instant petition is hereby denied, and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. DOCTRINE 1. Laws in force at the time the contract was made and entered into govern the contract. 2. CB Circular No. 905 did not repeal the Usury Law, it merely suspended the latter’s effectivity. 3. In usurious loans, the entire obligation does not become void because ofan agreement for usurious interest; the unpaid principal debt still stands and remains valid but only the stipulation as to usurious interest is void, consequently, the debt is to be considered without stipulation as to interest. _________________________________________________________________________________________________________ I. Pure and Conditional Obligations B. Conditional Obligations 1. Condition Conditional Obligations (Condition v. Period) 2 SCRA 830 Galite v. Fonacier Reyes Fonacier owns some iron mineral claims for w/c he contracted w/ Gaite to “explore and develop”. Gaite started w/ the mining process for w/c he was able to extract 24,000 tons of iron ore (worth Php65k). Fonacier, however, cancelled their agreement, along w/ it Gaite’s position as his attorney-in-fact. Gaite assented to this under the condition that he be paid the balance of 65k plus some other monetary considerations. Fonacier promised to pay for these using bonds, one of w/c was to expire in 1 year and also under the condition that his payment would come from the sale of the extracted iron ores. 1 year passed, the bonds expired, but he was not able to sell the iron ores. Fonacier claims that his obligation to pay the balance of 65k has not yet existed as there was no sale that occurred (he insists that the sale of iron ores was a condition to his obligation). SC affirmed CA in ruling that he was obligated to pay Gaite regardless of w/n a sale has been done a the said sale was merely a suspensive period or term and not a condition precedent. IMPORTANT PEOPLE Isabelo Fonacier – respondent, owner and/or holder of 22 iron lode mineral claims “Dawahan Group” Fernando Gaite – petitioner, attorney-in-fact of respondent, owner of Larap Iron Mines FACTS 1. Fonacier executed a “Deed of Assignment” and appointed petitioner Gaite as his atty-in-fact to enter into a contract w/ any individual or juridical person for the exploration and dev’t of his mining claims 2. Gaite embarked upon the dev’t and exploitation of the mining claims and in time extracted approximately 24,000 metric tons of iron ore. 3. For some unknown reason, Fonacier decided to revoke Gaite’s authority to exploit and develop; Gaite agreed subject to certain conditions. 4. A “Revocation of Power of Atty. And Contract” was executed wherein Gaite transferred to Fonacier all his rights and interest on all facilities in said claims, the right to use the business name “Larap Iron Mines” and its goodwill, and all the records and documents

55 relative to the mines. All these for the consideration of P20,000 plus 10% of the royalties the that Fonacier would receive from the mining claims. 5. Gaite also transferred to Fonacier all his rights and interests over the 24k tons of iron ore in consideration of P75,000, P10,000 of w/c was paid upon the signing of the agreement. Also, the balance of P65,000 will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore 6. To secure the payment of 65k, Fonacier promised to execute in favor of Gaite a surety bond[1], and pursuant to the promise, Fonacier delivered to Gaite a surety bond w/ himself (Fonacier) as principal and the Larap Mines and Smelting Co. as sureties[2]. Gaite refused to sign unless another bond underwritten by a bonding company was put up by Fonacier to secure the payment of 65k; hence a second bond was executed. Far Easter Surety and Insurance Co. was the additional surety, provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap mines & Smelting Co. for an amount of not less than 65k. 7. Fonacier gave the right to develop and exploit his mining claims to Larap Mines and Smelting Co., Inc., he also transferred the complete title to the approximately 24k tons of iron ore to the same company. 8. A year later, the bond of Far Eastern Surety expired but no sale had been made, nor had the 65k balance been paid to Gaite 9. Fonacier’s theory is that they (him and the sureties) had lost right to make use of the period given them when their bond automatically expired. Gaite filed a complaint before the CFI for Fonacier’s (and his sureties’) failure to pay as demanded 10. Defendants’ uniform defense: the obligation sued upon by Gaite was subject to a condition that the amount of 65k would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting co., Inc., but that up to the time of the filing of the complaint, no sale has been made; hence, the condition had not yet been fulfilled; consequently, the obligation was not yet due and demandable. Fonacier contended that only 7,573 tons of the estimated 24k tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than 200k damages. ISSUE with HOLDING 1. Should the provision of Sec. 7[3] in the contract be interpreted as condition precedent? No It’s only a suspensive period or term. The words of the contract express no contingency in the buyer’s obligation to pay. There is no uncertainty that the payment will have to be made sooner or later; only the exact date is unknown. The existence of the obligation to pay is recognized; only its maturity or demandability is deferred. A contract of sale is normally commutative and onerous; each party anticipates performance by the other from the very start. Gaite obviously didn’t desire or assume to be at risk of losing his right over the ore w/out getting paid (proof: the fact that he insisted on a bond to guarantee payment of 65k, aside from the bond by Fonacier). To subordinate the obligation to pay the remaining 65k to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor. 2. W/N appellants (Fonacier and sureties) are entitled to take full advantage of the period granted them for making the payment. No They have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of 65k because of their failure to renew the bond of the Far Eastern Surety Company or else replace it w/ an equivalent guarantee. There’s no merit to appellants’ argument that Gaite’s acceptance of the surety company’s bond w/ full knowledge that on its face it would automatically expire in 1 year was a waiver of its renewal after the expiration date. 3. W/N there were really 24,000 tons of iron ore in the stockpiles sold by Gaite to Fonacier and whether if there had really been a short-delivery (if the iron ores were less than 24k tons), appellants are entitled to the payment of damages. No Neither of the parties had actually measured or weighed the mass; they both tried to arrive at an estimation of the total quantity. (the discussion on how to arrive at the proper weight is technical and irrelevant to the discussion, the conclusion of w/c says that Gaite had the closer estimation to the weight of the iron ores, hence, there is not short delivery) DISPOSITIVE PORTION WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, w/ costs against appellants. DOCTRINE

56 What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

[1] A bond that is issued by a surety who guarantees performance should the obliged part fail to meet its obligations. [2] A person who binds himself for the payment of a sum of money or the performance of something, for another, who is already bound for the same. [3] 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interest over the 24,000 tons of iron ore, more or less, above-referred to together will all his rights and interests to operate the mine in consideration of the sum of 75,ooo w/c the latter binds to pay as follows: a. 10,000 will be paid upon the signing of this agreement b. The balance of 65,000 will be paid from and out of the first letter of credit covering the first shipment of iron ores and/or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.” _________________________________________________________________________________________________________ Conditional Obligations G.R. No. 131784 Gonzales vs. Heirs of Thomas and Paula Cruz Panganiban, J.

The two parties entered into a contract with an ambiguous provision which the courts interpret differently. The contract is regarding the lease and subsequent purchase of a parcel of land by petitioner from the respondents. Confusion arose as to whether or not the 9th clause of the contract was a condition precedent which would give rise to a conditional obligation as governed by Article 1181 of the Civil Code. Is it a condition precedent or is it not? Read on to find out. ;) IMPORTANT PEOPLE 1. Felix Gonzales - Lessee of a parcel of land owned by herein respondents 2. Paula Cruz - the lessor of the parcel of land to herein petitioner 3. Ricardo Cruz, et al. - heirs of Thomas and Paula Cruz who now manages the property. 4. Bernardina Calixto and Severo Cruz - herein respondents’ predecessorsin-interest under whose name the land is registered. FACTS 1. Paula Cruz together with Ricardo Cruz, et al (heirs of Thomas and Paula) entered into a Contract of Lease/Purchase with Felix Gonzales. 2. Among other things, the contract provided that the lessee (Gonzales) shall purchase the property for 1M pesos . 3. The 9th provision provided much ambiguity. As this was the subject of the courts’ differences in opinion, the direct text of the 9th provision is reproduced below . 4. Gonzales paid the annual rental on the property covered. 5. Gonzales however did not exercise his option to purchase the property immediately after the expiration of the one year lease. 1st clause of the Contract of Lease/Purchase “9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and 2 distinct [Transfer Certificate of Title] over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the

57 same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned.” 6. He remained in possession of the property without paying the purchase price provided for in the Contract of Lease/Purchase and without paying any further rentals. 7. Herein respondents informed Gonzales of their decision to rescind thecontract due to a breach thereof committed by Gonzales. 8. Gonzales was instructed to vacate the property but he just wouldn’t. 9. The respondents filed a complaint with the lower court alleging breach of the provisions of the Contract, and prayed for the recovery of possession of the property. 10.Gonzales argued that he could not be compelled to purchase the property because respondents have not complied with paragraph 9, which obligates them to obtain a separate and distinct title in their names. • He contends that paragraph 9 was a condition precedent to the purchase of the property. 11.The trial court held that the obligation in paragraph 9 was a condition precedent to petitioner’s purchase of the property. Since respondents had not performed their obligation (i.e. to obtain a separate and distinct title in their names), they could not compel petitioner to buy the parcel of land. 12.The Court of Appeals held that the property should be purchased first before respondents may be obliged to obtain a TCT in the name of the buyer (Gonzales). ISSUE with HOLDING 1. WoN the Court of Appeals’ interpretation of the 9th paragraph is correct. No. • basic is the rule in the interpretation of contracts that if some stipulation therein should admit of several meanings, it shall be understood as bearing that import most adequate to render it effectual. • petitioner’s interpretation renders the 9th paragraph most effectual. • when the Contract of Lease/Purchase was executed, there was no assurance that the respondents were indeed the owners of the land because the land in question was still registered in the name of Bernardina Calixto and Severo Cruz. • Thus, the clear intent of the 9th paragraph was for the respondents to obtain a separate and distinct TCT in their names as was necessary to show their ownership of the land, and their right to sell it to Gonzales. 2. WoN the 9th Clause was a Condition Precedent. YES. • The 9th clause required respondents to obtain a separate and distinct TCT  such undertaking was a condition precedent to the latter’s obligation to purchase and pay for the land. • Petitioner’s obligation to purchase the land is a conditional one and is governed by Article 1181 of the Civil Code. 3. WoN the Respondents can rescind the Contract. No. • Respondents cannot rescind the contract because they have not caused the transfer of the TCT to their names which is a condition precedent to petitioner’s obligation. • there can be no rescission of an obligation that is non-existent because the suspensive condition has not happened. DISPOSITIVE PORTION “WHEREFORE, the petition is GRANTED and the appealed Decision is REVERSED and SET ASIDE. The Decision of the trial court is REINSTATED, but the award of moral damages and attorney’s fees is DELETED for lack of basis. No costs. SO ORDERED. “ RELEVANCE TO THE LESSON There can be no rescission of an obligation that is non-existent because the suspensive condition has not happened. _________________________________________________________________________________________________________ 2. Kinds of Conditions a. As to effect on obligation

58 i. Suspensive (condition precedent) Suspensive Conditions G.R. No. 103577, October 7, 1996 Romulo A. Coronel, et. al., vs. CA and Concepcion D. Alcaraz Melo, J. Coronel, despite a “receipt of down payment” executed with Alcaraz for the sale of the former’s house and lot, sold the same to Mabanag. Court held that the said receipt with Alcaraz constituted a “contract of absolute sale”, thus overcoming the subsequent sale to co-petitioner. IMPORTANT PEOPLE ROMULO A. CORONEL, et. al (those who inherited the property) CATALINA BALAIS MABANAG (subsequent buyer), petitioners CONCEPCION D. ALCARAZ (mother of Ramona) (buyer) RAMONA PATRICIA ALCARAZ, respondents. FACTS 1.

2. 3. 4. 5. 6. 7. 8. 9.

Jan 19, 1985. Petitioners Coronel, et.al. executed a “Receipt of Down Payment” in favor of Alcaraz, after receiving P50,000 as down payment for an inherited house, to be sold for a total of P1,240,000. The same document also stipulated that the petitioners shall effect transfer in their names the TCT from the name of their deceased father. Upon presentation of the new TCT, it is stipulated that they execute a deed of absolute sale with Alcaraz, who shall immediately pay the balance of P1,190,000. Feb 6, 1985. Title was successfully transferred to names of petitioners. Feb 18, 1985. The Coronels instead sold the property to one Catalina Mabanag for P1,580,000, and cancelled the contract with Alcaraz by depositing the P50,000 down payment in trust for Alcaraz. Feb 22, 1985. Alcaraz filed a complaint for specific performance against the Coronels and caused the annotation of a notice lis pendens (pending litigation) on the TCT. April 25, 1985. Coronels executed a Deed of Absolute Sale with Mabanag, and a new title with Mabanag’s name was issued subsequently. April 14, 1988. Trial Court ruled in favor of Alcaraz, caused the delivery of the property to the former, and cancelled the title with Mabanag. December 16, 1991. Coronels filed with the Court of Appeals but the latter rendered its decision fully agreeing with the trial court. Hence, the instant petition which was filed on March 5, 1992. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.

ISSUE with HOLDING 1. Whether the “receipt of down payment” was a contract of sale or a contract to sell. - conditional contract of sale 2. 3.

W/N petitioners may validly dispose of the property despite the same not being in their name. YES W/N the sale to Mabanag constituted a double sale done in bad faith. YES.

1. “Receipt of down payment” was a conditional contract of sale, with the transfer of the title from the deceased father to the petitioners as the suspensive condition. Not a contact to sell because there was no express reservation of ownership or title to the

59 subject property, and because the circumstance which prevented the sale pertained to the sellers and not the full payment of the purchase price. Wording of the “receipt” manifests a clear intent to transfer, such that had there been no problem with the title, the sale could have been consummated right there and then. They did not merely promise to sell, but instead AGREED to a conditional contract of sale, consummation of which is subject only to the successful transfer of the title to the petitioners’ names (suspensive condition). Therefore, as soon as the titles were good to go, petitioners were committed to execute the sale (by Art 1181).[1] By operation of Art 1187, obligations of the parties under the contract became mutually due and demandable as of the time of fulfilment of the suspensive condition on Feb 6, 1985. Alcaraz then has a better right to the property than Mabanag because the former’s contract of sale was perfected before that of the latter [Title transferred Feb 6 vs. Sale to Mabanag Feb 18] 2. Petitioners may validly dispose of the property despite the same not being under their names by virtue of succession. Upon death of decedent, they were called to succession, such that any rights or obligations pertaining to the property became binding and enforceable upon them. Thus, the receipt/contract entered into on January 19, despite not yet being under their name, was valid. Petitioners are estopped from raising their lack of capacity after having represented themselves as the true owners at the time of the sale. 3. Sale to Mabanag constituted a double sale done in bad faith. Art. 1544 says that ownership of a property shall belong to the person who first recorded it in the Register of Property in GOOD FAITH [if she had no knowledge of the earlier sale] Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473) Mabanag’s recording, while done before that of Alcaraz, was in BAD FAITH because prior to this, Alcaraz caused the notation of her claim/pending litigation on the TCT. At the time of registration, therefore, the former knew of the defect, which thus constituting bad faith. DISPOSITIVE PORTION Petition dismissed. TC/CA decision affirmed. RELEVANCE TO THE LESSON

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

60 The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) OTHER NOTES Contract of sale Consent to transfer ownership Determinate subject matter Price certain in money or equivalent Conditional contract of sale Consent is already present, perfection of the contract subject to the fulfilment of a suspensive condition Upon fulfilment, ownership is automatically transferred to vendee Contract to sell - Seller explicitly reserves the transfer of title to the prospective buyer, but there is no consent to transfer ownership until the happening of an event, event being delivery of the full purchase price Upon fulfilment of suspensive condition, prospective seller still has to convey the title to the buyer by entering into a contract of absolute sale *credits to 2015A Digest Reviewer from ADAPT

[1] Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

_________________________________________________________________________________________________________ ii. Resolutory Kinds of Conditions – Suspensive Condition Parks v. Province of Tarlac 49 Phil. 142 Avaceña, C.J. Joseph Cirer and James Hill donated parcels of land to the municipality of Tarlac with the condition that it’ll be used for the construction of a public school and a public park. Subsequently, they sold the land to George Parks. Parks now wants the Court to declare him as the rightful owner of said lot since he believes that the condition was never met.

61 IMPORTANT PEOPLE Joseph Cirer and James Hill: donors of land Santiago de Jesus: municipal president of the municipal council of Tarlac George Parks: petitioner FACTS 1. 2. 3. 4. 5. 6.

7.

Joseph Cirer and James Hill donated their land to the municipality of Tarlac with certain conditions stated in a public document. Mr. Santiago de Jesus, municipal president, accepted it on behalf of the municipal council Tarlac. Said land was registered under municipality of Tarlac Cirer and Hill later on sold the land to George Parks. The municipality of Tarlac transferred the property to the Province of Tarlac and a transfer certificate was issued. Parks alleged that the donation hadn’t been complied with and that the sale should be made in his favor. Therefore, he should be declared as the absolute owner of the land, and to annul the transfer of property to the Province of Tarlac and to cancel the transfer certificate. The lower court dismissed the complaint.

ISSUE with HOLDING 1. WON Parks has a cause of action · No, his ownership to the land is only by virtue of the sale made by Cirer and Hills. However, that sale has no effect. o Cirer and Hills had no more right to sell the land since they donated it to the municipality of Tarlac. Only the municipality has the right to sell it. · The donation Cirer and Hills may have revoked as provided by the law, but there was no showing that it was revoked when they offered the sale. o Even if there was cause, the donee still has to consent or be judicially decreed to be considered as revoked. · Parks argued that the condition precedent – one of the lots has to be used for a public school and the other for a public park, which construction should begin 6 months after date of ratification of public document regarding the donation – wasn’t met. o For the court, it is not a condition precedent. Condition precedent Is that the acquisition of the right is not effected while condition hasn’t been complied with. When a condition is imposed, compliance may only be affected when the right is deemed acquired, such condition cannot be a condition precedent. o The municipality could not start the construction because the donation hasn’t been given effect. · Parks also argued that even if it was not a condition precedent, the non-compliance of the condition warrants the revocation of the donation. o For the court, his contention is true, but the period to cause an action for revocation has prescribed, which is 10 years. o Action for revocation started on April 19, 1911 and Parks only instituted the petition on July 5, 1924. DISPOSITIVE PORTION Affirmed the appealed judgment DOCTRINE Condition precedent Is that the acquisition of the right is not effected while condition hasn’t been complied with. RELEVANCE TO THE LESSON See doctrine _________________________________________________________________________________________________________ RESOLUTORY CONDITIONS G.R. No. 112127 CENTRAL PHILIPPINE UNIVERSITY VS. CA BELLOSILLO, J

62

Don Ramon Lopez Sr. donates some land to Central Philippine University on the condition that they use it for purposes of the school. They didn’t do it. Lopez’s heirs now want to cancel the donation and have the land returned. Supreme Court says yes. IMPORTANT PEOPLE Don Ramon Lopez Sr. – Donor of the land. He is now dead. Remedios Franco, Francisco N. Lopez, Cecilia P. VDA. De Lopez, Redan Lopez and Remarene Lopez – Heirs of the donor. (I don’t know if Remedios Franco is also an heir. I just made an inference from the list of respondents.) Central Philippine University – A school that does not know how to use land. FACTS 1. Don Ramon Lopez Sr, a member of the Board of Trustees of the Central Philippine College (now Central Philippine University) donated a parcel of land (Lot No. 3174-B-1 of subdivision plan Psd-1144) and a portion of land (Lot No. 3174-B) through Transfer Certificate Title No. T-3910-A. 2. The donation had the following conditions. a. That the land be used for a medical college with all the buildings to be part of the cuddiculum. b. That the college not sell any of the land or let anyone else have it. c. That the land be called Ramon Lopez Campus and that they put a cornerstone bearing that name. All income will be put in a Ramon Lopez Campus fund and used for improvements. 3. Fifty years later sometime after the death of Lopez, his heirs now want to annul the donation, reclaim the land get damages from CPU on the grounds that they did not comply with the conditions. (It is not clear in the case as to what they didn’t do, but it looks like they didn’t build the school. I mean, it would be really silly if the issue was about that little cornerstone.) 4. CPU says the right of the respondents to file the action prescribed already and that they didn’t use the land for any other purpose or sell it (Which probably means they didn’t use the land at all.) 5. The trial court ruled in favor of the heirs and declared it null and void ordering CPU to reconvey the land. 6. They filed with CA who remanded the case saying that the late Lopez didn’t mention when exactly the obligation was to be complied with. 7. The case eventually found it’s way to Supreme Court. ISSUE with HOLDING Should CPU give the land back because they didn’t comply? YES Supreme Court concludes that the donation is onerous (lawyer talk for “involves heavy obligations), one executed for a valuable consideration which is considered the equivalent of the donation. The donation was conditional. Under Art. 1181 of the Civil Code, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event that constitutes the condition. If Lopez wants them to build a school as a condition of his donation, then by all means they must build a school. The condition imposed is a resolutory condition which in this case means if the condition is not complied with, the donation is revoked. It can’t be determined what the period of compliance was, but Supreme Court says that fifty years is more than enough time for them to have built a school.

63 The court also mentions that in a gratuitous contract, doubts referring to incidental circumstances must be resolved in favor of the least transmission of rights and interests. DISPOSITIVE PORTION WHEREFORE, the decition of the RTC of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly modified. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgement. DOCTRINE Resolutory conditions in contracts can give rise to the revoking of agreements when certain conditions are not complied with. RELEVANCE TO THE LESSON Ditto DISSENT Davide Jr., J., dissenting: The decision is onerous considering the conditions, but the majority decision claims at one point that it is gratuitous, so which is it, ponente? Second, there is no conditional obligation. The conditions used here are of the definition from the law on donations, not obligations. ‘The word conditions in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the done. It is used not in its technical or strict legal sense but in its broadest sense.’ The condition isn’t resolutory. They are merely obligations imposed by Lopez, but not conditions upon which the contract is dependent. Yes, they are obliged to fulfill them, but failure to do so doesn’t make the contract null. There is also a need to fix the duration of time within which the conditions should be fulfilled. The cause of action is also prescribed, so they shouldn’t be allowed to revoke it anyway. _________________________________________________________________________________________________________ Kinds of Conditions: Resolutory (condition subsequent) 299 SCRA 695 Quijada v. CA Martinez. J. Petitioner as heirs of Trinidad Quijada, filed a complaint against respondents for the recovery of possession and ownership of land. IMPORTANT PEOPLE Trinidad Quijada, Regalado Mondejar, Ernesto & Rodolfo Goloran, Efren Guden FACTS 1. The petitioners are the children of Trinidad Quijada who inherited from the late Pedro Corvera a 2-hectare parcel of land in San Agustin Talacogon, Agusan del Sur.

64 2. Thereafter, on April 5, 1956 Trjnidad and her sisters and brother executed a conditional deed of donation of the land in favor of the Municipality of Talacogon – the condition being that the land should be used solely and exclusively as part of the campus of the high school that was supposed to be built. 3. However, the trial court found that despite donating the land, Trinidad remained in possession of it. And Trinidad verbally sold the land to Regalado Mondejar without a written deed of sale and only evidenced by receipts of payments. Subsequently, Mondejar also sold portions of the land to the Golorans and Guden. 4. In 1987, the Sangguniang Bayan of the municipality of Talacogon issued a resolution giving back the donation back to the donors because the proposed school did not materialize. 5. On July 5, 1988, the heirs of Trinidad filed a case against Mondejar et al. alleging that the land still belongs to the municipality and that the supposed sale is null and void. 6. The trial court found for the petitioners ruling that Trinidad did not have any legal right over the land to sell to Mondejar because she donated it. 7. However the CA reversed the decision ruling that: the sale was valid as Trinidad retained an inchoate interest on the lot by virtue of automatic reversion clause in the deed of donation. ISSUE with HOLDING 1. W/N the sale made by Trinidad was valid – YES a. The condition that was given by Trinidad to the municipality was a resolutory one. i. The condition however became irrelevant when the municipality via a resolution said that it could not comply. The ownership of the property reverted back to the donor. ii. Sale, being a consensual contract, is perfected by consent. iii. Art 1475 NCC: The contract of sale is perfected at the moment there is a meeting of the minds upon the thing, which is the object of the contract, and upon the price. b. The law requires that the seller has the right to transfer ownership at the time the thing sold is delivered. i. Perfection does not transfer ownership, which occurs upon the actual or constructive delivery of the thing sold. ii. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of perfection. Thus the sale is still valid. c. Consummation occurs upon the actual delivery of the subject matter to the buyer when the seller or successors-in-interest subsequently acquires ownership. i. When the ownership of the land reverted to the petitioner-heirs, ownership was transferred to Mondejar by operation of the contract of sale, which was held valid. ii. Art. 1434 NCC: When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. 2. W/N the land was outside the commerce of man as the Municipality was the owner, and as such can’t be sold – NO a. Article 1409 par. 4 does not provide that when properties of a municipality, whether for patrimonial or public use, are outside of the commerce of men. i. The municipality only conditionally owned the lots. ii. Objects referred to be outside the commerce of man are those, which cannot be appropriated, such as the open seas and heavenly bodies.

DISPOSITIVE PORTION WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is AFFIRMED. DOCTRINE Resolutory Conditions à extinguishes rights and obligations currently existing _________________________________________________________________________________________________________

65 As to cause or origin - Potestative G.R. 87047 Lao Lim v CA Regalado The petitioner Francisco Lao Lim is seeking the reversal of the ruling of the Court of Appeals regarding Lao Lim’s ejection suit against the private respondent Benito Villavicencio Dy. Respondent had entered into a lease agreement with the petitioner for a period of 3 years (1976-1979). After the expiration of the term, respondent refused to leave the premises which led to petitioner filing an ejectment suit. The two then entered into a compromise agreement which allows the respondent to renew the lease every 3 years. The lease continued until 1985; however, when respondent informed petitioner of his intention to renew the lease, petitioner declined. Respondent refused to leave the premises, and petitioner once again filed an ejectment suit. The RTC and the CA ruled in favor of the respondent, but this was overturned by the Court. IMPORTANT PEOPLE Francisco Lao Lim – lessor Benito Villavicencio Dy - lessee FACTS 1. 2. 3.

4.

5. 6.

7.

Private respondent Benito Villavicencio Dy entered into a contract lease with petitioner Francisco Lao Lim for a period of 3 years—from 1976 until 1979. After the expiration of the stipulated term, private respondent refused to vacate the premises, which led the petitioner to file an ejectment suit. The case was terminated by a judicially approved compromise with the following terms: “That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982; after which the abovenamed rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term” The lease continued until 1985. Respondent initially informed petitioner that he will no longer be renewing the lease; however, respondent later on informed petitioner in writing of his intention to renew the contract of lease for another term, commencing November, 1985 to October, 1988. Petitioner did not agree. On January 1986, petitioner filed another ejectment suit because of the respondent’s refusal to vacate the premises. The RTC dismissed the complaint on the grounds that (1) the lease contract has not expired, being a continuous one the period whereof depended upon the lessee's need for the premises and his ability to pay the rents; and (2) the compromise agreement entered into constitutes res judicata to the case before it. The CA affirmed the RTC’s ruling.

ISSUE with HOLDING WN respondent can be ejected from the leased premises – YES ● The disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. ● It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, depends upon said condition. It should be noted that a renewal constitutes a new contract of lease although with the same terms and conditions as those in the expired lease. ● The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee. ● the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease.

66 ● ●

●

While it is true that a compromise agreement has the effect of res judicata this doctrine does not apply in the present case. Necessary elements in res judicata: ▪ Must be a final judgment ▪ The court which rendered it had jurisdiction over the subject matter and the parties ▪ It must be a judgment on the merits ▪ There must be identity between the two cases as to parties, subject matter and cause of action. In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity of subject matter and cause of action. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at bar is the lease created under the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one thing; the lease constituted in 1982 by the compromise agreement is another.

DISPOSITIVE PORTION WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private respondent is hereby ordered to immediately vacate and return the possession of the leased premises subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the same. This judgment is immediately executory. _________________________________________________________________________________________________________ b. As to cause or origin i. potestative ii. casual Cause/origin of Conditional Obligations: CASUAL G.R. No. 107112, February 24, 1994 Naga Telephone Co., Inc. (NATELCO) vs. CA Nocon, J.

NATELCO entered into contract with CASURECO II for the use in operation of its telephone service, electric light posts of CASURECO II and in return, there will be free use of 10 telephone connections as long as NATELCO needs electric light posts. The contract will terminate when they are forced to stop, abandon operation and remove light posts. After 10 years, CASURECO files for reformation of contract with damages, not conforming to the guidelines of National Electrification Administration of reasonable compensation for use of posts. Compensation is worth P10, but the consumption of telephone cables costs P2630 NATELCO, who used 319, without the contract of P10 each, refused to pay. The latter barred by the prescription. SC rules that said contract eventually became unfair due to increase in volume of subscribers without increase of telephone connections which are free of charge to CASURECO. ARTICLE 1267 is applicable, since the contract is subject to a potestative condition, the agreement is void.

IMPORTANT PEOPLE Naga Telephone Co., Inc. (NATELCO), telephone company Camarines Sur II Electric Cooperative, Inc. (CASURECO II), electric power service corporation Atty. Maggay FACTS 1.

November 1, 1977. The parties entered into a contract for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent.

67

i. “For the use in operation of its telephone service, electric light posts of CASURECO II”. ii. In return, free use of 10 telephone connections. iii. Period: as long as NATELCO needs electric light posts, CASURECO understands that contract will terminate when they are forced to stop, abandon operation and remove light posts. 1. -

January 2, 1989. After the contract had been enforced for over ten (10) years, CASURECO II filed on with the Regional Trial Court of Naga City against petitioners for reformation of the contract with damages. Compensation is P10/posts but consumption of telephone cables costs P2630. NATELCO used 319 posts without any contract at P10.00; refused to pay. Poor servicing- damage not less than P100,000.

1. i. ii. iii. iv. v.

NATELCO’s Answer: No cause of action for reformation of contract. Barred by prescription (10 years execution of contract) Barred by estoppel. Utilization could not have cause deterioration because already used for 11 years. Value of expenses been equal to use of telephone lines.

1. Trial court ordered reformation of agreement: - NATELCO to pay for electric polls sum of P10/pole from January 1989. - Contract eventually became unfair due to increase in volume of subscribers without increase of telephone connections which are free of charge to CASURECO. - REFORMATION OF CONTACT: cannot make another contract but abolish inequities. - Contract does not mention use of posts outside Naga City. Contract should be reformed including provision that for the use posts outside Naga. 1.

2.

May 28, 1992. CA affirmed the decision of the trial court but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative condition which rendered said condition void. September 10, 1992. The motion for reconsideration was denied. Hence, this petition.

ISSUE with HOLDING 1. Is Article 1267 applicable? YES. Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n) Contract was one-sided unfair, and disadvantageous to plaintiff. 1. Has the filing of reformation of contract prescribed? NO. PRESCRIPTION HAS NOT YET LAPSED. What is reformed is not the contract itself, but the instrument embodying the contract. Whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for prescription of the action to reform. Article 1144. Action upon a written contract must be brought within 10 years from the time the right of action accrues. i. “From the time the right of action accrues” not necessarily the date of execution of the contract. ii. As correctly ruled by respondent court, private respondent's right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board of Directors to study said contract as it already appeared disadvantageous to (private respondent) in 1989. iii. 10 years had not yet elapsed.

68

1.

Is the period of contract, “as long as the party of the first part has need for electric light posts…” potestative? YES.

PERIOD OF CONTRACT IS POTESTATIVE, THUS INVALID. a. Leaves the continued effectivity of the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in operation b. Leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. DISPOSITIVE PORTION Petition denied. CA decision is affirmed. RELEVANCE TO THE LESSON Petitioners’ allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void.Based on this definition, respondent court’s finding that the provision in the contract, to wit: “(a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts of the party of the second part (private respondent) x x x.” is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit: “x x x it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light post (sic);” which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision. Nevertheless, in view of our discussions under the first and second issues raised by petitioners, there is no reason to set aside. _________________________________________________________________________________________________________ Art. 1182 (As to cause or origin) G.R. No. 4437 Osmena v Rama Sept 9, 1909 Johnson, J. Old case showing that if condition is based on the sole will of debtor, condition is voided and thus will take effect like a pure obligation. IMPORTANT PEOPLE Tomas Osmena as the plaintiff-appellee Cenona Rama as the accused-appellant FACTS 1.

Victoriano Osmena and the defendant executed a contract a) Rama from Cebu will pay Osmena 200 pesos for sugar in January or February of coming year at price ruling the day of delivery to warehouse at half cuartillo per month on each peso b) If not paid in full, a balance struck at end of each June with interest c) Will sell all the sugar harvested to Osmena as guarantee security of present and future property d) Special security the house with tile roof and ground floor of stone (where he lives)

69 2.

Defendant executed and delivered another: a) Asked for further loan and have received from Osmena received P 70 in cash, 50 loaned from Evaristo Penares (to be paid in sugar in month of January), 20 from Rama 3. Osmena died sometime after execution and delivery of aboved contracts. Contracts became property of heir Agustina Rafols then ceded it to plaintiff Tomas Osmena. 4. Plaintiff presented contracts to defendant for payment, Defendant acknowledged responsibility but didn’t pay amound due. 5. Action to CFI to pay the part of the defendant – Defendant’s defense: Prescription and denial. At CFI defendant didn’t offer any proof. CFI in favor of PLAINTIFF. CFI ruled that 50 of the 70 is not borrowed by defendant but by Evaristo Penares 6. SC appeal ISSUE with HOLDING 1. W/N proof adduced during trial not sufficient to support the findings of the Lower Court a) NO. It is sufficient thus CFI judgment affirmed b) Suggested that the acknowledgment of the indebtedness should be regarded as a condition (In the acknowledgment made by the defendant, she imposed the condition that she would pay the obligation if she sold her house) WHICH depended upon her EXCLUSIVE WILL thus void (Art 1115 CC; Art 1182 NCC). c) The acknowledgment therefore by Rama was an ABSOLUTE acknowledgment of obligation thus sufficient to prevent the statute of limitation from barring the action upon the original contract. DISPOSITIVE PORTION We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should be affirmed. So ordered. DOCTRINE Art 1115 CC; Art 1182 NCC – Conditions relying on sole will of the debtor or obligor is void. _________________________________________________________________________________________________________ As to cause or origin L-5267 Hermosa v Longara Labrador Epifanio Longara was claiming against the testate estate of Fernando Hermosa, Sr. on the basis that the latter asked for credit advances on condition that the latter’s property in Spain was sold and he receive money derived from the sale. The court ruled that this is a potestative and a casual condition since its fulfillment is dependent not only on the will of the debtor (he can decide when to sell), but the will of a third party (still dependent if anyone would buy). IMPORTANT PEOPLE Francisco Hermosa, Sr., Epifanio Longara, Luz Hermosa FACTS 1.

2.

He claims P2,341.41 representing credit advances made to the intestate from 1932-1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in Dec 1944. CA found that the intestate had asked for the said credit advances for himself and for the members of his family “on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain."

70 3.

CA held that payment of the advances did not become due until the administratrix (Luz Hermosa) received the sum of P20,000 from the buyer of the property.

ISSUE with HOLDING 1. W/N obligation contracted by the intestate was subject to a condition exclusively dependent upon the will of the debtor (a condicion potestativa) and therefore null and void a. Condition in question does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control. (mixed, depending partly upon the will of intestate and partly upon chance) b. Without such a buyer the sale could not be carried out or the proceeds thereof sent to the islands. c. the sale was not effected in the lifetime of the debtor (the intestate), but after his death and by his administrator, the very wife of the claimant. i. CA found no evidence to show that the claim was the product of a collusion or connivance between the administratrix and the claimant. d. As the obligation retroacts to the date when the contract was entered into, all amounts advanced from the time of the agreement became due, upon the happening of the suspensive condition. As the obligation to pay became due and demandable only when the house was sold and the proceeds received in the islands, the action to recover the same only accrued, within the meaning of the statute of limitations, on date the money became available here hence the action to recover the advances has not yet prescribed. e. Even if authorization to furnish necessaries to his grandson may have been given, this authorization could not be made to extend after his death, for two obvious reasons. i. First because the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support (article 150, old Civil Code), and ii. second because upon the death of a principal (the intestate in this case), his agent's authority or authorization is deemed terminated (article 1732, old Civil Code). DISPOSITIVE PORTION Judgment affirmed in so far as it approves the claims of appellee in the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. DISSENTS Paras: Concurring and dissenting: ● Concurs in reversing judgment allowing claim for P3,772, but dissents as it afirms the appealed jugment approving appellee’s other claims ● The condition to pay the advances was condicion potestiva and therefore null and void in accordance with art 1115 of the Civil Code because it is very obvious that the matter of the sale of the house rested on the sole will of the debtor ● Under the condition imposed by Fernando Hermosa, Sr., it is immaterial whether or not he had already decided to sell his house, since there is no pretence that acceptable conditions of the sale had been made the subject of an agreement, such that if such conditions presented themselves the debtor would be bound to proceed with the sale. ● As the condition above referred to is null and void, the debt resulting from the advances made to Fernando Hermosa, Sr. became either immediately demandable or payable within a term to be fixed by the court, but action has prescribed after the lapse of 10 years. ● Does not agree that it is a mixed condition because in the absence of any contract setting forth the minimum or maximum terms which would be acceptable to the debtor, nobody could legally compel Fernando Hermosa, Sr. to make any sale. _________________________________________________________________________________________________________ Mixed Conditional Obligations G.R. No. L-16109

71 Taylor vs. Uy Tieng Piao and Tan Liuan Street Taylor was contracted by Tan Liuan and Co to become the superintendent of the respondents’ oil factory. However, Taylor’s contract was subject to a stipulation which states that if the machinery for the proposed factory does not arrive within 6 months, then the employment contract can be cancelled. The machinery did not arrive, leading for the respondents to cancel the contract and for Taylor to file an action to recover damages. FACTS 1.

2.

3.

4. 5. 6.

On December 12, 1918, Taylor contracted his services to Tan Liuan and Co, the company of the respondents. The petitioner was hired to potentially become the superintendent of an oil factory. a. The period of the contract was for over 2 years with a salary of P600 per month in the 1st year and P700 per month during the second. In addition to this, he also received electric light and water for domestic consumption, and a residence to live in for P60 per month. However, the machinery for the contemplated factory had not been acquired, even though ten expellers had been ordered from the United States. The arrival of the machines is one of the stipulations inserted in the contract: a. “It is understood and agreed that should the machinery to be installed in the said factory fail, for any reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six months.” The machinery did not arrive in the city of Manila within the six months succeeding the making of the contract; nor was other equipment necessary for the establishment of the factory at any time provided by the defendants. a. The reason for this probably due to the fact that the defendants, in the first months of 1919, seeing that the oil business no longer promised large returns, either cancelled the order for the machinery from choice or were unable to supply the capital necessary to finance the project. This led for the respondents to avail of the option given in the clause, deciding to rescind the contract. Thus, the plaintiff thereupon instituted this action to recover damages in the amount of P13,000. However, the CFI only gave the plaintiff P300. Hence this appeal.

ISSUE with HOLDING 1. WON the contract can be cancelled due to the independent will of the defendant a. The plaintiff argues that the stipulation must be understood as applicable only in those cases where such nonarrival is due to causes that are not due to the will of the defendants (ie force majeur etc etc). i. In this connection the plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity and fulfilment of contracts cannot be left to the will of one of the contracting parties, and to article 1119, which says that a condition shall be deemed fulfilled if the obligor intentionally impedes its fulfilment. b. However, the language conferring the right of cancellation upon the defendants is broad enough to cover any case of the non-arrival of the machinery i. "for any reason” ii. Thus, the defendants had the right to cancel the contract in the contingency that occurred, unless some clear and sufficient reason can be adduced for limiting the operation of the words conferring the right of cancellation. c. The SC believes that Article 1256 of the Civil Code creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. i. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement.

72 d.

A condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the obligor. i. If it were apparent that the defendants were under a positive obligation to cause the machinery to arrive in Manila, they would of course be liable. The contract, however, expresses no such positive obligation, and its existence cannot be implied in the fact of stipulation, defining the conditions under which the defendants can cancel the contract.

DISPOSITIVE PORTION The judgment appealed from will be modified by declaring that the defendants shall pay to the plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified the judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of the Code of Civil Procedure, and with costs. So ordered. DOCTRINE A condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the obligor. _________________________________________________________________________________________________________ Conditional obligations; As to cause or origin; Mixed No. 16570 Smith, Bell & Co. vs Sotelo Matti Romualdez, J. Smith, Bell Co. entered into contract with Vicente Sotelo where the former agreed to sell certain items and the latter agreed to purchase. When the shipments arrived, Sotelo refused to pay as the items’ arrivals were late. The court held that the contract was conditional as it was dependent on the US gov’s regulations. The plaintiff did all in his power to deliver the items and so it they could not have been said to have incurred delay. With regard to the class syllabus, this conditional obligation is mixed, meaning it partly depended on the will of a party (plaintiff company) and partly on the chance or will of a stranger (US government). IMPORTANT PEOPLE Vicente Sotelo (defendant) Smith, Bell Co. (plaintiff, juridical person) FACTS 1. In August 1918, the plaintiff corporation and the defendant, Sotelo entered into contract where the plaintiff corporation sells and Sotelo purchases a. Two steel tanks for P21,000 total to be shipped from New York to Manila within three or four months b. Two expellers for P25,000 each to be shipped from San Francisco in the month of September 1918 or as soon as possible c. Two electric motors for P2,000 each with “approximate delivery within 90 days – This is not guaranteed” 2.

The tanks arrived on April 27, 1919, the expellers on October 26, 1918, and the motors

on February 27, 1919. 3. Plaintiff corporation notified defendant of the arrival, but the latter refused to receive them and pay the prices. For this, the plaintiff corporation brought suits against the defendant

73 4. In their Answer, the defendant and Intervenor Manila Oil Refining and By-products Co. (of which Sotelo was said to be a manager) denied the allegations of plaintiff. It alleged that the products were not in good condition, and that Mr. Sotelo had made the contracts as manager of the Intervenor and that it was only on May 1919 that the tanks had arrived, the motors and expellers having arrived incomplete and long after the date stipulated. It further alleged that it suffered damages in the sums of P116,783.91 and P21,250 due to the delay and non-delivery. 5. The court below absolved the defendants insofar as the tanks and motors were concerned, but ordered them to receive the expellers and pay the plaintiff P50,000 with legal interest for the item. 6.

Both parties appealed from this decision.

ISSUE with HOLDING 1. goods to Manila. YES.

WON, under the contract, the plaintiff has fulfilled, in due time, its obligation to bring the

There exists this clause as regards the tank: “To be delivered within 3 or 4 months. The promise or indication of shipment carries with it absolutely no obligation on our part the exigencies of requirements of the US government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill’s convenience, time of shipment being merely an indication of what we hope to accomplish.”

As for the expellers, there is this clause: “The following articles to be shipped at San Francisco within the month of September 1918 or as soon as possible” And in the contract of the motors: “Approximate delivery within 90 days. This is not guaranteed. This sale is subject to our being able to obtain Priority Certificate, subject to the US gov requirements and also subject to confirmation by manufacturers.” On all contracts, there is this clause: “The sellers are not responsible for the delays caused by fires, riots on land or on the sea, strikes or other causes known as Force Majeure entirely beyond the control of sellers or their representatives.” The reason these clauses were inserted was because the contracts were executed during the world war when transport was difficult, the US government being strict with transport and regulation during that time. Given these clauses, the Supreme Court concluded that the obligation must be regarded as conditional because the terms do not fix the date of arrival or whether the items would be brought to Manila or not. It was up to conditions set by US government. Hence, the fulfillment of the obligations were dependent on third persons who could not be compelled to fulfill the condition.

74 In cases like this, the obligors part is deemed to have been sufficiently performed if he has done all in his power even if the condition has not ben fulfilled in reality. In the case at hand, the plaintiff has sufficiently proven that it has made all the efforts it could possibly be expected to under the circumstances. “As soon as possible” does not necessitate that the seller must stop all his work to devote himself to that order. But he must act with reasonable diligence or without unreasonable delay. “Delivery within a reasonable time” depends on the circumstances attending the transaction such as the character and purpose of the goods, ability of seller to produce, facilities for transport, distance of transport, etc. The court holds that the plaintiff company brought the goods to Manila within a reasonable time and is therefore could not have incurred liabilities mentioned by intervenor. 2.

WON the Intervenor has right of action. NO.

Sotelo entered into contract in his individual capacity and in his own name. If he transacts in the name of a principle, he must state that fact in the contract. DISPOSITIVE PORTION Wherefore, the judgement appealed from is modified, and the defendant Mr. Vicente Sotelo Matti, is sentenced to accept and receive from the plaintiff the tanks, the expellers, and the motors in question, and to pay the plaintiff the sum of P96,000, with legal interest thereon from July 17, 1919, the date of the filing of complaint, until fully paid, and the cost of both instances. So ordered. DOCTRINE In conditional obligations, such as where it the fulfillment is dependent on the will of a third person who cannot be compelled to act, the obligors part is deemed to have been sufficiently performed if he has done all in his power even if the condition has not ben fulfilled in reality. A conditional obligation is mixed, if it partly depends on the will of a party and partly on the chance or will of the stranger. _________________________________________________________________________________________________________ Mixed Conditional Obligations G.R. No. L-70789 Rustan Pulp and Paper Mills vs. IAC Melo A paper mill started operations and executed a contract with a supplier with the condition that the paper mill has the right to stop accepting deliveries whenever the supply was sufficient. The paper mill exercised that right, but continued accepting periodic deliveries from other suppliers, leading for respondent Lluch to file a complaint.

FACTS 1. 2. 3. 4.

In 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lanao del Norte. March 20, 1967, respondent Lluch, who is a holder of a forest products license, gave a letter to petitioner Rustan asking to be its supplier of raw materials. This led to the execution of a contract on April 1968, where the respondent agreed to sell for a price of P30.00 per cubic meter of pulp wood raw materials. This contract included several stipulations including:

75 a.

5. 6. 7. 8.

“That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood concession. . . . And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER; b. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessarily provided, however, that the SELLER is given sufficient notice.” During the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which prompted the recommendation for the stoppage of deliveries. This led for Rustan to send a letter which informed suppliers to stop deliveries, including its main business partner Lluch, leading for the latter to file a complaint. On January 23, 1969, the court of origin dismissed the complaint but at the same time enjoined petitioners to respect the contract of sale Hence this appeal

ISSUE with HOLDING 1. WON the stoppage of deliveries was a proper exercise of the petitioner’s rights according to the contract’s stipulations considering that there is a glut of materials in the plant. a. No, the resumption of the contract, based on Rustan’s actions is purely dependent on the will of one party. They could always claim, as they did in the instant case, that they have more than sufficient supply of pulp wood, even if they are accepting materials from other firms. i. There is evidence on record that appellees have been accepting deliveries of pulp wood materials from other sources even after September 30, 1968. b. The contract suggests a condition solely dependent upon the petitioner’s exclusive will. A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfilment of an already existing obligation and not to its inception i. A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor. ii. However, the conclusion drawn from the Taylor case, which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila, is certainly inappropriate for application to the case at hand because the factual milieu in the legal tussle dissected by Justice Street conveys that the proviso relates to the birth of the undertaking and not to the fulfilment of an existing obligation. c. That fact that the petitioners continued accepting deliveries after the stoppage means that petitioners are estopped from claiming that the breakdown of the machinery line was an extraordinary obstacle to their compliance to the prestation d. DISPOSITIVE PORTION WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent Court. DOCTRINE A purely potestative imposition of this character should be obliterated from the contract without affecting the rest of the stipulations considering that the condition relates to the fulfilment of an already existing obligation and not to its inception.

76 _________________________________________________________________________________________________________ KINDS OF CONDITIONS - MIXED G.R. No. 107207 Romero vs. CA Vitug, J. Petitioner and respondent execute a Deed of Conditional Sale, the condition being that respondent uses petitioner’s Php 50K advance to evict squatters on the property. Respondent wins the ejectment case but files a petition for recission (she realizes she wants to keep the property), which the CA grants. Petitioner appeals to the SC and wins. IMPORTANT PEOPLE Virgilio Romero – petitioner; buyer Enriqueta Chua vda. de Ongsiong – private respondent; vendor FACTS 1. 2.

3. 4.

5.

1988: Petitioner and his partners decided to put up a warehouse in Metro Manila, making it known to several real estate brokers. Alfonso Flores and his wife, with a broker, offered petitioner a parcel of land measuring 1,952 sq.m. in Paranaque. It was covered by TCT No. 361402 in the name of respondent. ● Petitioner found the lot suitable except for the presence of squatters. Flores gave him an offer: if he made an advance of Php 50K (to be used in an ejectment case against the squatters), respondent would agree to sell the property for only Php 800 pero square meter. Petitioner agreed, and a Deed of Conditional Sale was executed between him and respondent. Following the agreement, respondent filed an ejectment case against the squatters in the said property with the MeTC of Paranaque. ● Judgment was rendered ordering them to vacate the premises. The MeTC later suspended the execution of the judgment to give the squatters time to relocate. ● However, this was already past the 60-day period for the eviction stipulated in the Deed of Conditional Sale between petitioner and respondent. Respondent then sought to return the Php 50K petitioner gave, saying she failed to evict the squatters, and she wants to retain the property. The deed of sale was nullified. ● Petitioner’s counsel then disagreed and said that Respondent then filed a petition for recission of the Deed of Conditional Sale, which was granted by the CA. Petitioner appealed.

ISSUE with HOLDING 1. W/N the vendor (R) may demand the recission of a contract of sale for a cause traceable to her own failure to evict squatters on the subject property within the contractually-stipulated period – No. ● A sale is at once perfected when a the seller obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another the buyer over which the latter agrees. o The title given to the contract by the parties is not as much significant as its substance. For example, a deed of sale, although stated as a deed of conditional sale, may be treated as absolute in nature, if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition (the eviction of the squatters). ● From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. o Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, which is to pay the balance of the purchase price.

77 Private respondent’s failure “to remove the squatters from the property” within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition under Art. 1545. This option clearly belongs to petitioner, not to private respondent, because he is the injured party. ● There was no potestative condition on the part of Ongsiong but a “mixed” condition “dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned.” DISPOSITIVE PORTION Petition granted. CA decision reversed and set aside. Petitioner is ordered to pay private respondent the balance of the purchase price, and respondent to execute a deed of sale in favor of petitioner. o

DOCTRINE Mixed condition _________________________________________________________________________________________________________ Kinds of Condition - As to Possibility - Impossible 198 SCRA 300 Roman Catholic Archbishop of Manila v Court of Appeals J. Regalado IMPORTANT PEOPLE Eusebio de Castro, Martina Rieta – Donor Roman Catholic Archbishop of Manila (RCAM) - donee FACTS 1.

2. 3. 4. 5.

In 1930, spouses Eusebio de Casto and Martina Rieta (now both deceased), executed a deed of donation in favor of the Roman Catholic Archbishop of Manila (RCAM) covering a parcel of land, with an area of 964 sq meters, in Kawit, Cavite. a. The deed of donation had a condition: the donee shall not dispose/sell the property for a period of 100 years from the execution of the deed of donation. Violation thereof will render the contract null and void and would revert the property to the estate of the donors. In 1980, the Bishop of Imus, who administered all properties of RCAM in Cavite, sold the property to spouses Ignao for P114,000. Respondents, representing the deceased couple De Castro and Rieta, filed a complaint for nullification of deed of donation, rescission of contract and reconveyance of real property with damages against spouses Ignao. The Ignaos and RCAM both filed a motion to dismiss saying that the respondents have no cause of action, no legal capacity to sue, that the complaint states no cause of action and that the cause of action has prescribed. RTC dismissed the respondents’ complaint. Respondents appealed to CA and rendered a decision in their favor. Ignaos and RCAM filed MRs but was denied by the CA.

ISSUE with HOLDING 1. W/N the respondents’ cause of action has already prescribed. NO. a. Petitioners’ claim: Acc. to Art. 764 of the CC, an action for revocation of a donation must be brought within 4 years from the non-compliance of the conditions. b. SC: Art. 764 does not apply as the deed of donation expressly provides for automatic reversion in case the condition is violated. Judicial action for rescission is not necessary if the contract already provides that it will be revoked once its conditions are violated. SC can only step in if there is an absence of a special provision granting the power of cancellation. i. De Luna v. Abrigo: there is no need for a judicial declaration of revocation of donation if the agreement has a stipulation granting a party the right to rescind a contract unilaterally in case of breach

78

2.

ii. Art. 1306 provides that parties are authorized to establish conditions not contrary to law, morals, good customs, public order, public policy. Automatic revocation of a deed of donation, without judicial action, is valid. iii. Art. 1144 (1) should be applied – an action to enforce a written contract prescribes in 10 years. In this case, it has only been a little over 4 years when the respondents filed the complaint. W/N the respondents have a cause of action. NO. a. Respondents’ claim: cause of action is based on the resolutory condition (don’t sell it until after 100 years) in the deed of donation. b. SC: The condition is an undue restriction on the rights arising from the ownership of the petitioners and is contrary to public policy. i. Donation – transfers the property from donor to donee and thus, the donee becomes the absolute owner of the property. The donor may impose conditions as long as they are not contrary to law, morals, good customs, public policy, public order (see Art. 1306). ii. Prohibition against alienation must not be for an unreasonable period of time. Art 494 allows prohibition against partition for 20 years. Art 870 declares that stipulations declaring the estate inalienable for more than 20 years are void. iii. The prohibition against alienation of the property for 100 years is an impossible condition under Art. 727.

DISPOSITIVE PORTION Judgement of respondent court is set aside. Case dismissed. DOCTRINE Art 494 allows prohibition against partition for 20 years. Art 870 declares that stipulations declaring the estate inalienable for more than 20 years are void. Art. 727 states that impossible conditions are considered as not imposed.