ORIENT FREIGHT INTERNATIONAL INC. VS.

KEIHIN-EVERETT FORWARDING
COMPANY INC.
G.R. No. 191937, August 9, 2017

FACTS:
On October 16, 2001, Keihin-Everett entered into a Trucking Service Agreement with Matsushita. Under
the Trucking Service Agreement, Keihin-Everett would provide services for Matsushita's trucking
requirements. These services were subcontracted by Keihin-Everett to Orient Freight, through their own
Trucking Service Agreement executed on the same day.
When the Trucking Service Agreement between Keihin-Everett and Matsushita expired on December 31,
2001, Keihin-Everett executed an In-House Brokerage Service Agreement for Matsushita's Philippine
Economic Zone Authority export operations. Keihin-Everett continued to retain the services of Orient
Freight, which sub-contracted its work to Schmitz Transport and Brokerage Corporation.
In April 2002, Matsushita called Keihin-Everett about a column in the issue of the tabloid newspaper
Tempo. This news narrated the April 17, 2002 interception by Caloocan City police of a stolen truck
filled with shipment of video monitors and CCTV systems owned by Matsushita
When contacted by Keihin-Everett about this news, Orient Freight stated that the tabloid report had blown
the incident out of proportion. They claimed that the incident simply involved the breakdown and towing
of tKeihin-Everett independently investigated the incident. During its investigation, it obtained a police
report from the Caloocan City Police Station. The report stated, among others, that at around 2:00 p.m. on
April 17, 2002, somewhere in Plaza Dilao, Paco Street, Manila, Cudas told Aquino to report engine
trouble to Orient Freight. After Aquino made the phone call, he informed Orient Freight that the truck had
gone missing. When the truck was intercepted by the police along C3 Road near the corner of Dagat-
Dagatan Avenue in Caloocan City, Cudas escaped and became the subject of a manhunt. The truck was
promptly released and did not miss the closing time of the vessel intended for the shipment.
Matsushita terminated its In-House Brokerage Service Agreement with Keihin-Everett, effective July 1,
2002. Matsushita cited loss of confidence for terminating the contract, stating that Keihin-Everett's way of
handling the April 17, 2002 incident and its nondisclosure of this incident's relevant facts "amounted to
fraud and signified an utter disregard of the rule of law. Keihin-Everett sent a letter to Orient Freight,
demanding P2,500,000.00 as indemnity for lost income. It argued that Orient Freight's mishandling of the
situation caused the termination of Keihin-Everett's contract with Matsushita.
When Orient Freight refused to pay, Keihin-Everett filed a complaint dated October 24, 2002 for
damages. In its complaint, Keihin-Everett alleged that Orient Freight's "misrepresentation, malice,
negligence and fraud" caused the termination of its In-House Brokerage Service Agreement with
Matsushita. Keihin-Everett prayed for compensation for lost income, with legal interest, exemplary
damages, attorney's fees, litigation expenses, and the costs of the suit. The RTC rendered a Decision in
favor of Keihin-Everett. It found that Orient Freight was "negligent in failing to investigate properly the
incident and make a factual report to Keihin [-Everett] and Matsushita. Orient Freight appealed the said
Decision to the Court of Appeals. The Court of Appeals issued its Decision affirming the trial court's
decision.
ISSUE:
Whether or not Article 2176 is applicable in this case
RULING:
Negligence may either result in culpa aquiliana or culpa contractual. Culpa aquiliana is the "the
wrongful or negligent act or omission which creates a vinculum juris and gives rise to an obligation
between two persons not formally bound by any other obligation," and is governed by Article 2176 of the
Civil Code:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Actions based on contractual negligence and actions based on quasi-delicts differ in terms of conditions,
defenses, and proof. They generally cannot co-exist.Once a breach of contract is proved, the defendant is
presumed negligent and must prove not being at fault. In a quasi-delict, however, the complaining party
has the burden of proving the other party's negligence. However, there are instances when Article 2176
may apply even when there is a pre-existing contractual relation. A party may still commit a tort or quasi-
delict against another, despite the existence of a contract between them.
Here, petitioner denies that it was obliged to disclose the facts regarding the hijacking incident since this
was not among the provisions of its Trucking Service Agreement with respondent. There being no
contractual obligation, respondent had no cause of action against petitioner.

The obligation to report what happened during the hijacking incident, admittedly, does not appear on the
plain text of the Trucking Service Agreement. Petitioner argues that it is nowhere in the agreement.
Respondent does not dispute this claim. Neither the Regional Trial Court nor the Court of Appeals relied
on the provisions of the Trucking Service Agreement to arrive at their respective conclusions. Breach of
the Trucking Service Agreement was neither alleged nor proved.
While petitioner and respondent were contractually bound under the Trucking Service Agreement and the
events at the crux of this controversy occurred during the performance of this contract, it is apparent that
the duty to investigate and report arose subsequent to the Trucking Service Agreement. When respondent
discovered the news report on the hijacking incident, it contacted petitioner, requesting information on the
incident.Respondent then requested petitioner to investigate and report on the veracity of the news report.
Pursuant to respondent's request, petitioner met with respondent and Matsushita on April 20, 2002 and
issued a letter dated April 22, 2002, addressed to Matsushita.Respondent's claim was based on petitioner's
negligent conduct when it was required to investigate and report on the incident.
Both the Regional Trial Court and Court of Appeals erred in finding petitioner's negligence of its
obligation to report to be an action based on a quasi-delict Petitioner's negligence did not create
the vinculum juris or legal relationship with the respondent, which would have otherwise given rise to a
quasi-delict. Petitioner's duty to respondent existed prior to its negligent act. When respondent contacted
petitioner regarding the news report and asked it to investigate the incident, petitioner's obligation was
created. Thereafter, petitioner was alleged to have performed its obligation negligently, causing damage
to respondent.
The doctrine "the act that breaks the contract may also be a tort," on which the lower courts relied,
is inapplicable here. Petitioner's negligence, arising as it does from its performance of its obligation
to respondent, is dependent on this obligation. Neither do the facts show that Article 21 of the Civil
Code applies, there being no finding that petitioner's act was a conscious one to cause harm, or be
of such a degree as to approximate fraud or bad faith.
Consequently, Articles 1170, 1172, and 1173 of the Civil Code on negligence in the performance of an
obligation should apply. WHEREFORE, the petition is DENIED. The January 21, 2010 Decision and
April 21, 2010 Resolution of the Court of Appeals in CA-G.R. CV No. 91889 are AFFIRMED.

RIVERA v. SPS. CHUA G.R. No. 184458, EN BANC, May 12, 1989
MELENCIO-HERRERA, J.
There are four instances when demand is not necessary to constitute the debtor in default: (1) when there
is an express stipulation to that effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the obligation; and (4) where demand
would be useless. The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for the stipulated
interest which the Promissory Note says is equivalent to 5% a month.
FACTS: The parties were friends of long standing having known each other since 1973. In February
1995, Rivera obtained a loan from the Spouses Chua, in the tune of P120,000.00 embodied in a
promissory note with stipulations that failure on the part of Rivera to pay the amount on December 31,
1995, he agrees to pay 5% interest monthly from the date of default (January 1, 1996). Three years have
passed from the maturity date, when Rivera issued two (2) checks in favor of Chua as payment for the
loan, which, upon presentment, were dishonored for the reason “account closed.” In their collection suit,
Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. In his
Answer, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.
From the MeTC to the CA, the monetary claim of Spouses Chua was sustained.

ISSUE: Whether or not a demand from Sps. Chua is needed to make Rivera liable. (NO)

RULING: Demand is no longer necessary because the law is explicit that when the debtor fails to pay
upon maturity date, when the obligation is due and demandable, he therefore incurs delay. Art. 1169 of
the NCC states, “Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand
by the creditor shall not be necessary in order that delay may exist: 1) When the obligation or the law
expressly so declare xxx.” There are four instances when demand is not necessary to constitute the debtor
in default: (1) when there is an express stipulation to that effect; (2) where the law so provides; (3) when
the period is the controlling motive or the principal inducement for the creation of the obligation; and (4)
where demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation
fixes a date for performance; it must further state expressly that after the period lapses, default will
commence. The clause in the Promissory Note containing the stipulation of interest which expressly
requires Rivera to pay 5% monthly interest from the date of default until the entire obligation is fully
paid. It is evident that the maturity of the obligation on a date certain, December 31, 1995, will give rise
to the obligation to pay interest. The date of default under the Promissory Note is 1 January 1996, the
DEAN’S CIRCLE 2019 – UST FACULTY OF CIVIL LAW 8 day following 31 December 1995, the due
date of the obligation. On that date, Rivera became liable for the stipulated interest which the Promissory
Note says is equivalent to 5% a month. In sum, until 31 December 1995, demand was not necessary
 before Rivera could be held liable for the principal amount of P120,000.00. Thereafter, on 1 January
1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the form of stipulated
interest.

Philcomsat v. Globe Telecom

429 SCRA 153, G.R. No. 147324 (May 25, 2004)

Facts:

1. Globe Telecom, Inc. (Globe) is engaged in the coordination of the provision of various
communication facilities for the military bases of the United States of America (US) in the Clark Air Base
and Subic Naval Base.
2. Saud communication facilities were installed and configured for the exclusive use of the US
Defense Communications Agency (USDCA).
3. Globe contracted Philippine Communications Satellite Corporation (Philcomsat) for the provision
of the communication facilities.
4. Philcomsat and Globe entered into an agreement whereby Philcomsat obliged itself to establish,
operate and provide an IBS Standard B earth station (earth station) for the exclusive use of the USDCA.
Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.
5. Philcomsat installed and established the earth station and the USDCA made use of the same.
6. Senate passed and adopted its resolution, 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.
7. PH government sent a Note Verbale to the US government through the US Embassy, notifying it
of the Philippine termination of the RP-US Military Base Agreement. The withdrawal of all US military
forces from Subic Naval Base should be completed by December 31. 1992.
8. Globe notified Philcomsat of its intention to discontinue the use of the earth station.
9. Philcomsat demand payment of rentals for the balance of lease term, despite the non-use of earth
station.

Issue/s:

1. Whether the termination of the RP-US Military Base Agreement, the non-ratification of the
Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its
obligation to pay rentals under its Agreement with Philcomsat.
2. Whether Globe is liable to pay rentals under the Agreement for the month of December 1992.
3. Whether Philcomsat is entitled to attorney’s fees and exemplary damages.

Ruling:

1. Yes. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US
Military Base 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.

As a consequence of the termination of the RP-US Military Base Agreement the continued stay of all US
Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would
no longer be in any position to render service it was obligated under the Agreement.

Events made impossible the continuation of the Agreement until the end of its five-year term without
fault on the part of either party. Such fortuitous events rendered Globe exempt from payment of rentals
for the remainder of the term of the Agreement.

Philcomsat would like to charge globe rentals for the balance of the lease term without being any
corresponding telecommunications service subject of the lease. It will be grossly unfair and iniquitous to
hold globe liable for lease charges for a service that was not and could not have been rendered due to an
act of the government which was clearly beyond globes control.

2. Yes. The US military forces and personnel completely withdrew from Cubi Point only on
December 31, 1992. Thus, until that date, USDCA had control over the earth station and had the option of
using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said
communication facility until after December 31, 1992 because Cubi Point was accessible only to US
naval personnel up to that time.

3. No. The award of attorney’s fees is the exemption rather than the rule. In cases where both parties
have legitimate claims against each other and no party actually prevailed, such as in the present case
where the claims of both parties were sustained in part, an award of attorney’s fees would not be
warranted.

Exemplary damages may be awarded in cases involving contracts, if the erring party acted in wanton,
fraudulent, reckless, oppressive or malevolent manner. It was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for payment of rentals. Globe had valid grounds for
refusing to comply with its contractual obligations after 1992.
 Victorias Planters v. Victorias Milling
G.R. No. L-6648, 25 July 1955
Facts: The petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc.
are non-stock corporations and are composed of sugar cane planters having been established as the
representative entities of the numerous sugar cane planters in the districts of Victorias, Manapla and
Cadiz. The sugar cane productions were milled by the respondent corporation. Petitioners are the ones in
charge of taking up with the respondent corporation problems which may come up. At various dates, the
sugarcane planters executed identical milling contracts setting forth the terms and conditions which the
sugar central “North Negros Sugar Co. Inc.” would mill the sugar produced by the sugar cane planters.
Because of the Japanese occupation, the North Negros Sugar Co., Inc. did not reconstruct its
destroyed central and it had made arrangements with the respondent Victorias Milling Co., Inc. for said
respondent corporation to mill the sugarcane produced by the planters of Manapla and Cadiz holding
milling contracts with it. When the planters-members of the North Negros Planters Association, Inc.
considered that the stipulated 30-year period of their milling contracts had already expired and terminated
and the planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated
30-year period of their milling contracts as having likewise expired and terminated.
Respondent has refused to accept the fact that the 30-year period has expired. They contend that
the 30 years stipulated in the contracts referred to 30 years of milling – not 30 years in time. They contend
that as there was no milling during 4 years of the recent war and 2 years of reconstruction, 6 years of
service still has to be rendered by petitioners.
Issues: Whether or not respondent is correct.
Held: The trial court rendered judgment, which the Supreme Court affirmed.
“Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and
declares that the milling contracts executed between the sugar cane planters of Victorias, Manapla and
Cadiz, Negros Occidental, and the respondent corporation or its predecessors-in-interest, the North
Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30-year period,
and that respondent corporation is not entitled to claim any extension.”
Ratio: The reason the planters failed to deliver the sugar cane was the war or a fortuitous event. The
appellant ceased to run its mill due to the same cause.
Fortuitous event relieves the obligor from fulfilling a contractual obligation. The fact that the
contracts make reference to "first milling" does not make the period of thirty years one of thirty milling
years.
The seventh paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B", and
"B-1"), quoted by the appellant in its brief, where the parties stipulated that in the event of flood, typhoon,
earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract
shall be deemed suspended during said period, does not mean that the happening of any of those events
stops the running of the period agreed upon. It only relieves the parties from the fulfillment of their
respective obligations during that time.

To require the planters to deliver the sugar cane which they failed to deliver during the four years
of the Japanese occupation and the two years after liberation when the mill was being rebuilt is to demand
from the obligors the fulfillment of an obligation which was impossible of performance at the time it
became due. Nemo tenetur ad impossibilia. 

Song Fo & Company vs Hawaiian Philippine Co.

G.R. No. 23769 – September 16, 1925

FACTS:

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

ISSUES:

1. Whether or not SFC is entitled to damages

2. Whether or not HPC has a right to rescind the contract?

RULING:

As to the first question, yes, SFC is entitled to damages. Article 1170 of the Civil Code provides “Those
who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages”

The failure of HPC to deliver the rest of the molasses constitutes a breach of contract by contravention of
tenor and is thus liable for damages. The bases for damages is the cost in excess of the agreed price in the
contract when SFC was made to acquire the needed molasses from another supplier and the expenses
related to the transportation of the same. Loss of profits would have been included as part of damages had
SFC been able to substantiate such a claim.

As to the second question, no, HPC has no right to rescind the contract.

The court provided that the general rule is that rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the
object of the parties in making the agreement.
It should be noted that the time of payment stipulated for in the contract should be treated as of the
essence of the contract. There was only a slight breach of contract when the payment was delayed for 20
days and does not violate essential condition of the contract which warrants rescission for non-
performance. Furthermore, HPC accepted the payment of the overdue accounts and continued with the
contract, waiving its right to rescind the same.

Petition of partly granted, and the judgment appealed is modified. Plaintiff shall have and recov