1d Case Digests Arts1156-1178

1-D OBLIGATIONS AND CONTRACTS CASE DIGESTS ARTICLES 1156 TO 1178

ANG YU V. CA December 02, 1994 Topic: Elements

FACTS: Petitioner Ang Yu Asuncion and Keh Tiong leased a property of respondents Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan in Binondo Manila. Respondents informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same. Respondents 6M for the property but petitioners offered 5M. Respondents acceted and asked petitioners to put in writing the terms and conditions but the latter never provided such. When defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. Court recognizes the right of first refusal of the petitioner. Notwithstanding the court’s decision, respondent sold the property to Buen Realty and Development Corporation. ISSUE: Whether or not petitioners can demand specific performance to the respondents to sell to them the property. HELD: An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subjectpersons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects. The petitioners never accepted the offer when they refused to make the terms and condition of the sale. As such, respondents has the right to sell the property to other parties. Even if petitioners are aggrieved by the failure of private respondents to honor the right of first 1

refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose

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PAGUIO v PLDT December 03, 2002 Topics: Arts. 19 & 21 FACTS: Petitioner Alfredo Paguio was appointed Head of PLDT’s Garnet Exchange. The PLDT implemented the Greater Metro Manila Network Performance Assessment program covering 27 exchanges of the 5 centers. Petitioner wrote the respondent, complaining that the rating and ranking of the Exchanges were unfair. Respondent furnished petitioner with a blank assessment sheet with instruction to rate his own performance. Petitioner gave himself an “outstanding” rating with a total statistical points of 976 based on Garnet’s performance, but respondent Santos reduced it to 958, in turn lowering Garnet’s rank to number four. The respondent issued a memorandum reassigning petitioner to a position in the Office of the GMM East Center Head for Special Assignments. The reassignment was based on the respondent’s well founded conclusion that the petitioner is not a team player and cannot accept the decisions of management. As a result, petitioner filed a complaint for illegal demotion and damages against respondents. ISSUE: Whether or not the reassignment of the petitioner, Paguio, was valid. HELD: NO. According to NLRC, the petitioner’s transfer was not justified by the circumstances. It noted that petitioner was well intentioned in criticizing the management of the company and that even as he criticized the management decisions, petitioner nevertheless complied with them. Under Art. 21 of the Civil Code, any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The illegal transfer of petitioner to a functionless office was clearly an abuse by respondent PLDT of its right to control the structure of its organization. Petitioner is entitled to an award of moral damages as he suffered anxiety, sleepless nights, besmirched reputation and social humiliation by reason of the act complained of.

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SOLEDAD CARPIO VS LEONORA A. VALMONTE September 9, 2004 Topic: Arts. 19&21 FACTS: Respondent Leonora Valmonte is a wedding coordinator. Michelle del Rosario and Jon Sierra engaged her services for their church wedding. Valmonte went to the Manila Hotel where the bride and her family were billeted. When she arrived, several persons were already there including the bride, the bride’s parents and relatives, the make-up artist and his assistant, the official photographers, and the fashion designer. Among those present was petitioner Soledad Carpio, an aunt of the bride who was preparing to dress up for the occasion. Petitioner then ordered one of the ladies to search Valmonte’s bag. It turned out that after Valmonte left the room to attend to her duties, petitioner discovered that the pieces of jewellery which she placed inside the comfort room in a paper bag were lost. Valmonte was allegedly bodily searched, interrogated and trailed by a security guard throughout the evening. Valmonte was being interrogated by the police officers, petitioner kept on saying the words Siya lang ang lumabas ng kwarto. Valmonte’s car which was parked at the hotel premises was also searched but the search yielded nothing. 20 February 1997, Valmonte filed a suit for damages against her before the Regional Trial Court (RTC) of Pasig City, Branch 268. In her complaint, Valmonte prayed that petitioner be ordered to pay actual, moral and exemplary damages, as well as attorney’s fees. ISSUE: WON respondent Valmonte is entitled to damages HELD: Yes! In the sphere of our law on human relations, the victim of a wrongful act or omission, whether done wilfully or negligently, is not left without any remedy or recourse to obtain relief for the damage or injury he sustained. Incorporated into our civil law are not only principles of equity but also universal moral precepts which are designed to indicate certain norms that spring from the fountain of good conscience and which are meant to serve as guides for human conduct. First of these fundamental precepts is the principle commonly known as abuse of rights under Article 19 of the Civil Code. To find the existence of an abuse of right, the following elements must be present: (1) there is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent or prejudicing or injuring another. When a right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable. One is not allowed to exercise his right in a manner which would cause unnecessary prejudice to another or if he would thereby offend morals or good customs. Thus, a person should be protected only when he acts in the legitimate exercise of his right, that is when he acts with prudence and good faith; but not when he acts with negligence or abuse. Complementing the principle of abuse of rights are the provisions of Articles 20 and 21 of the Civil Code. 4

In the case at bar, petitioners verbal reproach against respondent was certainly uncalled for considering that by her own account nobody knew that she brought such kind and amount of jewellery inside the paper bag. This being the case, she had no right to attack respondent with her innuendos which were not merely inquisitive but out rightly accusatory. By openly accusing respondent as the only person who went out of the room before the loss of the jewellery in the presence of all the guests therein, and ordering that she be immediately bodily searched, petitioner virtually branded respondent as the thief. True, petitioner had the right to ascertain the identity of the malefactor, but to malign respondent without an iota of proof that she was the one who actually stole the jewellery is an act which, by any standard or principle of law is impermissible. Petitioner had wilfully caused injury to respondent in a manner which is contrary to morals and good customs. Her firmness and resolve to find her missing jewellery cannot justify her acts toward respondent.

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REGINO VS PANGASINAN COLLEGES November 18, 2004 Topic: Arts. 19&21

FACTS: Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science and Technology (PCST). During the second semester of school year 2001-2002, she enrolled in logic and statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers.

In February 2002, PCST held a fund raising campaign dubbed the Rave Party and Dance Revolution, the proceeds of which were to go to the construction of the schools tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final examinations.

Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking the tests. According to petitioner, Gamurot made her sit out her logic class while her classmates were taking their examinations. The next day, Baladad, after announcing to the entire class that she was not permitting petitioner and another student to take their statistics examinations for failing to pay for their tickets, allegedly ejected them from the classroom. Petitioners pleas ostensibly went unheeded by Gamurot and Baladad, who unrelentingly defended their positions as compliance with PCSTs policy.

ISSUE: Whether or not Respondent Colleges abused its right by not permitting Petitioner to take the Final Exams

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HELD: Yes. Private respondents inhumanly punish students x x x by reason only of their poverty, religious practice or lowly station in life, which inculcated upon [petitioner] the feelings of guilt, disgrace and unworthiness; as a result of such punishment, she was allegedly unable to finish any of her subjects for the second semester of that school year and had to lag behind in her studies by a full year. The acts of respondents supposedly caused her extreme humiliation, mental agony and demoralization of unimaginable proportions in violation of Articles 19, 21 and 26 of the Civil Code.

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NIKKO HOTEL MANILA GARDEN and RUBY LIM vs. ROBERTO REYES, a.k.a. "AMAY BISAYA" February 28, 2005 Topics: Arts. 19 & 21 FACTS: This is a petition for review on certiorari of the resolution and the decision of the Court of Appeals whereby making the petitioners liable for moral and exemplary damages. Roberto Reyes, aka “Amay Bisaya”, was at the lobby of the Nikko Hotel Manila Garden when a friend saw him and allegedly invited him to the party. He carried the basket full of fruits being carried by his friend while they were going up the penthouse of the hotel where the party was being held. When the coordinator, Ms. Ruby Lim, saw him, she asked him to just leave the place after eating as he was not invited but he did not. Instead, he shouted at the coordinator. His version was that, in a loud voice, the coordinator shouted at him telling him to leave. He refused as he was allegedly invited by one of the guests who later on denied having invited him. Instead, the guest testified that he carried the basket but warned him not to join as he was not invited, but still he went into the place. He sued the hotel, the coordinator and the guest for damages. The RTC dismissed the complaint due to lack of cause of action. The Court of Appeals reversed, holding that the manner he was asked to leave exposed him to ridicule, thus, held the defendants liable for damages. They appealed, contending that pursuant to the doctrine of volenti non fit injuria, they cannot be made liable for damages as he assumed the risk of being asked to leave and being embarrassed and humiliated in the process, as he was a gate-crasher. ISSUE: Whether or not the coordinator acted abusively in asking Roberto Reyes, a.k.a. “Amay Bisaya,” to leave the party where he was not invited by the celebrant, thus, becoming liable under Articles 19 and 21 of the Civil Code. HELD: NO. The coordinator is not liable under Articles 19 and 21 of the Civil Code and was deemed to have acted within the bounds of propriety and good faith. Upon careful scrutiny of the multiple versions of the incident, it was ruled that it is unlikely to happen that the coordinator exposed him to ridicule and shame because admittedly, Amay Bisaya stated that she was close enough for them to kiss when she asked him to leave the party. This suggests that it was her intention that only he heard what she had to say. It was his reaction to the request that must have made the other guests aware of what had transpired between them. The doctrine of volenti non fit injuria (“to which a person assents is not esteemed in law as injury”) refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not 8

negligent in doing so. This doctrine does not find application to the case at bar because even if Reyes assumed the risk of being asked to leave the party, the defendants, under Articles 19 and 21 of the New Civil Code, were still under obligation to treat him fairly in order not to expose him to unnecessary ridicule and shame. The petition was thus granted and the Decision of the Court of Appeals reversed and set aside. The coordinator did not abuse her right in asking Reyes to leave the party to which he was not invited, hence, he cannot be made liable under Articles 19 and 21 of the New Civil Code. The employer cannot likewise be liable.

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SAGRADA ORDEN DE PREDICADORES DEL SANTISIMO ROSARIO DE FILIPINAS VS NATIONAL COCONUT CORPORATION June 30, 1952 Topic: Sources of Obligations FACTS: The case is an action to recover possession of a piece of real property, a land with warehouses, situated in Pandacan, Manila, and the rentals for its occupation and use. The land belongs to the plaintiff Sagrada Orden, in whose name the title was registered before the war. During the Japanese occupation, the land was acquired by Taiwan Tekkosho, a Japanese corporation, for P140,000. After the liberation from the Japanese forces, the Alien Property Custodian of the USA took possession, control and custody by reason that it belonged to an enemy national, pursuant to section 12 of the Trading with the Enemy Act. Under a custodianship agreement with the US Alien Property Custodian, the property was occupied by Copra Export Management Company. When the property was vacated, herein defendant NACOCO occupied it after representations were made with the Office of the US Alien Property Custodian, by virtue of such representation the defendant was authorized to repair the warehouse on the land. The defendant leased 1/3 of the property in 1948 to Dioscoro Sarile at a monthly rental of P500, then later P1,000, but he was not able to pay such. The plaintiff made an action to recover the land before the Alien Property Custodian, but the action was denied. The plaintiff then elevated the action to court, with the subsequent ruling that, among other things, the plaintiff would have a right to recover from the defendants rentals for its occupation and use of the premises. The court also ruled therein for the cancellation of the title given to Taiwan Tekkosho there being threats, duress and intimidation in its execution, as well as cancellation of all interests and rights of the Alien Property Custodian; and an ultimatum set for NACOCO until it may be ejected from the property. ISSUE: Whether or not the plaintiff may recover such amounts from the defendant by virtue of its use and occupation of the premises. HELD: NO. The defendant-appellant is not liable for the value of such use and occupation. If he would be liable at all, its obligations must arise from any of the four sources of obligations (law, contract or quasi-contract, crime or negligence). The defendant entered the premises and occupied it with the permission of the Alien Property Administration, which had the legal control and administration thereof by express provision of law. The occupation was without any negligence on the part of the defendant.

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Another ground which would justify why claims for rentals cannot be made is because there was no express agreement between the Alien Property Custodian and the defendant-appellant for such. The existence of an implied agreement to that effect is contrary to the circumstances.

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INTESTATE ESTATE OF THE LATE RICARDO PRESBITERIO VS COURT OF APPEALS January 21, 1993 Topic: Sources of Obligations FACTS: On 19 August 1981, Ricardo Presbitero, Sr. entered into two (2) written contracts with private respondent Leonardo Cañoso. In the first, Presbitero retained the services of the later to negotiate with the Land Bank of the Philippines (LBP) and the Ministry of Agrarian Reform (MAR) for the saleof Hacienda Maria, owned by the former. The hacienda had been placed under Operation Land Transfer pursuant to Presidential Decree No. 27. The private respondent bound himself "to finish the processing and submission of documents with in (sic) the period of One hundred (sic) Twenty Days (120 days) to Manila, by the Land Bank of the Philippines and Ministry of Agrarian Reform Cotabato City and shall be subjected to the delay of the approval of the DBP additional loan negotiated by RICARDO P. PRESBITERO in Bacolod City . . . ." In the second contract, denominated as a "Contract of Service," 4 Presbitero bound himself to compensate the private respondent "for his efforts, services and other related expenses in making the necessary follow up (sic) of the preparation, production of pertinent documents required," and "to effect the recovery of the proceed (sic) of the land transfer payment from the Land Bank of the Philippines," in an amount equivalent to "Twenty Five per cent (25%) of the gross total sales of my properties described above which is (sic) subject of Operation Land Transfer."-- a third agreement was entered into with the private respondent in Bacolod City under which the latter's original fee of 25% was reduced to 17 1/2%. When his claim was finally approved, Presbitero sent two (2) letters to the LBP concerning the release of a part of the proceeds to the private respondent. The first letter, dated 16 May 1983 and addressed to the LBP President, 5requested that the "amount equivalent to Seventeen and One Half (17 1/2%) per cent be released in the name of Leonardo Cañoso, proportionate to (sic) cash and Land Bank Bonds, on every releases (sic) until the final release of the claim." The second, dated 14 June 1983, 6 made reference to the LBP's letter of 6 June 1983 and requested that he (Presbitero) be notified in writing upon receipt; the latter also informed the LBP that he will "personally release the cash and bonds to Mr. Cañoso due to advances made by him during the processing of the documents." However, when a part of the proceeds was released, the private respondent was not given his share as agreed upon. Hence, the latter filed a complaint against Presbitero. On 18 April 1988, the trial court handed down a decision in favor of the private respondent. Which was appealed to CA. In its decision, 12 respondent Court modified the decision appealed from by reducing the principal award to the private respondent from 25% to 17 1/2% of the amount to be collected by Presbitero from the LBP. ISSUE: Whether or not the respondent committed a breach of his obligation HELD: NO. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Unless the stipulations in a contract are 12

contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties. In this case, the contracts entered into by the parties were valid contracts. The two (2) complementary instruments gave rise to reciprocal obligations which are defined as those that arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. In the interpretation of contracts, it is the general rule that if the terms thereof are clear as to the intention of the contracting parties, the literal meaning of the stipulations shall control. Furthermore, subsequent or contemporaneous acts of the contracting parties shall be considered in judging their intention. And even if We are to assume that the private respondent breached the agreement by not fully accomplishing his obligation within the stipulated period, said breach was not of a nature which would justify a rescission of the contract, that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement; the question of whether a breach of contract is substantial depends upon the attending circumstances. In the case at bar, no substantial breach was committed by the private respondent sufficient enough to warrant a rescission.

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MMTC VS COURT OF APPEALS August 1, 2002 Topic: Sources of Obligations FACTS: On December 24, 1986, Florentina Sabalburo along with her companions were on their way to Baclaran to buy food for their Noche Buena. While crossing the street, the victims were hit by a passenger bus driven by Apolinario Ajoc and owned by petitioner Metro Manila Transit Corporation (MMTC). The victims were taken to the hospital and were given medical attention, but Florentina Sabalburo never recovered and died. Private respondents filed a complaint for damages alleging that Ajoc had driven in a wanton and reckless manner which caused the untimely death of the victim. Petitioners denied the complaint and contended that it was the victim’s negligence that caused her own death for she darted across the road despite the green light traffic sign. Furthermore, they presented their recruitment guidelines and company policies on safety as a defense that there was no negligence on their part. The trial court ruled in favor of the private respondents and ordered herein petitioner and driver Ajoc to jointly and severally pay private respondents for damages (solidarily liable). Petitioner MMTC claimed that it should not be held vicariously liable for it has observed diligence in the selection and supervision of its drivers, particularly with regard to safety measures which can be inferred from their company policies and Ajoc's act of bringing the victim to the hospital. ISSUE: Whether or not petitioner MMTC should be held solidarily liable for a quasi-delict committed by its employee? HELD: YES. Under Article 2180 of the Civil Code, “[t]he obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible… [e]mployers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.” The Court stated that “whenever an employee's negligence causes damage or injury to another, there instantly arises a presumption juris tantum that there was negligence on the part of the employer, either in the selection of the employee (culpa in eligiendo) or the supervision over him after the selection (culpa in vigilando). Hence, to escape solidary liability for a quasi-delict committed by his employee, an employer must rebut the presumption by presenting convincing proof that in the selection and supervision of his employee, he has exercised the care and diligence of a good father of a family.” 14

In the case at bar, the Court ruled that mere showing of recruitment guidelines and company policies for safety were not sufficient to exempt MMTC from the liability arising from the negligence of its employee. There must be satisfactory showing that MMTC followed these guidelines in order to disprove the presumption of negligence on its part.

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MAKATI STOCK EXCHANGE, INC. VS MIGUEL CAMPOS April 26, 2009 Topic: Sources of Obligations FACTS: SEC Case No. 02-94-4678 was instituted on February 10, 1194 by respondent Miguel V. Campos with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC), a petition against Makati Stock Exchange, Inc. (MKSE). The petition sought to: 1. Nullify Resolution dated June 3, 1993 of the MKSE Board of Directors, which allegedly deprived him of his right to participate equally in the allocation of the Initial Public Offerings (IPO) of corporations registered with MKSE 2. Deliver the IPO shares he was allegedly deprived of, for which he would pay the IPO prices 3. Pay 2 million pesos as moral damages, 1 million pesos as exemplary damages and 500,000 as attorney’s fees and litigation expenses. The SICD issued an order granting respondent’s petition for issuance of TRO to enjoin petitioners from implementing the resolution of the MKSE Board of Directors. On March 11, 1994 petitioner’s filed a motion to dismiss on the grounds that petition became moot and academic due to cancellation of MKSE license, SICD had no jurisdiction and petition failed to state cause of action. The SICD denied the motion to dismiss. Petitioners challenged order of the SICD before the SEC en banc through petition for certiorari. The SEC en banc nullified the order of the SICD and dismissed respondent’s petition before the SICD. The respondent filed a petition for Certiorari with the Court of Appeals and was granted. Petitioners filed a motion for reconsideration but were denied. Thus, Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP No. 38455 was brought to the Supreme Court for resolution. ISSUE: Whether or not the petition of the respondent, Miguel V. Campos, failed to state a cause of action. HELD: The respondent’s Petition in SEC Case No. 02-94-4678 should be dismissed for failure to state a cause of action. It does not matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting itself to the issue of whether respondent’s Petition before the SICD sufficiently stated a cause of action. The SEC en banc may have been mistaken in considering extraneous evidence in granting petitioners’ Motion to Dismiss, but its discussion thereof are merely superfluous and obiter dictum. In the main, the 16

SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for respondent’s alleged right, to wit: Private respondent Campos has failed to establish the basis or authority for his alleged right to participate equally in the IPO allocations of the Exchange. He cited paragraph 11 of the amended articles of incorporation of the Exchange in support of his position but a careful reading of the said provision shows nothing therein that would bear out his claim. The provision merely created the position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the occupant thereof the right to receive IPO allocations.

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THE METROPOLITAN BANK AND TRUST COMPANY vs. ANA GRACE ROSALES AND YO YUK TO January 13, 2014 Topic: Sources of Obligations FACTS: In 2000, respondents Ana Grace Rosales and Yo Yuk To opened a Joint Peso Account with petitioner Metropolitan Bank and Trust Company's Pritil-Tondo Branch. In May 2002, respondent Rosales accompanied her client Liu Chiu Fang to petitioner’s branch in Escolta to open a savings account. Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her. Respondents then opened a Joint Dollar Account. On July 2003, the petitioner bank issued a "Hold Out" order against respondents’ accounts and filed a criminal case of estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents against Rosales. Petitioner accused respondent Rosales as the one responsible for the unauthorized and fraudulent withdrawal of from Liu Chiu Fang’s dollar account. On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of probable cause. On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint44 for Breach of Obligation and Contract with Damages. Respondents assailed the validity of the "Hold Out" status issued by the respondent bank on their accounts. Respondents alleged that they attempted several times to withdraw their deposits but were unable to because petitioner had placed their accounts under "Hold Out" status. No explanation, however, was given by petitioner as to why it issued the "Hold Out" order. On the other hand, petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out" order which is due to the fraudulent scheme employed by respondent Rosales. While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution reversing the dismissal of the criminal complaint. An Information was then filed charging respondent Rosales with Estafa before the RTC of Manila. The RTC rendered a Decision finding petitioner liable for damages for breach of contract. It ruled that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal of a bank deposit is an act of demand by the creditor. Aggrieved, petitioner appealed to the CA. The CA then affirmed the ruling of the RTC. Petitioner sought reconsideration but the same was denied by the CA. Hence, this petition. 18

ISSUES: a.) Whether petitioner breached its contract with respondents b.) Whether petitioner is liable for damages HELD: a.) Yes. Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement for Deposit Account. However, the court held that Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced. The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasicontract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant case. In view of the foregoing, the court find that petitioner is guilty of breach of contract when it unjustifiably refused to release respondents’ deposit despite demand. b.) Yes. Having breached its contract with respondents, petitioner is liable for damages. In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations." In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner issued the order in bad faith. The court find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner when it refused to release the deposits of respondents without any legal basis.

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GEORGE BACHELDER VS THE CENTRAL BANK OF THE PHILIPPINES March 29, 1972 Topic: Article 1158 FACTS: Monetary Board Resolution No. 857 requires Filipino and American resident contractors for constructions in U.S. military bases in the Philippines to surrender to the Central Bank their dollar earnings under their respective contracts but were entitled to utilize 90% of their surrendered dollars for importation at the preferred rate of commodities for use within or outside said U.S. military bases. Resolution 695 moreover, denies their right to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange the sold or surrendered earnings to Central Bank for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions or not. George Batchelder, an American Citizen permanently residing in the Philippines who is engaged in the Construction Business, surrendered to the Central Bank his dollar earnings amounting to U.S. $199,966.00. He compels Central Bank of the Philippines to resell to him$170,210.60 at the preferred rate of exchange of two Philippine pesos for one American dollar, more specifically P2.00375 which was denied by the court. He then contended that said decision failed to consider that if there was no contract obligating the bank to resell to him at the preferred rate, the judgment of the lower court can and should nevertheless be sustained on the basis of there being such an obligation arising from law. ISSUE: Whether or not Central Bank has the obligation arising from law to resell theUS$154,094.56 to Batchelder at the preferred rate? HELD: The Supreme Court ruled in the negative. As set forth in such pleading: "We contend that Monetary Board Resolution No. 857, dated June 17, 1960, as amended by Monetary Board Resolution No. 695, dated April 28, 1961, does not give right to Filipino and resident American contractors undertaking construction projects in U.S. military bases to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange sold or surrendered to defendant Central Bank thru the authorized agent banks. Nor does said resolution serve as a general authorization or license granted by the Central Bank to utilize the ninety per cent (90%) of their dollar earnings. M.B. Resolution No. 857, as amended, merely laid down a general policy on the utilization of the dollar earnings of Filipino and resident American contractors undertaking projects in U.S. military bases, ... ."Further, there is this equally relevant portion in such motion to dismiss: "It is clear from the aforecited provisions of said memorandum that not all imports against proceeds of contracts entered into prior to April 25, 1960 are entitled to the preferred buying rate of 20

exchange. Only imports against proceeds of contracts entered into prior to April 25, 1960, not otherwise classified as dollar-to-dollar transactions, are entitled to the preferred rate of exchange. It is for this reason that the contractor is required to first file an application with defendant Central Bank (Import Department) thru the Authorized Agent Banks, for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions (which are not entitled to the preferred rate of exchange), or not (which are entitled to the preferred rate of exchange), and that if said imports are entitled to the preferred rate of exchange, defendant Central Bank would issue a license to the contractor for authority to buy foreign exchange at the preferred rate for the payment of said imports." Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could assert a right in accordance not with a contract binding on the Central Bank, because there is none, but by virtue of compliance with rules and regulations of an administrative tribunal, then perhaps a different outcome would have been justified.

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ARTURO PELAYO VS MARCELO LAURON January 12, 1909 Topic: Article 1158 FACTS: Oct. 13, 1906, nighttime – Arturo Pelayo, a physician based in Cebu, was called to the house of Marcelo Lauron & Juana Abella (defendants) in San Nicolas. Their daughter-in-law was about to give birth & they requested him to render medical assistance. Since it was a difficult birth, he had to perform a surgery to remove the fetus using forceps. He also removed the afterbirth. He finished all of these until the following morning. He visited the patient several times the following day. Just & equitable value for the services he rendered: P500.00. Without any good reason, defendants refused to pay said amount. Thus he filed a case praying for a judgment in his favor against defendants for the sum of P500.00 + costs along with other relief that may be deemed proper. The Defendants alleged that their daughter-in-law died in consequence of the childbirth. Also, that their son & daughter-in-law lived independently & her giving birth in their house was only accidental. They prayed that they be absolved. CFI: Defendants absolved due to lack of sufficient evidence to establish right of action. ISSUE: WON the defendants are bound to pay the bill for the services Pelayo has rendered. HELD: NO. CFI judgment affirmed. Rendering of medical assistance in case of illness is among the mutual obligations to which spouses are bound by way of mutual support. (Arts. 142 & 143, CC) The party bound to give support should therefore be liable for all the expenses including the fees of the physician. Thus, it is the husband’s obligation to pay Pelayo and not the defendants. The husband would still be liable even if his parents were the one who called & requested for Pelayo’s assistance. The defendants are not under any obligation to pay the fees claimed (An obligation according to CC Art. 1089 is created by law, contracts, quasi-contracts, & by illicit acts & omissions or by those in which any kind of fault/negligence occurs.). There was no contract between Pelayo & the defendants thus they can’t be compelled to pay him.

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RODOLFO MORLA vs. CORAZON NISPEROS BELMONTE, et al. December 7, 2011 Topic: Art. 1159 – Obligations arising from contracts have the force of law. FACTS: Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original homesteaders of a public land known and identified as Lot No. 4353 of Pls. 62, by virtue of Original Certificate of Title (OCT) No. P-1542. The Nisperos spouses executed a Partial Deed of Absolute Sale, wherein they sold a portion of Lot No. 4353 (subject land) to the brothers Ramon and Rodolfo Morla (the Morla brothers). The Morla brothers acknowledged and confirmed in writing (the 1988 contract) that they had bought from the Nisperos spouses the subject land, and that they had agreed to give the Nisperos spouses a period of ten (10) years within which to repurchase the subject land for the price of Two Hundred Seventy-Five Thousand Pesos (₱275,000.00). Thereafter the Nisperos spouses filed a Complaint for Repurchase and/or Recovery of Ownership Plus Damages against the Morla brothers. They alleged that the deed of sale was registered by the Morla brothers only when they had signified their intention to repurchase their property. In response, the Morla brothers claimed that the Nisperos spouses had no cause of action, as the repurchase of the subject land was improper for being outside the five-year period provided under Section 119 of Commonwealth Act No. 141. ISSUE: Whether or not the repurchase of the Nisperos spouses of the land sold to the Morla brothers within a period of ten (10) years was valid. HELD: Yes. The Court is in full accord with the clear findings and apt ruling of the lower courts. Nowhere in Commonwealth Act No. 141 does it say that the right to repurchase under Section 119 thereof could not be extended by mutual agreement of the parties involved. Neither would extending the period in Section 119 be against public policy as the evident purpose of the Public Land Act, especially the provisions thereof in relation to homesteads, is to conserve ownership of lands acquired as homesteads in the homesteader or his heirs. What cannot be bartered away is the homesteaders right to repurchase the homestead within five years from its conveyance, as this is what public policy by law seeks to preserve. This, in the Court’s opinion, is the only logical meaning to be given to the law, which must be liberally construed in order to carry out its purpose. Petitioner does not dispute that the 1988 contract was executed freely and willingly between him and his late brother, and the Nisperos spouses. The freedom of contract is both a constitutional and statutory right, and 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 23

customs, public order, or public policy. The 1988 contract neither shortens the period provided under Section 119 nor does away with it. Instead, it gives the Nisperos spouses more time to reacquire the land that the State gratuitously gave them. The 1988 contract therefore is not contrary to law; instead it is merely in keeping with the purpose of the homestead law. Since the 1988 contract is valid, it should be given full force and effect. In Roxas v. De Zuzuarregui, Jr., the Court held: It is basic that a contract is the law between the parties. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Unless the stipulations in a contract are contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties. Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his obligation under it, simply because he changed his mind. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in good faith. Since the right to repurchase was exercised by the Nisperos spouses before the expiration of the time given to them by the Morla brothers, the lower courts correctly ruled in their favor.

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FAUSTO BARREDO v. SEVERINO GARCIA and TIMOTEA ALMARIO. 08 July 1942 Topic: Article 1159 FACTS: In the morning of 03 May 1936, the taxi cab driven by Pedro Fontanilla and a carratela guided by Pedro Dimapilis had a head-on collision, and as a result, one of the passengers of the carratela, Faustino Garcia, suffered injuries from which cause his death. A criminal action was filed against Fontanilla, and was later on convicted. Severino Garcia and Timotea Almario, parents of the deceased, brought an action to court against Fausto Barredo, being the sole proprietor of the taxi franchise and employer of Fontanilla. ISSUE: Whether or not plaintiffs may bring a separate civil action against Barredo, making him, therefore, primarily and directly responsible under Article 1903 of the Civil Code. HELD: Yes. The Court affirmed the decision of the Court of Appeals which ruled that the liability sought to be imposed upon Barredo in this action is not a civil obligation arising from a felony, but an obligation imposed in Article 1903 of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee. A quasi-delict or culpa aquiliana is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this principle, and on the spirit of Article 1903 of the Civil Code, the primary and direct responsibility of employers may be safely anchored.

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FGU INSURANCE CORPORATION VS. G.P. SARMIENTO TRUCKING CORPORATION August 6, 2002 Topic: Culpa Contractual FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on June 18, 1994, 30 units of Condura S.D. white refrigerators aboard its Isuzu truck driven by Lambert Eroles, to the Central Luzon Appliances in Dagupan City. While traversing the North Diversion Road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU, an insurer of the shipment, paid the value of the covered cargoes (P204,450.00) to Concepcion Industries, Inc.,. Being subrogee of CII’s rights & interests, FGU, in turn, sought reimbursement from GPS. Since GPS failed to heed the claim, FGU filed a complaint for damages & breach of contract of carriage against GPS and Eroles with the RTC. In its answer, respondents asserted that GPS was only the exclusive hauler of CII since 1988, and it was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental. GPS filed a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The RTC granted the motion to dismiss on April 30, 1996. It subsequently dismissed the complaint holding that GPS was not a common carrier defined under the law & existing jurisprudence. The subsequent motion for reconsideration having been denied, FGU interposed an appeal to the CA. The CA rejected the FGU’s appeal & ruled in favor of GPS. It also denied petitioner’s motion for reconsideration. ISSUES: Whether or not GPS, either as a common carrier or a private carrier, may be presumed to have been negligent when the goods it undertook to transport safely were subsequently damaged while in its protective custody & possession. HELD: GPS cannot escape from liability. In culpa contractual, the mere proof of the existence of the contract & the failure of its compliance justify, prima facie, a corresponding right of relief. The law will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract 26

confers upon the injured party a valid cause for recovering that which may have been lost/suffered Agreements can accomplish little unless they are made the basis for action. The effect of every infraction is to create a new duty, or to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing liability. A default on, or failure of compliance with, the obligation gives rise to a presumption of lack of care & corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Eroles, on the other hand, may not be ordered to pay petitioner without concrete proof of his negligence/fault. The driver, not being a party to the contract of carriage between petitioner’s principal and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality/juridical position. Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioner’s civil action against the driver can only be based on culpa aquiliana, which would require the claimant for damages to prove the defendant’s negligence/fault.

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VILLANUEVA vs DOMINGO September 20, 2004 Topic: Culpa Aquiliana FACTS: This is a petition to review the decision made by Court of Appeals in the above case which affirming Notradamus Villanueva (petitioner) to be held liable with the respondents Leandro Luis and Priscilla Domingo for the damages. On October 22, 1991 at about 9:45pm in the evening, Priscilla R. Domingo together with Leandro Luis R. Domingo Domingo was cruising along the middle lane of South Superhighway at moderate speed from north to south. Suddenly, towards their path was also a car darted directly in their direction causing the hitting and bumping the left front portion of their car. As a result of the impact, the said car also hit three parked vehicles at the roadside. It found out that the car was driven by Renato Ocfemia with an expired license and also positive for alcoholic breath. Upon filing the case made by the respondents, it appears that the owner of the car driven by Ocfemia was registered under the name of Nostradamus Villanueva. Under the law, the registered owner of the car is also liable to pay for the damages. The court ordered that Villanueva, as the owner of the car, should also liable for the damages made by Ocfemia through the accident. Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert Jaucian (an agent of Auto Palace Car Exchange). It was also found out that there still no transferring of ownership happened between the two, and according to Motor Vehicle Registration, the car is still registered under Nostradamus Villanueva. ISSUE: Whether or not the registered owner of a motor vehicle be held liable for damages arising from a vehicular accident involving his motor vehicle while being operated by the employee of its buyer without the latters consent and knowledge? HELD: YES. It has been consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being operated. The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte: The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they 28

may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply by his doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle. The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any public highway unless the same is property registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians and other travelers from the careless management of automobiles. And to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish thee Motor Vehicles Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturers serial number and motor number. (Section 5(c), Act No. 3992, as amended.) Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended). The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways: One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of 29

conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the displayed number becomes a share and delusion, if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to pace a middleman between them and the public, and escape liability by the manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.) The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid. Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement under the motor vehicle law.

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HERMANA R. CEREZO VS. DAVID TUAZON March 23, 2004 Topic: Employee/employer solidarily liable FACTS: Noontime, June 26, 1993 -- A Country Bus Lines passenger bus collided with a tricycle in Pampanga. The driver of the tricycle Tuazon filed a complaint for damages against Mrs. Cerezo, the owner of the bus lines, her husband, Atty. Cerezo, and bus driver Foronda. According to the facts alleged in the complaint, Tuazon was driving on the proper lane. There was a "Slow Down" sign which Foronda ignored. After the complaint was filed, alias summons was served upon the person of Atty. Cerezo, the Tarlac Provincial Prosecutor. In their reply, Mrs. Cerezo contended that the trial court did not acquire jurisdiction because there was no service of summons on Foronda. Moreover, Tuazon failed to reserve his right to institute a separate civil action for damages in the criminal action. ISSUE: Whether or not Mrs. Cerezo is liable for damages? HELD: YES. Mrs. Cerezo's contention is wrong. Tuazon's case is not based on criminal law but on quasi-delict under the Civil Code. The same negligent act may produce civil liability arising from a delict under Art. 103, RPC, or may give rise to an action for quasi-delict under Art. 2180, C.C. An aggrieved party may choose between the two remedies. An action based on quasi-delict may proceed independently from the criminal action. There is, however, a distinction between civil liability arising from a delict and civil liability arising from a quasi-delict. The choice of remedy whether to sue for a delict or a quasi-delict, affects the procedural and jurisdictional issues of the action. Tuazon's action is based on quasi-delict under Art. 2180: Employer's liability. Foronda is not an indispensable party, contrary to Mrs. Cerezo's contention. An indispensable party is one whose interest is affected by the court's action in the litigation, and without whom no final resolution of the case is possible. However, Mrs. Cerezo's liability as an employer in action for quasi-delict is not only solidary, it is also primary and direct. The responsibility of two or more persons who are liable for a quasi-delict is solidary. Where there is a solidary liability on the part of the debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation. Where the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary 31

party because complete relief is available from either. Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect from Mrs. Cerezo alone. Moreover, an employer's liability based on a quasi-delict is primary and direct, while the employer's liability based on a delict is merely subsidiary. The word “primary and direct,” as contrasted with “subsidiary,” refers to the remedy provided by law for enforcing the obligation rather than to the character and limits of the obligation. Although liability under Art. 2180 originates from the negligent act of the employee; the aggrieved party may sue the employer directly. When an employee causes damage, the law presumes that the employer has himself committed an act of negligence in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable in a subsidiary capacity for the employee's criminal negligence, the employer is also civilly liable directly and separate for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea that the employer's liability is wholly subsidiary is wrong. The action can be brought directly against the person responsible (for another) without including the author of the act. The action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed by the employee, but is not subsidiary in the sense that it cannot be instituted till after the judgment against the author of the act or at least, that it is subsidiary to the principal action; action for responsibility (of the employer) is in itself a principal action. In contrast, an action based on a delict seeks to enforce the subsidiary liability of the employer for the criminal negligence of the employee as provided in Art. 103, RPC. To hold the employer liable in a subsidiary capacity under a delict, the aggrieved party must initiate a criminal action where the employee's delict and corresponding primary liability are established. If the present action proceeds from a delict, then the trial court's jurisdiction over Foronda is necessary. However, the action filed by Tuazon was based on a quasi-delict, which is separate and independent from an action based on a delict. Hence, there was no need to reserve the filing of a separate civil action. The purpose of allowing the filing of an independent action based on quasidelict against the employer is to facilitate the remedy for civil wrongs.

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LRTA VS NATIVIDAD February 6, 2003 Topic: Employer/employee solidarily liable FACTS: The case before the Court is an appeal from the decision and resolution of the Court of Appeals, exonerating Prudent Security Agency (Prudent) from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo Roman liable for damages on account of the death of Nicanor Navidad. On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then drunk, entered the EDSA LRT station after purchasing a "token" (representing payment of the fare). While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously. ISSUE: Whether or not LRTA and Roman should be liable according to the contract of carriage. HELD: The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons with due regard for all circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for so long as the passengers are within its premises and where they ought to be in pursuance to the contract of carriage. The statutory provisions render a common carrier liable for death of or injury to passengers (a) through the negligence or wilful acts of its employees or b) on account of wilful acts or negligence of other passengers or of strangers if the common carrier’s employees through the exercise of due diligence could have prevented or stopped the act or omission. In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and by simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force majeure. In the absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners, according to the appellate court, have failed to show, the presumption would be that it has been at fault,an exception from the general rule that negligence must be proved. 33

The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. This Court is concluded by the factual finding of the Court of Appeals that "there is nothing to link (Prudent) to the death of Nicanor (Navidad), for the reason that the negligence of its employee, Escartin, has not been duly proven x x x." This finding of the appellate court is not without substantial justification in our own review of the records of the case. There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault or negligence.

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VIRON TRANSPORTATION CO. VS ALBERTO DELOS SANTOS November 22, 2000 Topic: If employer sued, employee not indispensable party FACTS: Viron set of Facts: On August 16, 1993, at around 2:30 in the afternoon, the Viron Transit Bus, owned by Viron Transportation Co., driven by Wilfredo Villanueva along MacArthur Highway within the vicinity of Tarlac coming from the North going to Manila. It was following the Forward Cargo Truck proceeding from the same direction then being driven by Alberto delos Santos. The cargo truck swerved to the right shoulder of the road and, while about to be overtaken by the bus, again swerved to the left to occupy its lane. It was at that instance that the collision occurred, the left front side of the truck collided with the right front side of the bus causing the two vehicles substantial damages. Santos set of Facts: At about 12:30 in the afternoon of August 16, 1993, Santos was driving said truck along the National Highway within the vicinity of Tarlac. The Viron bus, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. The lower court dismissed Viron’s complaint and sustained Santos’ counterclaim for damages. It ordered the petitioner to pay the following amounts: (1) P19,500.00, with interest thereon at 6% per annum from the date of complaint, as actual damages, until the same shall have been fully paid and satisfied; (2) P10,000.00 as additional compensatory damages for transportation and accommodations during the trial of this case; (3) P10,000.00 for and as attorney’s fees; and (4) Costs of suit ISSUE: Whether or not Viron Transportation Co. was liable for damages caused by their driver? HELD: VIRON TRANSCO IS LIABLE EVEN IF THEY EXERCISED DILIGENCEOF A GOOD FATHER OF THE FAMILY IN SELECTING ANDSUPERVISING THEIR EMPLOYEES. Transportation Co., Inc., as the registered owner of the bus involved in the vehicular accident originally brought the action for damages against Santos. We find that the counter claim of Santos alleges the ultimate facts constituting their cause of action. It is not necessary to state that 35

petitioner was negligent in the supervision or selection of its employees, as its negligence is presumed by operation of law. As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primary liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only juris tantum , not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. Article 2180 reads as follows: “The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. ♦Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

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PLEYTO VS LOMBOY June 16, 2004 Topic: Employee’s fault or negligence presumed FACTS: Petitioner Philippine Rabbit Bus Lines, Inc. (PRBL), with principal office at Tarlac City, Tarlac, is a public carrier, engaged in carrying passengers and goods for a fare. It serviced various routes in Central and Northern Luzon. Petitioner Ernesto Pleyto was a bus driver employed by PRBL at the time of the incident in question. At approximately 11:30 a.m., PRBL Bus No. 1539, with Plate No. CVD 556, driven by petitioner Pleyto, was traveling along MacArthur Highway in Gerona, Tarlac bound for Vigan, Ilocos Sur. It was drizzling that morning and the macadam road was wet. Right in front of the bus, headed north, was the tricycle with Plate No. CX 7844, owned and driven by one Rodolfo Esguerra. According to a witness and one of the bus passengers, Pleyto tried to overtake Esguerras tricycle but hit it instead. Pleyto then swerved into the left opposite lane. Coming down the lane,Mitsubishi Lancer car, driven by Arnulfo Asuncion. The car was headed for Manila with some passengers. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo and Ricardo instantly. Carmela and Rhino suffered injuries.

ISSUE: Whether or not PRBL is liable for damages HELD: YES. The negligence and fault of appellant driver is manifest. The Court of Appeals found PRBL liable for Pleytos negligence pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under Article 2180, when an injury is caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. Thus, in the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. With respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence. 37

VICTORY LINER VS. HEIRS OF MALECDAN December 27, 2002 Topic: Employer’s fault/negligence presumed FACTS: Malecdan was a 75 year-old farmer. While crossing the National Highway on his way home from the farm, a Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass. However, as Andres was crossing the highway, a bus of petitioner Victory Liner, driven by Joson bypassed the Dalin bus. In so doing, respondent hit the old man and the carabao on which he was riding. As a result, Malecdan was thrown off the carabao, while the beast toppled over. The Victory Liner bus sped past the old man, while the Dalin bus proceeded to its destination without helping him. The incident was witnessed by Malecdan's neighbor, Lorena, who was resting in a nearby waiting shed after working on his farm. Malecdan sustained a wound on his left shoulder, from which bone fragments protruded. He was taken by Lorena and another person to the Hospital where he died a few hours after arrival.a lso died soon afterwards. Subsequently, a criminal complaint for reckless imprudence resulting in homicide and damage to property was filed against the Victory Liner bus driver Joson. Private respondents brought this suit for damages in the Regional Trial Court, which, in a decision rendered on July 17, 2000, found the driver guilty of gross negligence in the operation of his vehicle and Victory Liner, Inc. also guilty of gross negligence in the selection and supervision of Joson, Jr. Petitioner and its driver were held liable for damages. ISSUE: Whether or not Victory Liner as employer of the driver Joson is vicariously liable for the heirs of the victim, Malecdan. HELD: The Court held that Article 2180 provides for the solidary liability of an employer for the quasi-delict committed by an employee. The responsibility of employers for the negligence of their employees in the performance of their duties is primary and, therefore, the injured party may recover from the employers directly, regardless of the solvency of their employees. Employers may be relieved of responsibility for the negligent acts of their employees acting within the scope of their assigned task only if they can show that "they observed all the diligence of a good father of a family to prevent damage." For this purpose, they have the burden of 38

proving that they have indeed exercised such diligence, both in the selection of the employee and in the supervision of the performance of his duties. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. With respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence. In the instant case, petitioner presented the results of Joson, Jr.'s written examination, actual driving tests, x-ray examination, psychological examination, NBI clearance, physical examination, hematology examination, urinalysis, student driver training, shop training, birth certificate, high school diploma and reports from the General Maintenance Manager and the Personnel Manager showing that he had passed all the tests and training sessions and was ready to work as a professional driver. However, as the trial court noted, petitioner did not present proof that Joson, Jr. had nine years of driving experience.

39

ESTACION VS. BERNARDO February 27, 2006 Topic: Culpa Aquilina, Employer’s Fault Or Negligence Is Presume FACTS: Respondent Noe was going home to Dumaguete from Cebu boarded a Ford Fiera passenger jeepney driven by respondent Geminiano Quinquillera, owned by respondent Cecilia Bandoquillo, and was seated on the extension seat placed at the center of the Fiera. Respondent offered his seat to an old lady, since there were no seats left. Respondent hung/stood on the left rear carrier of the vehicle. While the vehicle was picking up passengers, a truck owned and driven by Gerosano hit the rear end of the vehicle where the respondent was staying. As a result of the incident, respondent’s leg was amputated. A complaint for damage through quasi-delict was filed by the respondent against Gerosano. ISSUE: Whether or not the petitioner alone is liable for the damage caused HELD: No. It is the negligent act of petitioner’s driver of driving the cargo truck at a fast speed coupled with faulty brakes which was the proximate cause of respondent Noe’s injury. However, we agree with petitioner that respondent Noe’s act of standing on the rear carrier of the Fiera exposing himself to bodily injury is in itself negligence on his part. We find that the trial court and the CA erred when they failed to consider that respondent Noe was also guilty of contributory negligence. Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection. Respondent Quinquillera’s act of permitting respondent Noe to hang on the rear portion of the Fiera in such a dangerous position creates undue risk of harm to respondent Noe. Quinquillera failed to observe that degree of care, precaution and vigilance that the circumstances justly demand. Thus, respondent Noe suffered injury. Since respondent Quinquillera is negligent, there arises a presumption of negligence on the part of his employer, respondent Bandoquillo, in supervising her employees properly. Such presumption was not rebutted at all by Bandoquillo. Thus, the CA erred in affirming the dismissal of the third party complaint filed by petitioner against respondents Quinquillera and Bandoquillo. As the employer of Gerosano, petitioner is primarily and solidarily liable for the quasi-delict committed by the former. Petitioner is presumed to be negligent in the selection and supervision of his employee by operation of law and may be relieved of responsibility for the negligent acts of his driver, who at the time was 40

acting within the scope of his assigned task, only if he can show that he observed all the diligence of a good father of a family to prevent damage. A plaintiff who is partly responsible for his own injury should not be entitled to recover damages in full but must bear the consequences of his own negligence. The defendant must thus be held liable only for the damages actually caused by his negligence.

41

SYKI VS. BEGASA October 23, 2003 Topic: Employee & employer solidary liable: presumption is rebuttable by proof of due diligence FACTS: Respondent Salvador Begasa suffered physical injuries when the truck owned by petitioner Ernesto Syki and driven by Elizalde Sablayan bumped the rear end of the passenger jeepney where the respondent was then boarding. The trial court awarded actual and moral damages to the respondent. Petitioner Syki and his driver appealed to the Court of Appeal which, however, affirmed in toto the decision of the trial court. Thus, petitioner filed this petition for review arguing that the appellate court erred in ruling that he failed to observe the diligence of a good father of a family in the selection and supervision of his driver. He asserts that he presented sufficient evidence to prove that he observed the diligence of a good father of a family in selecting and supervising the said employee, thus he should not be held liable for the injuries sustained by respondent. ISSUE: Whether or not petitioner Syki is liable for the injuries sustained by the respondent. HELD: YES. The Court held that when an injury is caused by the negligence of an employee, a legal presumption instantly arises that the employer was negligent in the selection and/or supervision of said employee. The said presumption may be rebutted only by a clear showing on the part of the employer that he exercised the diligence of a good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer. Petitioner’s evidence consisted entirely of testimonial evidence. The unsubstantiated and selfserving testimonies of petitioner and his mechanic were, without doubt, insufficient to overcome the legal presumption that petitioner was negligent in the selection and supervision of his driver. Since the negligence of petitioner's driver was the sole and proximate cause of the accident, petitioner is liable to pay damages to respondent Begasa for the injuries sustained by him.

42

DELSAN VS C&A CONSTRUCTION 2003 Topic: Employee & employer solidary liable: presumption is rebuttable by proof of due diligence; Quasi-Delict FACTS: C & A construction, construct a deflector wall at the Vitas reclamation Area in Tondo, Manila it was not formally turnover to National Housing Authority though it was completed in 1994. On 12:00 midnight of October 20, 1994 Captain Demetrio T. Jusep of M/V Delsan Express receive a report that that a typhoon was going to hit Manila after eight (8) hours. At 8:35 a.m. he tried to seek shelter but it was already congested. At 10:00 a.m. Capt. Jusep drop the anchor at the vicinity of Vitas mouth, the waves were already reaching 8 to 10 feet. The ship was dragged by the wind toward the Napocor power barge Capt. Jusep ordered a full stop of the vessel to avoid the collision but when the engine was re-started, it hit the deflector wall constructed by the respondent. P456,198.24 was the damaged cause by the incident. C & A construction demanded payment of the damages from Capt. Jusep but the latter refused to pay due to the cause of the incident was by a fortuitous event. The trial court ruled that Captain Jusep was not guilty of negligence in applying the “emergency rule” because it had taken necessary precautions to avoid accident. The Court of Appeals reversed & set aside the decision of the trial court. Captain Jusep was found guilty of negligence in transferring the vessel only at 8:35 a.m. of October 21,1994 and held liable for damages in waiting until 8:35 a.m. before transfering the vessel to sought shelter. ISSUES: (1) Whether or not Capt. Jusep was negligent. (2) Whether or not the petitioner is solidarily liable under Art. 2180 of the Civil Code for QuasiDelict. HELD: (1) The court finds Captain Jusep is guilty of negligence, the failure to take immediate and appropriate action under the circumstances, despite the knowledge that there is typhoon but he waited for the lapse of eight (8) hours instead. Captain Jusep showed an inexcusable lack of care and caution which an ordinary prudent person would have observed in the same situation. The trial court erred in applying the emergency rule because the danger where Captain Jusep found himself was caused by his own negligence. (2) The court finds the petitioner liable for the negligent act of Capt. Jusep. Whenever an employee’s negligence causes damage to another, it instantly arise a presumption that the employer failed to exercise the care and diligence of supervision of his employee. In Fabre ,jr. v Court of Appeals held that due diligence requires consistent compliance of rules & regulation for the guidance and actual implementation of rules. But the petitioner fails to give any evidence that its rule are strictly implemented and monitored in compliance therewith petitioner is 43

therefore liable for the negligent act of Capt. Jusep. The amount of P 456, 198.27 due earn 6% interest per annum from October 3, 1995 until the finality of the decision.

44

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN February 17, 2005 Topic: Quasi-Delictual Liability May Arise Even Where There Is An Existing Contractual Relationship. FACTS: Maurice Peaches McLoughlin is an Australian businessman-philanthropist who used to stay at the Sheraton Hotel during his trips to the Philippines prior to 1984. He met Brunhilda Mata-Tan who befriended him and showed him around. Tan convinced Mcloughlin to transfer to the Tropicana from the Sheraton where afterwards he stayed during his trips from Dec 1984 to Sept 1987. On 30 Oct 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as his usual practice. The box required two keys, the guest had one and one from the management. He placed US $10,000 in one envelope and US$5,000 in another , AU$10,000 in another envelope and other envelopes with his passport and credit cards. On 12 Dec 1987, he took from the box the envelope with US$5,000 and the one with AU$10,000 to go to Hong Kong for a short visit, because he was not checking out. When he arrived in HK, the envelope with US$5,000 only contained US$3,000, but because he had no idea if the safety deposit box has been tampered, he thought it was just bad accounting. After returning to Manila, he checked out of the Tropicana on 18 Dec 1987 and left for Australia. When he arrived he discovered that the envelope with US$10,000 was short of US$5,000. He also noticed that the jewelry he bought in Hong Kong which he stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet. He went back to the PH on 4 Apr 1988 and asked Lainez (who had custody of the management key) if some money was missing or returned to her, to which the latter answered there was not. He again registered at the Tropicana and rented a safety deposit box. He placed an envelope containing US$15,000, another of AU$10,000. On 16 Apr, he opened his safety deposit box and noticed that US$2,000 and AU$4,500 was missing from the envelopes. He immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to McLoughlin. McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlin’s key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note. He made Lopez and Tan sign a promissory note for him for the loss. However, Lopez refused liability on behalf of the hotel, reasoning that McLoughlin signed an "Undertaking for the Use of 45

Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box. On 17 May 1988 McLoughlin went back to AU and consulted his lawyers. They wrote a letter addressed to Pres. Cory Aquino which was pushed back to the DOJ and the Western Police District. He went back from the PH to AU several times more to attend business and follow up but the matter was only filed on 3 Dec 1990 since he was not there to personally follow up. McLoughlin filed an action against YHT Realty Corporation, Lopez, Lainez, Payam and Tan. The RTC rendered judgment in favor of McLoughlin. The CA modified only the amount of damages awarded. Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants. ISSUES: 1. Whether or not there was gross negligence on the part of the innkeepers. 2. Whether or not the "Undertaking for the Use of the Safety Deposit Box" is null and void. HELD: 1. Yes. Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place. They even admitted that they assisted Tan on three separate occasions in opening McLoughlin’s safety deposit box. The management contends that McLoughlin made its employees believe that Tan was his spouse for she was always with him most of the time. The evidence on record is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Mere close companionship and intimacy are not enough to warrant such conclusion. They should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlin’s safety deposit box a number of times at the early hours of the morning. Art 2180, par (4) of the same Code provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Given the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees both the employees and YHT, as owner of Tropicana, should be held solidarily liable pursuant to Art 2193. 2. Yes, it is null and void. Art. 2003[1] is controlling. This is an expression of public policy that the hotel business like common carriers are imbued with public interest. This responsibility cannot be waived away by any contrary stipulation in so-called "undertakings" that ordinarily 46

appear in prepared forms imposed by hotel keepers on guests for their signature. The CA (former case) even ruled before that hotelkeepers are liable even though the effects are not delivered to them or their employees, but it is enough that the effects are within the hotel or inn. Pars. 2 and 4 of the undertaking manifestly contravene Art. 2003 of the NCC. Meanwhile, the defense that Art. 2002 exempts the hotel-keeper from liability if the loss is due to the acts of the guest, family or visitors falls because the hotel is guilty of negligence as well. This provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the occurrence of the loss. • Damages awarded by the lower court sustained • US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment; • Air fares for a total of 11 trips + transpo expense • Hotel payments • Moral 50K • ED 10K • AF 200K

47

AMERICAN EXPRESS INTERNATIONAL V. CORDERO October 14, 2005 Topic: Quasi-delictual liability may arise even where there is an existing contractual relationship FACTS: Noel Cordero, the respondent applied for and was issued by a charge card by American Express, the petitioner, a foreign corporation that issues charge cards to its customers which can be used by the customers to purchase goods and services at accredited merchants worldwide. An extension charge card was also issued to Noel Cordero which he also signed. Upon respondent and his family’s three-day holiday trip to Hong Kong, they went to Watsons Chemist Shop where he bought some goods and handed to the sales clerk his American Express extension charge card to pay for his purchase. The store manager had confiscated the card after the sales clerk had called the petitioner’s office In Hong Kong. Respondent claimed that the happening caused him embarrassment and humiliation considering it was done in front of his family and other customers lined up at the counter. Respondent’s wife was informed that his card was placed under petitioner's Inspect Airwarn Support System. When the Watsons sales clerk called up petitioners Hong Kong Office, its representative said he wants to talk to respondent in order to verify the latter’s identity but the respondent refused. The petitioner’s representative was unable to establish the identity of the cardholder which led to the confiscation of the respondent’s card. ISSUE: Whether or not the lower courts gravely erred in attributing the public humiliation allegedly suffered by Cordero to Amex based on Article 2176 of the Civil Code. HELD: Yes. In this case, the inference made by the courts below is manifestly mistaken. Respondent anchors his cause of action on Article 2176. In order that an obligation based on quasi-delict may arise, there must be no pre-existing contractual relation between the parties. But there are exceptions. There may be an action for quasi-delict notwithstanding that there is a subsisting contract between the parties. A liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. Significantly, paragraph 16 of the Cardmember Agreement signed by respondent provides that the card remains as their property. The petitioner can revoke respondents card without notice, as 48

was done here. It bears reiterating that the subject card would not have been confiscated and cut had respondent talked to petitioners representative and identified himself as the genuine cardholder. It is thus safe to conclude that there was no negligence on the part of petitioner and that, therefore, it cannot be held liable to respondent for damages.

49

SHELL PETROLEUM CORP. VS JOHN BORDMAN LTD. OF ILOILO October 14, 2005 Topic: Employee and Employer Solidarily liable: Quasi-delictual liability may arise where there is an existing contractual relationship FACTS: Petitioner Pilipinas Shell Petroleum Corporation (Pilipinas Shell) is a corporation engaged in the business of refining and processing petroleum products. The invoicing of the products was made by Pilipinas Shell, but delivery was effected through Arabay, Inc., its sole distributor at the time material to the present case. From 1955 to 1975, Respondent John Bordman Ltd. of Iloilo, Inc. (John Bordman) purchased bunker oil in drums from Arabay. When Arabay ceased its operations in 1975, Pilipinas Shell took over and directly marketed its products to John Bordman. John Bordman demanded Pilipinas Shell short deliveries of fuel oil since 1955. Respondent alleges that Shell andArabay had billed it at 210 liters per drum while other oil companies operating in Bacolod had billed their customers at 200 liters per drum. A volumetric test showed that the drum could only contain 187. 5 liters. On February 1, 1975, John Bordman requested from Pilipinas Shell that 640,000 liters of fuel oil, representing the latters alleged deficient deliveries, be credited to the formers account. The volume demanded was adjusted to 780,000 liters, upon a realization that the billing rate of 210 liters per drum had been effective since 1966. Petitioner avers that respondents action -- a claim for damages as a result of over-billing -- has already prescribed. Respondents claim supposedly constitutes a quasi-delict, which prescribes in four years. ISSUE: Whether or not respondent has a cause of action for claim for damages based on contract? HELD: Yes. It is elementary that a quasi-delict, as a source of an obligation, occurs only when there is no preexisting contractual relation between the parties. The action of respondent for specific performance was founded on short deliveries, which had arisen from its Contract of Sale with petitioner, and from which resulted the formers obligation in the present case. Any action to enforce a breach of that Contract prescribes in ten years.

50

To the mind of this Court, the cause of action in the present case arose on July 24, 1974, when respondent discovered the short deliveries with certainty. Prior to the discovery, the latter had no indication that it was not getting what it was paying for. There was yet no issue to speak of; thus, it could not have brought an action against petitioner. It was only after the discovery of the short deliveries that respondent got into a position to bring an action for specific performance. Evidently then, that action was brought within the prescriptive period when it was filed on August 20, 1980. Actions based upon a written contract should be brought within ten years from the time the right of action accrues. This accrual refers to the cause of action, which is defined as the act or the omission by which a party violates the right of another. Jurisprudence is replete with the elements of a cause of action: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate the right; and (3) an act or omission on the part of the defendant violative of the right of the plaintiff or constituting a breach of an obligation to the latter. It is only when the last element occurs that a cause of action arises. Applying the foregoing elements, it can readily be determined that a cause of action in a contract arises upon its breach or violation. Therefore, the period of prescription commences, not from the date of the execution of the contract, but from the occurrence of the breach.

51

EQUITORIAL REALTY DEVELOPMENT INC VS MAYFAIR THEATER INC November 21, 2001 Topic: Article 1164 FACTS: Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latters property -- namely, a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.

Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (Equatorial) for the total sum of P11,300,000, without their first being offered to Mayfair.As a result Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) and the lowered court rendered a Decision in favor of Carmelo and Equatorial. On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court. Meanwhile, on September 18, 1997 — barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 — Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises after its lease contracts had expired. ISSUE: Whether

or

not

Equatorial

is

entitled

to

back

rentals

HELD: No. The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated.

52

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally demand performance. Does this mean that despite the judgment rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial? Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; x x x" Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer. At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, thisgeneral principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of Mayfair's timely objection.

53

THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. WILLIAM A. WILSON, ET AL. March 15, 1907 Topic: Article 1164 FACTS: The respondent was a disbursing officer of the Bureau of Coast Guard and Transportation. For the security of the Government of the Philippines, the petitioner and the American Surety Company of New York, became sureties on the official bond of the respondent for the sum of $ 15,000. When the respondent defaulted in the sum of $ 8,931.80, the two surety companies each paid $ 4,465.90 upon demand of the Government of the Philippines. When the respondent was apprehended in Montreal, Canada for the defalcation of said sum, he had on his person the sum of $ 785 in gold. The said sum was turned over to the custody of the Insular Treasurer, Mr. Branagan. In a complaint filed by the petitioner against Wilson and The American Surety Company, the trial court ruled that H.D. Terrell, an intervenor in the case claiming the right of ownership in and to the said sum and asks that the same be delivered to him as the legitimate owner to the exclusion of the other parties in the case, became the owner and with the right to the possession of said $785 even before the commencement of such petition and still has the right to the possession of the same. H.D. Terrell claimed that all of the rights of the respondent to the said $785 was ceded and transferred to him as payment for the professional services that he rendered as an attorney for respondent Wilson, and that Treasurer Branagan was duly notified on the 17th day of October, 1904 of such transfer. This transfer is made literally in the following terms: MANILA, P.I., September 3, 1904. To whom it concerns: For value received, I hereby transfer and cede to Judge H. D. Terrell all my rights, title, and interest in the following-described property belonging to me and now in the hands of Frank A. Branagan, Treasurer of the Philippine Archipelago, under the attachment of the court of Manila. (Here appears the description of the bank bills transferred, hereinabove described.) (Signed) W.A. WILSON. The petitioner now questioned the court’s decision in favor of Terrell. ISSUE: WON the ownership to a thing is transferred to the creditor when the thing to be delivered has not been delivered to him yet. 54

HELD: NO. In our Civil Code, it is a fundamental principle in all matters of contracts and a well-known doctrine of law that "non mudis pactis, sed traditione dominia rerum transferuntur." In conformity with said doctrine as established in paragraph 2 of article 609 of said code, that "the ownership and other property rights are acquired and transmitted by law, by gift, by testate or intestate succession, and, in consequence of certain contracts, by tradition." And as the logical application of this disposition article 1095 prescribes the following: "A creditor has the rights to the fruits of a thing from the time the obligation to deliver it arises. However, he shall not acquire a real right." (and the ownership is surely such) "until the property has been delivered to him." Terrell claimed that by virtue of the said transfer, the ownership of Wilson in and to the funds was transferred to him in fact and in law. However, the Court ruled that the transfer by itself, and afterwards the notification of the same of Treasurer Branagan, did not produce nor could it produce the effect of transfer to Terrell of the ownership of the funds so transferred and which were then in the possession of the said Treasurer. To have this effect, it would have been necessary that the delivery of the funds had been made directly Terrell, which fact has not been proved at any time. The funds were in the possession of Branagan and afterwards were transferred to the possession of the depositary appointed, by the court where such funds now are, and this without their ever having been taken possession of the intervenor Terrell. It is not alleged, nor it is claimed by Terrell, that the delivery of the funds was ever made in any manner recognized by the law. He claims the right of ownership from the mere fact of having derived the same, not from the fact of any delivery, but from the very fact of the transfer and of his subsequent notification to Treasurer Branagan, it being, in addition, very clear that such notification does not constitute, in any manner, the fact of delivery as established by articles 1462, 1463, and 1464 of the Civil Code, all of which cover, in full this subject-matter. Therefore, by reason of the non-delivery Terrell did not acquire the ownership of the property transferred to him by Wilson. It is only the jus ad rem, and not the jus in re, that was acquired by Terrell by virtue of the transfer, made by the consent of the transferor and the transferee but not consummated by the delivery which never came to pass and which delivery was the object of such transfer. But if Terrell could not be considered as the owner of said funds in question, it is undeniable that he had rights with regard to the same as a creditor by virtue of that transfer. The same right, that of a creditor, and no other is the right of the appellant in that it has not been contradicted that the rights of the Government, in its judicial relation to Wilson, had not been subrogated to the appellant.

55

JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING vs. COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION June 22, 1998 Topic: Article 1165 FACTS: On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model to private respondent - which is engaged in the sale, distribution and repair of motor vehicles - for the following job repair services and supply of parts: - Bleed injection pump and all nozzles; - Adjust valve tappet; - Change oil and filter; - Open up and service four wheel brakes, clean and adjust; - Lubricate accelerator linkages; - Replace aircon belt; and - Replace battery[2] Petitioner paid in full the repair bill in the amount of P1,397.00. Private respondent promised to return the vehicle on July 21, 1990. However, the delivery of the car was rescheduled to July 24, 1990 or three (3) days later because battery was not installed. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested. Petitioner filed a suit for damages against private respondent anchoring his claim on the latter’s alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event - the carnapping. ISSUE: WON the respondent is liable. HELD: The Court resolves the query in favor of the customer. First, on the technical aspect involved. The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e. who will bear the loss and whether there was negligence. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in cases of 56

carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another’s property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165[11] of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner’s car three (3) days before it was lost. Petitioner’s agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot be construed as waiver of petitioner’s right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it. Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if “the nature of the obligation requires the assumption of risk”.[14] Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI)[15] and to secure an insurance policy for the “shop covering the property entrusted by its customer for repair, service or maintenance” as a pre-requisite for such registration/accreditation. Moreover, on the assumption that private respondent’s repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.

57

TESTACY OF MAXIMA SANTOS VDA. DE BLAS ROSALINA SANTOS (EXECUTRIX) VS. FLORA BLAS DE BUENAVENTURA (LEGATEE) September 22, 1966 Topic: Article 1166 FACTS: On October 22, 1956, Rosalina Santos filed a petition with the Court of First Instance of Rizal for the probate of the last will allegedly executed on September 22, 1956 by the deceased Maxima Santos Vda. de Blas. The nearest of kin of the deceased were her brothers and a sister, nephews and nieces. Rosalinda Santos is one of said nieces. Among the legatees — or more accurately, devisees — mentioned in the will is Flora Blas de Buenaventura. She is not related by blood to the deceased. Flora Blas de Buenaventura and Justo Garcia filed on November 28, 1956 an opposition to the probate of said will. Among the grounds for the opposition of were that the will was not executed in accordance with law; that undue and improper pressure was exerted upon the testatrix Maxima Santos in the execution thereof; that the signature of Maxima was secured through fraud; and that at the time of the execution of the will Maxima was mentally incapable of making a will. After the probate court had received the evidence for both the petitioner and oppositors, but before the latter could close their evidence, Flora Blas on November 6, 1957 filed a manifestation that she is withdrawing her opposition to the probate of the will. ISSUE: Did Flora's actuations, under the facts and circumstances herein, amount to a violation of the "no-contest and forfeiture" clause of the will? HELD: NO. Above all, the factor that preponderates in favor of appellant is that, after realizing her mistake in contesting the will — a mistake committed in good faith because grounded on strong doubts — she withdrew her opposition and joined the appellee in the latter's petition for the probate of the will. She must not now be penalized for rectifying her error. After all, the intentions of the testatrix had been fulfilled, her will had been admitted and allowed probate within a reasonably short period, and the disposition of her property can now be effected. It should be pointed out that, contrary to the translation accorded to Paragraph Fourteen of the will, the testatrix enjoins not a mere contest or opposition to its probate, but a contest or opposition to the probate of the will and the carrying out of its provisions. This is so because the questioned clause speaks of "pagpapatibay at pag-bibigay-bisa" instead of "pagpapatibay o pagbibigay-bisa."9 This furnishes a significant index into the intention of the testatrix, namely, that 58

she was more concerned in insuring the carrying out of her testamentary provisions than in precluding any contest or opposition to it. By the withdrawal of the contest which appellant brought in good faith, no prejudice has been done into the intention of the testatrix. The dispositions of her will can now be safely carried out. From the foregoing premises it cannot be said that Flora's actuations impaired the true intention of the testatrix in regard to the "no-contest and forfeiture" clause of the will. Flora's act of withdrawing her opposition before she had rested her case contributed to the speedy probation of the will. Since the withdrawal came before Flora had rested her case, it precluded the defeat of the probate upon the strength of Flora's evidence. Through said withdrawal, Flora conformed to the testatrix's wish that her dispositions of her properties under the will be carried out. It follows that, taken as a whole, Flora's actuations subserved rather than violated the testatrix's intention. RESOLUTION: Flora Blas De Buenaventura contends, first, that she is entitled to and should be awarded, not only the devised fishpond, but all the fruits or rents of said property from the death of the testatrix on October 5, 1956 up to the time said property will be delivered to her. Appellant, it be noted, did not expressly seek recovery of fruits or rents in her petition for delivery of specific legacy (devise) filed below. She started to mention also the fruits or rents in her amended motion for reconsideration of the court a quo's denial of said petition. And, thereafter she has raised the point in her third assignment of error in the present appeal. This notwithstanding, We believe that appellant should receive the fruits of the property given to her in devise. The provisions of law regarding devised proper are emphatic in stating that a devise of a specific things includes its fruits and income accruing after the testator's death, ordering that these shall be delivered with the thing devised under Art. 948 and 951 of the Civil Code. Furthermore, since fruits or rents are accessions (Arts. 441, 442, Civil Code), strictly speaking, there was really no need to mention them in the petition or the decision. Article 1166 of the Civil Code applies: "The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned." To remove doubts on the matter, however, We here expressly state that appellant is also entitled to, and appellee should deliver to her, the fruits or rents of the devised fishpond accruing after the testatrix's death. The precise determination of the same, however, should be threshed out in the court below, before which appellee must render an accounting. 59

CONTINENTAL CEMENT CORP VS FILIPINAS SYSTEMS INC August 4, 2009 Topic: Article 1169 (Delay) FACTS: Plaintiff-appellee Continental Cement Corporation (CCC) entered into a construction agreement with defendant-appellant Filipinas Systems, Inc. (FILSYSTEMS) for the civil works construction for its Cement Plant Expansion Project at Bo. Bigte, Norzagaray, Bulacan for and in consideration of P82,300,00.00 (sic). Under the contract, the period for the project’s completion should be 300 days from 22 February 1993 or up to 18 December 1993. However, on 3 September 1993, CCC filed an action for Specific Performance with TRO and/or Preliminary Mandatory Injunction against FILSYSTEMS to prevent the latter from pulling out its equipment from the site and stopping the construction of the project. While the suit was pending, the parties entered into a Compromise Agreement which was approved by the trial court on 14 October 1993. Among others, the said agreement provided for new terms and conditions of payment. However, FILSYSTEMS claimed that CCC failed to comply while CCC advanced that FILSYSTEMS failed to finish the project after one hundred nine (109) days. ISSUES: W/N time is of the essence in the Construction Contract, and that FILSYSTEMS’ delay thus make CCC is entitled to the full amount of liquidated damages. HELD:FILSYSTEMS has not shown that it was CCC’s delay that caused the former to fail to complete the project. On the contrary, it appears that despite CCC’s delays, FILSYSTEMS was able to accomplish 92.83% of the work. This proves that the completion of the project was not entirely dependent on CCC’s payment – or prompt payment – of its obligation. FILSYSTEMS’ failure to finish the project is, therefore, unjustified. Accordingly, it must be held liable for the cost of completing the project. Article 1167 of the Civil Code provides that 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. FILSYSTEMS should not be made to pay the entire cost CCC paid to CE Construction, which finished the project. It has been shown that at the time FILSYSTEMS stopped work, the project was 92.83% finished, although such work was accomplished beyond the initial deadline of 23 January 1993. But, as already discussed above, FILSYSTEMS was entitled to time extensions equivalent to the delay in the payment of its progress billings. Hence, FILSYSTEMS must be held liable only for the remaining 7.17% of the project. To make it answer for more would unjustly enrich CCC, 60

which

has

already

benefited

from

the

former’s

work.

61

HEIRS OF RAMON GAITE VS THE PLAZA, INC. January 26, 2011 Topic: Article 1169 (Delay) FACTS: The Plaza Inc., a corporation engaged in the restaurant business, entered into a contract with Rhogen Builders as represented by Ramon Gaite for the construction of a restaurant building in Greenbelt, Makati for the price of P7.6 million. Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit. Ramon Gaite informed The Plaza that he is terminating their contract based on the Contractors Right to Stop Work or Terminate Contracts as provided for in the general Conditions of the Contract. Additionally, Gaite demanded the payment of P63,058.50 from The Plaza representing the work that has already been completed by Rhogen. The respondent countered that it will hold Gaite and Rhogen fully responsible for failure to comply with the terms of the contract and to deliver the finished structure on the stipulated date. ISSUE: Whether or not Ramon Gaite is liable for the breach of contract with The Plaza, Inc. HELD: YES. Having failed to complete the project within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code. The Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the progress billing as a result of Rhogen’s inability to perform its obligations under the contract. Also, Rhogen was found to have executed the works not in accordance with the approved plans. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

62

CONTINENTAL CEMENT CORPORATION vs. ASEA BROWN BOVERI, INC October 17, 2011 Topic: Art. 1169 (Delay) FACTS: Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a corporation engaged in the business of producing cement obtained the services of respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor) On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint for sum of money and damages ISSUE:Is ABB liable to damages plus the amount of penalty stipulated in the contract? HELD: Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state: 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. 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. Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those 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. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of the obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair allegedly done by Newton Contractor but is instead asking for damages for the delay caused by respondent ABB. 63

RODOLFO G. CRUZ and ESPERANZA IBIAS VS. ATTY. DELFIN GRUSPE March 13, 2013 Topic: Article 1169 (Delay) FACTS: This is a petition for review on certiorari of the resolution and the decision of the Court of Appeals which granted respondent Atty. Delfin Gruspe's claim for payment of sum of money against petitioners Rodolfo G. Cruz and Esperanza Ibias. The mini bus owned and operated by Cruz and driven by one Arturo Davin collided with the Toyota Corolla car of Gruspe; Gruspe's car was a total wreck. Cruz, along with Leonardo Q. Ibias apologized for the incident, and executed a Joint Affidavit of Undertaking promising jointly and severally to replace the Gruspe's damaged car in 20 days, or until November 15, 1999, of the same model and of at least the same quality; or, alternatively, they would pay the cost of Gruspe's car amounting to P350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid. Cruz and Leonardo however failed to do so, thus Gruspe filed a complaint for collection of sum of money against them. They also both denied Gruspe's allegation, claiming that they were deceived into signing the Joint Affidavit of Undertaking, thinking it was the only way for the release of their minivan, having believed that it had been impounded. Leonardo died during the pendency of the case and was substituted by his widow, Esperanza. Meanwhile, Gruspe sold the wrecked car for P130,000.00. Eventually the RTC ruled in favor of Gruspe and ordered Cruz and Leonardo to pay P220,000.00, 6 plus 15% per annum from November 15, 1999 until fully paid, and the cost of suit. ISSUE: Whether or not the Joint Affidavit of Undertaking is valid and enforceable. HELD: YES. A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic of a contract. These, as read by the CA, are very simple terms that both Cruz and Leonardo could easily understand. There is also no merit to the argument of vitiated consent. An allegation of vitiated consent must be proven by a preponderance of evidence; Cruz and Leonardo failed to support their allegation. If they truly believed that the vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit of Undertaking and filed a complaint, but they did not. The Court chose to uphold the Joint Affidavit of Undertaking, thus making petitioners liable for the delay in payment. However, it also modified certain terms in the contract wherein it imposed an interest rate on a per annum basis, instead of the per month basis that was stated in the Joint Affidavit of Undertaking, finding the agreed upon rate excessive.

64

ELISEO FAJARDO JR AND MARISSA FAJARDO VS FREEDOM TO BUILD INC August 1, 2000 Topic: Article 1168: Obligations not to do (Remedy)

FACTS: The controversy arose when petitioners, despite repeated warnings from respondent, extended the roof of their house to the property line and expanded the second floor of their house to a point directly above the original front wall.

Freedom To Build, Incorporated, an owner-developer and seller of low-cost housing, sold to petitioner-spouses, a house and lot designated Lot No. 33, Block 14, of the De la Costa Homes in Barangka, Marikina, Metro Manila. The Contract to Sell executed between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:

"Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No structure of any kind (store, garage, bodega, etc.) may be built on the front easement.

"x x x.............................x x x.............................x x x

"Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the back portion of the house and should not extend forward beyond the apex of the original building.

"x x x.............................x x x.............................x x x

"Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented by the developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front property line and 4 meters back from the front wall of the house, just as provided in the 60 sq. m. units." 65

ISSUE: Whether or not Petitioners are to abolish the constructed extensions in violation of the Contract to Sell

HELD: There appears to be no cogent reasons for not upholding restrictive covenants aimed to promote aesthetics, health, and privacy or to prevent overcrowding. Petitioners argue that for lack of a specific provision, prescribing the penalty of demolition in the "Restrictive Covenant" in the event of a breach thereof, the prayer of respondent to demolish the structure should fail. This argument has no merit; Article 1168 of the New Civil Code states: "When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."

66

SOLAR HARVEST VS DAVAO CORRUGATED CARTON CORP July 26, 2010 Topic: Article 1169 (Delay) FACTS: In the first quarter of 1998, petitioner Solar Harvest Inc entered into an agreement, albeit not formalized in writing, with respondent Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes specifically designed for use of petitioner’s business of exporting bananas, at US $1.10 each. The petitioner deposited US$40,150.00 as full payment in respondent’s US Dollar Savings Account with Westmount Bank to get production underway. However, no delivery of the boxes was made. As such, petitioner wrote a demand letter to respondent, asking for reimbursement of the deposit made, to which the respondent replied that the boxes had been completed beforehand and that petitioner failed to pick up the boxes from their warehouse as agreed upon. Further, respondent also mentioned that petitioner placed an additional order of 24,000 boxes. 14,000 of those boxes were manufactured without initial deposit from petitioner. Respondent then demanded for the petitioner to pay for the costs of the additional boxes and storage fees as well as for the petitioner to remove the boxes from their warehouse. Petitioner then filed for a Complaint for sum of money and damages against respondent, averring that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver boxes within such time, and that despite repeated follow-up, the defendant would only show sample boxes and make repeated promises as to the delivery of the boxes. Respondents again denied such, and averred that the petitioner’s representative, Bobby Que, went to the factory once and saw that the boxes were ready for pickup, and then visited again and advised respondent to sell the boxes to recoup the costs of the additional boxes because the petitioner’s shipment of bananas to China did not materialize. During the trial, Que testified that he ordered the boxes and deposited the money as payment. When he visited the factory, he saw that the boxes had no logo. He then asked his partner Alfred Ong to cancel the order as it was too late to deliver shipments to China. The ship from Chinese company China Food Zero did not proceed to get the bananas, and at the time, the bananas from Tagum Agricultural Development Corporation were already there. Bienvenido Estanislao testified for the respondent and said that he met Que when the latter was visiting the factory to get samples of the boxes. Que told him that he cannot pick the boxes up because the ship from the Chinese company, China Food Zero, did not arrive. Jaime Tan, President of respondent company, also testified to such as being the reason why the boxes were not picked up. Both the RTC and the CA on appeal denied the petition. 67

ISSUE: Whether or not petitioner may claim reimbursements from respondent because of the delay in the fulfillment of obligation HELD: No. Without a previous demand for the fulfillment of the obligation, as is evident in the instant petition when Que only made ‘follow-ups’ and not ‘demands’, petitioner would not have a cause for rescission against respondent as the latter would not yet be considered in breach of contractual obligations. The claim for reimbursement by petitioner is actually one for rescission or resolution of contract, governed by Article 1191 of the Civil Code. The right to rescind a contract arises once the party defaults in the performance of his obligation. This must be taken in conjunction with Article 1169. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective obligations should be simultaneous. However, when different dates are set for the performance of the obligations, the default for each must be determined according to the first paragraph of 1169. Thus, the party would incur in delay only from the moment the other party demands fulfillment of the obligation. Demand would be necessary upon the obligee in such cases before the obligor can be considered in default and before a cause of action for rescission will accrue.

68

SANTOS VENTURA HOCORMA FOUNDATION, INC VS ERNESTO SANTOS & RIVERLAND, INC November 5, 2004 Topic: Article 1169 (Delay) FACTS: On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. The pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the execution of this agreement and (b) The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two years from the execution of this agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3) Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement. In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile. On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties.

69

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on the part of petitioner in paying the balance of P13 million. ISSUE: Whether the respondents are entitled to legal interest. HELD: Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it. In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims. As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides that the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement.

70

LORENZO SHIPPING CORP. VS BJ MARTHEL INTERNATIONAL INC November 19, 2004 Topic: Article 1169 (Delay)

FACTS: From 1987 up to the filling of the case, respondent supplied spare parts to petitioner, a domestic corporation engaged in coastwise shipping. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts; on May 31, 1989, respondent provided a quotation which stated, along with the items and prices, the following: delivery - within 2 months after receipt of firm order, terms- 25% upon delivery, balance payable in 5 bi-monthly equal and installment[s] not to exceed 90 days. After approximately 6 months, petitioners issued a purchase order for one set of cylinder liner valued at P477,000, to be used for M/V Dadiangas Express. In the purchase order, it was indicated that the term of payment shall be “25% down payment”, but it did not state the date of the cylinder liner's delivery. Instead of paying the down payment, petitioner issued 10 postdated checks as full payment. On 15 January 1990, petitioner issued another purchase order for another set of cylinder liner, and said purchase order also did not have delivery date. Respondent encountered issues with the postdated checks as the first one was dishonored due to insufficiency of funds. After returning the 9 remaining postdated checks to petitioner, respondent opened a letter of credit and placed an order to its principal supplier in Japan. On 20 April 1990, the two sets of cylinder liners were delivered to petitioner’s warehouse. The payment for the two cylinder liners remained unsettled, and respondent issued a demand letter to which petitioner responded by stating that it would only pay P150,000 because of the delay in delivery. Respondent filed a case because petitioner refused to settle its obligation. Petitioner countered by claiming that time was of the essence in the delivery of the cylinder liners, and respondent failed to comply with the "within two (2) months after receipt of firm order" stipulation; thus, there was a cancellation of orders, and the contract was validly rescinded by petitioner. The trial court ruled in favor of petitioner, but the Court of Appeals reversed the ruling and held that there was no incurred delay in the delivery of cylinder liners for there was no demand, judicial or extrajudicial pursuant to Article 1169 of the Civil Code.

ISSUES: 71

1. Whether or not respondent incurred delay in performing its obligation under the contract of sale 2. Whether or not said contract was validly rescinded by petitioner. HELD: 1. No, the respondent did not incur delay. The Court held that time is not of the essence in the contract, as inferred from the lack of delivery date in both purchase orders issued by petitioner. Furthermore, the petitioner did not advise the respondent of the target date of maintenance of M/V Dadiangas Express which was supposed to be on the later part of December 1989 to early January 1990. The Court reiterated its ruling in Smith, Bell & Co., Ltd. v. Matti which stated that “[w]hen the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the contract…” In such cases, the delivery must be made within a reasonable time in the absence of any showing that an immediate delivery was intended. The Court held that respondent’s delivery of the cylinder liners were considered as “within reasonable time” given that the principal supplier was in Japan, and the respondent was facing volume of work. 2. No, the Supreme Court held that "[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force." Petitioner, despite claiming that it had already considered the orders cancelled and the contract rescinded, still received the cylinder liners delivered to its warehouse which shows that the contract was still considered as subsisting up to that point. The Court stated that if petitioner cancelled the order, it had no reason to receive said delivery and by receiving said cylinders, “petitioner indisputably waived the claimed delay in the delivery of said items.”

72

TITAN CONSTRUCTION CORPORATION vs UNI-FIELD ENTERPRISES, INC., March 1, 2007 Topic: Article 1169 (Delay) FACTS: Petitioner Titan Construction Corporation is engaged in the construction business, while respondent Uni-Field Enterprises, Inc. is engaged in the business of selling various construction materials. From 1990 to 1993, petitioner purchased on credits various construction supplies and materials from respondent. Petitioner’s purchases amounted to P7,620,433.12 but petitioner was only able to pay P6,215,795.70, leaving a balance of P1,404,637.42. On 19 October 1994, respondent sent a demand letter to petitioner. But the balance remained unpaid. On 26 June 1995, respondent filed with the trial court a complaint for collection of sum of money with damages against petitioner. In its Answer dated 18 August 1995, petitioner admitted the purchases but disputed the amount claimed by respondent. Petitioner also interposed a counterclaim and sought to recover P204,527.99 from respondent based on damaged vinyl tiles, non-delivery of materials, and advances for utility expenses, dues, and insurance premiums on the condominium unit turned over by petitioner to respondent. On 9 September 1997, the trial court rendered judgment in favor of respondent, based on the following grounds: 1) The principal amount of P1,404,114.00; 2) Interest Charges in the amount of P504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July, 1995 up to the time of full payment; 3) Liquidated Damages in the amount of P324,147.94; 4) Attorney’s Fees equivalent to 25% of whatever amount is due and payable and accumulated appearance fees at P1,000.00 per hearing; and 5) Costs of suits.Petitioner asks the Court to review the records of the case and re-examine the evidence presented before the trial court and the Court of Appeals. ISSUES: a) Whether or not the Court of Appeals erred in finding legal basis for awarding liquidated damages, attorney’s fees and Interest in favor of respondent? b) Whether or not the Court of Appeals erred by overlooking certain facts or circumstances of weight and influence which if considered would alter the results of the case? HELD: As a rule, only questions of law may be appealed to the Court by petition for review. The Court is not a trier of facts, its jurisdiction being limited to errors of law. Moreover, factual findings of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this 73

Court. In this case, the factual findings of the trial court and the Court of Appeals were based on substantial evidence which were not refuted with contrary proof by petitioner. The Court thus found no reason to disturb the factual findings of the trial court and the Court of Appeals. Petitioner insists that the trial court and the Court of Appeals had no legal basis to award interest, liquidated damages, and attorney’s fees because the delivery receipts and sales invoices, which served as the basis for the award, were not formally offered as evidence by respondent. Petitioner also alleges that the delivery receipts and sales invoices were in the nature of contracts of adhesion and petitioner had no option but to accept the conditions imposed by respondent. On the allegation that the delivery receipts and sales invoices are in the nature of contracts of adhesion, the Court has repeatedly held that contracts of adhesion are as binding as ordinary contracts. Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent. It is true that on some occasions the Court struck down such contract as void when the weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal footing. Considering that petitioner and respondent have been doing business from 1990 to 1993 and that petitioner is not a small time construction company, petitioner is "presumed to have full knowledge and to have acted with due care or, at the very least, to have been aware of the terms and conditions of the contract.” The Court, therefore, upholds the validity of the contract between petitioner and respondent. However, the Court will reduce the amount of attorney’s fees awarded by the trial court and the Court of Appeals. In this case, aside from the award of P324,147.94 as liquidated damages, the trial court and the Court of Appeals also ordered petitioner to pay respondent attorney’s fees "equivalent to 25% of whatever amount is due and payable." Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or unconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed to the sound discretion of the court and depends on several factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences. The Court notes that respondent had more than adequately protected itself from a possible breach of contract because of the stipulations on the payment of interest, liquidated damages, and attorney’s fees. The Court finds the award of attorney’s fees "equivalent to 25% of whatever 74

amount is due and payable" to be exorbitant because it includes (1) the principal of P1,404,114.00; (2) the interest charges of P504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July 1995 up to the time of full payment; and (3) liquidated damages of P324,147.94. Moreover, the liquidated damages and the attorney’s fees serve the same purpose, that is, as penalty for breach of the contract. Therefore, we reduce the award of attorney’s fees to 25% of the principal obligation, or P351,028.50.

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SSS VS MOONWALK DEVELOPMENT AND HOUSING CORPORATION April 7, 1993 Topic: Art. 1169 (Delay) FACTS: On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First Instance of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the former had committed an error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk — resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or account an unpaid balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of October 10, 1979. Plaintiff SSS approved the application of Defendant Moonwalk for a loan of P30,000,000 for the purpose of developing and constructing a housing project. Out of P30,000,000 approved loan, the sum of P9,595,000 was released to defendant Moonwalk. A third Amendment Deed of Mortgage was executed for the payment of the amount of P9,595,000. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700. After settlement of the account, SSS issued to Moonwalk the release of Mortgage for Moonwalk’s Mortgaged properties. In letter to Moonwalk, SSS alleged that it committed an honest mistake in releasing defendant. That Moonwalk has still 12% penalty for failure to pay on time the amortization which is in the penal clause of the contract. Moonwalk’s counsel told SSS that it had completely paid its obligation to SSS and therefore there is no recovery of any penalty. ISSUE: Whether or not penalty demandable even after the extinguishment of the principal obligation HELD: No. There has been a waiver of the penal clause as it was not demanded before the full obligation was fully paid and extinguished. Default begins from the moment the creditor demands the performance of the obligation. In this case, although there were late amortizations there was no demand made by SSS for the payment of the penalty, hence, Moonwalk is not in delay in the payment of the penalty. No delay occurred and there was no occasion when the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation -payment of the loan- SSS was never entitled to recover any penalty. If the demand for the payment of the penalty was made prior to the extinguishment of the obligation which are: 1. the principal obligation; 2. The interest of 12% on the principal obligation; and 3. 76

The penalty of 12% for late payment for after demand, Moonwalk would be in delay and therefore liable for the penalty.

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BRICKTOWN DEVT CORP VS AMOR TIERRA DEVT CORP December 12, 1994 Topic: Article 1169 (Delay) FACTS: Bricktown Development Corporation, represented by its President and co-petitioner Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor Tierra Development Corporation, represented in these acts by its Vice-President, Moises G. Petilla, covering a total of 96 residential lots at the Multinational Village Subdivision, La Huerta, Parañaque, Metro Manila. The total price of P21,639,875.00 was stipulated to be paid by private respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by means of an assumption by private respondent of petitioner corporation's mortgage liability to the Philippine Savings Bank or, alternately, to be made payable in cash. On date, March 31, 1981, the parties executed a Supplemental Agreement, providing that private respondent would additionally pay to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of down payment for the period from 31 March to 30 June 1981, and of P390,369.37 representing interest paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan for the period from 01 February to 31 March 1981. Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21. However, the parties continued to negotiate for a possible modification of their agreement, but nothing conclusive happened. And on October 12, 1981, petitioner’s counsel sent private respondent a “Notice of Cancellation of Contract” because of the latter’s failure to pay the agreed amount. Several months later, private respondent’s counsel, demanded the refund of private respondent's various payments to petitioner corporation, allegedly "amounting to P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a cash payment, to assign to private respondent an equivalent number of unencumbered lots at the same price fixed in the contracts. When the demand was not heeded, Amor Tierra filed an action with the court a quo which rendered a decion in its favor. The decision of the lower court was affirmed in toto by the Court of Appeals. Hence, this petition. ISSUE: 1. Whether or not the contract was properly rescinded? 2. Whether or not Bricktown properly forfeited the payments of Amor Tierra? HELD: 78

1. The Supreme Court ruled in the affirmative. The cancellation of the contracts to sell by petitioner corporation accords with the contractual covenants of the parties, and such cancellation must be respected. It may be noteworthy to add that in a contract to sell, the non-payment of the purchase price (which is normally the condition for the final sale) can prevent the obligation to convey title from acquiring any obligatory force 2. The Supreme Court ruled in the negative. In fine, while we must conclude that petitioner corporation still acted within its legal right to declare the contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar circumstances found to be extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable, in our view, to likewise sanction the forfeiture by petitioner corporation of payments made to it by private respondent. Indeed, in the opening statement of this ponencia, we have intimated that the relationship between parties in any contract must always be characterized and punctuated by good faith and fair dealing. Judging from what the courts below have said, petitioners did fall well behind that standard. We do not find it equitable, however, to adjudge any interest payment by petitioners on the amount to be thus refunded, computed from judicial demand, for, indeed, private respondent should not be allowed to totally free itself from its own breach.

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TITAN-IKEDA CONSTRUCTION VS PRIMETOWN PROPERTY February 12, 2008 Topic: Article 1169 FACTS: Respondent Primetown Property Corporation entered into construction contract with petitioner Titan-Ikeda Construction Corporation for the structural works the structural works of its 32-storey Makati Prime Tower (MPT). Upon the completion of MPT’s structural works, respondent awarded the P130,000,000 contract for the tower’s architectural works (project) to petitioner. In 1994, respondent executed a deed of sale covering 114 condominium units and 20 parking slots of the MPT collectively valued by the parties at P112,416,716.88 in favor of petitioner pursuant to the “full-swapping” payment provision of the supplemental agreement. Respondent had allegedly constructed almost one third of the project and sold some units to third persons unknown to the petitioner. Meanwhile, Integrated Inc. took over the project, thus, the petitioner is demanding for the return of its advanced payment in the amount of P2, 000,000.00 as well as the keys of the unit. ISSUE: Whether or not there was legal delay in the performance of petitioner in the performance of its obligation. HELD: There was none. Respondent never made any judicial or extrajudicial demand in order to place petitioner in default. It never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction contract.

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CATHAY PACIFIC AIRWAYS, LTD. vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ March 14, 2003 Topic: Article 1171 FACTS: Cathay is a common carrier engaged in the business of transporting passengers and goods by air. As part of its marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the Business Class Section is fully booked. Respondent-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez together with two friends went to Hong Kong for business and pleasure. On their return flight to Manila, they were booked on Cathay Pacific’s flight CX-905. Upon boarding, Dr. Vazquez was informed by ground attendant Ms. Chiu that they were being upgraded to First Class from Business Class because Business Class was fully booked. Dr. Vazquez refused the upgrade, explaining that it would not look good for them as hosts to travel in First Class while their guests remained in the Business Class section. Moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she could have other passengers transferred to the First Class Section instead of them. Ms. Chiu informed them that since they were Marco Polo Club members they are priority to be upgraded to First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail of the privilege, they would not be allowed to take the flight. Eventually, Dr. Vazquez gave in and proceeded to the First Class. ISSUE: Whether or not the upgrading of booking of Sps. Vazquez was tainted with fraud or bad faith. HELD: No. The Supreme Court are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. The Court finds no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathays Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, the Court finds no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment. 81

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew. Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger. The Court is not persuaded by the Vazquezes argument that the overbooking of the Business Class Section constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended, provides: Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes deliberate and willful acts of nonaccommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful act of non-accommodation. It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith. Here, while there was admittedly an overbooking of the Business Class, there was no evidence of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was refused to board the aircraft.

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COCA-COLA BOTTLES PHILIPPINES, INC., VS. THE HONORABLE COURT OF APPEALS and MS. LYDIA GERONIMO. 18 October 1993 Topic: Article 1171 FACTS: Private respondent filed a case against petitioner. She alleged that she was a proprietress of an enterprise engaged in the sale of soft drinks and other goods. Further alleging, that on or about 12 August 1989 some parents complained about foreign substances being present in the soft drinks which she was selling. Upon the discovery of such foreign substances in the beverages, her sale plummeted and as a result incurred losses. As a result of her losses, she had to lose the shop and, thus, became jobless and destitute. ISSUE: Whether or not private respondent may seek to annul the contract between her and the petitioner on the basis of fraud? HELD: Yes. The High Tribunal provided that the vendee is given the right to ask for the annulment of the contract upon proof of error or fraud, in which case the ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising from fraud is demandable in all obligations and any waiver of an action for future fraud is void. Responsibility arising from negligence is also demandable in any obligation, but such liability may be regulated by the courts, according to the circumstances. Those guilty of fraud, negligence, or delay in the performance of their obligations and those who in any manner contravene the tenor thereof are liable for damages.

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YAMBAO VS ZUIGA December 11, 2003 Topic: Article 1173 (Negligence) FACTS: Petitioner Cecilia Yambao is the registered owner of Lady Cecil and Rome Trans passenger bus with Plate No. CVK 606, with a public transport franchise to ply the Novalichesvia Quirino-Alabang route. The bus owned by the petitioner was being driven by her driver, one Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA), within the vicinity of Bagong Barrio, Kalookan City. With Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the bus bumped Herminigildo Zuiga, a pedestrian. Zuiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victims premature death. The petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver.

ISSUE: Whether petitioner exercised the diligence of a good father of a family in the selection and supervision of her employees, thus absolving her from any liability. HELD: NO. When an employee, while performing his duties, causes damage to persons or property due to his own negligence, there arises the juris tantum presumption that the employer is negligent, either in the selection of the employee or in the supervision over him after the selection. For the employer to avoid the solidary liability for a tort committed by his employee, an employer must rebut the presumption by presenting adequate and convincing proof that in the selection and supervision of his employee, he or she exercises the care and diligence of a good father of a family. In the instant case, we find that petitioner has failed to rebut the presumption of negligence on her part. 84

Her allegation that before she hired Venturina she required him to submit his drivers license and clearances is worthless, in view of her failure to offer in evidence certified true copies of said license and clearances. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the rules of evidence. Case law teaches that for an employer to have exercised the diligence of a good father of a family, he should not be satisfied with the applicants mere possession of a professional drivers license; he must also carefully examine the applicant for employment as to his qualifications, his experience and record of service. Petitioner failed to present convincing proof that she went to this extent of verifying Venturinas qualifications, safety record, and driving history. The presumption juris tantum that there was negligence in the selection of her bus driver, thus, remains unrebutted. Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as pointed out by the Court of Appeals, petitioner did not present any proof that she drafted and implemented training programs and guidelines on road safety for her employees. In fact, the record is bare of any showing that petitioner required Venturina to attend periodic seminars on road safety and traffic efficiency.Hence, petitioner cannot claim exemption from any liability arising from the recklessness or negligence of Venturina.

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EASTERN SHIPPING LINES VS CA July 12, 1994 Topic: Article 1173 (Negligence) FACTS: Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which accepted the one drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse. The latter accepted the one drum which contained spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became subrogated to all the rights of action of consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial court. ISSUES: 1. Whether or not the applicable rate of legal interest is 12% or 6%. 2. Whether or not the payment of legal interest on the award for loss or damage is to be computed from the time the complaint is filed from the date the decision appealed from is rendered. HELD: 1. The Court held that the legal interest is 6% computed from the decision of the court a quo. 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. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money. The interest due shall be 12% per annum to be computed from default. 86

2. From the date the judgment is made. Where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra judicially but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of judgment of the court is made.

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NATIONAL POWER CORPORATION VS. COURT OF APPEALS March 8, 2005 Topic: Article 1174 (Fortuitous Event) FACTS: On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order No. 398 instructing the NPC to build the Agus Regulation Dam at the mouth of Agus River in Lanao Del Sur, at a normal maximum water level of Lake Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said dam in 1978. Private respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Ali Langco and Diamael Pangcatan own fishponds along the Lake Lanao shore. In October and November of 1986, all the improvements were washed away when the water level of the lake escalated and the subject lakeshore area was flooded. Private respondents blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They theorized that NPC failed to increase the outflow of water even as the water level of the lake rose due to the heavy rains. ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s verdict that petitioner was legally answerable for the damages endured by the private respondents. HELD: Memorandum Order No. 398 clothes the NPC with the power to build the Agus Regulation Dam and to operate it for the purpose of generating energy. Twin to such power are the duties: (1) to maintain the normal maximum lake elevation at 702 meters, and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land below said elevation is forbidden. With respect to its job to maintain the normal maximum level of the lake at 702 meters, the Court of Appeals, echoing the trial court, observed with alacrity that when the water level rises due to the rainy season, the NPC ought to release more water to the Agus River to avoid flooding and prevent the water from going over the maximum level. And yet, petitioner failed to do so, resulting in the inundation of the nearby estates. Consequently, even assuming that the fishponds were erected below the 702-meter level, NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty to erect and maintain the benchmarks precisely to warn the owners of the neighboring properties not to build fishponds below these marks. Without such points of reference, the inhabitants in said areas are clueless whether or not their improvements are within the prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the fishponds, subject matter of the present controversy, are indeed below the prescribed maximum level of elevation. Due to NPC’s negligence in the performance of its duties, it shall be held liable for the resulting damages suffered by private respondents. 88

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC. May 25, 2004 Topic: Article 1174 (Fortuitous Event) FACTS: On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. The term of the contract was for 60 months, or five (5) years.In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty 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. After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand. Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorney’s fees and costs of suit.Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement.

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ISSUES: whether or not (1) the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeurewhich exempts Globe from complying with its obligations under the Agreement (2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement HELD: The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the 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. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992. The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement. Notes: Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure one of which is Any law, order, regulation, direction or request of the Philippine Government; the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174. Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public policy. Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to 90

alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto. Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of law between them.

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FGU Insurance Corp vs CA March 31, 2005 Topic: Article 1174 (Fortuitous Event) FACTS: Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business operating two common carriers: M/T ANCO tugboat and D/B Lucio barge - no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to move from one place to another. September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO: 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s Beer Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo; 15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMC’s BMD-San Jose Beer Sales Office, San Jose, Antique September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the barge immediately. The clouds were dark and the waves were big so SMC’s District Sales Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer the barge to a safer place but it refused so around the midnight, the barge sunk along with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling to P1,346,197. When SMC claimed against ANCO it stated that they agreed that it would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous event and it was agreed to be insured with FGU for 20,000 cases or P858,500 ANCO filed against FGU FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence of a good father of the family in the care and supervision of the cargoes RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes CA affirmed ISSUE: Whether or not FGU should be exempted from liability to ANCO for the lost cargoes because of a fortuitous event and negligence of ANCO HELD: This Court does not find any reason to deviate from the conclusion drawn by the lower court, as sustained by the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary diligence required of common carriers in the shipment of SMCs cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) This Court, taking into account the circumstances present in the instant case, concludes that the 92

blatant negligence of ANCOs employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from liability under the insurance contract. WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.SO ORDERED. NOTE: In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the tugboat should have had the foresight not to leave the barge alone considering the pending storm. While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not escape liability to respondent SMC. The records clearly show the failure of petitioners representatives to exercise the extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of the common carrier.

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SCHMITZ TRANSPORT & BROKERAGE CORPORATION VS. TRANSPORT VENTURE, INC. April 22, 2005 Topic: Article 1174 (Fortuitous Event) FACTS: Schmitz Transport and Brokerage Corporation (STBC), petitioner, was engaged by the consignee, Little Giant Steele Pipe Corp. (Little Giant), to secure the required clearances, to receive the cargoes from the shipside and to deliver them to the consignee’s warehouse at Cainta, Rizal, hired the services of Transport Venture Inc. (TVI) to send a barge and tugboat at shipside. The cargoes were 545 hot rolled steel sheets in coil. By 12:30 AM of October 27, 1991, 37 coils were unloaded from the vessel unto the barge but no tugboat came to pull the barge to the pier. Due to the strong waves and upcoming storm, the crew abandoned the barge, which eventually capsized washing the 37 coils into the sea. Little Giant filed a formal claim on which Industrial Insurance paid Php 5,246,113.11. Thereafter, Little Giant executed a subrogation receipt in favor of Industrial Insurance which later filed a complaint against STBC, TVI and Black Sea. The trial court held all defendants solidarily liable. ISSUE: Whether or not the loss of the cargoes was due to a fortuitous event HELD: The Court held that the loss of the cargoes was not due to a fortuitous event. The proximate cause of the loss was TVI’s failure to provide a tugboat. To be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligation must be independent of human will; (2) it must be impossible to foresee the event which constitute the case fortuitous, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.

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NATIONAL DEVELOPMENT CORP VS CA August 19, 1988 Topic: Article 1174 (Fortuitous Event)

FACTS: There was a collision between the vessel “Dona Nati” of NDC which contained American raw cotton to be delivered to Manila and the vessel “SS Yasushima Maru“ of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. The said collision happened at Ise Bay, Japan and as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed.

ISSUE: Whether or not Philippine law will govern a collision outside of Philippine waters

HELD: This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan. Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law. 95

PHILIPPINE FREE PRESS INC. V. COURT OF APPEALS October 24, 2005 Topic: Article 1174 (Fortuitous Event) FACTS: A case of annulment of sale of the Free Philippine Press to Liwayway Publishing during the regime of martial law was filed by the petitioner through Teodoro Locsin Sr. in 1987. The petitioner asserts that the sale in 1973 was invalid, because of vitiated consent and gross inadequacy of the purchase price. ISSUE: Whether or not the action for annulment has prescribed HELD: YES. Article 391 of the Civil Code pertinently reads “The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of consent ceases x x x”. [The Supreme Court] can not accept the petitioners’ contention that the period during which authoritarian rule was in force had interrupted prescription and that the same began to run only on February 25, 1986, when the Aquino government took power. It is true that under Article 1154 [of the Civil Code] xxx fortuitous events have the effect of tolling the period of prescription. However, [the Supreme Court] can not say, as a universal rule, that the period from September 21, 1972 through February 25, 1986 involves a force majeure. Plainly, [the Supreme Court] can not box in the “dictatorial” period within the term without distinction, and without, by necessity, suspending all liabilities, however demandable, incurred during that period, including perhaps those ordered by this Court to be paid.

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OSMENA VS SSS September 13, 2007 Topic: Article 1174 (Fortuitous Event) FACTS: Senator Sergio R. Osmeña III and four (4) other members of the Philippine Senate, joined by Social Security System (SSS) members Luis F. Sison and Patricia C. Sison, specifically seek in this original petition for certiorari and prohibition the nullification of Resolution Nos. 428 and 485 of respondent Social Security Commission (SSC). Resolution No. 428 approved the proposed sale of the entire equity stake of the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB) through the Swiss Challenge bidding procedure. Under the Swiss Challenge format, one of the bidders is given the option or preferential "right to match" the winning bid. Resolution No. 485 approved the Timetable and Instructions to Bidder. Sometime in 2003, SSS, a government financial institution placed under the direction and control of SSC, took steps to liquefy its long-term investments and diversify them into higher yielding and less volatile investment products. Among its assets determined as needing to be liquefied were its shareholdings in EPCIB. The shares in question have substantially declined in value and the SSS could no longer afford to continue holding on to them at the present level of EPCIB's income. Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO) and its investment subsidiary, respondent BDO Capital, appeared in earnest to acquire the shares in question. Both Resolution Nos. 428 and 485 were passed. Thereafter, SSS advertised an Invitation to Bid for the block purchase of the Shares. The Invitation to Bid expressly provided that the "result of the bidding is subject to the right of BDO Capital . . . to match the highest bid." Petitioners assert, in gist, that a public bidding with a Swiss Challenge component is contrary to COA Circular No. 89-296 and public policy which requires adherence to competitive public bidding in a government-contract award to assure the best price possible for government assets. Accordingly, the petitioners urge that the planned disposition of the Shares through a Swiss Challenge method be scrapped. Pending consideration of the petition, BDO made public its intent to merge with EPCIB which resulted with a merger. BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO common shares to respondent SSS corresponding to the number of its former EPCIB. In net effect, SSS, once the owner of a block of EPCIB shares, is now a large stockholder of BDO-EPCI, Inc. ISSUE: Whether or not there would be an actual substantial relief which the petitioners are entitled to. 97

HELD: NO. The case has become moot and academic for interrelated reasons. The shares, as a necessary consequence of the BDO-EPCIB merger which saw EPCIB being absorbed by the surviving BDO, have been transferred to BDO and converted into BDO common shares. As thus converted, the subject shares are no longer equity security issuances of the now defunct EPCIB, but those of BDO-EPCI, which, needless to stress, is a totally separate and distinct entity from what used to be EPCIB. In net effect, therefore, the EPCIB common shares are now lost or inexistent. And in this regard, the Court takes judicial notice of the disappearance of EPCIB stocks from the local bourse listing. Instead, BDO-EPCI Stocks are presently listed and being traded in the PSE. Under the law on obligations and contracts, the obligation to give a determinate thing is extinguished if the object is lost without the fault of the debtor. A thing is considered lost when it perishes or disappears in such a way that it cannot be recovered. In a very real sense, the interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the cancellation of subject Shares and their replacement by totally new common shares of BDO, has rendered the EPCIB shares of SSS "unrecoverable."

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JL INVESTMENT AND DEVELOPMENT, INC. vs. TENDON PHILIPPINES, INC., J. STA. MARIA CONSTRUCTION CORPORATION, and JAIME T. STA. MARIA, JR 2007 Topic: Article 1175

FACTS: Petitioner hired respondent SMCC to undertake the structural and architectural work for the first 12 floors of a 16-floor building (JLID Building) in Kalaw corner Cortada Streets, Ermita, Manila. Under the Construction Agreement (Agreement) between petitioner and SMCC, petitioner agreed to pay SMCC P63,333,085.84 for the project. The Agreement also required SMCC to submit monthly progress billings to petitioner To supply the concrete piles needed for the structural work, SMCC subcontracted respondent TPI, a local manufacturer of pre-cast concrete products. Accordingly, TPI delivered 142 pieces of concrete piles to SMCC worth P4,118,000 payable on installment basis. By early August 1996, SMCC, using the concrete piles that TPI supplied, finished the pile driving work for the first 12 floors of the JLID Building. On 13 September 1996, petitioner paid SMCC for the pile driving work as indicated in SMCCs seventh progress billing dated 30 August 1996. Claiming that SMCC did not fully pay for the concrete piles, TPI sought payment of the balance from petitioner. Petitioner ignored TPIs demand. Thus, TPI sued SMCC, SMCCs President, respondent Sta. Maria, and petitioner (respondents) in the Regional Trial Court of Pasig City, Branch 167 (trial court), to collect the unpaid balance of P1,389,330. TPI prayed that the trial court hold respondents solidarily liable for the balance with interest, attorneys fees, and the costs of suit. .

ISSUE: Whether or not the petitioner is solidarily liable with SMCC and Sta. Maria to TPI for the unpaid balance under the contract between SMCC and TPI, and, if in the negative. HELD: The petition is partly meritorious. Although petitioner is solidarily liable with SMCC and Sta. Maria to TPI for the balance under TPI’s contract with SMCC, petitioner has a right to reimbursement under its cross-claim against SMCC. Article 1729 of the Civil Code provides: Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials: 1. Payments made by the owner to the contractor before they are due; 2. Renunciation by the contractor of any amount due from the owner. This article is subject to the provisions of special laws. This provision imposes a direct liability on an owner of a piece of work in favor of suppliers of materials (and laborers) hired by the contractor "up to the amount owing from the [owner] to the contractor at the time the claim is made." Thus, to this extent, the owner’s liability is solidary with the contractor, if both are sued together. By creating a constructive vinculum between suppliers of materials (and laborers), on the one hand, and the owner of a piece of work, on the 99

other hand, as an exception to the rule on privity of contracts, Article 1729 protects suppliers of materials (and laborers) from unscrupulous contractors and possible connivance between owners and contractors. As the Court of Appeals correctly ruled, the supplier’s cause of action under this provision, reckoned from the time of judicial or extra-judicial demand, subsists so long as any amount remains owing from the owner to the contractor. Only full payment of the agreed contract price serves as a defense against the supplier’s claim. Here, petitioner resists TPI’s suit on the ground that it had fully paid, if not overpaid, SMCC at the time TPI demanded payment on 3 December 1996. However, as the Court of Appeals found, petitioner failed to substantiate its claim. What petitioner submits as proof of its alleged full or over payment, namely, its answer to TPI’s interrogatories and the testimony of one of its witnesses, are no more than mere uncorroborated allegations. The only proof of payment on record are the official receipt, voucher, and check for the seventh progress billing dated 30 August 1996, nearly four months before TPI sought payment from petitioner on 3 December 1996. Allegation of payments, advance or otherwise, is no substitute for proof of such fact. Thus, absent incontrovertible proof of payment such as receipts, checks, cash disbursement vouchers, and the like, petitioner’s claim of full or over payment remains only that. At any rate, Article 1729 clearly provides that "payments made by the owner to the contractor before they are due" do not prejudice suppliers of materials. Therefore, petitioner JL Investment and Development, Inc. and respondents J. Sta. Maria Construction Corporation and Jaime T. Sta. Maria, Jr. to pay solidarily respondent Tendon Philippines, Inc. P1,389,330, with interest at 6% per annum computed from the time of the filing of respondent Tendon Philippines, Inc.’s complaint, and attorney’s fees equivalent to 10% of the principal obligation. Upon finality of this judgment, the entire obligation shall earn interest at 12% per annum until its satisfaction

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NEW SAMPAGUITA BUILDERS, INC. vs. PNB July 30, 2004 Topic: Article 1175 FACTS: Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the properties of Sampaguita’s president and chairman of the board. Sampaguita also executed several promissory notes due on different dates (payment dates). The first promissory note had 19.5% interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein permitted PNB to increase the rate “within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. There was also a clause in the promissory note that stated that if the same is not paid 2 years after release then it shall be converted to a medium term loan – and the interest rate for such loan would apply. Later on, Sampaguita defaulted on its payments and failed to comply with obligations on promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan. Again they defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so they filed a case in court asking Sampaguita to pay for deficiency. RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and ruled that the latter had no cause of action against the former. CA reversed, saying Sampaguita was not entitled, thus ordered them to pay the deficiency – Appeal = Went to SC. Sampaguita claims the loan was bloated so they don’t really owe PNB anymore, but it just overcharged them! ISSUES: 1. Whether or not the loan accounts are bloated. 2. Whether PNB could unilaterally increase interest rates. 3. Whether petitioner is bound to accept payment by means of credit card. HELD: 1. YES. There is no deficiency; there is actually an overpayment of more than 3M based on the computation of the SC. 2. NO. Sampaguita’s accessory duty to pay interest did not give PNB unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement. The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality of 101

contracts ordained in Article 1308 of the Civil Code.” One‐sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality. Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long‐term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the “right to assent to an important modification in their agreement” and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s [the debtor’s] participation being reduced to the alternative ‘to take it or leave it.’” Circular that lifted the ceiling of interest rates of usury law did not authorize either party to unilaterally raise the interest rate without the other’s consent. The interest ranging from 26 percent to 35 percent in the statements of account ‐‐ “must be equitably reduced for being iniquitous, unconscionable and exorbitant.” Rates found to be iniquitous or unconscionable are void, as if it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge excessively for the use of money. It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan restructuring or from their lack of response to the statements of account sent by respondent. Such request does not indicate any agreement to an interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive act showing such purpose. Besides, the statements were not letters of information sent to secure their conformity; and even if we were to presume these as an offer, there was no acceptance. No one receiving a proposal to modify a loan contract, especially interest ‐‐ a vital component ‐‐ is “obliged to answer the proposal.” Besides, PNB did not comply with its own stipulation that should the loan not be paid 2 years after release of money then it shall be converted to a medium term loan. *Court applied 12% interest rate instead for being a forbearance of money (there were some pieces of evidence presented by PNB in court that Sampaguita objected to. Lower courts overruled the objections but SC said the objections were correct and the evidence should not have been admitted. I.e. contract wasn’t signed by the parties, a part of the contract wasn’t properly annexed/no reference was made in the main contract. In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the impairment clause of the Constitution, because the sole purpose of this provision is to safeguard the integrity of valid contractual agreements against unwarranted interference by the State in the form of laws. Private individuals’ intrusions on interest rates is governed by statutory enactments like the Civil Code. 102

3. YES. Mandarin Villa Seafood Village is affiliated with BANKARD. Mandarin and BANKARD entered into agreement which states that The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card. While De Jesus may not be a party to the said agreement, the above‐quoted stipulation conferred a favor upon DE Jesus, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour auturi and under Article 1311 of the Civil Code, De Jesus may demand its fulfillment provided he communicated his acceptance to Mandarin before its revocations. IN the case at bar, De Jesus’ offer to pay by means of his BANKARD credit card constitutes not only as an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is accepted here. This representation is conclusive upon the petitioner which it cannot deny or disprove as against De Jesus, the party relying thereon. Mandarin, therefore, cannot disclaim its obligation to accept De Jesus' BANKARD credit card without violating the equitable principle of estoppel.

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PILIPINAS BANK v. COURT OF APPEALS August 12, 1993 Topic: Article 1175 FACTS: Private respondent Lilia Echaus filed a complaint against the petitioner, Pillipinas Bank and its president, Constantino Bautista, for collection of a sum of money. The trial court ruled in favor of private respondent. It ordered Pilipinas Bank and its codefendant, jointly and severally, to pay private respondent the total amount assigned by Greatland plus legal interest, total actual damages suffered by the plaintiff plus legal interest until fully paid, moral, exemplary and nominal damages, attorney’s fees and costs of suits. The Court of Appeals in a Resolution clarified that the legal interest of the principal award should be 12% per annum. In appeal, the petitioner claims that the CA erred: (1) In ruling that the legal rate of interest on the amount on the principal amount by petitioner to private respondent is 12% per annum (2) In not holding that the refund to which petitioner is entitled should earn interest at the rate of 12% per annum. The Court of Appeals was of the theory that the action in Civil Case No. 239-A filed by private respondent against petitioner "involves forbearance of money, as the principal award to plaintiffappellee. Applying Central Bank Circular No. 416, the Court of Appeals held that the applicable rate of interest is 12% per annum. Petitioner argues that the applicable law is Article 2209 of the Civil Code, not the Central Bank Circular No. 416. The legal interest is six percent per annum. ISSUE: Whether or not the legal interest applicable in the transaction of Pilipinas Bank and the respondent is at 6% per annum. HELD: Yes. Article 1175 provides that, “Usurious transactions shall be governed by special laws.” The said amount was a portion of the P7,776,335.69 which petitioner was obligated to pay Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor of private respondent. The said obligation therefore arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416. 104

SUNGA-CHAN VS COURT OF APPEALS June 25, 2008 Topic: Article 1175 FACTS: In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net profit. After Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth SungaChan, continued with the business without Chuas consent. Chuas subsequent repeated demands for accounting and winding up went unheeded, prompting him to file on June 22, 1992 a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment. After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and accounting report. In it, petitioners limited Chuas entitlement from the winding up of partnership affairs to an aggregate amount of PhP 3,154,736.65 only. Chua, on the other hand, submitted a new computation, this time applying simple interest on the various items covered by his claim. Under this methodology, Chuas aggregate claim went down to PhP 8,733,644.75. Petitioner sought reconsideration but was denied by the RTC. Then, they went to the CA on a petition for certiorari. CA denied the petitioner and ruled that the 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of Chuas money passes as an involuntary loan and forbearance of money. The CA ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase shares and interests mentioned therein refers not to an imposition of interest for use of money in a loan or credit, but to a legal share or right. The appellate court also held that the imposition of interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the restitution mentioned therein does not simply mean restoration but also reparation for the injury or damage committed against the rightful owner of the property. Petitioners, citing Article 2213 of the Civil Code, fault the trial court for imposing, in the execution of its final judgment, interests on what they considered as unliquidated claims. Among these was the claim for goodwill upon which the RTC attached a monetary value of PhP 250,000. Petitioners also question the imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality of the RTCs underlying decision, i.e., from December 20, 2001. 105

Third on the petitioners list of unliquidated claims is the yet-to-be established value of the onehalf partnership share and interest adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial proceeding. And in this regard, petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals, would ascribe error on the RTC for adding a 12% per annum interest on the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua. ISSUE: Whether or not the Regional Trial Court can impose interest on a final judgment of unliquidated claims? HELD: Petition partly granted. The legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of indemnities in the concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being 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. The term forbearance, within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable. Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general, with the application of both rates reckoned from the time the complaint was filed until the [adjudged] amount is fully paid. In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition that the courts are vested with discretion, depending on the equities of each case, on the award of interest.

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The award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit. Likewise, the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorneys fee, and PhP 25,000 litigation fee shall earn 12% per annum from December 20, 2001 until fully paid. Anent the impasse over the partnership assets, we are inclined to agree with petitioners assertion that Chuas share and interest on such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for him. As may be noted, the legal norm for interest to accrue is reasonably determinable, not, as Chua suggested and the CA declared, determinable by mathematical computation. Considering that Chuas computation of claim, as approved by the trial court, was submitted only on October 15, 2002, no interest in his favor can be added to his share of the partnership assets.

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GOLD STAR MINING CO., INC. vs. MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA, AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirs of the deceased VICTOR JIMENA, and JOSE HIDALGO October 26, 1968 Topic: Article 1177 FACTS: Ananias Lincallo bound himself in an equal sharing arrangement in writing to turn to Victor Jimena one-half (1/2) of the proceeds from all mining claims that he would purchase with the money to be advanced by the latter among others. Apparently, the mining rights over part of the claims were assigned by Lincallo to Gold Star Mining Co., Inc., sometime before World War Il because in 1950 the corporation paid him P5,000 in consideration of, and as a quitclaim for, pre-war royalties. On several occasions thereafter, the mining claims in question were made subject-matter of contracts entered into by Lincallo in his own name and for his benefit alone. On September 19, 1951, Lincallo and Alejandro Marquez entered into an agreement regarding the allotment to Lincallo of 45% of the royalties due from the corporation. Four months later, a lease contract was entered into by Lincallo, Marquez and Congressman Panfilo Manguerra leasing certain mining claims to Jacob Cabarrus, who then transferred to Marinduque Iron Mines Agents, Inc., his rights under the lease contract. By virtue of another contract executed by the said lessors on 29 February 1952, 43% of the royalties due from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo. From August, 1939 to September, 1952, Jimena repeatedly apprised Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., of his interests over the mining claims so assigned and/or leased by Lincallo. Both corporations, however, ignored Jimena's demands. Payment of the P5,800 advanced for the purchase of the mining claims, as well as the one-half share in the royalties paid by the two corporations, were also repeatedly demanded by Jimena from Lincallo. Despite his promise to fulfill his obligations, Lincallo transferred 35 of his 45% share in the royalties due from Gold Star Mining Co., Inc., to one Gregorio Tolentino for an alleged consideration of P10,000.00. On 2 September 1954, Jimena filed a suit against Lincallo for recovery of his advances and his one-half share in the royalties. Jimena and Tolentino died successively during the pendency of the case in the trial court and were, accordingly, substituted by their respective widows and children. The lower court rendered a decision condemning inter alia the defendants Gold Star

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and Marinduque Iron Mines to pay direct to plaintiffs said 1/2 shares of the royalties until said contracts are terminated. Upon appeal, the Court of Appeals rendered a decision sustaining in its entirety that of the trial court. The motion for reconsideration of Gold Star Mining Co., Inc., was denied. In its appeal, the petitioner contended inter alia that there is no privity of contract between Gold Star and Jimena.

ISSUE: WON Jimena has the right to the mining claims and royalties he sought to recover from the corporations HELD: YES. The Court upheld in toto the decision of the trial court. It was held that in this case Jimena sought for the direct payment to himself of his share of the royalties, and evidence show that Jimena made prewar and postwar demands upon Gold Star for the payment of his 1/2 share of the royalties but all in vain so he (Jimena) was constrained to implead Gold Star because it refused to recognize his right. Under Article 1177, new Civil Code which provides that "creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter (debtor) for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them (1111)." Furthermore, the trial court ruled that it can be said that Lincallo, in transferring the mining claims to Gold Star (without disclosing that Jimena was a co-owner although Gold Star had knowledge of the fact as shown by the proofs heretofore mentioned) acted as Jimena's agent with respect to Jimena's share of the claims. Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883, New Civil Code, which provides that the principal may sue the person with whom the agent dealt with in his (agent's) own name, when the transaction "involves things belonging to the principal."

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ANCHOR SAVINGS BANK (FORMERLY ANCHOR FINANCE AND INVESTMENT CORPORATION), vs HENRY H. FURIGAY, GELINDA C. FURIGAY, HERRIETTE C. FURIGAY and HEGEM C. FURIGAY, March 13, 2013 Topic: Article 1177

FACTS: On April 21, 1999, ASB filed a verified complaint for sum of moneyand damages with application for replevin against Ciudad Transport Services, Inc. (CTS), its president, respondent Henry H. Furigay; his wife, respondent Gelinda C. Furigay; and a “John Doe.” While Civil Case No. 99-865 was pending, respondent spouses donated their registered properties in Alaminos, Pangasinan, to their minor children, respondents Hegem G. Furigay and Herriette C. Furigay. Claiming that the donation of these properties was made in fraud of creditors, ASB filed a Complaint for Rescission of Deed of Donation, Title and Damages against the respondent spouses and their children. RTC dismissed the complaint for failure of ASB to pay the correct docket fees and for prescription. On appeal, the CA agreed with ASB that its complaint should not have been dismissed on the ground that it failed to pay the correct docket fees. ISSUE: WON the complaint for rescission should prosper? HELD: NO. The remedy of rescission is subsidiary in nature; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. Article 1177 of the New Civil Code provides: The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the actions which the debtor may have done to defraud them. Consequently, following the subsidiary nature of the remedy of rescission, a creditor would have a cause of action to bring an action for rescission, if it is alleged that the following successive measures have already been taken: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). 110

A cursory reading of the allegations of ASB’s complaint would show that it failed to allege the ultimate facts constituting its cause of action and the prerequisites that must be complied before the same may be instituted. ASB, without availing of the first and second remedies, that is, exhausting the properties of CTS, Henry H. Furigay and Genilda C. Furigay or their transmissible rights and actions, simply undertook the third measure and filed an action for annulment of the donation. Petition is denied.

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